The four global forces breaking all the trends
The
world economy’s operating system is being rewritten. In this exclusive excerpt
from the new book No Ordinary Disruption, its authors explain the
trends reshaping the world and why leaders must adjust to a new reality.
In
the Industrial Revolution of the late 18th and early 19th centuries, one new
force changed everything. Today our world is undergoing an even more dramatic
transition due to the confluence of four fundamental
disruptive forces—any of which would rank among the greatest changes the global
economy has ever seen. Compared with the Industrial Revolution, we estimate
that this change is happening ten times faster and at 300 times the scale, or
roughly 3,000 times the impact. Although we all know that these disruptions are
happening, most of us fail to comprehend their full magnitude and the second-
and third-order effects that will result. Much as waves can amplify one
another, these trends are gaining strength, magnitude, and influence as they
interact with, coincide with, and feed upon one another. Together, these four
fundamental disruptive trends are producing monumental change.
1. Beyond Shanghai: The age of urbanization
The first trend is the
shifting of the locus of economic activity and dynamism to emerging markets
like China and to cities within those markets. These emerging markets are going
through simultaneous industrial and urban revolutions, shifting the center of
the world economy east and south at a speed never before witnessed. As recently
as 2000, 95 percent of the Fortune Global 500—the world’s largest international
companies including Airbus, IBM, Nestlé, Shell, and The Coca-Cola Company, to
name a few—were headquartered in developed economies. By 2025, when China will
be home to more large companies than either the United States or Europe, we
expect nearly half of the world’s large companies—defined as those with revenue
of $1 billion or more—to be headquartered in emerging markets. “Over the years,
people in our headquarters, in Frankfurt, started complaining to me, ‘We don’t
see you much around here anymore,’” said Josef Ackermann, the former chief
executive officer of Deutsche Bank. “Well, there was a reason why: growth has
moved elsewhere—to Asia, Latin America, the Middle East.”
Perhaps
equally important, the locus of economic activity is shifting within these
markets. The global urban population has been rising by an average of 65
million people annually during the past three decades, the equivalent of adding
seven Chicagos a year, every year. Nearly half of global GDP growth between
2010 and 2025 will come from 440 cities in emerging markets—95 percent of them
small- and medium-size cities that many Western executives may not even have
heard of and couldn’t point to on a map.1 Yes, Mumbai, Dubai, and Shanghai are
familiar. But what about Hsinchu, in northern Taiwan? Brazil’s Santa Catarina
state, halfway between São Paulo and the Uruguayan border? Or Tianjin, a city
that lies around 120 kilometers southeast of Beijing? In 2010, we estimated
that the GDP of Tianjin was around $130 billion, making it around the same size
as Stockholm, the capital of Sweden. By 2025, we estimate that the GDP of
Tianjin will be around $625 billion—approximately that of all of Sweden.
2. The tip of the iceberg: Accelerating
technological change
The second disruptive force
is the acceleration in the scope, scale, and economic impact of technology.
Technology—from the printing press to the steam engine and the Internet—has
always been a great force in overturning the status quo. The difference today
is the sheer ubiquity of technology in our lives and the speed of change. It
took more than 50 years after the telephone was invented until half of American
homes had one. It took radio 38 years to attract 50 million listeners. But
Facebook attracted 6 million users in its first year and that number multiplied
100 times over the next five years. China’s mobile text- and voice-messaging
service WeChat has 300 million users, more than the entire adult population of
the United States. Accelerated adoption invites accelerated innovation. In
2009, two years after the iPhone’s launch, developers had created around
150,000 applications. By 2014, that number had hit 1.2 million, and users had
downloaded more than 75 billion total apps, more than ten for every person on
the planet. As fast as innovation has multiplied and spread in recent years, it
is poised to change and grow at an exponential speed beyond the power of human
intuition to anticipate.
Processing
power and connectivity are only part of the story. Their impact is multiplied
by the concomitant data revolution, which places unprecedented amounts of
information in the hands of consumers and businesses alike, and the
proliferation of technology-enabled business models, from online retail
platforms like Alibaba to car-hailing apps like Uber. Thanks to these mutually
amplifying forces, more and more people will enjoy a golden age of gadgetry, of
instant communication, and of apparently boundless information. Technology
offers the promise of economic progress for billions in emerging economies at a
speed that would have been unimaginable without the mobile Internet. Twenty
years ago, less than 3 percent of the world’s population had a mobile phone;
now two-thirds of the world’s population has one, and one-third of all humans
are able to communicate on the Internet.2 Technology allows businesses such as
WhatsApp to start and gain scale with stunning speed while using little
capital. Entrepreneurs and start-ups now frequently enjoy advantages over
large, established businesses. The furious pace of technological adoption and
innovation is shortening the life cycle of companies and forcing executives to
make decisions and commit resources much more quickly.
3.
