Trends Identified
The center of economic gravity is shifting east and south, propelled by high-growth emerging economies and globally competitive companies
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. 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 firms, which are increasingly taking on incumbents in advanced economies. On average, outperformer economies have twice as many companies with revenue over $500 million as other emerging economies. In addition to driving economic growth at home, they now play a disproportionately large 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, and by several measures, they are already more innovative, nimble, and competitive than Western rivals. For example, our surveys show that they derive 56 percent of their revenue from new products and services, eight percentage points more than their peers in high-income economies, and make important investment decisions six to eight weeks faster. They can also earn better returns for investors. Between 2014 and 2016, the top quartile of outperformer companies generated total return to shareholders of 23 percent on average, compared with 15 percent for top-quartile firms in highincome countries (Exhibit 1).
2019
Navigating a world of disruption
McKinsey
Data and AI
Data and AI, which include both advanced analytics and artificial intelligence
2019
Tech for good
McKinsey
Connectivity and platforms
Connectivity and platforms, under which we group digital platforms, the mobile internet, and the cloud .
2019
Tech for good
McKinsey
Robotics
Robotics, under which we include both advanced robotics increasingly able to augment humans in the workplace and traditional robotics, in which machines reproduce repetitive human actions, as well as autonomous and near-autonomous vehicles
2019
Tech for good
McKinsey
Globalization patterns are changing, with rapid growth in data flows and a larger role for highgrowth emerging economies
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. The seeming flattening of globalization that followed the 2008 financial crisis disguises new patterns of connectedness. 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 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. In line with its rising economic role, the developing world is now 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. In the MGI Connectedness Index, Singapore tops the latest rankings, followed by the Netherlands, the United States, and Germany. China has surged from number 25 to number seven. South-South and China-South trade jumped from 8 percent of the global total in 1995 to 20 percent in 2016. The shifting nature of the Chinese economy, toward a more R&D-intensive focus and away from low-cost manufacturing, plus China’s push through the Belt and Road initiative, may begin to create a new trade ecosystem with China at the core. By comparison, North-North trade and North-South trade have declined as a share of total trade, especially since the 2008 financial crisis. North-North trade is now 33 percent of the total, versus 43 percent in 2005 and 55 percent in 1995. 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. It overtook the United States to become the world’s largest economy in purchasing power parity terms in 2014, according to International Monetary Fund data—for the first time since 1870. (In nominal terms, China’s GDP was 64 percent of US GDP in 2017, making it the secondlargest economy in the world). Behind these headline numbers lies a less-noticed shift: 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 supplier of goods and services; the importance of Chinese technology exports for global R&D spending; and China’s importance as a supplier of financing (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 automotive as well as computers and electronics) are becoming more regionally concentrated as companies increasingly establish production in proximity to demand.
2019
Navigating a world of disruption
McKinsey
Internet of things
The Internet of Things, which uses networks of sensors and devices to collect data and optimize processes
2019
Tech for good
McKinsey
Virtual and augmented reality
Virtual and augmented reality, an artificial environment created with software and hardware that, in the case of augmented reality, provides the ability to overlay digital information into real-world settings
2019
Tech for good
McKinsey
Digital fabrication including 3-D printing
Digital fabrication including 3-D printing
2019
Tech for good
McKinsey
New materials and biotech
New materials and biotech, which include advanced materials, such as new lightweight materials, and next-generation genomics.
2019
Tech for good
McKinsey
Clean tech
Clean tech, which primarily consists of renewable energy sources such as sun and wind energy, supported by devices for energy storage.
2019
Tech for good
McKinsey