Where to look for
global growth
Productivity gains
could make the difference in an aging world.
For the last 50 years, the world economy has benefited from a
demographic boom that has contributed 1.8 percent to average annual global GDP
increases, helping to generate an unprecedented level of growth.1 This demographic headwind is coming to an end. With
populations aging and fertility rates dropping around the world, the growth
rates of the past 50 years may prove to be the exception, not the rule. The
latest research of the McKinsey Global Institute (MGI) suggests that unless
increases in labor productivity compensate for an aging workforce, the next 50
years will see a nearly 40 percent drop in GDP growth rates and a roughly 20
percent drop in the growth rate of per capita income around the world.
The potential for diminished growth varies
considerably among countries. In the developed world, Canada and Germany are
poised for the biggest drops in GDP growth rates. Saudi Arabia, Mexico, Russia,
and Brazil are most at risk in developing countries. Societies that fail to
raise their game for the productivity needed to sustain growth will find it
harder to achieve a host of desirable goals, such as reducing poverty in
developing economies and meeting current social commitments in developed ones.
But the research also suggests reasons for
optimism. Among the countries we studied, fully 75 percent of the needed
productivity increases through 2025 could occur if lagging companies and
public-sector institutions caught up to the productivity of their
best-performing peers. Emerging markets have the biggest opportunities to do
so. These opportunities are known and currently available, and they represent a
critical link in the virtuous cycle of emerging-market development: rising
labor productivity goes hand in hand with growth in disposable income,
consumption, and GDP.
To close the gap, companies must seize the
opportunity to accelerate productivity growth and the value-creation potential
it holds, while governments will need to support them by assessing regulatory
barriers to competition in product and labor markets. While these actions tend
to grab less attention than, say, the pursuit of boundary-pushing possibilities
(such as artificial intelligence and the Internet of Things), boosting
productivity by rethinking regulatory barriers holds enormous potential for the
global economy.
MGI’s micro-to-macro analysis shows plenty of
upside in global sectors such as agriculture, food processing, automotive,
retail, and healthcare. The bulk (but by no means all) of these opportunities
are found in emerging economies.
Agriculture.
Productivity in
agriculture, which accounts for only 4 percent of employment in developed
economies but for about 40 percent in emerging ones, could more than double by
2025. The largest opportunities for mechanization and scale are in emerging
regions, where, according to UN calculations, nearly 30 percent of crop
cultivation is still done by hand. In developed economies—which tend to have
larger farms, higher levels of mechanization, and more advanced practices in
applying fertilizers, herbicides, and pesticides—further gains are available
from technology, including the use of precision sensors and satellite data to
increase crop yields.
Food Processing.
The manufacture of
food and beverages—or food processing—accounts for a range of 1 to 3 percent of
GDP in the countries we studied. Globally, the sector’s productivity is 20
percent higher than total worldwide productivity, but significant gaps remain
among countries. The overall productivity of food processing could rise by an
estimated 59 percent, mostly in developing economies, through operational
improvements, such as lean manufacturing, and bigger processing facilities to
take advantage of scale effects.
Automotive.
The automotive sector,
which accounts for an estimated 1.6 percent of global GDP, boasts productivity
that is, on average, roughly 95 percent higher than that of other industries.
Big differences exist among regions, however, reflecting the productivity
performance of tier-two and tier-three component-supplier operations. (For
example, in aggregate, auto manufacturing in India operates at less than
one-quarter of the productivity level in the United States.) MGI estimates that
the automotive industry could raise its overall productivity by 90 percent as
of 2025. The opportunity varies by region. The largest—in China and India,
which today employ over 40 percent of all automotive workers—involve greater
scale and improved manufacturing processes.
Retail.
In most economies, 5
to 12 percent of all employees work in the retailing industry—and more when
wholesale is included—so retail matters. Globally, productivity in this sector
is 30 percent lower than average productivity across all sectors. Retailing is
also an industry with large, sustained productivity differences between
developed and emerging economies, as well as among countries at similar income
levels. The opportunities in the retail sector fall into three broad areas:
increasing the share of more productive formats, narrowing the gap between the
least and most productive outlets in a particular format, and improving even
the best performers’ productivity by using new technologies and processes.
These hold the promise of boosting worldwide retail productivity by more than
half.
Healthcare.
Healthcare spending
accounts for 10 percent of GDP among the member countries of the Organisation
for Economic Cooperation and Development (OECD) and for an average of roughly 6
percent of GDP in the four leading emerging economies: Brazil, China, India, and
Russia. Moreover, total healthcare spending is growing faster than global GDP,
heightening the need to deliver healthcare as efficiently as possible. MGI
analysis finds opportunities to save nearly 25 percent of overall healthcare
spending by 2025, without compromising health outcomes. Countries could realize
this potential by catching up to best practices in operations and procurement,
by reducing the number of clinically ineffective procedures, and by developing
innovative delivery models (notably, providing care outside of hospital
settings and using new digital technologies).
Having ample opportunity to improve
productivity does not guarantee that we will do so. There is a robust debate
about how much growth is actually desirable, given the economic, social, and
environmental externalities that rapid change often creates. Yet without
growth, the world is a poorer place—and fulfilling social and debt commitments
becomes harder. Business can and should upgrade its capital and technology,
pursue innovation, and mobilize talented workers. Governments need to assess
whether and how to go on opening up their economies and integrating them into
the world economy. Since the rate at which different countries and sectors
exploit the opportunities before them is bound to vary, global business leaders
will need strong antennae to understand where new opportunities are arising,
how to adapt accordingly, and what new competitors they are likely to meet
along the way.
January
2015 |
byRichard Dobbs, Jaana Remes, and Jonathan
Woetzel
http://www.mckinsey.com/Insights/Growth/Where_to_look_for_global_growth?cid=mckgrowth-eml-alt-mip-mck-oth-1501
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