Strategic Trends Mckinsey 2010

Global Forces: how strategic trends affect your business

Global Forces:how strategic trends affect your business 3

McKinsey & Company comprehensively tracks these trends – from basic underlying forces such as changing demographics to more recent trends such as the accelerating Green economy – and assesses their potential impact at both global and industry-

specific level. We have recently developed an updated Global Forces taxonomy consisting of three shaping forces, eleven primary trends and more than 200 industry-specific trends that will fundamentally shape the corporate landscape over the next 10 to 20 years.

Trends shaping the future corporate landscape

Shaping forces Primary trends

Initial/boundary conditions

Granular list of specific trends im-pactinggeographies and sectors, e.g.,

▪ Africa rising▪ War for resources▪ …

▪ Market economy reversal▪ A post-crisis "new normal"▪ Inflation or deflation

Key uncertainties/decisions

Growing life sciences and healthcare

Emerging new consumers

Increasing weight of public sector

Entering a second agricultural revolution

Increasing link of world economies

Growing infrastructure congestion

Continuing urbanization and the rise of megacities

Shifting centers of economic activity

Accelerating green economy

Changing social values

Rebounding regulation

Experiencing Earth’s limits

Proliferating technology and knowledge

Changing demographics

▪ Growing support for clean tech-nology

▪ Emergence of environment-friendly cities

▪ Growing green marketing in consumer goods

▪ ...

After more than a full year in heads-down crisis mode, executives are once again looking to the future. Whether or not they believe the global crisis is over, many have the sense that the world is structurally changing – more rapidly now than ever before. Companies that win in these times will be those that not only stay ahead of these changes, but embrace them and turn them to advantage. To do so will require a deep understanding of the underlying forces shaping the world over the coming decade, uncovering their implications and identifying the bold actions required to capture the opportunities they present.

4Global Forces:how strategic trends affect your business 5

Granular trends changing the world’s demographics

▪ 1.2bn more people in emerging countries by 2030▪ Doubling in number of over-65s by 2030▪ Strong growth potential in Sub-Saharan Africa, North Africa/Middle East, and India driven by increasing

working-age populations by 2030 (70%, 40%, and 30% respectively)▪ Declining growth potential in Europe and Japan driven by shrinking working-age populations (8% and 16%

respectively, assuming no change in immigration trends)▪ Increased pressure for labour market reform in Europe aimed at increasing workforce participation (e.g., extension of

retirement age)▪ Increased pressure for immigration reform in Japan▪ Continuous flow of migration from developing to developed markets▪ Competition between developed markets to attract most skilled immigrants▪ Retired baby-boomers returning to work (e.g., 40% in US)▪ Deficit of skilled workers in both developed and developing countries, in particular engineers and science graduates▪ Pressure to increase productivity of skilled workers, with significant implications for knowledge management practices▪ Lower savings rates in developed world leading to US$31 trillion shortfall in wealth accumulation in US, Japan,

German, Italy, and UK alone▪ Negative pressure on national current accounts in developed world and China, leading to greater cross-border capital

flows▪ 70% of the growth in private consumption coming from consumers aged 50+, with strongest effects in healthcare, food,

and housewares▪ Mounting pressure for social security in China▪ …

A systematic approach is required

Global Forces methodologyGlobal Forces methodology

Expand the solution spaceB

Highlight critical uncertainties and build alternative scenarios off them

Estimate probability of each scenario and industry impact under each

Define the problem and initial conditions

Establish the reference frame

Define boundary scenarios

Quantify industry impact

A C DIdentify under-lying industryassump-tions

Identify rele-vant Global Forces

Test assumptions against Global Forces impli-cations

Identify interactions and implica-tions

Although Global Forces provide high-level insights, they need to be analyzed at a more granular level to be meaningful as inputs to the corporate strategic planning process. Our recent work has focused on ‘drilling down’ into each trend to uncover the specific geography- and sector-level insights useful to strategic planners.

Our findings also suggest that, while individual forces are interesting in themselves, the truly insightful implications are found at the inter-section of multiple forces – i.e., where two or more ‘obvious’ forces interact in complex and non-obvious ways.

