ernst & young - megatrends 2015 ~ making sense of a world in motion
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Megatrends 2015Making sense of a world in motion
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Welcome 1
Introduction 2
Executive summary 4
1. Digital future 6Technology is disrupting all areasof enterprise, driving m yriadopportunities and challenges
2. Entrepreneurship rising 14Entrepreneurship around the w orldis grow ing, driving the needfor m ore supportive ecosystem s
3. Global marketplace 22Econom ic pow er continues to shifteast and south, driving new patternsof trade and investm ent
4. Urban world 30Effective infrastructure investm ent
and sound planning w ill m ake futurecities com petitive and resilient
5. Resourceful planet 38Grow ing dem and and shifting supplyare driving innovation in the energyand resources space
6. Health reimagined 44Technology and dem ographicsconverge to drive a once-in-a-lifetim e
transform ation
Contents
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Welcome At EY, w e describe m egatrends as large, transform ative global forces that defi ne
the future by having a far-reaching im pact on business, econom ies, industries,
societies and individuals.
W e live in a w orld in constant m otion. Goods, capital and labor are traveling
globally at a faster pace than ever and m oving in novel patterns. Technological
innovation, including digital, is rew riting every industry and the w ay in w hichhum an beings m anage their lives. In this w orld, the ever-increasing acceleration
of change is one of the few constants.
EY has identifi ed six m egatrends. W e think that each has the present and future
capacity to disrupt and reshape the w orld in w hich w e live in surprising and
unexpected w ays. W e call them digital future; entrepreneurship rising; global
m arketplace; urban w orld; resourceful planet; and health reim agined.
W ith each m egatrend, w e present a set of observations and facts designed to
cover what w e deem to be the m ost im portant and interesting aspects. In total,
they provide a “best guess”from w here w e sit today as to how these m egatrends
m ight unfold in the future.
As w ith any exercise of this type, w e don’t claim to have a crystal ball. W e do,
how ever, believe in the fundam ental im portance of thinking critically about the
im plications em bedded in these m egatrends today, as w ell as scanning the horizon
for new developm ents. For EY, the m egatrends process is one of the key w ays in
w hich w e gain insights that inform our m ission of building a better w orking w orld.
The process helps us to better understand the challenges and opportunities that
our clients face so that w e can effectively respond to their shifting needs.
In this spirit, EY invites you to peruse this report to consider how these
m egatrends m ight also be im pacting your business, your partners and your
custom ers —opening up new opportunities to achieve adaptation, grow th and
success in the near and longer-term future.
Uschi SchreiberEY Global Vice Chair —M arkets and Chair, Global A ccounts Com m ittee@ uschischreiberUschi.Schreiber@ eyop.ey.com
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Making sense of
a world in mot ionM egatrends are large, transform ative
global forces that im pact everyone
on the planet. EY has identifi ed six
m egatrends that defi ne our future
by having a far-reaching im pact on
business, society, culture, econom ies
and individuals.
W hile each of the m egatrends
stands on its ow n, there is clear
interactivity. Digital, for exam ple, is
closely intertw ined w ith expected
transform ations across the other fi ve
m egatrends. Big data, sensors and
social applications w ill underpin the
reim agining of health m anagem ent.
Digital technologies w ill drive the
realization of tom orrow’s “intelligent
cities.”Digital oilfi elds w ill lead toincreased savings and output in the
energy space, w hile “sm art grids”w ill
revolutionize the production, delivery
and use of electricity w orldw ide. The
ability to create digitally based business
m odels has low ered the barrier to
creating new and innovative ventures
for entrepreneurs around the w orld.
In som e cases, successful outcom es
in one m egatrend are related to
developm ents in another. A s the
w orld urbanizes to the tune of 750
cities contributing 61% of global GDP
by 2030, urban areas w ill require
sustainable and resilient solutions
to optim ize resources, reduce risks
and prom ote the w ell-being of allcitizens. The econom ic prom ise of an
increasingly global m arketplace w ill
be dependent on m ajor investm ent in
infrastructure and related fi nancing in
the w orld’s new and existing cities.
The m egatrends illustrate a w orld in
m otion. Econom ic pow er continues
to shift eastw ard. N ew m arkets and
new trade linkages are em erging. The
boundaries betw een industry sectors
are blurring. N ew entrants that aredigitally native are overturning existing
business m odels. Existing players in
one sector (technology) are entering
other sectors (health) w ith exciting
new propositions. A s w e hurtle tow ard
2030, developm ents within these six
m egatrends, as w ell as the interplay
betw een them , w ill certainly bear close
w atching.
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Introduction
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1
2
345
6Resourcefulplanet
Urbanworld
Healthreimagined
Globalmarketplace
M ore interactive
Less interactive
Digitalfuture
Entrepreneurshiprising
Each m egatrend is im portant inits ow n right. But they are alsoclosely related to one another.
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Fueled by the convergence of social, m obile, cloud, big data and grow ing dem and
for anytim e anyw here access to inform ation, technology is disrupting all areas of
the business enterprise. Disruption is taking place across all industries and in allgeographies. Enorm ous opportunities exist for enterprises to take advantage of
connected devices enabled by the “Internet of Things”to capture vast am ounts of
inform ation, enter new m arkets, transform existing products, and introduce new
business and delivery m odels. H ow ever, the evolution of the digital enterprise also
presents signifi cant challenges, including new com petition, changing custom er
engagem ent and business m odels, unprecedented transparency, privacy concerns
and cybersecurity threats.
Technology is also changing the w ays that people w ork, and is increasingly
enabling m achines and softw are to substitute for hum ans. Enterprises andindividuals w ho can seize the opportunities offered by digital advances stand to
gain signifi cantly, w hile those w ho cannot m ay lose everything.
The grow th and prosperity of all econom ies, rapid-grow th and m ature, rem ains
highly dependent on entrepreneurial activity. Entrepreneurs are the lifeblood
of econom ic grow th —they provide a source of incom e and em ploym ent for
them selves, create em ploym ent for others, produce new and innovative products
or services, and drive greater upstream and dow nstream value-chain activities.
W hile som e entrepreneurial activity around the w orld is still driven by necessity,
“high-im pact”entrepreneurship, once largely confi ned to m ature m arkets, is now
an essential driver of econom ic expansion in rapid-grow th m arkets. In som e cases,
these high-im pact entrepreneurs are building innovative and scalable enterprisesthat capitalize on local needs and serve as role m odels for new entrepreneurs.
The face of entrepreneurship is also changing —across the w orld, entrepreneurs
are increasingly young and/or fem ale. M any of these new enterprises are digital
from birth. A ccess to funding rem ains the prim ary obstacle for entrepreneurs
from all m arkets. The public and private sector each have an im portant role to play
in creating entrepreneurial ecosystem s that, in addition to funding, are essential
to prom oting entrepreneurial success.
Faster grow th rates and favorable dem ographics in key rapid-grow th m arkets w ill
continue to be a feature of the next decade or so. The gulf betw een “m ature”and
“rapid-grow th”countries continues to shrink. A new tier of em erging nations,
driven by their ow n nascent m iddle classes, w ill draw global attention. Innovation
w ill increasingly take place in rapid-grow th m arkets, w ith A sia surfacing as a
The forces drivingour future Digital
future
Entrepreneurshiprising
Global
marketplace
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Executive sum m ary
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m ajor hub. In the global m arketplace, the w ar for talent w ill becom e increasingly
fi erce, necessitating greater w orkforce diversity to secure com petitive advantage.
The econom ies of the w orld w ill rem ain highly interdependent through trade,
investm ent and fi nancial system linkages, driving the need for stronger global
policy coordination am ong nations and resilient supply chains for com panies
operating in this environm ent. A t the sam e tim e, dom estic interests w ill continueto clash and com pete w ith the forces of global integration. Pushback and
opposition to global integration m anifests itself in various econom ic, political
and cultural form s, including trade and currency protectionism , the im position
of sanctions to achieve political aim s, anti-globalization protests, as w ell as the
strengthening of nationalistic, religious and ethnic m ovem ents around the w orld.
The num ber and scale of cities continues to grow across the globe —driven by
rapid urbanization in em erging m arkets and continued urbanization in m ature
m arkets. The U nited N ations (UN ) reports that 54% of the w orld’s population
currently live in cities, and by 2050, this proportion w ill increase to 66%.
In order to harness the econom ic benefi ts of urbanization, policy-m akers
and the private sector m ust do effective planning and attract sustained
investm ent in railroads, highw ays, bridges, ports, airports, w ater, pow er, energy,
telecom m unications and other types of infrastructure. Effective policy responses
to the challenges that cities face, including clim ate change and poverty, w ill be
essential to m aking cities of the future com petitive, sustainable and resilient.
