Dominic Barton
Global Managing Director, McKinsey & Company
April 14, 2014
Business in the
Asian Century:
Mega-trends and
...
McKinsey & Company | 1
Contents
1
2
3
▪ Context: Mega-trends transforming the world
▪ Global champions
▪ Implications for ...
McKinsey & Company | 2
Five mega-trends reshaping the global economy
Resource scarcity The market state
The rise of emergi...
McKinsey & Company | 3
The world’s economic centre of gravity has come back to Asia
2000
1950
2010
2025
1940
1500
0
Locati...
McKinsey & Company | 4
Massive urbanization is underway—old Shanghai
SOURCE: skylander.net
1. THE RISE OF EMERGING MARKETS
McKinsey & Company | 5
Massive urbanization is underway—new Shanghai
1. THE RISE OF EMERGING MARKETS
McKinsey & Company | 6
What will these cities look like in 10 years?
Bogor, West Java, Indonesia
Anshun, Guizhou, China
Po...
McKinsey & Company | 7
2.2 billion new middle-class consumers by 2030
Global middle class1
Billions of people
4.9
Europe 2...
McKinsey & Company | 8
By 2025, almost half of the world’s billion-dollar-plus companies will be
headquartered in emerging...
McKinsey & Company | 9
Asia’s growing importance – profit pools shifting east
Banking profit pool
% of total, $B
E-commerc...
McKinsey & Company | 10
The number of Asian companies outside Japan in the Fortune Global 500
has nearly doubled in 5 year...
McKinsey & Company | 11
Emerging market cities will become the leading consumer
markets globally
Emerging
Advanced
2025
Ra...
McKinsey & Company | 12
Chengdu
2010 GDP for urban clusters
$ Billions
`
Chongqing
Nanning
Hefei
Changzhutan
Hangzhou
Nanc...
McKinsey & Company | 13
The continuing rise of emerging markets will further strain global
resources to an unprecedented l...
McKinsey & Company | 14
SOURCE: FAO World Food and Agriculture to 2030/2050; FAO Expert Meeting on How to Feed the World i...
McKinsey & Company | 15SOURCE: Global Insight; IEA; UN Environment Program (UNEP); FAO; World Steel Association; McKinsey ...
McKinsey & Company | 16
Resource scarcity will create new territorial disputes
Nautical law gives jurisdiction to
only a t...
McKinsey & Company | 17
The global population is aging: by 2050 …
The proportion of the
world’s population over
age 65 wil...
McKinsey & Company | 18
We will also face a global shortage of skilled workers
and a surplus of low-skilled workers
94
-45...
McKinsey & Company | 19
Fueled by technological advances, growth in the Digital Age will exceed
that of the Industrial Rev...
McKinsey & Company | 202020
The pace and magnitude of technological change is staggering
100 hours of video are uploaded e...
McKinsey & Company | 21
Disruptive technology will have enormous
economic impact by 2025
Range of sized potential
economic...
McKinsey & Company | 22
Technology is used by companies to automate processes that are time-
intensive, labour-intensive, ...
McKinsey & Company | 23
Big Data analytics can increase efficiencies across sectors
Healthcare (US example)
▪ $300 billion...
McKinsey & Company | 24
Wealth creation is now more dependent on innovation and data, than
manpower and productivity
Detro...
McKinsey & Company | 25
Governments worldwide are under increasing pressure from increased
scrutiny and unprecedented chal...
McKinsey & Company | 26
US yearly average temperature
Volatility and uncertainty have risen in the past several decades – ...
McKinsey & Company | 27
World Economic Forum’s ―Top 10 Global Risks‖ 2014
ADDITIONAL FACTORS
▪ Fiscal crises in key econom...
McKinsey & Company | 28
The metabolic rate of organizations is increasing – lifespan of companies
has declined dramaticall...
McKinsey & Company | 292929
S&P 500 churn over the past decade
Entered the index
Exited the index
ADDITIONAL FACTORS
McKinsey & Company | 303030
Six significant opportunities in emerging markets
▪ Consumers – $22T consumption in emerging m...