To make the CSO’s task easier, we have developed a rigorous 4-step methodology to systematically apply Global Forces thinking in the strategic planning process. This methodology brings together Global Forces, industry-specific insights and advanced problem-solving techniques

to challenge conventional wisdom and create robust future scenarios.Finally, we strongly believe that creating value from Global Forces requires organisations to take an ‘opportunity’ mindset – and that now, as the world slowly rises from the ashes of the global crisis, is the ideal the time to do so.


20302010The number of people aged 65+ will double to 1 billion by 2030

523

35

278

85

119

969

69

552

166

164

World

Africa

Asia

Americas

Europe

7.6

3.4

6.7

9.0

16.3

11.7

4.3

11.4

16.6

22.6

People aged 65+Millions

People aged 65+Percent of total population

1,401

-19

108

160

270

195

126

117

444

World

EU - Japan

China

Americas

India

Middle Asia-Oceania

North Africaand Middle East

Southeast Asia

Sub-Saharan Africa

0.9

-0.1

0.4

0.9

1.0

1.3

1.4

1.9

2.1

2010-30 growthCAGR, Percent

~70% of global population growth will occur in less developed countries

2010-30 growthMillions of people

The world’s population will grow by 1.4bn (20%) by 2030, with 70% of this growth occurring in less developed countries. China’s population will begin to stabilise, while those of Europe and Japan will shrink. The global population will age significantly, with over-65s doubling in number to 1bn by 2030.

The following pages present a brief summary of McKinsey’s latest – and still-evolving – views on the most relevant forces and trends shaping the world in the next 10 years.

The working population (aged 15-65) will start to shrink in Europe and Japan this decade, and by 2020 in China. In contrast, by 2030 the working populations in Africa and India will grow by 70% and 30% respectively. Since demographics alone explain 60% of economic growth, these

Changing demographics

trends will create a significant ‘Growth Gap’ in Europe and Japan; to close this gap, Europe will face pressure to increase workforce participation (e.g., by raising the retirement age), while Japan will face pressure to revise its immigration policy. Failure to do so will create an unprecedented ‘productivity challenge’, requiring 50-60% increases in productivity growth if the historical growth paradigm is to be maintained.‘Moment in time’ countries such as China will begin to dominate in terms

of economic output and financial assets, but will soon face the same demographic issues as the West (e.g., requisite welfare system; declining population). ‘Next wave’ countries such as India have many of the required intrinsics (e.g., a growing workforce; political stability) to become major growth players in the next 2 decades. ‘Final frontier’ regions such as Africa may enter a new era of sustained growth if social and political stability can be ensured.


For certain key materials, reserves are declining along with oreproductivity

84

99111

116

2020201520102006

-2% p.a.

Known reserves are depleting rapidly

Rich iron ore equivalent – proved reservesBillion tons

Average copper gradePercent

Average grades are declining, driving up costs

2006 2008 2010 2012 2014 2016 2018 2020

0.65

0.60

0.55

0.50

-1% p.a.

Demand for basic materials will continue to grow, driven mainly by Chinese demand

2.8% p.a.

2020

24.9

9.3

2018

23.3

8.4

2016

21.7

7.5

2014

20.4

6.8

2012

19.0

6.1

2010

17.3

5.4

2008

17.8

5.0

Global copper demandMillion tons

Global Iron ore demandBillion tons

5.4% p.a.

2020

3.2

1.6

2018

2.8

1.4

2016

2.5

1.2

2014

2.3

1.1

2012

2.0

0.9

2010

1.8

0.8

2008

1.7

0.8

China

MCKINSEY BASE-CASE SCENARIO

New economic rules for moveable resources are emerging as continuing increases in demand for basic materials and energy come up against three critical supply issues: existing reserves are becoming less productive; the geographic disconnect between sources of supply and sources of demand is accelerating; and many resources are becoming increasingly concentrated in a small number of countries, many of which are potentially

politically risky. As a result, while for the most part reserves will be sufficient to meet demand, cost and volatility will increase. Similarly, structural imbalances in unmovable resources may become explosive in coming years. Water scarcity will become a much greater issue both globally and locally, and growing populations, combined with more protein-intensive diets, will place an increasing strain on agricultural land in many countries. Finally, the

Experiencing Earth’s limits

world’s physical and psychological ‘space’ for waste and pollution is diminishing, with climate change, water pollution and solid waste management become pressing socio-political issues with significant economic knock-on effects.