Getting old isn’t what it used to be: Responding to the challenges of an aging
world
The human population is
getting older. Fertility is falling, and the world’s population is graying
dramatically. While aging has been evident in developed economies for some
time—Japan and Russia have seen their populations decline over the past few
years—the demographic deficit is now spreading to China and soon will reach
Latin America. For the first time in human history, aging could mean that the
planet’s population will plateau in most of the world. Thirty years ago, only a
small share of the global population lived in the few countries with fertility
rates substantially below those needed to replace each generation—2.1 children
per woman. But by 2013, about 60 percent of the world’s population lived in
countries with fertility rates below the replacement rate. This is a sea
change. The European Commission expects that by 2060, Germany’s population will
shrink by one-fifth, and the number of people of working age will fall from 54
million in 2010 to 36 million in 2060, a level that is forecast to be less than
France’s. China’s labor force peaked in 2012, due to income-driven demographic
trends. In Thailand, the fertility rate has fallen from 5 in the 1970s to 1.4
today. A smaller workforce will place a greater onus on productivity for
driving growth and may cause us to rethink the economy’s potential. Caring for
large numbers of elderly people will put severe pressure on government
finances.
4.
Trade, people, finance, and data: Greater global connections
The final disruptive force
is the degree to which the world is much more connected through trade and
through movements in capital, people, and information (data and
communication)—what we call “flows.” Trade and finance have long been part of
the globalization story but, in recent decades, there’s been a significant
shift. Instead of a series of lines connecting major trading hubs in Europe and
North America, the global trading system has expanded into a complex,
intricate, sprawling web. Asia is becoming the world’s largest trading region.
“South–south” flows between emerging markets have doubled their share of global
trade over the past decade. The volume of trade between China and Africa rose
from $9 billion in 2000 to $211 billion in 2012. Global capital flows expanded
25 times between 1980 and 2007. More than one billion people crossed borders in
2009, over five times the number in 1980. These three types of connections all
paused during the global recession of 2008 and have recovered only slowly
since. But the links forged by technology have marched on uninterrupted and
with increasing speed, ushering in a dynamic new phase of globalization,
creating unmatched opportunities, and fomenting unexpected volatility.
Resetting
intuition
These four disruptions
gathered pace, grew in scale, and started collectively to have a material
impact on the world economy around the turn of the 21st century. Today, they
are disrupting long-established patterns in virtually every market and every
sector of the world economy—indeed, in every aspect of our lives. Everywhere we
look, they are causing trends to break down, to break up, or simply to break.
The fact that all four are happening at the same time means that our world is
changing radically from the one in which many of us grew up, prospered, and
formed the intuitions that are so vital to our decision making.
This can play havoc with
forecasts and pro forma plans that were made simply by extrapolating recent
experience into the near and distant future. Many of the assumptions,
tendencies, and habits that had long proved so reliable have suddenly lost much
of their resonance. We’ve never had more data and advice at our
fingertips—literally. The iPhone or the Samsung Galaxy contains far more
information and processing power than the original supercomputer. Yet we work
in a world in which even, perhaps especially, professional forecasters are
routinely caught unawares. That’s partly because intuition still underpins much
of our decision making.
Our intuition has been
formed by a set of experiences and ideas about how things worked during a time
when changes were incremental and somewhat predictable. Globalization benefited
the well established and well connected, opening up new markets with relative
ease. Labor markets functioned quite reliably. Resource prices fell. But that’s
not how things are working now—and it’s not how they are likely to work in the
future. If we look at the world through a rearview mirror and make decisions on
the basis of the intuition built on our experience, we could well be wrong. In
the new world, executives, policy makers, and individuals all need to
scrutinize their intuitions from first principles and boldly reset them if
necessary. This is especially true for organizations that have enjoyed great
success.
While it is full of
opportunities, this era is deeply unsettling. And there is a great deal of work
to be done. We need to realize that much of what we think we know about how the
world works is wrong; to get a handle on the disruptive forces transforming the
global economy; to identify the long-standing trends that are breaking; to
develop the courage and foresight to clear the intellectual decks and prepare
to respond. These lessons apply as much to policy makers as to business
executives, and the process of resetting your internal navigation system can’t
begin soon enough.
There is an urgent
imperative to adjust to these new realities. Yet, for all the ingenuity,
inventiveness, and imagination of the human race, we tend to be slow to adapt
to change. There is a powerful human tendency to want the future to look much
like the recent past. On these shoals, huge corporate vessels have repeatedly
foundered. Revisiting our assumptions about the world we live in—and doing
nothing—will leave many of us highly vulnerable. Gaining a clear-eyed
perspective on how to negotiate the changing landscape will help us prepare to
succeed.
This article is an edited
excerpt from No Ordinary Disruption: The Four Global Forces Breaking
All the Trends,
to be be published on May 12 by PublicAffairs.
byRichard Dobbs, James Manyika, and Jonathan
Woetzel
http://www.mckinsey.com/insights/strategy/The_four_global_forces_breaking_all_the_trends?cid=other-eml-alt-mgi-mck-oth-1504
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