McKinsey & Company | 31
Contents
1
2
3
▪ Context: Mega-trends transforming the world
▪ Global champions
▪ Implications for...
McKinsey & Company | 32
Successful globalization is rewarding in the long term
Performance of "Global Champions"
1 Monthly...
McKinsey & Company | 33
Examples
0
50
100
150
200
250
300
350
400
450
Jan. 14Jan. 1210Jan. 08Jan. 06Jan. 04Jan. 022000
FTS...
McKinsey & Company | 34
Why are emerging market champions more successful?
Competing on value – emerging market companies ...
McKinsey & Company | 35
Asian companies "going global" – examples (1/2)
SOURCE: McKinsey analysis + One Source
> Going glo...
McKinsey & Company | 36
Asian companies "going global" – examples (2/2)
SOURCE: McKinsey analysis + One Source
Globalizer ...
McKinsey & Company | 37
Contents
1
2
3
▪ Context: Mega-trends transforming the world
▪ Global champions
▪ Implications for...
McKinsey & Company | 38
Implications for organizations
1. Reallocate resources meaningfully
behind priorities
3. Accelerat...
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Business in the Asian Century: Megatrends and Global Champions: Dominic Barton, Global Managing Director, McKinsey and Company (14.01.14)

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This presentation draws extensively on Dominic Barton's expertise having worked for McKinsey and Company in China for many years.

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  • Economic centre of gravity is calculated by weighting locations by GDP in three dimensions and projected to the nearest point on the earth’s surface. The surface projection of the centre of gravity shifts north over the course of the century, reflecting the fact that in three-dimensional space America and Asia are not only “next” to each other, but also “across” from each other
  • SOURCE: McKinsey Insights China; McKinsey Global Institute analysis
  • Transcript of "Business in the Asian Century: Megatrends and Global Champions: Dominic Barton, Global Managing Director, McKinsey and Company (14.01.14)"

    1. 1. Dominic Barton Global Managing Director, McKinsey & Company April 14, 2014 Business in the Asian Century: Mega-trends and Global Champions
    2. 2. McKinsey & Company | 1 Contents 1 2 3 ▪ Context: Mega-trends transforming the world ▪ Global champions ▪ Implications for organizations
    3. 3. McKinsey & Company | 2 Five mega-trends reshaping the global economy Resource scarcity The market state The rise of emerging markets The Digital Age Aging populations1 2 3 4 5
    4. 4. McKinsey & Company | 3 The world’s economic centre of gravity has come back to Asia 2000 1950 2010 2025 1940 1500 0 Locations weighted in 3D space by GDP 1. THE RISE OF EMERGING MARKETS
    5. 5. McKinsey & Company | 4 Massive urbanization is underway—old Shanghai SOURCE: skylander.net 1. THE RISE OF EMERGING MARKETS
    6. 6. McKinsey & Company | 5 Massive urbanization is underway—new Shanghai 1. THE RISE OF EMERGING MARKETS
    7. 7. McKinsey & Company | 6 What will these cities look like in 10 years? Bogor, West Java, Indonesia Anshun, Guizhou, China Pondicherry, India 1. THE RISE OF EMERGING MARKETS
    8. 8. McKinsey & Company | 7 2.2 billion new middle-class consumers by 2030 Global middle class1 Billions of people 4.9 Europe 2.8 2.2 billion Asia-Pacific 4.2 Latin America US & Canada Middle East & North Africa Sub Saharan Africa 2030 2.2 20252013 2.7 1.1 McKinsey & Company |SOURCE: McKinsey Global Institute CityScope 2.0; United Nations World Population Prospects 2012 1 Annual personal income between $3,600 and $36,000 1. THE RISE OF EMERGING MARKETS
    9. 9. McKinsey & Company | 8 By 2025, almost half of the world’s billion-dollar-plus companies will be headquartered in emerging markets Number of companies with $1B+ revenue Percent, number of large companies 32 ~7,000 2025 ~15,000 46 New large companies 27 54 68 2010 ~8,000 73 SOURCE: McKinsey Global Institute CompanyScope Of the 7,000 new large companies by 2025, 7 out of 10 will be in emerging regions 1. THE RISE OF EMERGING MARKETS Developed regionsEmerging regions