These trends will drive several implications. Economic rents will migrate backward up the value chain. Companies will integrate vertically

as a result, and the importance of co-operation with governments will increase as more commodities begin to adopt a ‘petroleum-like’ business model. Opportunities will be available in the renewable energy and recycling sectors, as well as for companies that are able to ‘sell’ improved resource efficiency.


Product life-spans are becoming ever shorter, and knowledge is increasingly commoditized

Time to reach 50% penetration in US households of new technologiesYears

Number of articles in English Thousands

1,200

1,600

0

400

800

2001 02 03 04 05 2006

Wikipedia

Britannica.com

Scientific journal Nature found Wikipedia to be as accurate as Britannica on scientific subjects

4

911

13

25

28

DVDInter-net

CD player

VCRPCTV

Technological development will continue its exponential trajectory of progress. Consumer adoption rates will quicken; while it took the PC 25 years to reach 50% penetration, the Internet took just 9 years and the DVD player 4 years. Product life-spans will continue to fall; the average model age in a car showroom is 2.7 years – the lowest in several decades. Interconnectivity will grow to encompass even the simplest devices and appliances, placing increasing importance on remotely-delivered

services such as cloud computing. With ubiquitous connectivity and decreasing importance of physical presence, organizational models change and more employees work remotely scattered across the globe, linked by data and video networks. Business models change dramatically, too, driven by the emerging concept of “prosumers”, which moves product creation closer to the consumers. Former innovators and producers will rather enable the process than own it. Information is global.

Proliferating technology and knowledge

The ubiquitous availability of information creates truly global markets and demand. The IPhone is a global phenome-non by now, with demand surging in nearly all regions of the world within weeks after its launch. A Twitter user was the first to report the Hudson crash landing in 2009, with millions of people knowing within hours what would have taken days even a few years ago. Knowledge will become even more commoditized as content creation proliferates and dissemination becomes easier. Wikipedia’s 14 million articles have

been written collaboratively by individuals around the world, surpassing the number of articles of the century-old Encyclopedia Britannica in less than two years after its birth. With the ongoing commoditization of knowledge, extracting value from it will become increasingly difficult – success is increasingly dependent on ‘orchestrating’ rather than creating knowledge. Intel-lectual property will be harder and harder to protect, too. Losses from infringement of copyrights passed USD 50 billion in actual losses for illegally distributed applications world-wide in recent years.

8

Successful innovators can thrive both in up and downturns

15.618.0

22.721.8

17.012.4

6.9

15.3

5.36.76.76.55.34.97.4

070605040302

3.5

0120001999

Top innovators3

Average2

Dow Jones1

"New economy" bubble burst

Financial crisis

2008

Shorterreduction

Faster acceleration

Annual organic growth ratePercent

1 Year 1999 = 100; for 2008 value of October 172 Average of all companies in sample (n = 48; CE, CPG and Pharma) without top innovators 3 Top quartile by segment from innovation score (12 companies)

Really benefitting from a crisis has some specific requirements for a company, e.g.,▪ Solid "innovation

engine"▪ Execution and

funding creativity (e.g., partnering)

▪ Insightful prioritization (especially in a prolonged crisis)


In developed markets, an industry structure that creates few incentives for cost management will confront the inexorable trends of aging populations, increasing wealth, medical innovation and a rising interest in wellness. The combination will drive a huge increase in the cost and consumption of healthcare services, from 10 percent of GDP today to 15 percent by 2030. In absolute terms this equates to an almost ~2.5-fold increase in the size of the developed

world health industry (from ~US$3.6 trillion to ~US$8.5 trillion). As a result there will be enormous pressure for reform at all levels, with a greater share of the financial burden being shifted to patients and with new business models developing to address the structural costs in the industry. Significant opportunities will be created for healthcare providers who are able to successfully cater to the growing level of consumerism that will flourish as a result.