A bsolute population grow th, econom ic developm ent and m ore m iddle-classconsum ers w ill drive increasing global dem and for natural resources —bothrenew able and non-renew able. W hile the w orld’s supply of non-renew ableresources is technically fi nite, new technologies continue to im pact the future
supply picture by allow ing access to form erly hard-to-reach and valuable oil, gasand strategic m ineral reserves. The application of new technologies, as w ell as theshifting supply environm ent, w ill drive business m odel adaptation and innovationin m ultiple sectors —as w ell as im pact the geopolitical balance of pow er.
A t the sam e tim e, natural resources m ust be m ore effectively m anaged,particularly from an environm ental im pact perspective. Grow ing concern overenvironm ental degradation, securing strategic resources and the fate of ourfood and w ater supply are indicative of the fact that protecting and restoring theplanet is a critical future im perative. Governm ents, societies and businesses m ustw ork in tandem to develop m ore sustainable approaches to the task of achievingeconom ic grow th w hile leveraging natural resource inputs.
H ealth care —w hich already accounts for 10% of global GDP —is em barkingon a once-in-a-lifetim e transform ation. H ealth system s and players are underincreasing cost pressure —driving them to seek m ore sustainable approaches,including incentives that em phasize value. These cost pressures are exacerbatedby changing dem ographics, rising incom es in rapid-grow th m arkets and anim m inent chronic-disease epidem ic. A n explosion in big data and m obile healthtechnologies is enabling real-tim e inform ation creation and analysis. Com paniesbeyond health care as traditionally defi ned are entering the fray, providing newsources of com petition and partnering.
These trends are starting to drive a fundam entally different approach —m ovingbeyond the delivery of health care (by traditional health care com panies in
traditional w ays, i.e., “sick care”) to the m anagem ent of health (by diverse setsof players, w ith m ore focus on healthy behaviors, prevention and real-tim e care).Success, in other w ords, dem ands that w e reim agine our approach to health.
Urbanworld
Resourcefulplanet
Healthreimagined
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1Digital
futureFueled by the convergence of social,m obile, cloud, big data and grow ingdem and for anytim e anyw here accessto inform ation, technology is disruptingall areas of the business enterprise.Disruption is taking place across all
industries and in all geographies.Enorm ous opportunities exist forenterprises to take advantage ofconnected devices enabled by the Internetof Things to capture vast am ounts ofinform ation, enter new m arkets, transformexisting products and introduce newbusiness and delivery m odels. H ow ever,the evolution of the digital enterprise alsopresents signifi cant challenges, including
new com petition, changing custom erengagem ent and business m odels,unprecedented transparency, privacyconcerns and cybersecurity threats.
Technology is also changing the w ays thatpeople w ork, and is increasingly enablingm achines and softw are to substitute forhum ans. Enterprises and individuals w hocan seize the opportunities offered bydigital advances stand to gain signifi cantly,w hile those w ho cannot m ay loseeverything.
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Technology is disrupting all
areas of enterprise, drivingmyriad opportunit ies andchallenges
Rapid advances in cloud com puting, connected devices, m obile,
social m edia and data analytics are prom pting m any com panies
to reassess fundam ental aspects of their business, including
w hat products and services they sell, how they deliver these and
how they need to organize to support their operations. Digital
technologies are facilitating the introduction of new products and
services, and are providing new w ays to develop recurring revenue
stream s after an initial sale. A recent Econom ist Intelligence U nit
survey reveals that alm ost 80% of com panies are seeing changes
in how their custom ers access goods and services, and m ore than51% are in the process of changing how they price and deliver
their goods and services.1 Subscription-based revenue m odels are
gaining in popularity, w hile m icropaym ents such as “freem ium ”and
pay-per-use m odels are also becom ing m ore prevalent.
Integrating digital technologies into product developm ent and sales
operations requires com panies to adapt their pricing strategies,
sales processes and distribution m odels. Selling digital products
and services dem ands a different set of skills and proceeds on a
different cycle to traditional goods. N ew organizational structures
are needed to m anage these operations.
Finally, the distribution of goods and services via digital channels(e.g., cloud) raises signifi cant issues for revenue recognition and
custom er privacy that m ust be resolved. W hile these challenges are
substantial, com panies need to be able to m anage them in order to
serve their custom ers in the future.
A lm ost80%of companies say their custom ers arechanging how they access goods and services. M ore than
51%of these com panies are changing their pricing anddelivery m odels.
Source: Supply on demand:Adapting t o change in consumption and delivery models ,Econom ist Intelligence U nit, 2013.
1. Digital transformation is changing businessmodels —including revenue models
Digital future
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Webpage views from m obile phonesoutnum ber view s from PCs in 48
countries.Desktop access stillaccounts for65%of w ebpage view sw orldw ide, butmobile phones aregaining share —from 17%in 2013 tonearly 29%in 2014.
Source: “M obile W eb has now overtaken P C in 40nations, including India, Nigeria and Bangladseh,”mobiForge w ebsite, 19 Septem ber 20 14 , m obiforge.com /new s-com m ent/m obile-w eb-has-now -overtaken-pc-40-nation s-including-india-nigeria-and-bangladesh,accessed 7 January 20 15 .
Consum er spending via m obile w ill
increase from US$204b in2014 to US$626b in 2018.Alm ost half of all e-com m erce sales
w ill be from m-commerce.
US$204b US$626b
20182014
Source: Bill Siw icki, “M obile com m erce w ill be nearly halfof e-com m erce by 20 18 ,“Internet Retailer w ebsite,10 M arch 2 01 4, w w w.nternetretailer.com /201 4/03 /10 /m obile-com m erce-w ill-be-nearly-half-e-com m erce-2018,accessed 8 January 20 15 .
2. Declining PC usage and increasing mobile deviceadoption is driving a “ mobile fi rst” world
M obile is leapfrogging fi xed broadband in
m any countries, particularly in rapid-grow th
m arkets. W ebpage view s from m obile
phones now outnum ber those from PC s in
48 countries.2
Ericsson estim ates that today’s 2 billion
m obile broadband connections w ill expand
to alm ost 8 billion by 2 019.3 U sers are
expecting and dem anding functionality
using the cloud, m obile and social
technologies that have becom e staples of
their daily lives. They are interacting w ith
brands through m obile devices m ore than
via PCs, and they are using m obile m ore
frequently to m ake purchases.
M obile devices are also becom ing preferred
tools for work and com m unication. As
m ore em ployees insist on the ability to
“bring your ow n device”to the w orkplace,
com panies need to be able to support
the latest m obile technologies. All of thispresents signifi cant challenges to m any
com panies, w here legacy IT infrastructures
are not ready for “m obile fi rst”strategies.
Rem edying this w ill require m ajor
investm ents and large-scale restructuring
efforts. To address the changing m arket
dynam ics, technology com panies are
shifting their application developm ent
priorities. These fi rm s are increasingly
building applications and interfaces on a
m obile platform fi rst, instead of creating
applications for the desktop or w eb brow ser
and then developing com patible m obile
apps.
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3. Digital transformat ion and a proliferat ion of dataare fundamentally changing the relationshipbetween businesses and their customers
Source: Beth Schultz, “IDC: Tons of Custom er DataGoing to W aste,”AllAnalytics w ebsite, 19 Decem ber2013, w w w.allanalytics.com /author.asp?section_id=14 11& doc_id=27 06 22& _m c=M P_IW _EDT_STUB ,accessed 8 January 20 15 .
Businesses are failing to useapproxim ately 80%ofcustomer data now generated.
Businesses are gaining unprecedented
opportunities to understand consum er
needs, preferences and behaviors. The
am ount and types of custom er data
available from sources, including social
m edia, online shopping behavior and geo-
location inform ation, are expanding at a
rapid rate. M aking sense of the volum e and
variety of this inform ation, how ever, is a
challenge.
Firm s that can extract value from this
inform ation using data analytics w ill benefi tgreatly. They w ill gain a m ore precise
understanding of custom er segm ents.
Products and services can be tailored to
the level of the individual. A ltogether,
they can deliver a m uch richer custom er
experience. This is im portant because
consum ers’expectations are grow ing. They
are dem anding greater choice and control,
m ore transparency, and anytim e anyw here
access to inform ation. They also w ant their
voices heard, and digital technologies are
m aking it easier to gather and understand
consum er feedback.
Reacting to these dem ands, businesses are
engaging individual consum ers and virtual
com m unities as co-creators.
