The shift in global economic power is one of the five megatrends transforming business. But the search for global growth has become more complex as some mature markets see greater promise and emerging markets encounter setbacks - and as fortunes diverge within these groups. The winners will be those that are rigorous in choosing where and how to play.
The shift in global economic power is one of the five megatrends transforming business and society. China’s economy has already overtaken that of the US in purchasing power parity (PPP) terms. Less than five years from now we think Asia Pacific’s middle class will be bigger than that in Europe and North America combined. And by 2030, we think the E7’s purchasing power will be greater than the G7’s.
But the changing dynamics of global power have become increasingly complex. While emerging markets continue to show long-term promise, the growth trajectories and outlooks we’ve seen are no longer as straightforward as they once seemed. ‘High growth’ isn’t a label that can automatically be applied to emerging markets today, while mature markets have become better investment prospects. Indeed, the US has returned as the world’s growth engine. Two years ago our Annual Global CEO Survey showed that the US had overtaken China as CEOs’ most important overseas market for the first time since we asked the question five years previously.
And changes aren’t just happening between emerging and developed economies; they’re happening within them. It’s still relevant to distinguish between E7 and G7 but not to think of them as monolithic ‘blocs’. Some EU economies for example, have suffered much more than developed economies elsewhere. The pace of growth and economic and political reform among emerging markets, meanwhile, has diverged significantly. And a new generation of frontier markets (F7) – like Mexico, Vietnam and Nigeria - have potential to become tomorrow’s growth markets. We need a new view of the global economy that includes how countries are performing not just economically but also along political, social, communication and environmental dimensions – which can predict how likely they are to ‘escape’ from their current position and move into higher economic gear.
Global organisations looking for growth in emerging markets are having to think much more carefully about their different opportunity and risk profiles, including the rapidly changing nature of local competition. A holistic growth markets framework can help to achieve this, by taking into account the value proposition, operating model, business environment and financial and human capital requirements in different markets – and the mindset and expectations needed to understand what it takes to succeed. Companies also need to become more flexible in their approach to emerging markets, in order to keep pace with the rapidly evolving consumer base, less mature business environment and navigate a host of operational and environmental risks. And they have to be able to look beyond current headlines to keep an eye on long-term goals and ambitions, such as China’s ‘Belt and Road’ initiative and wider globalisation strategy, or how emerging markets are leveraging digitisation to make the most of Industry 4.0.
Global economic shifts are also taking place at the city level, as rapid urbanisation – another of the five transformative megatrends – takes hold. Urban opportunities can be viewed along many indicators, both quantitatively – we use 59 datapoints to rank 30 cities worldwide – and qualitatively, through a demographic lens.
Growing in global markets is a must-have for many organisations. But with everyone in the game and the rules changing rapidly, the winners will be those that are rigourous in choosing where and how they play.
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