Dominic Barton, Global Managing Director, McKinsey & Company, was one of the keynote speakers at the Asia Business Forum, organised by London Business School's Asia Club, on 27 April 2013. He spoke about the 5 mega-trends that are reshaping the global economy and raising the profile of many Asian countries and brands.
Find out more about the Asia Club:
Website: https://clubs.london.edu/asiaclub
Facebook: https://www.facebook.com/LBS.AsiaClub
Twitter: https://twitter.com/LBSAsiaClub
Using Grammatical Signals Suitable to Patterns of Idea Development
New driving forces in Asia
1. New Driving Forces in Asia
Asia Business Forum
London Business School
27 April 2013
Dominic Barton, Global Managing Director
McKinsey & Company
2. Topics for discussion
1 The rise of Asia
2 Seizing the opportunity
3 Personal story in Asia
McKinsey & Company
| 1
3. Five mega-trends reshaping the global economy
The great rebalancing
The productivity imperative
The global grid
Pricing the planet
The market state
McKinsey & Company
| 2
4. Incomes are rising in developing economies faster, and at a greater scale,
than at any previous point in history
Population at start
of growth period
Years to double GDP per capita
Country
Year 1700
United Kingdom
United States
Germany
Japan
South Korea
China
India
1800
1900
2000
Million
9
154
10
53
28
65
48
33
27
10
1,023
12
16
SOURCE: Angus Maddison; University of Groningen; Resource Revolution: Meeting the world’s energy, materials, food,
and water needs, McKinsey Global Institute, 2011
840
McKinsey & Company
| 3
7. 3 billion new middle class consumers
Global consuming class1
Billions of people
4.88
3.25
Sub-Saharan Africa
Middle East and North Africa
Central and South America
North America
Europe
Asia
3 billion
1.85
3.23
1.74
0.53
2009
2020
2030
1 Consuming class = $10 or more daily disposable income or $3,600 annual income (constant 2005 USD at purchasing power parity)
SOURCE: McKinsey Global Institute
McKinsey & Company
| 6
8. Emerging market consumption will be $30 trillion by 2025,
nearly half of global total
World consumption
Emerging market consumption in 2025
$ Trillions
Total
64
30
China
30
Emerging
8
India
3
38
Brazil
12
Russia
2
Mexico
1
26
34
Developed
3
Indonesia
1
Turkey
2010
2025
Poland
Other
SOURCE: McKinsey Global Institute
1
1
10
McKinsey & Company
| 7
9. 440 cities in emerging markets will fuel nearly half of
the growth in global GDP through 2025
Emerging 440 (440 largest
cities in emerging markets)
Percent contribution to global GDP growth, 2010–2025
100% = $50.2 trillion
100
440 largest
emerging
market cities
=
47%
26
of global
growth
27
313 cities
in Asia
4
28
China
region
3
2
South Asia
Southeast
Asia
3
6
Latin
America
Middle East Eastern
Other
& Africa
Europe &
emerging
Central Asia regions
Developed
countries
Global
growth
Asian cities
In China, 15-20 MM people move to a city each year –
equal to adding New York City twice
SOURCE: McKinsey Global Institute Cityscope 2.0
McKinsey & Company
| 8
10. Middleweight cities in emerging markets will contribute
4.5x more to global GDP growth than emerging market megacities
Share of global GDP growth, 2007-25
Percent
100% = $54.9 T
Emerging market middleweight cities
(150 k-10 M people)
36
Emerging market
megacities
(10 M+ people)
8
Emerging market small
cities and rural
30
Developed economies
SOURCE: McKinsey Global Institute CityScope 1.1
26
Examples
Surat, Gujarat
West coast of India
4 million inhabitants
40% of India’s textile production
Pekanbaru, Riau
Island of Sumatra, western Indonesia
1 million inhabitants
7.3% GDP CAGR expected through
2030
Foshan, Guangdong
Southeast China
4 million inhabitants
China’s 7th largest city by GDP
McKinsey & Company
| 9
11. Cities can be grouped into clusters around a hub city – some clusters are
already economically larger than entire countries
2010 GDP for urban clusters
$ Billions
Urban clusters in China and their hub cities
527
Shanghai
Jingjinji
527
Switzerland
ChangchunHarbin
Liao central-south
Huhehaote
475
Jingjinji
Central
469
Belgium
Taiyuan
Guanzhong
Shandong Byland
Hefei
Nanjing
`
Yangzi mid-lower
Shandong
418
Chengdu
Hangzhou
Chongqing
Austria
Guangzhou
378
357
Changzhutan
Nanchang
Coast West
Kunming
Shenzhen
Nanning
SOURCE: McKinsey Global Institute