A s social m edia am plifi es the voice of the
custom er, there are benefi ts and risks
for com panies. Individual “prosum ers”
m ay serve as pow erful brand or product
am bassadors, and online com m unities m ay
provide key platform s for introducing and
testing products, or for com m unicating
im portant m essages. O n the other hand,
com panies are having a harder tim econtrolling m essages about them selves in
this new era. A n organization that fails to
engage in a tim ely or appropriate m anner
through social m edia, or that issues an
ill-fated m essage, can suffer rapid and
signifi cant dam age to their brand. Real or
perceived m issteps m ade by com panies
or even their supply chain partners can
go viral w ithout w arning —w ith negative
repercussions. In this environm ent,
com panies need to increase transparency,
w hile proactively cultivating and m anaging
relationships w ith their stakeholders and
custom ers.
Digital future
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Source: Perspectives: TCS Consult ing Jour nal, Vol. 05:The Digital Enterpr ise: A Framework for Transformation .Tata Consultancy Services, 2013.
By 2 018 ,one-third of the top-20 in m ost industries w ill bedisrupted platform s.
2018
4. Digital disrupt ion is changing the market contextand competitive landscape of most industries
Technology is no longer just an industry
unto itself; it continues to reshape nearly
every other industry in dram atic w ays.
The pervasiveness and pow er of new
technologies are blurring sector boundaries
as com panies across industries develop
their ow n digital strategies and solutions
(either in-house, through acquisitions,
or via partnerships w ith “traditional”
technology fi rm s). M any com panies not
traditionally thought of as technology
players are positioning them selves in the
m arket w ith their ow n digital platform s
providing innovative solutions to m eet
the unique needs of their custom ers and
partners. Increasingly, com panies are
pricing and delivering their products as a
service via the cloud. In som e cases, these
com panies are establishing their ow n best-
of-breed platform s, com m ercializing their
proprietary technology and selling it to
others w ithin their industry.
The grow ing prevalence of these industry-
focused solutions and those already offered
by traditional technology fi rm s is enabling
the expansion of digital ecosystem s and is
changing the com petitive dynam ics of the
m arket. Industry solutions providers do not
alw ays ow n the end-to-end value chain and
often rely on technology partners to help
connect their offerings to the ecosystem .4
A s this ecosystem expands, industry
players are buying and im plem enting digital
technologies from their com petitors, as w ellas com peting w ith their existing technology
business partners in the m arket offering
sim ilar vertical solutions. The relationships
betw een com panies in this environm ent
w ill continue to be very fl uid, as partners in
one channel are becom ing com petitors in
another.5
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Sources: Dave S m ith, “Chart of the Day: The W orst
Com pany D ata B reaches Ever,”Business Insider w ebsite,6 A ugust 2014, w w w.businessinsider.com /chart-of-the-day-the-w orst-organizational-data-breaches-ever-2014-8# ixzz3IDdEeF4 y, accessed 7 January 2 01 5;Specialreport: Cyber-security: Defending the digital fr ontier ,The Econom ist, July 2014, ww w.econom ist.com /sites/defaultfi les/20 140712_cyber-security.pdf. accessed 8January 20 15.
Source:Net Losses: Estimating t he Global Cost of
Cybercrime , Center for Strategic and InternationalStudies and M cAfee, June 20 14 .
5 of the 10 largest all-tim e data breaches
occurred in 2013 and 2014. In 2013,
cyber attacks compromised800+ million records.
Digital crime and IP theftcurrently costs betw een $37 5b and
$575b per year—eclipsing theannual G DP of m ost nations.
$375b–$575b per year
5. As cyber threats cont inue to mult iply, it isbecoming harder to safeguard data, intellectualproperty, and personal information
Data breaches are grow ing in size and
frequency, w ith 5 of the 1 0 largest ever
incidents occurring in 2013 and 2014.6
Theft of data and other form s of cybercrim e
are creating a signifi cant econom ic toll.
The C enter for Strategic and International
Studies (CSIS) estim ates that digital crim e
and intellectual property (IP) theft currently
costs betw een US$3 75 b and U S$57 5b per
year —eclipsing the annual GDP of m ost
nations.7
The m ounting digitization of the w orld
and the rising connectivity of people,
devices and organizations provide new
vulnerabilities for cybercrim inals to exploit.
Greater use of the internet, sm artphones
and tablets (in com bination w ith bring-
your-ow n-device policies) has m ade
organizations’data m ore accessible and
vulnerable. There are also m ore access
points to com pany and personal data as
digital connections between entities and
people increase.
Cloud-based services and third-party data
m anagem ent and storage have opened new
channels of risk.8 As cyber risks increase
rapidly, organizations and governm ents w ill
need to m ount concerted and sustained
efforts to secure digital assets and protect
confi dential inform ation.
Digital future
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Source: Jakob M organ, “Five Trends Shaping the Futureof W ork,”Forbes w ebsite, 20 June 201 3, ww w.forbes.com /sites/jacobm organ/20 13 /06 /20 /fi ve-trends-shaping-the-future-of-w ork, accessed 7 January 2015.
Source: Carl Benedikt Frey and M ichael A . O sborne,“The Future of Em ploym ent: H ow Susceptible areJobs to Com puterisation?”O xford M artin School, 17Septem ber 201 3.
By 2 02 0,
50%ofthe w orkforce w ill be Generation Yand Z members —and they havegrow n up connected,collaborative and mobile.
ofoccupationsin advanced economies are at“high risk ”of being automated in the next 20 years.
47%
6. Workstyles and the means to engage talent arebecoming more agile in the digital world
W hile som e industries (e.g., m ining and
m anufacturing) still require w orkers that
are tim e and location bound, it w ill becom e
com m on in m any sectors for workforces
to be virtual, connecting to w ork anytim e,
from anyw here, and on any device. M obile,
social and cloud technologies, along
w ith the ubiquity of W i-Fi and broadbandconnections, are m aking it possible for
m ore em ployees to w ork at tim es and
places of their ow n choosing. O ffi ce
confi gurations that rem ain w ill be m ore
fl exible, and w ill support higher levels of
collaboration am ong colleagues —all in
alignm ent w ith the preferences of younger
em ployees.9 By 2020, the M illennials and
Generation Z w ill com prise m ore than half
of the w orkforce. These individuals have
grow n up connected, collaborative and
m obile, and their attitudes and expectations
w ill have a m ajor im pact upon how w ork is
organized.10
Greater autonom y and fl exibility of
em ployee w orkstyles w ill be m atched
by new m eans of engaging w ith talent.
Technological advances are m aking it
easier for com panies to tap into netw orksof anonym ous w orkers through online
“crow dsourcing”and freelance platform s.
Firm s that are m aking use of these m odels
are in essence “netw ork orchestrators,”
connecting to skills and resources on
dem and rather than ow ning them .11 A ll
of this w ill create new challenges for
leaders, w ho m ust keep w idely distributed
w orkforces m otivated, productive and
satisfi ed.12 N ot only are different skill sets
required to m anage rem ote and contingent
w orkers, but existing organizational culturesw ill be harder to m aintain.
7. Digital and robotic technologies will increasinglyaugment or replace workers
A utom ation has long been a factor
in elim inating jobs and unsafe w ork
environm ents, but this is set to accelerate
and expand over the next decade. The
focus of autom ation historically has been
on w ork that requires routine, repetitivetasks. Technological lim itations and capital
costs provided boundaries around the
types of w ork affected. This is changing.
A dvancem ents in technology are allow ing
for the m echanization of new categories of
jobs, including som e that previously seem ed
im m une. Innovations in artifi cial intelligence
and m achine learning, exponential grow th
in com puter processing pow er, and
sophisticated m obile robotics are all fueling
this expansion. W hile autom ation has
traditionally im pacted blue-collar jobs andw ill continue to do so, it w ill increasingly
target w hite-collar jobs as w ell.13
The im pact of the new technologies w ill not
be entirely destructive to the job m arket,
how ever. N ew opportunities to develop,
service or operate the next generation of
softw are and m achines w ill arise. Drivers of
m ining trucks, for exam ple, w ill be replacedw ith radio technicians w ho w ill m onitor
and control m any driverless trucks. These
positions w ill require advanced skills. W hile
those at the top end of the skills continuum
m ay benefi t greatly, a m uch larger
num ber of individuals w ill be relegated
to low er-skilled service occupations
that cannot easily be m echanized, or to
the unem ploym ent line. This w ill place
signifi cant pressure upon governm ents
and social system s, and w ill require robust,
fl exible educational system s to developand retool w orkers to operate in the new
environm ent.