    10. 10. McKinsey & Company | 9 Asia’s growing importance – profit pools shifting east Banking profit pool % of total, $B E-commerce revenue % of total, $B Pharmaceutical sales % of total, $B SOURCE: McKinsey Global Banking Pools; Euromonitor; eMarketer; BMI 31 14 2012 3640 1,200 5 2007 1,400 46 100% = 4 25 Asia PacificMiddle East and AfricaEuropeAmericas Passenger vehicles % of total, millions sold Commercial aircraft % of total, # sold Consumer goods % of total, $B 31 31 1,000 39 0 500 29 2007 0 22 2012 47 37 29 1,000 2007 900 43 3 4 17 42 26 2012 28 22 45 9 2233 2007 1,100 11 2012 1,300 30 43 37 30 4 29 6,600 2007 3 22 2012 8,300 31 33 24 2007 37 2 42 2 28 31 64 2012 56100% = 1. THE RISE OF EMERGING MARKETS
    11. 11. McKinsey & Company | 10 The number of Asian companies outside Japan in the Fortune Global 500 has nearly doubled in 5 years 29 8931 20 109 +82% 20132008 60 China Rest of Asia (excluding Japan) 1. THE RISE OF EMERGING MARKETS
    12. 12. McKinsey & Company | 11 Emerging market cities will become the leading consumer markets globally Emerging Advanced 2025 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Elderly, higher- income consumers Shanghai Beijing Tokyo Tianjin Mumbai São Paulo Osaka Chongqing Delhi Nanjing Guangzhou New York Seoul Hong Kong Wuhan xx xx Municipal water demand Mumbai Delhi Shanghai Guangzhou Beijing Buenos Aires Kolkata Khartoum Dhaka Istanbul Dallas Pune Las Vegas Karachi São Paulo Young entry-level consumers Lagos Dar es Salaam Dhaka Ouagadougou Khartoum Ghaziabad Sanaa Nairobi Luanda Baghdad Kampala Ibadan Lusaka Kinshasa Kano Laundry care products São Paulo Beijing Rio de Janeiro Shanghai Mexico City Moscow Bangkok Istanbul Manila Johannesburg Belo Horizonte Porto Alegre Buenos Aires Tianjin Tehran SOURCE: McKinsey Global Institute 1. THE RISE OF EMERGING MARKETS
    13. 13. McKinsey & Company | 12 Chengdu 2010 GDP for urban clusters $ Billions ` Chongqing Nanning Hefei Changzhutan Hangzhou Nanchang Shenzhen Yangzi mid-lower Coast West Shandong Byland Nanjing Shanghai Guanzhong Taiyuan Central Changchun- Harbin Guangzhou (includes Foshan) Kunming Liao central-south Jingjinji Huhehaote Cities can be grouped into clusters around a hub city – some clusters are already economically larger than entire countries 357 378 418 469 475 527 527 Guangzhou Austria Shandong Belgium Jingjinji Switzerland Shanghai Urban clusters in China and their hub cities SOURCE: McKinsey Global Institute 1. THE RISE OF EMERGING MARKETS
    14. 14. McKinsey & Company | 13 The continuing rise of emerging markets will further strain global resources to an unprecedented level Water FoodEnergy Increasing gap between demand and supply of fossil fuels; e.g., by 2030 ▪ 25% gap for oil ▪ 30% gap for gas Food prices will increase up to 40% in the next decade due to rising demand ~40% gap between supply and demand by 2030 2. RESOURCE SCARCITY
    15. 15. McKinsey & Company | 14 SOURCE: FAO World Food and Agriculture to 2030/2050; FAO Expert Meeting on How to Feed the World in 2050; McKinsey analysis Global growth by 2050 As incomes grow, caloric intake, especially from meat, will rise 892 ~2x 475 2050E2010 Million tons of dairy 1.44 ~1.5x 1.00 2050E2010 Billion tons of cereals 464 227 ~2x 2050E2010 Million tons of meat 2. RESOURCE SCARCITY
    16. 16. McKinsey & Company | 15SOURCE: Global Insight; IEA; UN Environment Program (UNEP); FAO; World Steel Association; McKinsey analysis 398 654 +33% 2030 4922010 2000 5682020 +80% 1,847 2,290 1,271 761 6,350 +41% 5,500 4,500 4,000 234 191 137 287 +50% Rising middle class, urbanization, and infrastructure build-up will drive strong global resource demand Fertiliser Million tonnes Water Cubic kilometers Steel Million tonnes Primary energy Quadrillion BTU1 1 British Thermal Units 2. RESOURCE SCARCITY
