Navigating a world of disruption PART I
Global trends are creating ever-larger winners
and losers.
We live in an era of disruption in
which powerful global forces are changing how we live and work. The rise of
China, India, and other emerging economies; the rapid spread of digital
technologies; the growing challenges to globalization; and, in some countries,
the splintering of long-held social contracts are all roiling business, the
economy, and society. These and other global trends offer considerable new
opportunities to companies, sectors, countries, and individuals that embrace
them successfully—but the downside for those who cannot keep up has also grown
disproportionately. For business leaders, policy makers, and individuals, figuring
out how to navigate these skewed times may require some radical rethinking.
This briefing note for
the 2019 World Economic Forum in Davos draws on recent research by the McKinsey
Global Institute (MGI). It focuses on both the value-creating opportunities and
the intense competitive and societal challenges we all face in this era of
technological ferment:
1.
The disruption
is intensifying
2.
The gulf
between those embracing change and those falling behind is growing
3.
Moving toward a
more inclusive society
1.
The disruption is intensifying
Powerful forces are
changing our world. Their impact is touching all countries, sectors, companies,
and, increasingly, workers and the environment. They are also morphing in some
unexpected ways and combining to create even greater impact than we expected.
The center of economic gravity is shifting
east and south
Emerging economies, led
by China and India, have accounted for almost two-thirds of global GDP growth
and more than half of new consumption in the past 15 years. Among emerging
economies, our research has identified 18 high-growth
“outperformers” that have
achieved powerful and sustained long-term growth—and lifted more than one
billion people out of extreme poverty since 1990.1 Seven of
these outperformers (China, Hong Kong, Indonesia, Malaysia, Singapore, South
Korea, and Thailand) have averaged GDP growth of at least 3.5 percent for the
past 50 years. Eleven other countries (Azerbaijan, Belarus, Cambodia, Ethiopia,
India, Kazakhstan, Laos, Myanmar, Turkmenistan, Uzbekistan, and Vietnam) have
achieved faster average growth of at least 5 percent annually over the past 20
years. Underlying their performance are pro-growth policy agendas based on
productivity, income, and demand—and often fueled by strong competitive
dynamics. The next wave of outperformers now looms, as countries from
Bangladesh and Bolivia to the Philippines, Rwanda, and Sri Lanka adopt a
similar agenda and achieve rapid growth.
The dynamism of these
economies has gone hand in hand with the rise of highly competitive
emerging-market companies. On average, outperformer economies have twice as
many companies with revenue over $500 million as other emerging economies.
These companies play a growing role on the global stage: while they accounted
for only about 25 percent of the total revenue and net income of all large
public companies in 2016, they contributed about 40 percent of the revenue
growth and net-income growth from 2005 to 2016. More than 120 of these
companies have joined the Fortune Global 500 list since 2000,2 and
by several measures, they are already more innovative, nimble, and competitive
than Western rivals. They can also earn better returns for investors. Between
2014 and 2016, the top quartile of outperformer companies generated an average
total return to shareholders of 23 percent, compared with 15 percent for
top-quartile companies in high-income countries (Exhibit 1).
Exhibit 1 IN THE ORIGINAL ARTICLE
Globalization patterns are changing, with
rapid growth in data flows
Much of the recent
focus on globalization has been on trade pullbacks, rising protectionist
measures, and public hostility. As a phenomenon, however, globalization has not
gone into reverse; rather, it has shifted gears
to become more data driven and more
focused on south–south flows. While cross-border flows of goods and finance
have lost momentum, data flows are helping drive global GDP. Cross-border data
bandwidth grew by 148 times between 2005 and 2017, to more than 700 terabytes
per second—a larger quantity per second than the quantity contained in the
entire US Library of Congress—and is projected to grow by another nine times in
the next five years as digital flows of commerce, information, searches, video,
communication, and intracompany traffic continue to surge.