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2Entrepreneurship
risingThe grow th and prosperity of all econom ies,rapid-grow th and m ature, rem ain highlydependent on entrepreneurial activity.Entrepreneurs are the lifeblood of econom icgrow th — they provide a source of incom eand em ploym ent for them selves, createem ploym ent for others, produce new andinnovative products or services, and drive
greater upstream and dow nstream value-chain activities. W hile som e entrepreneurialactivity around the w orld is still driven bynecessity, high-im pact entrepreneurship,once largely confi ned to m ature m arkets,is now an essential driver of econom icexpansion in rapid-grow th m arkets. In som ecases, these high-im pact entrepreneurs arebuilding innovative and scalable enterprisesthat capitalize on local needs and serve
as role m odels for new entrepreneurs.The face of entrepreneurship is alsochanging — across the w orld, entrepreneursare increasingly young and/or fem ale.M any of these new enterprises are digitalfrom birth. A ccess to funding rem ains theprim ary obstacle for entrepreneurs from allm arkets. The public and private sector eachhave an im portant role to play in creatingentrepreneurial ecosystem s that, in addition
to funding, are essential to prom otingentrepreneurial success.
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Entrepreneurship around the
world is growing, driving theneed for more support iveecosystems
Rapid-grow th m arkets have long had high rates of entrepreneurial
activity, as m easured by the Total Early Stage Entrepreneurial
A ctivity Index (TEA rate), w hich represents the percentage of
individuals aged 18 to 6 4 in an econom y w ho are in the process of
starting or are already running new businesses.
Rapid-grow th econom ies often exhibit m uch higher TEA rates than
m ature econom ies due to the fact that entrepreneurs in these
m arkets launch businesses out of necessity, including poverty
and lack of w age-based em ploym ent opportunities. For exam ple,
the percentage of the TEA rate that is necessity driven is 31% for
Sub-Saharan A frica versus 19% for North Am erica and 2 3% for the
EU (rates that both rose in the w ake of the fi nancial crisis and are
likely to fall again as form al em ploym ent rebounds signifi cantly).1
Looking forw ard, an increase in the num ber of innovative rapid-
grow th m arket startups is expected. Innovative entrepreneurship
m ay be defi ned as creating a product, service or process that
represents a signifi cant com m ercial opportunity (as opposed to
necessity-driven entrepreneurship).
Average TEA rate in 2013
European Union
8%
LatinAmerica
19%
NorthAmerica
11%
Sub-SaharanAfrica
27%
12%
Source: José Ernesto A m orós and N iels Bosm a,Global Entrepreneurship Monitor:20 13 Global Report , Babson College, Un iversidad del Desarrollo, and U niversiti TunA bdul Razak, 20 14 .
1. The drivers of entrepreneurial act ivit y in rapid-growth markets are moving from necessity toopportunity
Entrepreneurship rising
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EY’s 600 US Entrepreneur OfThe YearTM(EOY) contestantsoutperformed companies on boththe S&P 5 00 and the R ussell 20 00 in 2012
for m edian return on assets (16.8%forEOY contestants versus 7.1% for theS& P 500 and 1.6% for the R ussell 2000).
Source: The Bold Ones —High-Impact EntrepreneursWho Transform Industr ies , W orld Econom ic Forum ,Septem ber 20 14.
2. High-impact entrepreneurs will cont inue to buildtransformative businesses in both rapid-growthand mature markets
M ature m arkets have seen num erous
start-ups w ith great ideas scale and take
off, m aking a high-im pact. In som e cases,
these new com panies have disrupted
existing industries and created new
industries or industry segm ents. Google,
Facebook, Tw itter, Virgin A irlines, and
GoPro are am ong the exam ples that
com e to m ind. Rapid-grow th m arkets arebeginning to see their fair share of high
im pact entrepreneurs. For exam ple, recent
EY W orld Entrepreneur O f The YearTM
(W EO Y) w inners have com e from India
(Kotak M ahindra Bank), Kenya (Kenya’s
Equity Bank Lim ited), Singapore (H yflux
Lim ited), and China (Fuyao Glass Industry
Group).2 The expansion of successful new
businesses in rapid-grow th m arkets is due,
in part, to grow ing consum er pow er in
these regions and opportunities for frugal
innovation —offering low er-cost products
and services tailored to unm et and local
m arket needs. The dem ocratization of
code-w riting is low ering the barrier to
creating an innovative venture, w hile
digital technologies are also facilitating
the rapid scaling up of new businesses
at a low er cost. The opportunity for new
com panies to expand their businessm odels into other rapid-grow th m arkets is
enorm ous. Looking ahead, m ore innovative
ventures are expected in the developing
w orld as countries such as China and
India actively seek to create m ore vibrant
regulatory and financing environm ents in
w hich to launch and nurture native-born
enterprises. But w hat stands out today is
the financial success that these high-im pact
entrepreneurs are enjoying across the w orld.
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3. The face of entrepreneurship is increasingly young
Source: José Ernesto A m orós and N iels Bosm a,GlobalEntrepreneurship Monitor: 20 13 Global Report , BabsonCollege, Universidad del Desarrollo, and U niversiti TunA bdul Razak, 20 14 .
N early 50%of the world’sentrepreneurs are between theages of25 and 44.
25 to 34 year olds show the highestrates of entrepreneurialactivity.
57%of China’s entrepreneurs are betw een the ages of 25 to 34.
Youth unem ploym ent has reached a
critical level in m ost G20 countries. TheInternational Labour Organization (ILO )
reports that globally, alm ost 13% of young
people (close to 75 m illion people) are
unem ployed.3 The real rate is likely higher.
In response to this, young people are
increasingly turning to entrepreneurship,
particularly in regions w here w age
em ploym ent is diffi cult to obtain.
In m ature econom ies, entrepreneurship has
em erged as a desired course for M illennials
(those born betw een 1984 and 1 996), as a
function of both job losses during the greatrecession, the decaying social contract
betw een em ployers and em ployees, as w ell
as changing w ork and lifestyle preferences.
In a Universum survey of 16,000 M illennials
from 42 countries, 70% of respondentsview ed them selves as entrepreneurs.4
A nother key driver has been the boom in
entrepreneurial education. The K auffm an
Foundation reports that m ore than 5,000
entrepreneurship courses are offered
in the U S today, com pared w ith 1 00 in
1975.5 This is im portant because, along
w ith training, young entrepreneurs across
the G20 need additional support to launch
and scale their enterprises, including an
expanded range of funding alternatives,
m entoring, tax incentives and a reduction inred tape.6
Entrepreneurship rising
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Source:Global Entrepreneurship Monitor: 20 12Women’s Report , Babson College U niversidad delDesarrollo, Universiti Tun A bdul Razak, and londonBusiness School 20 13 .
Today, roughly 126million women arelaunching or operatingbrand new businesses in67 economies aroundthe world.
A t least48 millionfemale entrepreneursand 64 m illion fem ale
business ow ners currentlyemploy one or morepeople in theirbusinesses.
4. The face of entrepreneurship is increasinglyfemale
M illions of w om en across the w orld are
starting or operating new businesses,m any of w hom are driven by opportunity
rather than necessity (see p.16). W om en’s
entrepreneurial ventures are also an
increasingly im portant source of new jobs.
From the perspective of sm all and m edium -
size enterprises (SM Es), the W orld Bank
reports that w om en-ow ned com panies in
the U S are expanding at m ore than double
the rate of all otherfi rm s, contributing
nearly US$3t to the U S$16 t U S econom y
(19%) and directly delivering 2 3 m illion jobs
(16% of all jobs).7 In developing countries,w om en-run SM Es are also increasing.
A cross the globe, there are roughly 8 m illion
to 10 m illion form al SM Es w ith at least
one w om an ow ner.8 W om en entrepreneurs
also intend to expand their businesses. A
predicted 7 m illion fem ale entrepreneurs
and 5 m illion fem ale established business
ow ners plan to grow their businesses byat least six em ployees over the nextfi ve
years.9 A ccess to fi nance rem ains a hurdle
for fem ale entrepreneurs, particularly in
countries w here fi nancial m arkets are less
developed, but also in countries w ith m ore
sophisticated entrepreneurial system s.
From 2011–13, just 15% of U S com panies
receiving venture capital funding had a
w om an on the executive team . This is up 1 0
percentage points since 1999, but all-m en
team s in 2 013 are still m ore than four tim es
m ore likely to receive funding from venturecapital investors.10 Policy-m akers and other
stakeholders w ill be increasingly challenged
to create enabling environm ents for fem ale
entrepreneurs across the globe.
