This week, a snapshot of global trends ahead of the G-7 summit, and a look at how silos weaken corporate performance. Plus, Kevin Sneader, our global managing partner, on how digital disruption is transforming Asia. |
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Perhaps it’s good that the upcoming G-7 summit will be held in Biarritz, an elegant coastal city in southwestern France, later this month. The languid beach views might encourage cooler heads to prevail when addressing one of the meeting’s key objectives: to strengthen globalization “through more fair and equitable trade, tax, and development policies.” |
Worries have been mounting about a global trade war and what that would mean for economies. Yet our research shows that fear of tariffs obscures the the greater structural shifts at play in markets all over the world. |
For one thing, an explosion of growth in the developing world has led to a similarly explosive demand for goods from advanced countries. Currently, developing economies account for almost 40 percent of global consumption; by the year 2030, that figure will likely top 50 percent. |
In 2017, advanced countries exported over $4 trillion dollars’ worth of goods to developing nations—a pace that shows no sign of slowing, according to our report Globalization in transition: The future of trade and value chains. Governments that retreat into policies of protectionism do so at their own peril. |
As developing economies (led by China and India) play catch-up with richer nations, inequality has declined overall. But the wealth and income gap continues to grow in many advanced economies. And in G-7 economies and across many (but not all) advanced economies, wealth and income inequality in general has been rising since the 1980s. |
With advanced economies gobbling up a greater share of the global wealth, more executives than ever are expressing profound pessimism regarding the world economy. According to our latest survey on economic conditions, for the first time since 2011, when we began this survey series, a majority of business leaders in every region except for India and Latin America expect the economy to worsen in the next six months. |
A growing share of respondents also predicted that the level of trade will decrease between their home countries and the rest of the world in the next year. The stated ambition of the politicians attending August’s G-7 summit is, of course, to begin to change that. We’ll see. |
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WHO WE’RE WATCHING |
Kevin Sneader |
In “How Asia’s rise is reshaping the world,” Kevin Sneader, McKinsey’s global managing partner, discusses the shift in the world’s economic center of gravity—to Asia. Below is a condensed Q&A from the video. |
What are the top three most disruptive forces shaping the world today? |
In many respects, the shift in economic activity to Asia is the most disruptive force the world is seeing. If you look at the economies that have outperformed the United States over the past 50 years, most of them are in Asia. This shift in economic activity toward Asia is going to continue. |
The second disruptive force is the way that globalization—and the impact of data—ensures that service-based flows, as opposed to just goods-based flows, become increasingly important. That’s one of the reasons that trade within Asia has gone from being about 8 percent of the trade in that part of the world in 1995 to 20 percent now. That’s a huge increase. And it’s only going to gather steam. |
The third force is technology and technology development. How is AI [artificial intelligence] going to play out in Asia and through Asian companies globally? |
How should CEOs respond to these forces? |
If I had to pick a few areas where CEOs should be focused, the first would be the impact of AI and automation. If you think about the jobs we have today, 60 percent will see more than 30 percent of tasks fundamentally transformed. That means the way your labor force works has to change. |
CEOs also have to think about their supply chains. Where are they located? How are they organized? We are going to see the boundaries that determine global supply—and the whole notion of a global supply chain—give way to a supply chain that is optimized regardless of what happens on the political front. And that means more local development, more local capability. That’s a big shift. |
What do these automation and jobs shifts mean for Asia? |
If Asia and the world are going to continue to grow at a time when working populations are contracting, it’s crucial to think about the labor force as a whole. Gender parity isn’t just a nice thing to do, it’s at the heart of the growth debate. Japan will not grow if more women do not come into the workforce. China’s labor population will decline within the next five or so years. That means even more women need to enter the workforce. Gender parity becomes a necessity for economic growth, which leads me to the last point. |
Technology and automation can be a force for good, or they can reinforce some of the differences and inequalities that exist. If the digital divide grows even further, the gap between the digital haves and have-nots is going to be the defining issue of our time. I think that’s a massively important topic for CEOs: to ensure that technology is accessible to all. |
Read more about these shifting dynamics in our Future of Asia collection. |
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BACKTALK |
Have feedback or other ideas? We’d love to hear from you. |
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