    17. 17. McKinsey & Company | 16 Resource scarcity will create new territorial disputes Nautical law gives jurisdiction to only a third of the world’s oceans Arctic Ocean could hold more than 25% of the world’s undiscovered oil and gas resources Humans have only explored 5% of the world’s oceans 2. RESOURCE SCARCITY
    18. 18. McKinsey & Company | 17 The global population is aging: by 2050 … The proportion of the world’s population over age 65 will double In Italy, Japan and Spain, one in three people is expected to be 65 or older 80 percent of people 65 or older will live in low- or middle-income countries The number of people worldwide aged 80 or older will quadruple to 400 million For the first time in history, there will be more people over the age of 65 than under the age of 14 3. AGING POPULATIONS
    19. 19. McKinsey & Company | 18 We will also face a global shortage of skilled workers and a surplus of low-skilled workers 94 -45-41 Low-skillMedium-skillHigh-skill Global balance of workers, 2020E Million workers 3. AGING POPULATIONS
    20. 20. McKinsey & Company | 19 Fueled by technological advances, growth in the Digital Age will exceed that of the Industrial Revolution Global GDP $ Trillions Annual growth First Industrial Revolution 1760-1840 1600 1650 1700 1750 1800 1850 1900 1950 2000 2050 150 100 50 0 1% 2% 3%+ Second Industrial Revolution 1870-1914 Digital Age 2010-onwards 0.1% 4. THE DIGITAL AGE
    21. 21. McKinsey & Company | 202020 The pace and magnitude of technological change is staggering 100 hours of video are uploaded every minute The average washing machine today has more computing power than NASA used in its Apollo 11 mission in 1969 10 years ago, sequencing a human genome took $50 million and several years; today it takes < $10,000 and a few days More text messages are sent each day than the population of the planet More information is created every 2 days than from 0 AD-2003 AD 35% of all photos taken are posted to Facebook 4. THE DIGITAL AGE
    22. 22. McKinsey & Company | 21 Disruptive technology will have enormous economic impact by 2025 Range of sized potential economic impact Low High X–Y Renewable energy 0.2–0.3 Advanced oil and gas exploration and recovery 0.1–0.5 Advanced materials 0.2–0.5 3D printing 0.2–0.6 Energy storage 0.1–0.6 Next-generations genomics 0.7–1.6 Autonomous and near-autonomous vehicles 0.2–1.9 Advanced robotics 1.7–4.5 Cloud technology 1.7–6.2 Internet of Things 2.7–6.2 Automation of knowledge work 5.2–6.7 Mobile Internet 3.7–10.8 4. THE DIGITAL AGE 1 Economic impact of the 12 most significant disruptive technologies $ Trillions, annual 2 3 4 5 6 7 8 9 10 11 12
    23. 23. McKinsey & Company | 22 Technology is used by companies to automate processes that are time- intensive, labour-intensive, or dangerous Sydney International Airport has automated check-in, baggage handling, and border processing (using face recognition software) Adidas uses 3D printing to rapidly prototype shoes (reducing effort from 4-6 weeks with 12 people to 1-2 days with 2 people) Rio Tinto’s ―Mine of the Future‖ program uses autonomous trucks and trains, as well as drilling rigs operated remotely 1,500 kilometres away In 2012, a team of four expert pathologists developed a machine learning algorithm that was more accurate1 than any one of them at identifying the most active parts of a breast cancer tumor 4. THE DIGITAL AGE 1 Any two pathologists only agree with one another 50% of the time and the algorithm developed agreed with individual experts on average 60% of the time
