The above McKinsey Quarterly article of April 2017 describes how latest global forces challenge businesses, societies, peoples and governments across the globe. The tensions are categorized into three "crucibles" as highlighted in the following selective extracts -
GLOBAL GROWTH SHIFTS
Globalization of digital products and services is surging, but traditional trade and financial flows have stalled. Almost a billion social-networking users have at least one foreign connection, while 2.5 billion people have email accounts, and 200 billion emails are exchanged every day. About 250 million people are currently living outside of their home country, and more than 350 million people are cross-border e-commerce shoppers.
With a middle class explosion spawn by accelerating urbanization across the globe, truly global businesses are targeting not just BRICS but "ICASA” (India, China, Africa, and Southeast Asia) markets.
However, multinational companies need “a local capability inside a global footprint.” Estée Lauder in 2012 introduced Osiao, its first China-specific beauty brand, developed at the company’s Shanghai R&D center. At the end of 2016, Hyundai announced production of several new models in China to compete with local brands.
Technological advances are changing the resource equation. Advances in analytics, automation, and the Internet of Things, along with innovations in areas such as materials science, are showing great promise at reducing resource consumption. Algorithms that optimize robotic movements can reduce a manufacturing plant’s energy consumption by as much as 30%. Smart lighting and intuitive thermostats are significantly reducing electricity consumption in businesses as well as homes. Gas and oil output has increased significantly because of advances in fracking, deepwater drilling, and enhanced oil recovery. Seawater desalination currently supplies 55% of Israel's water needs. Vehicle electrification, ride sharing, driverless cars, vehicle-to-vehicle communications, and the use of new materials are rapidly coming together to reduce automobile weight, change driving patterns, and improve the utilization of cars and of road capacity.
Global demand for oil could flatten by around 2025, according to a Mckinsey study of June, 2016, with the following projections -
- Growth in global energy demand will decelerate to 0.7% per year through 2050, 30% slower than previously forecast.
- Emerging and developing countries will drive all growth in energy demand, while European and North American demand will decline.
- Chemicals will grow at more than double the rate of total energy demand, while light-vehicle demand will peak around 2023.
- Demand for electricity will outpace demand for other energy sources by more than two to one. Solar and wind will represent almost 80% of net added capacity and 34% of generation by 2050.
- Fossil fuels will dominate the total energy mix through 2050, but their share of total energy will decline to 74% from 82 % while gas is a relative winner (growing at almost twice the rate of total energy demand).Coal will peak by 2025, and oil demand growth will flatten to 0.4%.
- Energy-related carbon dioxide emissions will flatten and start to decline around 2035 as a result of more-efficient combustion engines and more electric vehicles and the strong shift to wind and solar in power generation.
Iron-ore demand could decline over the next two decades as a result of softening demand for steel and increased recycling, but copper demand could jump, given its role in a wide range of electronics and consumer goods.
Resource-related business opportunities will turn up in unexpected places, and there’s room for a multitude of new products and services. An example is new carbon-based materials that are lighter, cheaper, and conduct electricity with limited heat loss. They could transform entire industries, including automobiles, aviation, and electronics.
ACCELERATING INDUSTRY DISRUPTION
There is an explosion of technological combinations. Increased online connectivity, cryptography, and advanced analytics have combined to create Blockchain, a distributed, global database for transactions. Since blockchains can process transactions without intermediaries, their potential impact on costs and competition is profound.
A team from Houston Methodist Hospital developed an algorithm that translates text from the hospital’s patient charts into a prediction of breast-cancer risk 30 times as fast as a human can. Low-cost genetic sequencing enabled by massive computing power is laying a foundation for developing “precision medicine” and providing people with facts that can influence life choices. Advances in materials science have allowed the development of stents (widely used to expand clogged arteries) that naturally dissolve after their job is done, potentially freeing patients from longer-term medications. Wearable and ingestible sensors, meanwhile, are being developed to increase the effectiveness of drug therapies by helping ensure medications are taken and physiological responses monitored.
The effects of technological combinations can go beyond the products or services a company provides to alter the very definition of what a company does. The automotive industry, for example, isn’t just about building cars anymore. As artificial intelligence and computational power merge with advanced automobiles and consumer products, companies are thinking about how they can provide “mobility solutions,” or even utility solutions.