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Source: The Power of Three: The EY G20Entrepreneurship Barometer , EY, 20 13 .
Source: Adapting and evolving: Global venture capital insights and t rends 201 4 , EY, 20 14 .
Overall climate for fosteringentrepreneurism among the
Countries ranked in the topw ere allmature markets.
9 of the bottom 10 w ere
rapid-growth markets.
in 2013
In India,
venturecapital investment m orethan doubled from US$6 00 m
to US$1.4b betw een 20 06 and
2012, driven by regulatory
changes:US$600m
US$1.4b
Elimination of tax oncapital gains
Relaxation of rulespreventing foreigninvestment
5. More supportive environments are evolving tounderpin entrepreneurial growth
Supportive environm ents are increasingly
essential to successful entrepreneurship
and these are evolving across the w orld.
The ideal entrepreneurial environm ent
has five pillars: (1) access to funding; (2)
entrepreneurial culture; (3) supportive
regulatory and tax regim es; (4) educationalsystem s that support entrepreneurial
m indsets; and (5) a coordinated approach
that links the public, private and voluntary
sectors.11 There are still huge areas w here
G20 countries need to take urgent action
to im prove support for their entrepreneurs.
The developed econom ies are ahead of
the em erging m arkets, as they tend to
have deeper and m ore extensive funding
options, stronger education system s, m ore
m ature and stable tax and regulatory
environm ents, and m ore w ell-developed
entrepreneurial cultures.
H ow ever, rapid-grow th m arkets are
beginning to act relative to the im peratives
these pillars represent. China’s M inistry
of Com m erce recently acknow ledged that
entrepreneurial ventures are currently
responsible for 75% of new jobs each year
and 68% of exports and has started to
focus on im proving the regulatory and tax
environm ent for new ventures and SM Es.12
M any rapid-grow th m arkets also have
high-profile projects underw ay to stim ulate
clusters of entrepreneurial activity. In 2014,
there w ere m ore than 90 technology hubs,
m any offering incubators and accelerators,
across A frica.13
Entrepreneurship rising
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Source:The Power of Three: The EY G20 EntrepreneurshipBarometer , EY, 20 13 .
Source:Micro fi nance Market Outlook 201 5: Growthdriven by vast market potential , responsability,Novem ber 2014 .
Source:Crowdfunding’s Potential for the DevelopingWorld , The W orld Bank, 20 13 .
A n EY survey of G20 entrepreneurs improved access tofunding as the m ost effective w ay toaccelerate entrepreneurship —w hile 70%
their ow n countries.
Crowdfunding market fordeveloping countries –w hich w as US$5b
in 2013 —could rise to US$96b by
2025, since there are 3 44 m illion
households in rapid-grow th econom ies
capable of m aking crow dfunding
investm ents in their local com m unities.
2012 2025
US$5b US$96b
is
expected to grow at 19%annually
, rising fromUS$5.7b in 2014 to nearlyUS$14b in 2019.
2014
2019
US$5.7b
US$14b
6. Access to funding remains the biggest hurdle —a range of options is essent ial
Entrepreneurs point to funding shortfalls in
both launching and scaling new businesses
as the single area w here im provem ents are
m ost urgently needed. A long w ith failure to
be profitable, lack of funding is cited as the
prim ary reason for business discontinuance
around the w orld.14
A s entrepreneurial businesses grow and
develop, the sources offinance they rely
on change. The traditional venture capital
industry continues to globalize, but sm art
governm ents are creating a range of
m echanism s and institutions to provide
entrepreneurs w ith financing options to
m eet these changing requirem ents. They
are establishing targeted venture capital
funds and incentivizing private sector
investors to focus m ore on startups through
im proved tax incentives. A lternative
funding platform s, such as crow dfunding
and m icrofinance, are gaining tractionfor seed and early-stage com panies, but
require regulatory support to achieve
scale. The global m icrofinance m arket
has the potential to help sm all enterprises
becom e tax-paying m em bers of the form al
econom y.15
In m any countries, credit guarantee
schem es (CGSs) are used by banks,
often w ith public sector support, to ease
the constraints SM Es face in accessing
finance. Governm ent start-up program s
have becom e one of the m ost valuable
sources of help. Public m oney is a pow erfulcatalyst, particularly w hen delivered in
partnership w ith private sector funds.
Corporate venturing also continues to grow ,
w ith alm ost 1,000 units w orldw ide —and
becom ing m ore w idespread in rapid-grow th
m arkets.16
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3Global
marketplaceFaster grow th rates and favorabledem ographics in key rapid-grow th m arketsw ill continue to be a feature of the nextdecade or so. The gulf betw een m atureand rapid-grow th countries continues toshrink. A new tier of em erging nations,
driven by their ow n nascent m iddleclasses, w ill draw global attention.Innovation w ill increasingly take place inrapid-grow th m arkets, w ith A sia surfacingas a m ajor hub. In the global m arketplace,the w ar for talent w ill becom e increasinglyfi erce, necessitating greater w orkforcediversity to secure com petitive advantage.
The econom ies of the w orld w ill rem ainhighly interdependent through trade,
investm ent and fi nancial system linkages,driving the need for stronger global policycoordination am ong nations and resilientsupply chains for com panies operatingin this environm ent. A t the sam e tim e,dom estic interests w ill continue to clashand com pete w ith the forces of globalintegration. Pushback and oppositionto global integration m anifests itself invarious econom ic, political and culturalform s, including trade and currencyprotectionism , the im position of sanctionsto achieve political aim s, anti-globalizationprotests, as w ell as the strengtheningof nationalistic, religious and ethnicm ovem ents around the w orld.
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Economic power cont inues to
shift east and south, drivingnew patterns of t rade andinvestment
Grow th in rapid-grow th m arkets is expected
to taper som ew hat going forward, but
should nevertheless rem ain very healthy.
For 20 14-2030, projected grow th rates for
m ajor players such as China (+5.9%), and
India (+6.7%), as w ell as fast-developing
regions such as Sub-Saharan A frica (+5.8)
and the M iddle East and N orth A frica
(M EN A ) (+4.9%) w ill continue tipping the
w orld’s center of econom ic gravity tow ardthe east and south.1
W ith grow ing econom ies, and supported
by socioeconom ic trends such as urban
m igration, declining dependency ratios,
favorable dem ographics and grow ing
incom e levels, rapid-grow th m arkets w ill
becom e increasingly im portant venues
for conducting global business. For all
com panies w ith global am bitions —both
established m ultinationals and their rapid-
grow th m arket challengers —this great
shift in econom ic pow er w ill force m ajoradjustm ents in strategy.
By 2 030, rapid-grow th m arkets w ill com prise 63% of global G D P, up from 38% today
and am ounting to U S$22 3t.
Home to world’s largest companies
China 18India 1
Brazil 3
US 179
UK 38
Germany 37
2000 2014
95 4
4
128
28
28
Global GDP of rapid-growth markets
38%
63%
US$223t
Sources: “The super-cycle lives: em erging m arkets grow th is key,”Standard Chartered, N ovem ber 2013, w w w.sc.com /en/new s-and-m edia/new s/global/20 13-11-06-super-cycle-EM -grow th-is-key.htm l; and EY A nalysis of 2000and 20 14 Global Fortune 50 0 lists, N ovem ber 2014 .
1. Global economic power will continue shift ing torapid-growth economies
Global marketplace
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The share of intra-emergingmarket will increase to one-thirdof global trade by 2020.
Up from 10%in 1995.
2012 2035
Services trade w ill see its valueincrease from nearly US$1.6t tonearlyUS$8.7t between2012 and 2035 increase.
US$1.6t
US$8.7t
Source: “Lam y says Europe needs a good com pass tosail through crisis,”W orld Trade O rganization w ebsite,w w w.w to.org/english/new s_e/sppl_e/sppl275_e.htm ,accessed 17 O ctober 201 4.
Source:World Trade Report 20 13 , W orld TradeO rganization, July 20 13.