    24. 24. McKinsey & Company | 23 Big Data analytics can increase efficiencies across sectors Healthcare (US example) ▪ $300 billion value per year ▪ ~0.7 percent annual productivity growth Public sector administration (EU example) ▪ €250 billion value per year ▪ ~0.5 percent annual productivity growth Personal location data (global) ▪ $100 billion+ revenue for service providers ▪ Up to $700 billion value to end users Retail (US example) ▪ 60+% increase in net margin possible ▪ 0.5–1.0 percent annual productivity growth Manufacturing (global) ▪ Up to 50 percent decrease in product development and assembly costs ▪ Up to 7 percent reduction in working capital 4. THE DIGITAL AGE
    25. 25. McKinsey & Company | 24 Wealth creation is now more dependent on innovation and data, than manpower and productivity Detroit, 1990 Silicon Valley, 2012 $250 billion $210 billionRevenues 0.8x 0.1x 22x$36 billion $790 billionMarket cap 1.2 million 130,000Employees 4. THE DIGITAL AGE
    26. 26. McKinsey & Company | 25 Governments worldwide are under increasing pressure from increased scrutiny and unprecedented challenges 5. THE MARKET STATE Policy challenges Deteriorating public support for markets, trade, business 2 Growing income inequality and unemployment 3 Unprecedented fiscal burdens (e.g., medical, pensions, safety nets) 1 Short-term focus (e.g., due to frequent polling and constant news cycle) leading to culture of “permanent election” 4 Continued politicization of policy-making5 Fragmentation and shift away from “whole- of-government” approach 6 Policy-making challenges
    27. 27. McKinsey & Company | 26 US yearly average temperature Volatility and uncertainty have risen in the past several decades – and also amplify the challenges we are facing Monthly changes in S&P 500 Worldwide wheat price 1933-1973 1973-2013 2003-2013 1993-2003 2003-2013 1993-2003 51°F 55°F -250 +100 $120 $440 Low-volatility environment High-volatility environment Frequency Magnitude Characteristics of a higher-volatility environment Lower frequency of average events More extreme outcomes occurring more often ADDITIONAL FACTORS
    28. 28. McKinsey & Company | 27 World Economic Forum’s ―Top 10 Global Risks‖ 2014 ADDITIONAL FACTORS ▪ Fiscal crises in key economies ▪ Structurally high unemployment and underemployment ▪ Water crises ▪ Severe income disparity ▪ Failure of climate change mitigation and adaptation ▪ Greater incidence of extreme weather events ▪ Global governance failure ▪ Food crises ▪ Failure of a major financial mechanism / institution ▪ Profound political and social instability 1 2 3 4 5 6 7 8 9 10
    29. 29. McKinsey & Company | 28 The metabolic rate of organizations is increasing – lifespan of companies has declined dramatically over time 18 22 30 45 90 20111975 19951935 1955 Estimated lifespan of companies on the S&P 500 Years ADDITIONAL FACTORS
    30. 30. McKinsey & Company | 292929 S&P 500 churn over the past decade Entered the index Exited the index ADDITIONAL FACTORS
    31. 31. McKinsey & Company | 303030 Six significant opportunities in emerging markets ▪ Consumers – $22T consumption in emerging markets in 2025 and 2.7B new middle class consumers by 2030 ▪ Education – 1B Asian youth to educate in any given year and a 36M shortage of skilled workers in China and India by 2020 ▪ Infrastructure – $57T global demand over next 18 years, with $27T expected spend in emerging Asia ▪ Healthcare – a $7T global industry; costs expected to triple across Asia by 2020 ▪ Agriculture & food – 2x global increase in meat demand by 2050 due to rise of emerging markets ▪ Natural resources – 30% increase in global energy needs and 80% in steel needs by 2030 ADDITIONAL FACTORS
    32. 32. McKinsey & Company | 31 Contents 1 2 3 ▪ Context: Mega-trends transforming the world ▪ Global champions ▪ Implications for organizations
    33. 33. McKinsey & Company | 32 Successful globalization is rewarding in the long term Performance of "Global Champions" 1 Monthly TRS of global champions weighted by market value SOURCE: Datastream; McKinsey analysis 0 50 100 150 200 250 300 350 400 450 FTSE World Index (CAGR=3.7) Global champions outside of Asia (CAGR=6.7) Total return to shareholders (TRS), Indexed value, January 2000 = 100 Examples 2000 04 08 12 2014100602