Growing life sciences and healthcare markets

In emerging countries, healthcare expenditure will grow even faster in relative terms as economies grow and lifestyles change. In China and India for example, healthcare spending has been doubling every five years over the past 1-2 decades. Emerging markets will however experience critical

supply constraints as the availability of healthcare infrastructure and personnel is currently up to 30 times lower than in the developed world. Significant opportunities will be created for providers of effective low-cost care (and insurance) tailored to emerging market conditions’.

Healthcare spend is expected to grow rapidly in both developed and emerging countries

CAGR 2009-2030Percent

Size and share of health-care spendUSD Trillion, Percent

Health-care spendPercent of GDP

2009 20301

9

15

6

7

14

15

11

128.2

9.5

2.1

4.338 36 34

9 11

28

8

50

100% =

EMEA

U.S./Canada

AsiaOther

12.24

2030120092004

3.4

30

4.8

49

4

1 Assumes OECD countries will reach 15% of GDP spent on health by 2030; other countries will reach 10% of GDP (i.e. current level for OECD countries)

AmountUS$ bn

2009

1,730

2,400

530

190

20301

4,100

3,650

3,430

980

Rapid growth in emerging markets driving rise of Asia and EMEA vs. US/Canada

Evolution of healthcare spending in India

USD billion1

Percent of GDP ~2 ~2.7 ~4.9 ~5.0

16%

2006-072000-011995-961990-91

Evolution of healthcare spending in China

USD billion1

18%

2006-07

150

2000-011995-961990-91

Percent of GDP ~4 ~4 ~5.5 ~5.7

In China and India, healthcare spend is doubling every 5 years

1 Assuming a constant exchange rate of $1=45 INR

45

23

95

72

3010

Health care has grown at a rate nearly twice as much that of GDP during the past 10 years and is expected to maintain the momentum going forward


Close to 300 million new Middle class, Upper middle class, and Global consumer households will emerge over the next 10 years, representing an 80% increase from today’s levels. More than 80% of the growth will come from developing countries – with half from China and Eastern Europe alone. Africa will contribute a larger share of growth than India.Consumption in these markets will

switch from basic necessities to discretionary items (e.g., in China the share of discretionary spend will almost double to ~70% by 2020). However the consumption patterns of these emerging consumers will be significantly different from developed market consumers, and as a result, significant product innovations and changes in overall business models will be required to capture the opportunity.

Emerging new consumers

In the last century, governments in devel-oped countries have addressed the needs of modern societies by expanding their financial involvement, spending more on healthcare and pensions, and imposing greater taxes. Since 1913 government spend has risen from ~10% to 35-50% per cent of GDP in developed markets. This trend is expected to con-tinue as the rising number of over-65s drives a significant increase in social expenditure. Emerging markets will also see a rising share of government spending as social insurance systems are established and expanded.

The recent crisis has also resulted in a sig-nificant increase in governments’ involvement and ownership of the economy, while at the same time reducing their financial flexibility due to the growth of the debt. These trends will result in pressure for large tax increases where possible, (e.g. 175% in Japan is not realistic), out-sourcing and privatization, as well as a significant public sector productivity imperative (especially where taxes are already high) which will require major reforms in the way the public sector is managed and structured. Oppor- tunities will be created for private compa-nies to play a role in each of these areas.

Increasing weight of the Public Sector

Public spending on pensions and healthcare benefits will continue to grow due to aging populationsPercent of GDP

14.1

15.3

17.8

21.1

19.9

17.7

23.1

21.7

24.9

22.6

UK

Japan

Germany

France

Italy

2030

2007

By 2020 there will be an additional ~300 million Global, Upper middle, and Middle class households (80% increase)

Worldwide consumer households 1Millions of households

▪ Global, Upper and Middle expected to grow from ~400m to ~700m (27% to 42% of total)

▪ Significant decline in Poor consumers from 800m to 500m (57% to 33% of total)