C2B: Customer in the driver’s seat. Many goods and services consumers once paid for are now available online at a swipe or a click. Wikipedia’s English-language pages alone would fill the equivalent of more than 2,300 encyclopedias if printed. Skype, which allows users to make free video and audio calls to other Skype users, provides over two billion minutes of calls every day. Infinite variety means that just about any taste or preference is being catered to. In an environment where so much costs so little and proliferating variety fragments markets, customers are capturing more of the surplus. Chinese mobile-phone maker Xiaomi engages directly with consumers in person or online. Adidas has even built robot-operated “SpeedFactories,” which create sneakers designed by individual consumers, while Doob Group enables consumers to scan their bodies and create unique, 3-D-printed figurines.There is “coexistence of a free open-source market and a proprietary market”
Businesses can broadly be grouped into three categories, with ecosystems emerging as both a powerful source of value creation and a heated competitive arena:
- Linear value chains, which dominated for most of the 20th century, comprise a series of value-adding steps with the goal of producing and selling products: think automotive assembly.
- Horizontal platforms, which gained prominence with the rise of personal computing and the Internet, cut across value chains. Companies operating under this model own hard assets and sophisticated architecture, typically built around value-adding software and technology stacks.
- “Any-to-any” ecosystems, such as those of Uber and Airbnb, have emerged most recently. These companies also operate at the center of platforms, but they are distinctly asset-light.
The horizontal platforms of players such as Google, Amazon, and Facebook have been creating value for years and currently account for five of the ten largest US companies by market cap. Horizontal plays aren’t just digital. Companies of all stripes still ship their designs to Taiwan Semiconductor Manufacturing Company (TSMC),which relies on its sophisticated semiconductor factories to turn brilliant designs into high-performance chips.
Alibaba is the world’s largest retailer measured by gross merchandise volume, and it does not own any warehouses. The world’s largest accommodation provider, Airbnb, does not own rooms; the world’s largest taxi company, Uber, does not own cars — and neither company existed ten years ago. That’s disruption, although the staying power of any-to-any models remains to be seen, given the low barriers to creating software-based platforms.
The lines of demarcation between categories are beginning to blur as value chains, platforms, and ecosystems open, expand, and combine. Linear value chains aren’t immune: Under Armour, a leader in sports apparel and accessories, has announced plans to build the biggest connected fitness platform in the world.
A NEW SOCIAL DEAL
Globalization and automation are polarizing the labor market, with more on the way as expanding machine-learning capabilities increase the automatability of a wide range of tasks in developed and emerging markets alike. As middle-wage workers are displaced, many are forced to “trade down,” reducing their income and putting pressure on existing lower-wage workers. There is also widening earnings disparity. Workers with advanced degrees have generally seen their earnings rise, while wages for those with only high-school diplomas have stagnated, and wages for those who do not hold a high-school diploma have declined. Youth unemployment has reached 50% or more in several major developed economies.
Demographic trends are exacerbating matters. The number of workers earning income for each dependent is falling as populations age, making it harder for society to support the young and the old. Entitlement programs such as pension plans are woefully underfunded.
Trust has fallen among the threatened middle class. Significant segments within Western democracies now have a negative view toward immigration and blame their governments for failed policies.
Many growth policy tools have reached their limits, including quantitative easing (QE), helicopter money (also called “the people’s QE”), debt mutualization (Europe), debt monetization (Japan), guaranteed minimum income (Brazil), and massive stimulus programs combined with a regulatory rethink (the United States).
In search of better answers, we are on the cusp of an era of experimentation. As the world ages, new approaches will be needed to support retirees who haven’t saved enough or are counting on pension and healthcare benefits that seem unsustainable without placing crushing burdens on the workers of today and tomorrow. McKinsey Global Institute research suggests that infrastructure spending can be cut by as much as 40% through better project design and execution-areas ripe for public–private experimentation.
Private-, public-, and social-sector leaders should cooperate to create a new societal deal. Collaboration will be critical to overcome forces undermining openness, to drive middle-class progress, and to encourage experimentation that recharges growth and redresses income inequality. Cooperation will also be necessary to safeguard ourselves against a “dark side” of malevolent actors, including cyber criminals and terrorists.
