Globalization has been a powerful force in shaping modern human history.
The world economy has become increasingly connected and interdependent over recent decades, and conventional wisdom suggests that this will only continue in the years ahead.
But while it’s tempting to extrapolate the past effects of globalization into the future, such a leap may also be a mistake. That’s because there is growing evidence that globalization itself is quietly transforming – and how it ultimately evolves may be markedly different from what most business leaders might expect.
How Globalization is Changing
Today’s infographic highlights the most recent research about globalization from the McKinsey Global Institute, the business and economics research arm of McKinsey & Company.
Below are five major shifts that have gone mostly unnoticed, as well as the countries and companies that could benefit:
The findings of the report show that globalization is not static or constant, and that structural changes in the nature of globalization have been occurring in the background over the last decade or so.
>> View the Complete Report Here:
“Globalization in transition: The future of trade and value chains”
The impact that these shifts could have on the global economy is substantial: international trade already adds up to $22.4 trillion each year, or about 28% of global GDP. Even a minor change in this paradigm could affect the list of countries, corporations, and workers that stand to benefit.
The 5 Ways Globalization is Changing
The report looks into 23 different industry value chains in 43 different countries, representing 96% of global trade.
From that comprehensive data, five major structural shifts have been identified:
1. A smaller share of goods is traded across borders
Trade is still growing in absolute terms, but a smaller share of the physical goods made worldwide is now being traded. More specifically, during the span of 2007 to 2017, gross exports as a percentage of gross output decreased from 28.1% to 22.5% globally.
2. Services trade is growing 60% faster than goods trade
When we think of trade, we often focus on the trade of physical goods (i.e. autos, aerospace, oil). However, services are becoming increasingly important to the global economy – and if accounted for properly, it’s possible that the value of services is closer to $13.4 trillion, which is higher than the total goods trade.
3. Labor-cost arbitrage has become less important
It’s a common perception that trade flows are driven by companies searching for low-cost labor. However, in value chains today, only 18% of the goods trade is based strictly on labor-cost arbitrage.
4. R&D and innovation are becoming increasingly important
Companies are spending more on R&D and intangible assets such as brands, software, and IP as a percentage of overall revenue. This spending has increased from 5.4% to 13.1% of revenue over the period of 2000-2017.
5. Trade is becoming more concentrated within regions
The geography of global demand is changing as emerging markets consume a higher percentage of total goods. Since 2013, intraregional trade has increased by 2.7 percentage points – a reverse from the longstanding trend.
The mix of countries, companies, and workers that stand to gain in the next era is changing.
– McKinsey Global Institute
Why These Changes Matter
What types of countries are likely to benefit from these shifts, and which will face headwinds?
|Type of economy||Possible opportunities or challenges|
|Advanced economies||Strengths in innovation, services, and highly skilled talent put advanced economies in a strategic position to benefit from changes in globalization|
|Developing economies with close proximity to large consumer markets||As production moves closer to consumers, developing economies in close proximity can take advantage|
|Developing economies that are less connected||The window is narrowing for low-income countries to use labor-intensive exports as a development strategy|
Policy makers and business leaders must understand how the trade landscape is shifting so they can prepare for globalization’s next chapter and the opportunities and challenges it will present.
An Investing Megatrend: How Technological Breakthroughs are Shaping the Future
New technological breakthroughs can create massive opportunities while subsequently closing doors to old ones. Here’s what drives such innovations.
Since Apple released the first iPhone in 2007, few industries have been left unaffected.
This transformational device is a prototypical example of a technological breakthrough. It was a tipping point in turning entire business models upside-down, while also impacting our everyday lives at a more fundamental level.
New growth opportunities emerged from the ensuing disruption, while many status quo solutions were rendered obsolete.
Today’s infographic from BlackRock highlights the pervasive and positive impact that technological breakthroughs can have on the global economy.
Fueling the Flames of Innovation
According to recent data from Accenture, it’s estimated that 71% of businesses are on the brink of being disrupted.
In fact, disruptive innovation most often emerges in two scenarios:
- New solutions to existing problems or challenges that have proven difficult to solve
- New competitors in highly profitable sectors with historically high returns
The occurrence of technological breakthroughs can also be accelerated through several factors, including significant demographic shifts, sustained economic growth, innovative political environments, and urgent societal needs.