840

549

228

429

Lower middle

294

112

291

2008

1 471

Poor

1 676

2020F

GlobalUpper middleMiddle 193

73137

CAGR, 2008-20F%

2020 breakdown%

2008 breakdown%

9 617

5 47

13 418

-357 33

1100 100

516 25

75+

55-75

25-55

0.5-10

10-25

Income definition1

US$000s

1 Based on non-PPP adjusted dollar incomes


Global food production has doubled in the last 50 years, driven by an agricultural productivity revolution in the US and Europe. To cope with the sharp increase in world population and replicate devel-oped countries’ diets elsewhere in the world, a second agricultural revolution will need to occur in developing countries to meet a potential doubling in food demand over the next two decades. While additional land is available, the bulk of the increased demand will be satisfied only if a massive increase in agricultural pro-ductivity is achieved. A further doubling in current food production is theoretically

achievable, but only if advanced agricultural techniques are massively implemented (i.e., mechanization, fertilizers, engineered seeds).Significant challenges will be faced, not least in the areas of water scarcity and climate change. On the other hand, significant opportunities will be created for suppliers of agricultural equipment, chemicals and biotechnologies – pro- vided they can adapt to the unique challenges in developing countries. Aqua-culture will also be a significant opportunity as ocean fisheries continue to be depleted.

Entering a second “agricultural revolution”

International trade is expected to recover from its pre-economic crisis levels and grow to 37 per cent of world GDP by 2020 (up from 19 percent in 1990), placing increased importance on logistics, infrastructure and trade agreements. The geographic patterns of trade are undergoing significant changes, with the growing importance of intra-regional trade (due to near-shoring and regional free-trade agreements) as well as the emergence of new ‘silk roads’ between emerging markets (e.g., 36 per cent compound annual export growth from Africa to Latin America in the past five years). Cross-border capital flows are ex-pected to recover from the recent down-turn, although it is uncertain whether the

14 percent per annum of recent decades will be sustained. Growth in these capital flows will be driven by Asia and the Middle East – both as providers and recipients of capital. The increasing link of world economies has significant implications for global financial risk management, as market diversification becomes more challenging and as the imperative for international policy coordination mounts (as demonstrated by the recent crisis). Business opportunities will be created for suppliers that are quick to respond to changing supply chain configurations (e.g. near-shoring), and logistics and infrastructure players are likely to capture a growing slice of economic rents.

Increasing links between world economies

1 Value of exports of goods and service, forecasted in May 2009 (adjusted based on the effect of crisis)

37

27

24

19

2010F

2020F

2000

1990

Percent of foreign trade flow1

on global real GDPPercent

Doubling of international trade vs. GDP from 1990 to 2020

The long-term upward trajectory in international trade is expected to continue

12,556

19,509

31,476

32,585

41,767

59,728

18,163

37,613

43,520

63,332

86,493

92,799United States 27,831

Africa 8,672

India 7,683

Europe 12,988

South America 12,967

China 12,278

1963 20032030 (projection on 1963-2003 CAGR)

Increase to Chinese levelsGlobal cereal output can theoretically be doubled – but only

by massively rolling out advanced agricultural techniquesHg of cereals/ha


Rapidly increasing world trade and the resulting logistics needs will result in growing global infrastructure congestion. In developing markets, this is being fur-ther exacerbated by rapid urbanisation and the rise of megacities. In response, countries will need to invest at an unprecedented pace to upgrade their infrastructure, with China alone forecast to invest USD 1.3 trillion2 in the next five years. Developed countries, especially Europe and Japan, will be constrained by lack of available space and will need to improve the efficiency of their existing infrastruc-ture (e.g., through technology).

Across the world private capital, private developers and private operators will play a critical role as the reliance on Public-Private Partnerships increases – both because of the size of the chal-lenge as well as growing strains on public finances in other areas (e.g. healthcare, social security). For some categories of goods, supply chain economics will favour near-shoring over off-shoring as transport costs and the risk of delays rise. For logistics players themselves scale will increasingly become a critical competitive advantage.