Shanghai
Guangzhou
(includes Foshan)
McKinsey & Company
| 10
12. Emerging market cities will become the leading consumer
markets globally – even for products catering to the elderly
2025
Rank
xx Emerging
xx Advanced
Elderly, higherincome consumers
Young entry-level
consumers
Laundry care
products
Municipal water
demand
1
Shanghai
Lagos
São Paulo
Mumbai
2
Beijing
Dar es Salaam
Beijing
Delhi
3
Tokyo
Dhaka
Rio de Janeiro
Shanghai
4
Tianjin
Ouagadougou
Shanghai
Guangzhou
5
Mumbai
Khartoum
Mexico City
Beijing
6
São Paulo
Ghaziabad
Moscow
Buenos Aires
7
Osaka
Sanaa
Bangkok
Kolkata
8
Chongqing
Nairobi
Istanbul
Khartoum
9
Delhi
Luanda
Manila
Dhaka
10
Nanjing
Baghdad
Johannesburg
Istanbul
11
Guangzhou
Kampala
Belo Horizonte
Dallas
12
New York
Ibadan
Porto Alegre
Pune
13
Seoul
Lusaka
Buenos Aires
Las Vegas
14
Hong Kong
Kinshasa
Tianjin
Karachi
15
Wuhan
Kano
Tehran
São Paulo
SOURCE: McKinsey Global Institute
McKinsey & Company
| 11
13. As people move to cities and incomes rise, so will demand for new homes,
transportation networks, and other infrastructure
Capital stock vs. GDP per capita by country and year, 1980–2008
$ Thousands, sample of selected countries, constant 2005 prices and exchange rates
Capital stock per capita1
140
Japan
120
Italy
100
Germany
US
80
South Korea
60
40
UK
Urban
China
China
20
India
0
0
5,000
10,000
15,000
20,000
25,000
30,000
1 Stock of net fixed assets at the end of the year, assuming 5% depreciation rate for all the assets
SOURCE: McKinsey Insights China; McKinsey Global Economic Growth Database; McKinsey Global Institute
35,000
40,000
45,000
GDP per capita
McKinsey & Company
| 12
14. Emerging markets have much infrastructure capacity to develop before
reaching the level of advanced economies
Roads
Road km per 1,000 sq km
Japan
Developed
181
40
China
23
378
118
66
United States
Airports
Airports per million sq km
72
320
Germany
Indonesia
Rail
Rail km per 1,000 sq km
902
23
529
9
47
3
97
Developing
Russia
6
5
35
Kazakhstan
3
6
23
SOURCE: CIA World Factbook 2012; Infrastructure Africa; Economic Research Institute for ASEAN and East Asia; World
Economic Forum, Global Competitiveness Report 2011–2012; McKinsey Global Institute analysis
McKinsey & Company
| 13
15. Topics for discussion
1 The rise of Asia
2 Seizing the opportunity
3 Personal story in Asia
McKinsey & Company
| 14
16. Western MNCs have an enormous opportunity
to shift their business to Asia
By geography, revenues of advanced economy companies vs. World GDP
Share from emerging markets
Percent
36
17
ME and Africa
Emerging Asia
6
16
2
World GDP
Advanced
economy
companies’
revenues
SOURCE: McKinsey Global Institute; company financials
% of world % of
GDP
revenues
8
% of world % of
GDP
revenues
McKinsey & Company
| 15
17. Emerging market companies are already growing
faster than advanced economy rivals
Revenue CAGR
Company HQ in advanced economy
Company HQ in emerging market
30.7
22.4
2.5X
17.9
~2X
~2X
11.7
12.6
7.5
Growth in
home market
SOURCE: Growth decomposition database; McKinsey analysis
Growth in
developed market
Growth in
emerging markets
McKinsey & Company
| 16
18. Lessons from successful companies in emerging markets
1 Design strategies at the city cluster level
2 Radically redeploy resources for the long-term
3 Organize for the markets of tomorrow
4 Understand emerging market consumers with granularity
5 Turbocharge the drive for emerging market talent
McKinsey & Company
| 17
19. 1 Different city clusters have distinct characteristics, even in
the same province
Chengdu and Chongqing city clusters, Sichuan province
Percent
Population
composition
Age
1
Migrants
Affluent
>55
31
Share of wallet
Income
24
2
1
Transportation &
communication
28
19
13
7
35
29
7
9
Housing
9
10
Home
furnishing
4
4
Recreation
15
14
69
15-34
28
27
Mass
20
14
0-14
13
13
14
79
32
99
Local
12
Healthcare
35-54
Apparel
61
6
Food
New
Mainstream
Household
products
Poor
17
28
6
Chengdu Chongqing
Chengdu Chongqing
Chengdu Chongqing
SOURCE: McKinsey Insights China – Annual Consumer survey (2012), McKinsey Insights China – Macroeconomic model
update (Apr. 2012)
Chengdu Chongqing
McKinsey & Company
| 18
20. 1 Consumer preferences also differ across clusters, even between tier 1
cities in the same region – beverage example