2. Trade-fl ow patterns will undergo continued
transformation
Global m erchandise trade is forecast to
grow 8% annually to 2030, and should
outpace GD P grow th.2
China, w hich is already the largest goods
trader, w ill further consolidate its position in
w orld trade. O ther em erging m arkets, such
as India and Vietnam , are also expected to
post double-digit annual export grow th over
the next seven years.3 The increasing role
of the developing w orld in trade, coupled
w ith rapid advances in com m unication
and technology, w ill lead to further
fragm entation of supply chains. By 2030,
the W orld Trade O rganization estim ates
that the im port content of exports w ill rise
to 60% , as com pared to 20% in 1 99 0s and40% in 20 12.4
O verall, the global trade landscape w ill
be m arked by increasingly high levels
of integration. A sia is likely to em erge
as the fulcrum of future global trade
architecture, and w ill rem ain at the center
of the w orld’s fastest-grow ing trade routes(e.g., A sia-M EN A , A sia-Latin A m erica and
A sia-A frica).5 The M iddle East and Africa
w ill becom e new trade hubs, driven by
econom ic integration w ith A sia, proxim ity
to Europe, capacity for low -cost production
and grow ing dom estic m arkets. The
m ajor brake on increasing trade w ill be
protectionist im pulses. W hile dealing w ith
the ever-present spectre of protectionism ,
the econom ies of the w orld w ill rem ain
highly interdependent through trade and
fi nancial system linkages, driving the needfor stronger global policy coordination
am ong nations and resilient supply
chains for com panies operating in this
environm ent.
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3. Developing countries will cont inue to grow theirshare of capital infl ows and outfl ows
Rapid-grow th m arkets are expected to
com prise a far greater share of gross
capital infl ow s and outfl ow s (including
foreign investm ent, equity and debtportfolio investm ent, bank loans and other
investm ent) in the future, according to the
W orld Bank. By 2030, rapid-grow th m arkets
w ill account for 47% of gross global infl ow s,
up from 23% in 2 010. The increasing
m aturity of political institutions and the
ongoing global and regional integration
offi nancial m arkets m ake developing
countries m ore attractive sources and
destinations for capitalfl ow s. These
developm ents also increase their potential
to perform as interm ediaries of globalcapitalfl ow s in the future. Looking at 2013
foreign direct investm ent (FDI)fl ow s, rapid-
grow th econom ies garnered 54% of total
investm ent, w hile m ature m arkets attracted
39%, and frontier or transitional m arkets
drew 7%.
Changing patterns of investm ent are
becom ing apparent. Intra-A frican fl ows
are becom ing a larger com ponent of
A frica’s 4% grow th in FDI. Developing A sia
rem ains the w orld’s leading FDI destination
(30% share), w ith China also continuing
to em erge as a source for outw ard FDI,
particularly to Latin Am erica and SoutheastA sia. Sectoral reform s in M exico and shale
gas developm ent in A rgentina, along w ith
strong autom otive m anufacturing prospects
in Brazil and M exico, w ill continue to attract
investm ent dollars in Latin Am erica.
The share of FD I in the extractive sectors
across rapid-grow th m arkets appears
to be tapering off. In 2013, greenfi eld
investm ent in m anufacturing and services
com prised 90% of inw ard A frican FDI.6 A ll
of these shifts put the onus on national
policy-m akers to create m ore business-friendly investm ent environm ents in rapid-
grow th m arkets, or they w ill fall behind.
Political and other kinds of volatility could
also continue to deter FDI infl ow s in rapid-
grow th m arkets. For exam ple, Russia
has seen inw ard FDI dim inish drastically
as a result of the U kraine confl ict, w hile
the Ebola virus outbreak has dam pened
investor enthusiasm at least tem porarily in
W est A frica.
will become the world’slargest investors.
China andIndia
By 2030, rapid-grow th m arkets will
account for47%of gross
,up from 23% in 2010 .
Source:Capital for the Future: Saving and Investment inan Interdependent World , W orld Bank, 20 13 .
Global marketplace
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Tw o-thirds of theglobal middle residents by 2030, up fromjust under one-third in 2009.
Total global annual consum er spending in
rapid-grow th m arkets w ill increase from
U S$1 2t in 2014 to U S$ 63 t in 203 0 —
US$12tUS$63t
Total globalannual consumer
spending inrapid-growth
markets
2030
2014
Source:Hitting t he Sweet Spot: The Growth of the MiddleClass in Emerging Markets , EY and S kolkovo Institute forEm erging M arket Studies, 2013 .
Source: Tassos Stassopoulos, “Grow ing O lder inEm erging M arkets,”AllianceB ernstein w ebsite,19 Septem ber 2014, blog.alliancebernstein.com /index.php/2014/09/19/grow ing-older-in-em erging-m arkets.
4. The growing global middle class will cont inue todrive the emergence of lucrative new markets
Rapidly grow ing, young populations
com bined w ith strong econom ic grow th
are producing a surge of m iddle incom e
consum ers in key rapid-grow th m arkets.The W orld Bank projects that 50% of the
total global stock of capital w ill reside in
the developing w orld by 2030 (up from
33% in 2010), illustrating the shift in the
global distribution of wealth.7 Now here is
this trend stronger than in the A sia-Pacifi c
region.
M oreover, a signifi cant proportion of
the new A sian m iddle class w ill reside
at the upper end of the incom e bracket
and possess signifi cant spending pow er.
The rapid expansion of m iddle incom epopulations w ill be m atched by a rapid
increase in consum er spending.
A s a result, these fast-grow ing countries
are becom ing prim e m arkets for global and
hom e-grow n com panies, and com petition
is increasing apace. In these crow ded
m arketplaces, com panies need to carefully
position their brands and portfolios to m eet
the needs of increasingly em pow ered and
diverse consum er bases.
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Southeast A sia has becom e the w orld’s
largest region for new research
investm ents —a trend expected to
continue through the decade.
Asian countrieshave grow n their share of
global spending onR&D from 33%to40%
Source: 20 14 Global R&D Funding Forecast , Battelle andR& D (rdm ag.com ), Decem ber 20 13 .
5. A “ new knowledge world order” is emerging, withAsia as a hub
There is a grow ing shift in know ledge
production tow ard A sia, prim arily C hina.
W hereas countries like the U S, Japan, the
U K and G erm any traditionally led the w ay
in investm ent in research and education,
rapid-grow th m arkets are steadily
increasing their academ ic and research
output, particularly in A sia.
China’s heavy investm ent in education is
bearing fruit, as the country has overtaken
the U S in the num ber of doctorates aw arded
in science and engineering.8 China currently
has around 1.6 m illion researchers andacadem ics and m ore than 30 m illion
students enrolled in higher education
institutions.9 Since 2 011, China has also
accounted for the greatest num ber of
patent applications globally.10 By 20 22 ,
China is expected to overtake the U S as
the largest global spender on research
and developm ent (R&D).11 W hile the m ajor
developed nations will continue to have
very signifi cant educational and research
capabilities going forw ard, m om entum in
this sphere is shifting from W est to East,
along w ith global grow th patterns.
O ne of the expected outcom es of this
know ledge shift will be increased hom e-
grow n innovation and m ore outsourcing
of services to the w ealthiest rapid-grow th
m arkets. A long w ith this shift, dim inishing
labor cost advantages in m arkets that w ere
once prem ier outsourcing destinations
for both W estern m anufacturing and
shared services is driving these m arketsto outsource low er-value w ork to the next
set of rapid-grow th m arkets. A s their labor
costs rise, Chinese com panies, for exam ple,
have begun to outsource m anufacturing
to A frica, South A m erica and the M iddle
East.12
Global marketplace
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By 2015,
60%ofnew jobs w ill requireskills that only
20%of thepopulation possess.
54%of today'scollege graduates leading emerging marketcountries —in 10 years it w ill be 60%.
54%
60%
Source: Talent Acquisition Forecast 2 01 5 , Qualigence,2014.
Source:Global Talent 20 21: How the new geography oftalent will transform human resources strategies , O xfordEconom ics, 20 12 .
6. The war for talent grows increasingly fi erce, withgreater workforce diversity providing competit iveadvantage
The w orldw ide com petition for qualifi ed
talent is at its highest level since the pre-
recession period.13 Em ployers in a m ajority
of the 31 countries covered by the H ays
Global Skills Index had m ore diffi culty hiring
talent in 2014 than 2013.14 The situation
is particularly acute w hen trying to fi nd
em ployees skilled in science, technology,
engineering and m athem atics.
The greatest labor m arket pressures
currently exist in m ature econom ies.
Em erging m arket countries, such as B razil,M exico and India, have seen conditions ease
som ew hat, due in part to investm ents m ade
in education.15 M any em erging m arkets
have rapidly expanded the num ber of
college graduates that they produce.
By 2025, the South rather than the
N orth m ay becom e the m ajor source of
technical talent in the global econom y.16
A s com panies continue to globalize and
as talent becom es harder to fi nd, they w ill
em ploy m ore highly diverse workforces.
The labor force for m any organizations
w ill becom e m ultigenerational, w ith four
generations w orking side-by-side.17 The
com position of the w orkforce w ill becom e
m ore m ulticultural, as com panies spread
their operations geographically and tap into
local talent pools.