Growing infrastructure congestion

For the first time in history, over half of the world’s population is currently residing in urban areas. By 2020, the urban population is expected to rise by a further 20% to over 4.2 billion people, 80% of which will be found in developing countries. China and India will be at the fore-front of urban growth with 100 000 people moving to cities in these countries every day. Of the 19 new megacities expected to rise in developing markets, seven will be in China and four in India. The rise in urbanization will help drive economic growth and open up new consum-

er markets in developing countries; some megacities will become markets comparable in size to small nations. Managing these cities and their supply of resources will be a formidably complex task, placing severe demands on infrastructure, resources and the environment, and requiring new and innovative management practices. This will create a sig-nificant opportunity for companies who address these needs. Funding mecha- nisms will also evolve, with increasing opportunities for private sector infrastruc-ture players and real estate developers.

Continuing urbanization and the rise of megacities

0.5 0.6 0.6 0.6 0.7 0.7 0.8 0.8 0.8 0.9 0.9 0.9 0.9 0.90.3 0.3 0.4 0.5 0.6 0.8 0.9 1.21.4 1.7 1.9

2.2 2.5 2.83.2

3.6

0.40.4DevelopedDeveloping

2025

4.5

20

4.1

15

3.7

10

3.4

5

3.1

2000

2.7

95

2.5

90

1.6

2.2

75 85

1.4

1.9

70 80

1.2

65

1.1

60

0.9

55

0.7

1950

0.7

By 2020, developing countries will account for almost 80% of the world’s total urban populationBreakdown of total urban populationBillion people

Developing countries, % of total

42 44 46 48 51 54 57 61 64 47 69 71 73 75 77

Forecast

79

Transport volume growthIndexed, 1996 = 100

CAGR of global real GDP and goods trade value1

Percent

Global goods trade is growing twice as fast as GDP (and accelerating)

3.43.03.5

8.6

6.1

4.9

2005-20F1995-20051985-95

2.5X

2.0X

1.4X

Real tradeReal GDP

Trade as % of GDP3

Percent

19 24 37

As a result, demand for transport infrastructure is growing exponentially

CAGR, Percent

1996 2000 2004 2008

180

160

140

120

1000

GlobalGDP (real)

Rail intermodal2

Ocean

Air Freight

240

220

200

280

260

1 Value of total (exports + imports)/2 for 200 reporting countries, adjusted for inflation to 2000 values2 U.S. only, total of Class 1 intermodal loadings3 Latest figures before decline due to 2009 recession

Rapid growth in trade is driving exponential demand for transport infrastructure

Forecast2008-20F

6.1

3.4

9.2

n/a

Historical1995-20083

5.1

3.0

9.6

6.9


Emerging countries will continue to drive ~80% of world economic growth over the next decade. India, China and Africa will grow significantly faster than the global average, sustained by a growing workforce, availability of raw materials, and rising investment spend. Although developed countries will still dominate capital markets, the financial influence of China, Russia, India and the Middle East will increase dramatically, with sovereign wealth funds and Asian central banks in particular playing an increasingly

pivotal role on the global financial stage.Developing markets will be a critical growth driver for companies from the developed world. However the reverse is also likely to be true, and developing world incumbents may increasingly enter developed markets on the back of increased scale back home – often with innovative, disruptive business models.

Shifting centers of economic activity

New mindsets and regulations will create a very significant market for clean tech, fos- tering technology advancements in a vir- tuous cycle. Such investments will gener-ate productivity improvements, new jobs and wealth, as well as secure energy sup- plies. The market for low-emission technol- ogies is expected to grow to USD 1.2 trillion in 2030. Achieving these benefits will require the private sector to carry out most of the green transformation (such as green- house gas abatement) – but change will not occur without incentives, investment and mandatory policies from governments. The estimated investments in abatement

related businesses alone will exceed USD 3 trillion until 2030. In addition glob-al agreement will be vital to achieve scale and set international standards to allow the mobilization of capital, technology and capabilities across borders. Public opinion will accelerate change, as the environment becomes an increasingly topical issue among consumers and the media. Businesses will have to take this trend serious given the increas-ing public and regulatory influence. How- ever, plenty of opportunity exists within the new “green economy” making it an at- tractive growth area for many companies.

