Five game-changing global conditions identified by BCG

Fri, 21 Nov 2014 15:42:58 GMT

Two fundamental forces are shaping the world today

First, the rising economic power of China, India, and other emerging markets is generating the most radical restructuring of the global economy since the Industrial Revolution.This transformation is activating and accelerating other shifts. In emerging markets, a new class of consumers has arrived. They aspire to own homes and provide quality education for their children. They are young and urban. Women control up to 70 percent of discretionary spending in these urban markets.

Emerging markets are also spawning new global competitors, whose business models and practices are presenting new ways to succeed in the global economy.* We estimate that by 2020, there will be 7,000 Asian companies with at least $1 billion in sales, double the number in 2010.*

In mature markets, the twin challenges of debt and demographics, as well as persistent unemployment, show no signs of abating. In all markets, the evolution of digital technologies is shaking up the economic order. Finally, the “multispeed economy” is creating huge challenges for companies that straddle both emerging and mature markets.

Second, uncertainty is rising sharply as the pace of change accelerates. This is not just anecdote or impression but fact. BCG research shows that volatility in revenue growth and operating margins has more than doubled since the 1960s, while periods of economic turbulence have increased in duration and frequency.

# 5 Big Changes
## New Middle Classes
Due to the economies of the East and the South growing rapidly over the coming years,** 2030 will mark the first time ever the majority of people on our planet will not be living their lives in poverty.** It is a remarkable feat of human achievement, a paradigm shift triggered by improvements in infrastructure that will enable a new generation of highly educated people to migrate to online urban environments in search of higher-paying jobs, and move up the income ladder. There they will acquire both utilities such as bank accounts, cars and washing machines – many for the first time – and some of life’s little luxuries. As ‘Gangnam Style’, Psy’s serenade to a girl from the wealthy central Seoul neighborhood drifts through the air of nightclubs across the globe, images of Jay-Z and Kanye West blowtorching a $350,000 a Maybach in a Watch the Throne video stream into the living rooms of Lagosians. Young Mumbaikars spin to Daft Punk’s ‘Get Lucky’ on a Friday after work, while Rihanna’s hope to “shine bright like a diamond” filters from the windows of a Jakarta cab. The world of now and the future isn’t so much a remix of the past, but a instead more of a cover version, a new way of living that takes its lyrics from the songbook of the West, and inflects them with new rhythms. These changes are not only aural, but visual, mental, economic and physical. It’s found in the queues of **Shanghai** sneaker collectors lining up outside Nike Town waiting for a new delivery to drop in the morning and the Hugo Boss belts around the waists of white-collar workers on Mumbai’s new metro. Seen in the reflections of a gleaming Cartier boutique on Bogotá’s Avenida 82, and the smiles of young Iranians reveling in the freedoms of Dubai’s malls on the weekends. Tasted in American chain restaurants around Jakarta’s shantytowns, and felt in the air-conditioned offices of Istanbul. **As Europe, the U.S. and Japan struggle with an ageing population and a declining middle class,****in just six years time the world’s two most populous countries, China and India, will experience a tripling of their middle classes to a combined 1 billion people.****Fast-forward another decade to 2030, and Asia as a whole will account for 66 percent of the world’s middle class.** Inspired by the unabashed materialism of globally syndicated television shows like Sex and the City and Gossip Girl, and the influx of high-end fashion and society magazines such as Vogue and Harper’s Bazaar into India and China – and a number of other emerging markets such as Turkey and Thailand – over the past decade, these newly empowered people are inspired to work towards the visceral pleasures of the West. An economic and cultural phenomenon that unites genders – after years of walking past billboards of a perfectly groomed David Beckham advertising Emporio Armani underwear, the metrosexual man is just as likely to be found in a Lucknow cellphone store as he is in London. In China, the men’s skincare market is due to reach $1.6 billion by 2014. In the following year, Brazilian men are expected to become the world’s largest consumer of grooming products. A country whose maharajas set new standards for opulence in the 1920s, conspicuous consumption has been traditionally frowned upon in India following the first fifty years after its independence from the British. Today, attitudes in the country where Buddhism’s message of non-materialism first took root are changing. As Buvneesh Bedi, a sales executive at a Japanese car showroom in New Delhi put it in a 2012 interview with the Agence France Press, “Buying a car is not just transport but a status symbol – it shows your neighbors you’ve entered car-driving society. It’s a sign you’ve arrived.” **Today, India is the world’s fastest growing luxury goods market, with total sales expected to reach $15 billion by 2015, nearly twice what they were in 2013.** After decades of unabashed consumption, aided by government policies designed to inspire – and that relied on – the disposable income in the pockets of their citizens, **the West now looks on anxiously at smog tinted images from Shanghai, Beijing, and China’s 150 second tier cities with populations of over a million.** Yet as 1 million Chinese people downloaded an iPhone app from Gucci to read articles about the brand’s history and stream videos of its latest collections, it would be hypocritical to deny such hopes and dreams – after all, a similar number of people downloaded the app across Europe and the U.S.. Meanwhile, Stockholm rolls out electric car sharing on its streets, Silicon Valley’s Tesla Motors develops a battery powered roadster that can reach 60 miles per hour in 3.7 seconds, and residents of San Francisco harvest honey from rooftop hives. It seems the West is having a period of reflection. Whether the developing world’s newly middle class buy a Mercedes Benz or a $2,500 Nano, their actions will have reverberations not only across their societies – such as the Indian government’s plans to invest $1 trillion over the next five years to upgrade its transport infrastructure, which currently sees cars compete with cows, rickshaws and trucks on its potholed city streets and highways. But as department stores in Europe employ Mandarin speaking staff, and the manufacturers of the Nano, India’s Tata Motors, acquires and restructures two of Britain’s most iconic brands – Jaguar and Land Rover (previously owned by America’s Ford Motor Company) – their actions are also felt in the West. Though people in the U.S. and Europe are more than willing to dance to “Oppan gang-namseutayi”, they have been given cause to look in the mirror and ask who is the fairest of them all. With mid-wage occupations such as office managers and truck drivers accounting for 60 percent of U.S. job losses during the recession – and only 22 percent of gains during the recovery – the Western middle classes are being squeezed by a combination of job insecurity, flatlining salaries and rising prices, leaving less disposable income for both essentials and discretionary items. As developing countries narrow the gap between rich and poor, the West could experience these poles drifting ever further apart.