    34. 34. McKinsey & Company | 33 Examples 0 50 100 150 200 250 300 350 400 450 Jan. 14Jan. 1210Jan. 08Jan. 06Jan. 04Jan. 022000 FTSE World Index (CAGR=3.7) Global champions outside of Asia (CAGR=6.7) Asian global champions (CAGR=9.7) Asian global champions have outperformed other global competitors 1 Monthly TRS of global champions weighted by market value SOURCE: Datastream; McKinsey analysis Total return to shareholders (TRS), Indexed value, January 2000 = 100 2000 04 08 12 2014100602 Performance of ―Asian Champions"
    35. 35. McKinsey & Company | 34 Why are emerging market champions more successful? Competing on value – emerging market companies are more focused on addressing the needs of the emerging middle class, which is the fastest growing segment globally (e.g., 2.2 billion additional by 2030) Agile decision-making – emerging market companies have more concentrated ownership (e.g., 40% owned by major shareholders on average vs. 10% for developed market companies), enabling faster decisions Aggressive re-investment – emerging market companies have a lower dividend payout rate (39% vs. 80%) and re-invest more (e.g., grow fixed assets at 12% per year vs. 7% for developed market companies) Active resource reallocation – e.g., companies in India reallocate 42% of their capital over a seven-year period vs. 35% for US companies Accelerating innovation – while developed market companies still file more patents overall, emerging market companies are growing their patent filings three times faster 1 2 3 4 5
    36. 36. McKinsey & Company | 35 Asian companies "going global" – examples (1/2) SOURCE: McKinsey analysis + One Source > Going global – The Asia story Korea ▪ One of the largest manufacturers of construction equipment and machine tools in the world ▪ 2013 annual sales of $7.4B Korea ▪ World’s 4th largest automaker ▪ 7 M vehicles sold/year across 193 countries ▪ In last 10 years has jumped from 33rd to 4th on US quality surveys India ▪ One of the world’s largest aluminum rolling companies ▪ In 2007, Novelis was acquired by Hindalco, becoming a wholly owned subsidiary of Aditya Birla Group ▪ 2013 annual sales of $9.8 B; manufacturing in 11 countries Taiwan ▪ World's largest semiconductor foundry with global market share of 47%, with $20.1 B annual revenue (2013). ▪ 72% of shareholders outside of Taiwan India ▪ 12% CAGR in revenue from 2009-2013 ▪ 98% of its revenues from outside its home market ▪ Almost entirely organic growth Globalizer Home
    37. 37. McKinsey & Company | 36 Asian companies "going global" – examples (2/2) SOURCE: McKinsey analysis + One Source Globalizer Home India ▪ Second largest forging company in the world ▪ Manufacturing plants across India, Europe, US and China ▪ Serial acquirer: M&A in Germany, Sweden, US, China, etc. Korea ▪ World’s largest electronics firm by revenue (~$260bn) ▪ 423,000+ employees across 88 countries Japan ▪ Largest pharmaceutical company in Japan ▪ Sales $15.7 B+, 50%+ from outside Japan ▪ Accelerated its globalization with USD 9 B purchase of US’ Millennium in 2008 and USD 14 B purchase of Switzerland’s Nycomed in 2011 China ▪ Non-China revenue from 4% in 2000 to 67% in 2012 ▪ Invested in an R&D centre in India in 1998, with 6,000 staff ▪ Named 5th most innovative company in the world by Fast Company
    38. 38. McKinsey & Company | 37 Contents 1 2 3 ▪ Context: Mega-trends transforming the world ▪ Global champions ▪ Implications for organizations
    39. 39. McKinsey & Company | 38 Implications for organizations 1. Reallocate resources meaningfully behind priorities 3. Accelerate digitization 2. Increase agility and develop a flexible business model 5. Diversify and strengthen talent base 4. Innovate and anticipate disruption

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