Accelerating green economy

A new brand of ‘green’ consumer is emerging and is willing to pay premium prices

New hybrid vehicle registrations, USMillion vehicles

5.75.7 6.86.8

Price premiums paidApproximate percent

Consumers are increasingly interested in buying green … … and will pay a premium

0.30.30.20.1

2007e

+53%

2004 05 06

6.86.66.15.5

2001 02 05 2006

+5%

2

4

20Hybrid autos

Renewable energy

Green construction

Ø 9

0.50.5 2+2+

Renewable energy consumption, USQuadrillion Btu

Market share,percent

3.73.7

3.83.8

4.24.2

6.96.9

8.98.9

1.11.1

2.72.7

2.12.1

xx CAGRDeveloped countryEmerging countries will be the engine of economic growth in

the next decadeShare of global GDP, percent

28 26 21 19

27 2622 21

97

65

1016 19

6 7

9 9 10 10

14 14 15 15

6

North America

JapanChina

Rest of AsiaAfricaOthers

2020

100

India

Europe

4

2015

100

4

2005

100

4

4

1995

100

3

4

3.83.8


In the West, changes in family structure and social norms will continue, driving changes in consumption habits (e.g., quantity and timing of spend) that companies will have to track carefully – especially in the retail and consumer goods industries.Emerging markets will continue to evolve towards individualistic, consumer-based societies, but significant regional variations will become more prominent as these economies rise in importance. This will

also lead to a further increase in cultural diversity in tomorrow’s economy, e.g., increasing the influence of the Islam.While emerging markets grow, limitations to productivity and decreas-ing population will make further growth in some Western countries a stretch target, triggering the evolution of values other than growth as main driver for economies. Thus, “Happiness” as objective of future economies could be another dimension countries might optimize for in the future.

Changing social values

In developed countries, a new wave of regulation has begun – reversing the deregulation trend of the past – to address an increasingly complex and interconnected business environment. Both recently deregulated sectors (e.g., utilities) and historically deregulated ones (e.g., banking) will have to deal with stricter regulatory and political frameworks. Moreover, increased consumer awareness of the interconnection between

global problems and business is changing public opinion toward major companies. This desire for a “new social contract” will create pressure for companies to actively help alleviate these global issues. In emerging countries, strong economic growth will also drive a higher level of regulation, potentially more focused on supporting investments than on breaking up monopolies.

Rebounding regulation

In developed countries a new wave of regulation is coming, to address an increasingly complex and interconnected business environment

Basic materials▪ Implementation of Kyoto

Protocol▪ US antidumping act (steel

industry)

Petroleum▪ Barriers to available resources▪ Environmental compliance

Food▪ GM▪ Advertising of junk food

Telecom▪ Pricing, bundling of Voice over

Internet Protocol (VoIP)

Insurance▪ Solvency requirements▪ Federal charter proposal in

European Union

Financial▪ Basel II capital requirements▪ Single market for retail

financial products in European Union

Transportation and logistics▪ Deregulation of rail freight

industry in Europe▪ Network access in postal and

rail

Pharmaceuticals▪ Product approval▪ Drug re-imbursement▪ Market entry of generic drugs▪ Marketing

Natural gas▪ Long-term diversified supply

Power▪ Implementation of Kyoto Prot.▪ Capacity regulation▪ Transmission regulation

(networks, distribution)

Worldwide changes are taking place in family structure and social norms

52

50

48

42

40

EasternEurope

WesternEurope

8

7

6

30

29

28

27

26

0

WesternEurope

USA

China

Single parent households are increasingPercent of households

More women are workingPercent of women working

2003 20081998 20081998 2003

24

The Global Forces initiative is a work in progress and new insights are constantly being generated as our thinking on the topic evolves. If you would be interested in exploring the topic in further detail or have any questions on this material, please reach out to the following McKinsey partners:

Filipe Barbosa [email protected]

Dieter Dü[email protected]

Michael [email protected]

Stefano [email protected]

Contacts

McKinsey Strategy Practice February 2010 Copyright © McKinsey & Company www.mckinsey.com/clientservice/strategy

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Strategic Trends Mckinsey 2010