Ernst & Young - Megatrends 2015 ~ Making sense of a world in motion

8/20/2019 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

1Megatrends 2015 M aking sense of a w orld in m otion


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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.

2 Megatrends 2015 M aking sense of a w orld in m otion

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


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




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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.



22/56

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




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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



25/56

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.



26/56

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



27/56

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.



28/56

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



29/56

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.



30/56

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).



33/56

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


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.


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



39/56

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.



41/56

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.



42/56

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



43/56

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.

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Ernst & Young - Megatrends 2015 ~ Making sense of a world in motion

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