Increased w orker m obility and technological
advances allow ing for cross-border
collaboration are bringing together workers
from m any different backgrounds.
Finally, w orkforces are becom ing m ore
gender-balanced. W hile w om en have
long been a big part of labor m arkets
in m any countries, they are currently
m oving in force into the w orkplace in m any
other locations (particularly in em erging
m arkets).
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4Urban worldThe num ber and scale of cities continuesto grow across the globe — driven by rapidurbanization in em erging m arkets andcontinued urbanization in m ature m arkets.The U nited N ations (U N ) reports that 54%of the w orld’s population currently live incities, and by 2050, this proportion w illincrease to 66%.
In order to harness the econom ic
benefi ts of urbanization, policy-m akers and the private sector m ust doeffective planning and attract sustainedinvestm ent in railroads, highw ays, bridges,ports, airports, w ater, pow er, energy,telecom m unications, and other types ofinfrastructure. Effective policy responsesto the challenges that cities face, includingclim ate change and poverty, w ill beessential to m aking cities of the future
com petitive, sustainable and resilient.
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Effect ive infrastructure
investment and soundplanning will make future cit iescompet it ive and resilient
A 2014 study conducted by O xford
Econom ics and EY projects that the pace
and scale of global urbanization is set to
continue, w ith A sia and A frica urbanizing
at the fastest rate am ong regions. Rapid
urbanization w ill drive the w orld’s future
econom ic grow th.
The im pact w ill be seen in the shift in
spending pow er to urban areas.
Grow th in spending on non-essential
products for the w orld’s largest cities w ill
outpace grow th in consum er spending
on essential item s, reflecting the rising
affluence of urban residents across the
globe.
The w orld’s750 biggest cities accountfor57%of global GDP.By 2030, they w ill contribute 61%of total world GDP —close toUS$80t (in 2012 prices).
7 5 0 b i gges t c i t i e
s
By 2 030, the w orld’s 750 biggest cities
w ill gain 220 million additionalmiddle-class consumers andform 60%of total globalspending, including an 88% grow thin spending on non-essential products.
220 millionconsumers
Source: Future Trends and Market Opportunit ies in the World’s Largest 75 0 Cities , O xford Econom ics, 20 14 .
1. Global cit ies will accrue greater economic powerand af fl uence
Urban world
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The largest urban explosion ofyoung people w ill be in Africa, w ithcities such as Lagos, A buja, D ar es
Salaam and Luanda, seeing extrem ely
rapid grow th of their young populations.
In fact, a full 90%of the 0–14 age group residing in cities on the top 7 50
cities listwill live in Africa in 2030.
By contrast, 122 of the top 7 50 cities
have populations that are expected to
shrink by 2030, in part due to aging
populations. M ost of these cities are
located in Eastern Europe, G erm any,
Italy, Japan, South Korea and C hina.
90%of 0-14 age2030
Source: Future Trends and Market Opportunit ies in the World’s Largest 75 0 Cities , O xford Econom ics, 20 14 .
2. Demographic patterns will help steer thetrajectory of urban growth around the globe
From a dem ographic perspective, “old”and
“new”cities w ill arise. Both w ill face risks.
Young populations can help to create large
and productive labor forces, but also drive
unrest in countries w ith underem ploym ent
and other social ills. A ging populations
leave the w ork force w ithout an adequate
younger cohort to replace them , depressing
grow th and straining public resources.
W hile the populations of 30 of China’s
top 1 50 cities are expected to contract,
others (e.g., Beijing, Tianjin, Shanghai and
Guangzhou) w ill grow as w orking-age people
are draw n to the econom ic opportunities
in these cities. Cities in the M iddle East are
also expected to see expansions in their
w orking age populations. Cities forecast
to shrink as their populations grow elderly
are in Latin Am erica (e.g., São Paolo and
M exico City) and other parts of Asia (e.g.,
M um bai and Jakarta).2
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China GDP
US$8tUS$25t
By 2030, 40% of the 5 0 largest cities in
the w orld in term s of constant-prices
G D P w ill be in China.
By 2030, the total G D P of China’s 15 0largest cities is expected to triple to
U S$ 25 t, up from U S$ 8t today.
Five of the top six cities in 2030 w ill be
traditional centers ofbusiness and commerce:
Tokyo, N ew York, Los Angeles, Londonand Paris.
Source: Future Trends and Market Opportunit ies in the World’s Largest 75 0 Cities , O xford Econom ics, 20 14 .
The balance of econom ic pow er held by
cities w ill shift eastward, tilting particularly
tow ard China.
In addition, the fastest-grow ing urban
econom ies over the next 15 years w ill
actually be m id-sized cities. As their per
capita incom es begin to clim b, m id-sized
cities w ill begin to register on the radars
of global com panies as potential new
m arkets. This group includes cities such
as Surat (India), Luanda (Angola), H o
Chi M inh City (Vietnam ), Phnom Penh
(Cam bodia), Yangon (M yanm ar) and Dhaka
(Bangladesh). But even as new m egacities
and m id-sized cities continue to grow in
A sia and Latin A m erica, m ature m arkets
w ill still retain som e of the largest and m ost
im portant urban centers in the w orld.3
4. Urbanization will drive important sector shift sU rbanization w ill drive sector shifts and
changing em ploym ent patterns over
the period lasting until 2030. Rapid
urbanization in A frica is helping new service
industries to em erge, as w ell as a steady
shift from agriculture to m anufacturing.
A sian cities w ill continue to dom inate jobs
grow th in the industrial sector, w hile m ature
m arket cities such as Tokyo, O saka, Seoul
and Taipei, w hich have high land and labor
costs, w ill shed these kinds of jobs.
M anufacturing is forecast to expand
specifically in rapid-grow th m arket cities
w ith adequate space to grow , such as
Chongqing in C hina, w here industry is
m oving further inland. Seaboard cities w ith
proxim ity to C hina’s large m anufacturing
centers, such as Jakarta and H o C hi M inh
City, are also expected to enjoy large
increases in industrial em ploym ent. U rban
areas such as D elhi and H anoi w ill continue
to benefit from their relatively com petitive
labor costs, attracting both m anufacturing
and outsourced services jobs, including
softw are developm ent.
Beijing, Lagos and M um bai are all expected
to create m ore financial service sector jobs
than London from 20 13 to 2 03 0. H ow ever,
N ew York, London and H ong Kong w ill still
rem ain the w orld’s largestfinancial hubs.
Financial and business service jobs grow th
w ill, in turn, drive the real estate office
sector. The need to build new infrastructure
in em erging cities, w hile upgrading
infrastructure in m ature m arket cities, w ill
continue to drive grow th in construction
and related sectors.4
3. The economic order of cit ies will shift eastward
Urban world
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Rapid urbanization w ill require
U S$ 60t to U S$ 70t in investm ent over
2012–2030. H ow ever, there is also a
funding gap. U nder current
conditions, only US$45t is likelyto be realized.
2012 2030
US$60t US$70t
The B20Infrastructure andInvestmentTaskforce’s sixrecom m endations for
G20 nations couldgenerate:
US$8t worth of additionalinfrastructure capacity by2030
US$1.6t of additionalinvestment by businessesevery year
and contribute up to1%to the G20 target of 2%additional growth over the
Source: B20 Infrastructure and investment Taskforce: Policy Summary , B20 A ustralia 201 4, July 201 4.
5. An urban world requires major investment ininfrastructure, but funding will remain challenging
N early all cities have a grow th agenda;
high-quality infrastructure contributes to
w ell-functioning, grow th-prim ed cities that
can attract new residents and keep their
existing ones. M any em erging nations
face the challenge of building new urban
infrastructure from scratch, w hile m any
developed nations face the problem of
aging infrastructure.
The B20 Infrastructure and Investm ent
Taskforce’s six recom m endations for actions
that G20 nations should take include:
setting specifi c targets for infrastructure
in their national grow th plans, establishing
a G lobal Infrastructure H ub and increasing
the availability of long-term fi nancing for
investm ent.
W ith governm ent budgets around the w orld
under pressure, m any w ill continue to
fi nance infrastructure projects using public-
private partnership (PPP) m odels, w ith new
“fl avors”em erging to m eet local needs.
Infrastructure funds and pension funds are
expected to invest m ore in infrastructure,as investors focus on alternative assets for
diversifi cation or potentially higher returns.
Those m arkets that harness the prom ise of
urbanization by fi nding creative solutions to
fi nancing infrastructure needs w ill be those
that enjoy econom ic grow th.