Top 5 beverage selection criteria
Percent of respondents (“Mass” consumers - $6k-$16k/37k-106k RMB/year income)
South
National
average
Tastes good
West
Shenzhen
cluster
67
Good value
13
-1
60
Healthy
59
Safe
31
Chengdu
cluster
27
21
-3
14
-17
SOURCE: Mckinsey Insights China – Annual Consumer survey (2012)
Chongqing
cluster
-3
-17
0
26
Makes me feel
unique/special
Guangzhou
cluster
-10
13
-7
-10
3
-10
-8
-6
-6
22
McKinsey & Company
| 19
21. 1 A city cluster approach increased revenues 50% and
decreased marketing costs 12% at a consumer goods company
ChangchunHarbin
Jingjinji
Liao
centralsouth
Shandong
Byland
Hefei
Nanjing
Huhehaote
Taiyuan
Central
Guanzhong
`
Yangzi mid-lower
Shanghai
Chengdu
Hangzhou
Chongqing
Nanchang
Coast West
Changzhutan
Shenzhen
Nanning
▪
▪
“One size fits all” China strategy
▪
Thin, dispersed sales and marketing
coverage
Generic, non-differentiated targets
across all regions
Guangzhou
▪
15 prioritized city clusters
segmented by consumer preferences
and 2015 market size potential
▪
For each city cluster – tailored
product portfolio, sales model, and
marketing strategy
McKinsey & Company
| 20
22. 2 Emerging market companies are reinvesting more aggressively
than MNCs
Average dividend payout rate
1999-2008, percent
Fixed assets CAGR
1999-2008, percent
80
-51%
39
12
7
Mature market Emerging
companies
market
companies
+71%
Mature market Emerging
companies
market
companies
McKinsey & Company
| 21
23. 2 Successful companies adopt a long-term investment mindset
to build a sizeable, profitable business
Years to break even
Years to break even
8
4
10
7
4
8
8
9
7
7
11
SOURCE: Press search; company reports
7
McKinsey & Company
| 22
24. 3 Leading companies are reorganizing to reflect the rising importance
of emerging markets
Description
▪
Build a more
dynamic HQ
▪
Streamline processes without
standardizing more than necessary
▪
Rethink
boundaries
Group activities by non-geographic
criteria, e.g., growth goals
Move the HQ to (or create a virtual
one in) emerging markets
▪
Ensure a constant flow of talent
between the business units and the
centre to build skills
Examples
▪
Created new structure
for global operations,
e.g., for all growth
markets, HR is in Manila
and procurement is in
Shanghai
▪
Shifted global base of
its robotic business from
Detroit to Shanghai to
meet expected Asian
demand
McKinsey & Company
| 23
25. 3 Yum! Brands placed China at the very top of the organization
Yum! total operating profit
Percent
CEO
15
President
of Yum!
China
President
of Yum!
International
President
of KFC
President
of Pizza
Hut
President
of Taco
Bell
CFO
COO
18
21
…
41
67
SVP Ops
KFC
SVP Ops
Pizza Hut
SVP Ops
East
Dawning
SVP
Finance
56
SVP HR
…
38
26
18
▪ Full autonomy over strategic decisions
▪ Dedicated R&D centre develops 20+ new
2004
2007
2010
products/year
SOURCE: Press search; company reports
McKinsey & Company
| 24
26. 3 P&G elevated its China org to P&L responsibility
P&L responsibility
CEO
Global business
services
Corporate
functions
Global
business
units
Health, baby,
and family care
Beauty care
Regional
business units
Market
development
organization
North
America
Household
care
CFO
Gillette
Global
MDO head
Central and
E. Europe,
ME, Africa
SOURCE: Press search; company reports
Western
Europe
ASEAN,
Austral-Asia,
India
Northeast
Asia (Japan/
Korea)
Greater
China
Latin
America
McKinsey & Company
| 25
27. 4 Successful companies understand emerging markets’ different
preferences – for example, functional benefits still dominate decisions
Top 5 key buying factors – mobile handset example
% of respondents
Functional
benefits
80
Is durable
Provides good
after-sales service
42
Is a well-known brand
17
29
Is environmentally
friendly
25
Meets my needs
Emotional
benefits
39
8
10
Makes my life
more convenient
27
9
Shows my unique taste
3
SOURCE: McKinsey China Consumer Survey (2011); McKinsey Online Benchmark Survey (2011)
27
41
5
McKinsey & Company
| 26
28. 4 Localization is important – there are distinct sub-markets, distinct
consumer behaviors
McKinsey & Company
| 27
29. 4 Indonesian consumers are very brand loyal
% of people when buying food and beverage in Indonesia
6%
“I consider a few
brands, but am open to
another brand if they
are on promotion”