The developing world is
driving global connectedness. For the first time in history, emerging economies
are counterparts on more than half of global trade flows, and south–south trade
is the fastest-growing type of connection. South–south and China–south trade
jumped from 8 percent of the global total in 1995 to 20 percent in 2016.
Exhibit 2 IN THE ORIGINAL ARTICLE
Amid these shifts, our
latest research suggests that China’s
relationship with the world may be at a turning point. By 2017, China accounted for 15 percent of world GDP.
For the first time since 1870, it overtook the United States to become the
world’s largest economy in purchasing-power-parity terms. (In nominal terms,
China’s GDP was 64 percent of the United States’ GDP in 2017, making it the
second-largest economy in the world.) Over the past decade, even as its economy
has grown, China’s exposure to the world, as measured by the magnitude of flows
of trade, technology, and capital with the rest of the world relative to its
economy, has declined. At the same time, the world’s exposure to China (the
magnitude of flows with China relative to the global economy) has increased
since 2000. Metrics used to measure exposure include China’s importance as a
market and as a supplier of goods and services to the global economy, the
importance of Chinese technological exports to global R&D spending and
China’s technology import and its influence in domestic R&D, and, for
capital, China’s importance as a supplier of financing and as a destination for
investments (Exhibit 2).
Global value chains are
also evolving. They are being reshaped in part by technology, including automation,
which could amplify the shift toward more localized production of goods near
consumer markets. And they are changing along with global demand, as China and
other developing countries consume more of what they produce and export a
smaller share. As emerging economies build more comprehensive domestic supply
chains, they are reducing their reliance on imported intermediate inputs.
The result is that
goods-producing value chains have become less trade intensive, even as
cross-border services are growing briskly—and generating more economic value
than trade statistics capture, according to our analysis. Trade based on
labor-cost arbitrage has been declining and now makes up only 20 percent of
goods trade. Global value chains are becoming more knowledge intensive and
reliant on high-skill labor. Finally, goods-producing value chains
(particularly those for automotive as well as computers and electronics) are
becoming more regionally concentrated, as companies increasingly establish
production in proximity to demand.
The pace of technological progress is
accelerating
Businesses have been
harnessing advanced analytics and the Internet of Things to transform their
operations, and those in the
forefront reap the benefits: companies that
are digital leaders in their sectors have faster revenue growth and higher
productivity than their less-digitized peers do. They improve profit margins three
times more rapidly than average and are often the fastest innovators and the
disruptors of their sectors. The forces of digital have yet to become fully
mainstream, however: on average, industries are less than 40 percent digitized.
Now comes the next wave
of innovation, in the form of advanced automation and artificial
intelligence (AI). An
explosion in algorithmic capabilities, computing capacity, and data is enabling
beyond-human machine competencies and a new generation of system-level
innovation, such as the driverless car. Machines already surpass human
performance in areas like image recognition and object detection, and these
capabilities can be used to diagnose skin cancer or lip-read more accurately
than human experts can.
While these
technologies still have limitations, massive productivity gains across sectors are already visible, with
AI use cases in functions such as sales and marketing (for example, “next
product to buy” personalization), supply chain and logistics, and preventive
maintenance. Our analysis of more than 400 use cases found that AI could
improve on traditional analytics techniques in 69 percent of potential use
cases. Deep learning
could account for as much as $3.5 trillion to $5.8 trillion in annual value, or 40 percent of the value created by all analytics
techniques (Exhibit 3). For the global economy, too, AI adoption could be a
boon, potentially raising global GDP by
as much as $13 trillion by 2030, or
about 1.2 percent additional GDP growth per year, according to a simulation we
conducted.
Exhibit 3 IN THE ORIGINAL ARTICLE
By Jacques Bughin and Jonathan Woetzel
https://www.mckinsey.com/Featured-Insights/Innovation-and-Growth/Navigating-a-world-of-disruption?cid=other-eml-alt-mgi-mck&hlkid=0323073a393344368f946fa1bc81342d&hctky=1627601&hdpid=8c5b3b5c-022f-4c79-8da0-043e3db0e82a
CONTINUES
IN PART II
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