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ICT-enabled solutions offer the potentialto reduce annual em issions by an
estim ated 9.1 gigatons of greenhousegasesby 2020, w hich represents16.5%of the projected total in 2020.
70 % of prim ary energyconsum ption and
80 % of global greenhousegas (G hG) em issions ...
... are derived from cities, w hile up
to 8 0% of the U S$10 0b per year in
clim ate-adaptation costs will be
assum ed by urban areas.
Source:GeSI SMARTer: The Role of ICT in Driving aSustainable Futu re , Global e-Sustainability Initiative andBoston C onsulting G roup, Decem ber 2012 .
Source: “Global Dialogue on Clim ate R esilient Cities,”W orld B ank C lim ate C hange Practice, M ay 201 1.
6. Sustainable and resilient urbanization will beinstrumental to the world’s future prospects
W hile urbanization affords econom icopportunity, it also presents significant
resource risks. Rapid urbanization is
contributing to global resource depletion,
w hile som e of the effects of clim ate change
(e.g., rising sea levels around coastal cities
and extrem e w eather events) w ill hit cities
hardest. The W orld H ealth O rganization
(W H O ) reports that 7 m illion people died —
one in eight of total global deaths —as a
result of air pollution exposure in 2012, a
large proportion residing in urban areas.5
Roughly 50% of the urban population being
m onitored (w hich is just 12% of the total
global urban population) is exposed to air
pollution that is at least 2.5 tim es higher
than W H O recom m ended levels.6
Local and national policy-m akers, along
w ith other im portant stakeholders, w ill
need to w ork closely together to plan,
build and govern m ore sustainable cities.
“Green”and “sm art”w ill becom e im portant
features of the sustainable and com petitive
city. Green cities w ill have energy-efficient
buildings, reduced w aste and rely heavily
on renew able energy sources and energy-
efficient transportation system s. Enabled
by digital, com petitive cities w ill also m ake
use of state-of-the-art inform ation and
com m unication technology (ICT) to build
sm art m obility solutions, sm art grids and
other solutions.
Urban world
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Nearly 1 billionpeople current lylive in slums:
•62%of Sub-Saharan Africa•43%of South A sia•37%of East Asia•27%of Latin A m erica
and the Caribbean
over the next 15 years, the number ofglobal slum dwellers is expected todouble to 2 billion people.
Source: Naison M utizwa-M angiza,SustainableUrbanization in t he Post-201 5 UN Development
Agenda , Experts Group m eeting on the P ost-20 15 U NDevelopm ent Agenda, UN H abitat, 27–29 February,2012.
Source: U nited N ations.
7. Truly sustainable cit ies must also target urbanpoverty and marginalized populations
W hile urban areas are projected to growm ore affl uent on the w hole, cities w ill also
face signifi cant social problem s —including
the fact that not all citizens are reaping
the positive aspects of urbanization. A
negative byproduct of rapid urbanization
is unplanned grow th. Local m unicipal
governm ents struggle to provide the basic
requirem ents —adequate food, w ater, health
care, and shelter —to slum s and inform al
settlem ents, m any of w hich are located in
cities in the developing w orld.
N early 1 billion people currently livein slum s, m ost of w hom are located in
em erging countries. But urban poverty is
not reserved for just rapid-grow th m arkets.
For exam ple, the 100 largest m etro areas
in the U S are hom e to 70% of the country’s
econom ically distressed census areas.7
The urban poor bear the brunt of traffi c
congestion, air pollution, crim e and unsafe
food and w ater supplies. The fact that
the slum -dw elling global population could
double over the next 15 years is a strong
call for action. Truly sustainable cities m ustinclude effective planning, policy m aking,
job-creation, institution-building, investm ent
and governance to target and relieve urban
poverty.
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5Resourceful
planetA bsolute population grow th, econom icdevelopm ent and m ore m iddle-classconsum ers w ill drive increasing globaldem and for natural resources — bothrenew able and non-renew able. W hile thew orld’s supply of non-renew able resources
is technicallyfi nite, new technologiescontinue to im pact the future supply
picture by allow ing access to form erlyhard-to-reach and valuable oil, gas andstrategic m ineral reserves. The applicationof new technologies, as w ell as the shiftingsupply environm ent, w ill drive businessm odel adaptation and innovation inm ultiple sectors — as w ell as im pact thegeopolitical balance of pow er.
A t the sam e tim e, natural resourcesm ust be m ore effectively m anaged,particularly from an environm entalim pact perspective. Grow ing concernover environm ental degradation, securingstrategic resources and the fate of ourfood and w ater supply are indicative ofthe fact that protecting and restoringthe planet is a critical future im perative.Governm ents, societies and businessesm ust w ork in tandem to develop m oresustainable approaches to the taskof achieving econom ic grow th w hileleveraging natural resource inputs.
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The addition of 1.2 billion people to the
w orld population by 2030 (notably in
developing nations) w ill significantly
increase the dem and for energy,
com m odities food and w ater.1 Technologicaldevelopm ents have allow ed for access to
resources previously thought im practical
or im possible to recover, thus evolving
notions of the finite lim its of these
resources. N onetheless,finding and
accessing new sources of supply w ill be
increasingly difficult and expensive.1 A s
the strategic value and com petition for
natural resources increase, governm entsw ill put a price on resource security through
taxes and regulations. This w ill give rise to
protectionism and com m unity activism to
control the resources. Such a scenario w ill
encourage greater energy and resource
efficiency at the consum er, corporate and
national levels. The International Energy
A gency estim ates that increased annual
spending on energy efficiency needs torise from U S$ 130b today to m ore than
US$5 50b by 2035.2
1 .
2 b
i n c r
e a s e in w o r l d
p o p u l a
t i o n b
y 2 0 3 0
33%
The m ajority of
dem and w ill com e
from China, India and
the M iddle East.
Increasein globalenergydemand
needed in increased annual
spending on energy
US$420b
Source:World Population Prospects: The 2 01 2 Revision ,U nited N ations, esa.un.org/wpp, accessed 12 January20 15 .
Source: The United Nations World Water DevelopmentReport 2 01 4: Water and Energy —Volume 1 , U N W ater,2014.
Source:World Energy Investment Outlook 2 01 4 ,International Energy A gency, 2014 .
1. Competit ion for limited resources will intensify
Growing demand and shift ing
supply are driving innovat ion inthe energy and resources space
Resourceful planet
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unconventional sources ofoilw ill contribute to 70%of oil supplygrowth, w hile unconventional sources of
gas w ill account for alm ost increases in global gas production.
Over the next20 years
Globally, renew able sources contribute
one of every tw o m egaw atts of pow er.
By 2030 the share of electricitygenerated by renewable energy could reach .
Sources:BP Energy Outlook 20 30 , BP, January 20 13;
and World Energy Outlook 201 2 , International EnergyA gency, 20 12 .
Source: ” The P eople’s Clim ate,”Project Syndicatew ebsite, 24 Septem ber 2014, w w w.project-syndicate.org/com m entary/m onica-araya-and-hans-verolm e-say-that-the-people-s-clim ate-m arch-w as-just-the-start-of-popular-pressure-on-w orld-leaders, accessed 1 2January 201 5.
2. Increasing supply of unconventional and renewable
sources of energy will change the dynamics of theglobal energy mix
Fossil fuel-based energy sources w ill be
w ith us for som e tim e, particularly given
recent technological advances to uncover
unconventional supply. H orizontal drilling
and hydraulic fracturing have released
natural gas from shale form ations. A long
w ith natural gas, producers have developed
advanced drilling and com pletion processes
to produce oil from tight form ations.
M eanw hile, the num ber of ultra-deepw ater
drilling rigs has increased 22% since
2012.3 W ith these advances, global energy
production has begun to shift aw ay from
traditional suppliers in Eurasia and the
M iddle East to suppliers in N orth A m erica,
A ustralia, Brazil and A frica, w ith the
potential to change trade patterns and
the geopolitical balance of pow er. A s ever,
supply w ill be in tension w ith dem and, thus
infl uencing energy prices and im pacting
net im porting and exporting countriesin different w ays. O il and gas com panies
w ill need to adjust their production and
spending plans to m eet the dem ands of
shifting price environm ents.
N ew ly found or new ly exploitable
unconventional energy sources w ill
require a reassessm ent of governm ent
budgets, energy policies and oil and gas
contracts. M any countries w ill have to
develop expertise, sign technology transfer
agreem ents and fi nd cost-effi cient w ays
to unleash the potential of unconventional
resources.
A longside the increased supply of
unconventional energy resources,
renew able energy w ill grow rapidly asclean technologies becom e m ore cost
com petitive.