Bain’s List 0f 8 trends to 2020
Macro trend: The next billion consumers. The rising wealth of emerging economies will continue to bring a broader range of consumption goods to huge numbers of new consumers. More of them will cross the critical annual household income threshold of $5,000, planting them in the ranks of the “global middle class” and enabling more discretionary spending. Although still considerably poorer than the middle-class consumers in the advanced economies, their vast numbers and increasing ability to devote more income to a broader range of goods and services will create an enormous new market. Estimated contribution to global GDP by 2020: $10 trillion.
Macro trend: Old infrastructure, new investments. In the advanced economies, renewed economic vitality will require refurbishing and expanding critical infrastructure, much of which was built more than a half-century ago. But with public finances under strain, the job will increasingly present opportunities for public-private partnerships. In emerging economies, continued infrastructure development will be needed to accommodate growth and lay a foundation for future expansion. Estimated contribution to global GDP by 2020: $1 trillion.
Macro trend: Militarization following industrialization. As economic power tilts toward Asia, political and military power will shift as well. In China, where defense spending has trended upward in recent years, both in dollar terms and as a proportion of GDP, military outlays reached some $160 billion in 2010—a 6.7 percent increase over the previous year, according to the latest available data. The stepped up spending is prompting China’s neighbors to respond with bigger defense budgets, increasing the risk of conflict over shipping lanes in the Indian Ocean and the South China Sea. The military buildups will present near-term opportunities for arms sales for US and European producers until the purchasing countries can ramp up domestic armaments production. Meanwhile, both nations and businesses are increasing spending on countermeasures to meet the ongoing risk of terrorism by non-state actors, insurgent threats in war zones, and the new challenges of cyber and electronic warfare. Estimated contribution to global GDP by 2020: $1 trillion.
Macro trend: Growing output of primary inputs. Growing demand among more nations for oil and natural gas, grains and proteins, fresh water and extracted ores, such as copper, aluminum and rare earth metals, will create price volatility and transient shortages of a few of these commodities over the coming decade. Volatility and commodity price inflation will intensify as these key inputs are increasingly linked by new uses and as demand rises. For example, corn is now a major source of ethanol for transportation as well as a food crop. More water is diverted for use in the extraction of ores and fuel. Ores are finding their way into the manufacture of wind turbines to generate clean energy. And more fuel will be consumed in the desalination of new potable water sources. Investment in conservation measures, alternative supplies and technologies will increase in some areas, though new fossil fuel sources will reduce economic incentives to invest in alternative energy. Estimated contribution to global GDP by 2020: $3 trillion.
Macro trend: Developing human capital. The massive population shift from farm to factory has altered the social landscape in the fast-growing emerging economies, but social infrastructure has not kept pace. Broadening access to education and improving its quality over the coming decade will be crucial if those economies will successfully navigate the transition to a higher value-added service and technology-based economy. Likewise, building a basic healthcare delivery system and weaving a stronger social safety net will absorb a far higher proportion of investment than in the past. Estimated contribution to global GDP by 2020: $2 trillion.
Macro trend: Keeping the wealthy healthy. Aging populations in the advanced economies, more and better medical treatments, and changes in payment systems to make healthcare spending more efficient will spur innovation and reform. Estimated contribution to global GDP by 2020: $4 trillion.
A new wave of technological innovation. We are already beginning to see innovations that will change the way we live, work and play in the advanced economies, spurring the next generation of entrepreneurial start-ups to bring novel products and services to market. Technologies like 3D printers will begin to unleash breakthroughs in manufacturing, enabling smaller batches of highly customized products at declining price points. Ongoing network and communications improvements will create the “no-collar” location-free worker, a technology-enabled change that will create interesting options for retaining elderly workers, for example. Juiced by such innovations, today’s slow-growth advanced economies could accelerate onto a new growth trajectory in the coming decade, tracing an upward sweeping “S-curve” from its current plateau.
Macro trend: Everything the same, but nicer. Innovation will increasingly come in new forms beyond novel technologies like iPads and Twitter. Look for businesses to invest more heavily in “soft innovations,” which will offer affluent customers premium products and services as substitutes for common consumer purchases, better products commanding higher prices and a greater variety of niche products. Soft innovations will change our basic habits, from the way we drink coffee (think mochaccinos rather than drip brew) to the way we buy clothes (with matching outfits delivered to our doorstep rather than shopped for piecemeal in stores). Innovators will create businesses based on these insights. Estimated contribution to global GDP by 2020: $5 trillion.
Macro trend: Prepping for the next big thing. Innovations tend to cluster in waves, and five potential platform technologies—nanotechnology, genomics, artificial intelligence, robotics and ubiquitous connectivity— show promise of flowering over the coming decade. In many cases, developments across technologies will be mutually reinforcing. For example, advances in nanotechnology will enable the enhanced computational power necessary for breakthroughs in artificial intelligence. Nanotechnology will also spawn new technologies for manipulating DNA, which will accelerate advancements in genomics. As technologies move from research concepts and prototypes to find applications in affordable consumer goods and industrial processes, mainly toward the end of the decade, they will generate step-change efficiency improvements that will accelerate growth. Estimated contribution to global GDP by 2020: $1 trillion.”