Technological Adoption is Speeding Up
Breakthrough inventions have always sent ripple effects throughout society, but today those ripples are travelling faster than ever.
Moore’s Law – the assertion that number of components in a dense integrated circuit (i.e., transistors, resistors, diodes, or capacitors) will double every year, while still getting cheaper – is one factor. Similar examples of staggering increases in utility for less cost can be found in a number of other instances, from DNA sequencing to data storage.
The rate of technological adoption is also speeding up. For example, consider the mobile phone─due to the price point and ease of use, the number of U.S. adults with a cell phone jumped from 10% in 1994 to over 96% in 2019. This is also evident in new technologies such as smart speakers, where the adoption rate in the U.S. is expected to double to 55% in less than 3 years.
Breakthrough Investment Opportunities
Where innovation leads, investment usually follows. However, predicting which technological innovations will have a lasting impact on society has often proved difficult.
Instead, investors can track the wider trends that often spark technological disruption, in order to unlock potential opportunities:
- Research and Development Funding:
The number of investments in emerging technologies is growing. Tech company acquisitions also totalled US$278 billion by Q2 2018—a 50% increase from the year before.
- The Future Workforce:
Historically, productivity gains have increased the demand for more skilled labour. Technical and soft skills are top priorities for employers for their future teams, and it it’s projected that the amount of hours that workers spend using technological skills will increase by 55% from 2016 to 2030.
- Shifts in Consumer Demand:
Companies aware of these factors should seek to incorporate innovations into their platforms for a more customer-centric experience.
- Societal Needs:
Persistent global social issues such as access to better healthcare are drivers of innovative solutions that offer a better quality of life. Symphony Post-Acute Network harnessed artificial intelligence (AI) and machine learning (ML) to be able to offer personalised healthcare for over 80,000 patients─cutting costs by more than US$13,000 per patient.
Future Impact of Technological Innovation
Technological change will likely continue to accelerate, and investors should tailor their portfolios accordingly.
At the same time, traditional barriers to entry for new competitors are consistently being eroded by these breakthroughs, sending industries into flux and creating potential new opportunities.
Humanity’s co-evolution with technology will continue to profoundly impact the economy, while improving life on Earth in unimaginable ways.
10 Global Insights into a Transforming World
Every day, global trends are reshaping society and the business landscape. Here are 10 insights into how the world is changing—and where we are heading.
10 Global Insights into a Transforming World from 2019
Every day, global trends are reshaping society and the business landscape.
Today’s infographic from McKinsey Global Institute (MGI) presents a snapshot of 10 insights into how the world is changing, based on its research work from 2019.
How did we get here, and where are we going?
A Connected World in Flux
Globalization is making the world “shrink” every day, as humans and trade become increasingly connected. However, there are signs that point to a new phase of globalization that is leading to different outcomes than prior years.
1. Globalization in Transition
Global exports are fundamentally shifting. Although manufactured goods are traded at higher volumes, certain services have grown up to three times faster.
The compound annual growth rate (CAGR, 2007-2017) for different sectors are as follows:
|Sectors||Global CAGR (% of GDP)|
|Telecom and IT services||7.8%|
|IP charges services||5.2%|
|Financial and insurance services||3.2%|
This has a profound impact on the mix of industries and countries involved in this shift away from goods and towards services. Asia is coming of age in this phase of the global economy.
2. Asia’s Ascent
Trade with and within Asia is rising, and shows no signs of slowing down. The region’s economic might is growing rapidly, and with higher disposable incomes, consumption is growing too.
In China, there is a new dynamic at play.
3. China’s Changing Relationships
Compared to other developed nations, China’s economy is relatively closed. The country is re-balancing its focus towards domestic consumption and relying less on other countries for trade, technology, and capital.
At the same time, the rest of the world is increasingly exposed and tied to China for the same things—and such unequal engagement has a ripple effect on everything from financial markets to flows of technology and innovation.
Technology and the Future of Work
New technologies like artificial intelligence are sparking new opportunities, but they also raise questions about the future of work across geographies and gender.
4. Increasingly Digital India
As the costs of devices and data plummet, India’s digital adoption is surging—it closely competes with China for the highest digital population across everything from smartphone ownership to social media users.