## Newly Educated
A country’s biggest asset is its people. Educating them not only gives birth to new ideas and innovations, and a workforce able to implement them, it also has the capacity to empower individuals in allowing them to determine the course of their careers and the quality of their lives. It is the link between a country’s economic status and its future. **At present, the U.S. is home to the largest number of postsecondary degree graduates in the world and 87 of the world’s top 400 universities.****Seven years from now the situation will look very different. In less than a decade, China is expected to turn out nearly 83 million postsecondary degree graduates, almost three times as many as the U.S.. India will produce 55 million graduates, almost twice as many as the U.S. will.** Access to the very top universities in China and India sets young people on the path to success, creating magic carpet rides for the lucky few in which they will earn a return of at least 30 times their educational investment. **With a government policy of investing in indigenous technology to drive the economy and create jobs, China today produces more scientists every year than the U.S., and roughly ten times as many engineers.** **Today, 15 of the top 100 MBA programs in the world are found in emerging markets, and competition for entry is fierce.** While Ritalin and Adderall have been familiar fixtures of college dorms in the U.S. for a few years now, children in China are taking the will to succeed to new levels. In the “black month” leading up to the country’s notoriously difficult university entry exams, schools such as Xioagang high school in Hubei province have been administering intravenous drips filled with amino acids to provide their students with energy in the lead up to the dreaded exam, which has been compared to a “stampede of 10,000 horses trying to cross a single log bridge.” If they succeed in gaining entry to their country’s elite institutions, these young graduates will get the best jobs, earn the highest salaries, move into modern apartments, buy cars and luxury goods, eat higher-quality food, enjoy access to the best health care and investment services, and influence the future of their country in profound ways. In terms of the quality of a country’s education system, the number of foreign students enrolled in its classes is a more reliable indicator than the amount of money spent. **With centuries of history, the top universities in the West will continue to attract the best and brightest minds. Founded in 1167, 61 percent of Oxford University’s graduate programs are made up of students from overseas for example, and 41 percent of its faculty are foreign citizens.** While the second decade of the 21st Century will be one of austerity for many, the 2020s hint at a golden age of technology. While education has lagged behind other industries such finance, media and manufacturing in its adoption of digital technology, **advances in mass open online courses (‘MOOCs’), in which students study through a combination of video lectures, coursework and comment forums – and often without a fee – are changing the nature of elite education**. Following a 2011 experiment in online education by Stanford University in the U.S. – whose graduates have gone on to found companies such as Google, Hewlett Packard, Cisco Systems and Instagram – in which 170,000 students enrolled for an Artificial Intelligence course, Harvard and M.I.T. have followed suit with spectacular results – including a 15 year-old Mongolian boy who recently passed a tough M.I.T. electronics course with perfect scores.