2%
“I always buy brand
offering the best deal”
28% 63%
“I consider a few
brands, then choose
from those predetermined brands”
SOURCE: CSI Indonesia 2011
“I only buy the
brand I prefer”
McKinsey & Company
| 28
30. 4 The new middle class also uses the Internet more for researching
online and offline purchases – China example
New Mainstream
Mass
Percent of users who trust each information
source
I will not make a purchase before
researching it first on the Internet
Percent
When
purchasing
consumer
electronics (e.g.,
mobile phone)
When
purchasing
personal care
products
20
42
Internet
56
24
12
Online
forum
(e.g.,
Dianping)
43
65
16
Social media
site (e.g.,
Renren,
Kaixin)
SOURCE: McKinsey Insights China – Annual Chinese Consumer Studies (2012)
49
79
McKinsey & Company
| 29
31. 4 5 South East Asian countries are in the top 30 users of Facebook
Number of users
1
USA
163 M
2
Brazil
66 M
3
India
61 M
4
5
Mexico
8
Philippines 30 M
13
Thailand
18 M
47 M
Indonesia 47 M
18
Malaysia
13 M
40 M
22
Vietnam
12 M
SOURCE: Socialbakers
McKinsey & Company
| 30
32. 5 Western MNCs are no longer the top choices for talent
in Asia
Western MNCs
Top 10 preferred employers by country by business students
China
2006
India
2011
2006
2011
1
P&G
Bank of China
1
McKinsey
ICICI Bank
2
McKinsey
P&G
2
BCG
Google
3
Citibank
China Mobile
3
Lehman Brothers
State Bank
4
HSBC
CDB
4
ITC
HDFC
5
China Mobile
ICBC
5
Microsoft
Microsoft
6
BOC
CICC
6
Goldman Sachs
BMW
7
PWC
Citibank
7
Merril Lynch
CICC
8
KPMG
SGCC
8
P&G
Reserve Bank
9
Morgan Stanley
HSBC
9
Infosys
IBM
PetroChina
10 Accenture
10 BCG
KPMG
McKinsey & Company
| 31
33. 5 Leading companies understand what matters to talent in emerging
markets – frontline talent example
Ranking of payment incentives that help to retain frontline employees
Percent of respondents
▪ Chinese workers tend to compare themselves with others
94 ▪ Performance-based wage system visible to all helps
Performance
based
wage/bonus
increase retention
Lock-out
periods
44
▪ Fixed amount of salary not distributed until 3 years tenure
▪ Bonus paid at end of a year-long project
Additional
health
insurance
41
▪ Full reimbursement above mandatory insurance
Extra
retirement
pension
▪ ~5% of Chinese companies have started pension funds,
22
with supplementary life insurance as the most common
perk
SOURCE: Nomura Research Institute; EIU; Watson Wyatt; McKinsey analysis
McKinsey & Company
| 32
34. 5 Where labour markets are not yet fully developed, companies can step
in to develop the supply – Infosys example
Learning Centre, Mysore
▪ 337 acre campus
▪ 100,000 engineers trained so far
McKinsey & Company
| 33
35. 5 Many MNCs have established universities in China to build nextgeneration leaders
Motorola
University
Haier University
Siemens
Management
Institute
▪ Different
▪ Management
▪ 10 majors
programs
designed to
specific talent
groups
courses across
corporate
strategy,
marketing,
supply chain,
and HR
▪ Haier internal
management
philosophy
SOURCE: Expert interviews; literature research; McKinsey analysis
available from
engineering to
management
over a 3-year
program
▪ Offered through
Ericsson China
Academy
▪ Leadership
training
▪ Business skills
▪ Telecommunicati
on technical
training
virtual, in-class
room teaching,
workshops and
apprenticeship
McKinsey & Company
| 34
36. Topics for discussion
1 The rise of Asia
2 Seizing the opportunity
3 Personal story in Asia
McKinsey & Company
| 35
37. Personal experience in developing a successful career in Asia
1. Was “all in” in having Asian experience
a. Moved to Seoul in 1998 and then to Shanghai in 2003
b. Took regular trips and vacations to many parts of the region
(Cambodia, Thailand, Mongolia, others)
2. Made an effort to engage with local community, both formally
(e.g., served as chair of Seoul International Business Advisory
Council) and informally (e.g., taught migrant children on
weekends with family)
3. Spent majority of time serving Asian companies, rather than
MNCs
4. Built local friendships and relationships through work, study
(wife was a student at university) and community engagement
5. Wrote extensively about Asia (both local and international
publications) and published a book (China Vignettes) in 2008
McKinsey & Company
| 36