As mass adoption of digital technologies continues, it is poised to add significant economic value to the Indian economy.
|Digital sector||Current economic value||Maximum potential value (2025E)|
|Core digital services|
e.g. IT business process management
|Newly digitizing sectors|
e.g. Financial services
Companies worldwide are also integrating new technologies—changing the nature of work itself.
5. New Geography of Work
By 2030, talent and investment in the U.S. will be concentrated in a few regions—with 60% of job growth coming from just 25 hubs.
These are just some examples of places which see double-digit potential net job growth by 2030. However, all regions will face unique challenges in the next decade.
6. Automation’s Effect on Gender at Work
Globally, women and men are at similar risk of losing their jobs to automation by 2030.
- Women: 107 million FTEs
Share of female employment, 2017: 20%
- Men: 163 million FTEs
Share of male employment, 2017: 21%
*FTE: full time equivalent. Based on midpoint automation scenario.
While everyone needs to adapt in the age of automation, women face more barriers. They spend up to 1.1 trillion hours on unpaid care work, nearly three times that of men (400 billion hours).
Women are also often in lower-paid roles or male-dominated professions. Additionally, many women have less access to digital technology, and limited flexibility to pursue education. These factors make it harder for women to “catch up” and bridge the gap left behind by automation.
Inequalities and Uncertainties
It’s clear that while technology generates opportunities, it also creates new social challenges. Low- and middle-income households face stagnating incomes, higher debt, and rising basic costs.
7. Declining Labor Share of Income
The U.S. labor share of income has been dropping for years—but ¾ of this decline has occurred since 2000.
According to McKinsey Global Institute, boom-bust commodity cycles and rising depreciation are the main factors behind this trend, more so than commonly-cited automation or globalization.
Stagnating incomes mean less purchasing power, while the cost of basics are sharply rising.
8. Changing Consumption Costs
The global inequality gap has narrowed, but within developed economies, it has actually increased.
Technology and globalization have made many discretionary goods cheaper. However, basic costs such as education, housing, and healthcare have ballooned compared to the rate of inflation over the past decade.
With wages stagnating, the higher costs for basics have eaten into disposable incomes in many mature economies.
A Changing Business World
Global trends drastically influence how companies compete with one another, transforming corporate dynamics worldwide.
9. Corporate Superstars
In just two decades, the distribution of economic profits has been growing increasingly wider. The top 10% of companies (>$1 billion in revenue) brings in an ever-larger share of total profits, while the losses of the bottom 10% share deepen.
- Average profit per company, 1995-1997
Top 10%: $0.85B
Bottom 10%: -$1.02B
- Average profit per company, 2014-2016
Top 10%: $1.36B
Bottom 10%: -$1.56B
*In 2016 dollars. Considers corporations with ≥$1 billion average sales (inflation-adjusted). Sample sizes: 2,450 companies (1996–1997) and 5,750 companies (2014–2016).
In essence, the bottom 10% destroy as much value as the top 10% create—and it has only intensified in 20 years.
10. Latin America’s Missing Middle
Latin America best exemplifies this corporate trend of companies “thriving” versus “surviving”.
Compared to similar economies, Latin American countries lack mid-size companies with over $50M in revenue. The Latin American average for firms per $1T GDP is 65 firms, while 100 firms is the benchmark average.
While Asia’s share of the largest firms is widely distributed across countries, Latin American enterprises are lagging behind.
What does the Future Hold?
CEOs and leaders will need to adapt to the new age of disruption—and quickly. To become a 21st century company, they must ask 10 crucial questions about how they operate in an increasingly complex world:
- What is our mission and purpose as a company?
- How far do we go beyond shareholder capitalism? How are we accountable to different stakeholders?
- Who benefits from our economic success? How?
- What is the time horizon for managing our economic success and impact?
- What is our responsibility to our workforce, especially given future-of-work implications?
- How do we leverage data and technology responsibly and ethically?
- What are our aspirations for inclusion and diversity?
- What is our responsibility for societal and sustainability issues involving our business, and beyond?
- What are our responsibilities regarding participants in our platforms, ecosystems, supply and value chains and their impact on society?
- How should we address the global and local (including national) imperatives and implications of how we compete, contribute and operate?
As the 10 insights suggest, global trends are profoundly altering the course of our future. Their impact varies greatly depending on demographics and region.
Everyone—business leaders, policy makers, and individuals worldwide—will need to adapt to the realities of a world in transformation.
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