## Newly online & newly urban
The gravitational pull of the city has never been stronger. Its promises of improved economic and social possibilities – hopes and dreams of a better life – are attracting people to their orbit at an unprecedented rate. The numbers are staggering. **Today, 3 billion, or 50 percent, of the world’s population live in cities. By 2030, this figure is projected to rise to 4.9 billion, or 60 percent of the world’s population.** With **the world’s urban population currently growing at four times the rate of the rural population, in developing countries**, the urban magnet is more powerful than ever before. Today, one third of the world’s population, 2 billion people, live in cities in developing countries such as China, India and Brazil – with another billion projected to join them by 2030. As cities are estimated to generate up to eighty percent of a country’s economic growth, the migration of people to urban areas echoes the patterns of the global economy shifting from the West to the East and South. **In China, around 270 million people are expected to move from rural areas to cities by the end of the decade, though as the economies of Sub-Saharan African countries continue to grow steadily, Africa will gradually replace Asia as the region with the highest urban growth rate.** Meanwhile, **cities in North America and Europe have reached a near saturation point in capacity, experiencing migration of people towards them primarily from countries beyond their national borders.** Connectivity is a phenomenon that takes place at differing rates for different regions – with Internet access particularly poor in many rural areas of the developing world, as people move to cities, they also move online. At present, 78.6 percent of North American households have access to the Internet today (with European households at 63.2 percent, and an impressive 49.2 percent in South America). In contrast**, mobile penetration in Africa grew from 1 percent to 54 percent between 2000 and 2012, and in 2014, it is predicted that 69 percent of mobiles on the continent will have access to the Internet**. Similarly, only 27.5 percent of Asian households had access to the Internet in 2012, yet** by 2030, Indian and Chinese cities alone will account for a combined 2.9 billion people online. Mobile devices such as smartphones and tablets will account for four fifths of broadband connections worldwide.** **However, just as the Industrial Revolution failed to free the worker from drudgery, online connectivity hasn’t brought us any closer to the post-Fordist “society of leisure” predicted in the late 1970s**. In fact, it could be argued that our omnipresent access to email and cloud computing – invariably experienced through LCD screens manufactured in South Korea’s Crystal Valley – has compromised our leisure time and introduced a new set of pressures, “a strange kind of existential state, in which exhaustion bleeds into insomniac overstimulation (no matter how tired we are, there is still time for one more click) and enjoyment and anxiety co-exist (the urge to check emails, for instance, is both something we must do for work and a libidinal compulsion, a psychoanalytic drive that is never satisfied no matter how many messages we receive)”, as described by the radical cultural commentator Mark Fisher in his essay Time Wars.