“The next big arenas of competition,” a recently published report by the McKinsey Global Institute (MGI), “identifies and describes a category of industries that could account for much of the future change in the business landscape and transform the world. We call these industries arenas of competition,” said the report.
Arenas of competition are defined by two characteristics: “they capture an outsize share of the economy’s growth, and market share within them changes hands to an outsize degree. The presence of those two attributes indicates that a new competitive game has begun, usually prompted by a new bundle of technologies and business models.” To identify the key arenas of the future, the report looked back at the arenas of today to see how they evolved.
The Arenas of Today
The arenas of today include 12 industries that showed outsize growth between 2005 and 2020. These 12 industries had a compound annual growth rate (CAGR) of 10%, a market capitalization of 16%, and tripled their global GDP share from 3% to 9% over that period. By contrast, non-arenas had only a 4% revenue annual revenue growth and a 6% market cap growth over the same period.
Here are the 12 arenas of today, along with their market cap and revenue growth between 2005 and 2020 (in $ billions):
- Software: 110 companies; market cap growth $259 to $3,636; revenue growth $64 to $341;
- Semiconductors: 79 companies; market cap $642 to $3,495; revenue growth $194 to $574;
- Consumer internet: 31 companies; market cap $215 to $3,460; revenue growth $24 to $403;
- E-commerce: 73 companies; market cap $87 to $3,308; revenue growth $15 to $888;
- Consumer electronics: 16 companies; market cap $362 to $2,502; revenue growth $238 to $648;
- Biopharma: 91 companies; market cap $416 to $2,289; revenue growth $57 to $343;
- Industrial electronics: 111 companies; market cap $395 to $2,000; revenue growth $389 to $987;
- Payments: 22 companies: market cap $68 to $1,643; revenue growth $34 to $144;
- Video and audio entertainment: 35 companies; market cap $256 to $1,500; revenue growth $135 to $407;
- Cloud services: 20 companies; market cap $54 to $1,026; revenue growth $10 to $109;
- Electric vehicles: 13 companies; market cap $1 to $941; revenue growth $0 to $101; and
- Information-enabled business services: 36 companies; market cap $140 to $888; revenue growth $54 to $154.
Total: 637 companies; market cap growth $2,894 to $26,686 (9.2x); revenue growth $1,241 to $5,100 (4.2x).
Besides exhibiting exceptional growth in market cap and revenue, these twelve arena industries stood out from other industries in several ways:
- Share of global economic profit. In 2005 arena industries captured $55 billion (9%) of global economic profit, and by 2019 their share was $250 billion, around half of global economic profit.
- Share of US R&D investment. Their share of US R&D spend was already a high 62% in 2005 and remained high for the next 15 yeas, growing to 65% by 2020.
- Arena industries have led to the growth of new markets. In 2020, 33% of the market capitalization in arena industries was held by companies that didn’t exist or were relatively small in 2005, compared to 15% of 2020 total market cap for non-arena industries.
- Large companies are more likely to be in arena industries. In 2005, just one of the companies among the world’s top ten by market cap was in an arena industry. By 2020, eight of the 10 companies with the largest market caps are in arena industries, with their market caps ranging from $511 billion to $1.7 trillion.
- Arena industry companies must continually innovate to retain their prominence. “Arenas’ industry structures are rarely static or stable in the long term. Escalatory investments and their exceptional returns for arenas can inspire fierce competition in markets that already have high levels of innovation, provoking step changes in technology and business, which can disrupt the ranks of winners.”
- Arena industry companies are more global. Companies in arena industries are much more likely to be multinationals, with 50% their revenues generated outside their home regions compared with 42% for non-arena companies.
The Arenas of Tomorrow
“With these insights on existing arenas and their characteristics as a guide, we have identified 18 potential future arenas that together could yield $29 trillion to $48 trillion in revenues and $2 trillion to $6 trillion in profits by 2040,” noted the MGI report. “In terms of impact on the economy, we estimate that they could grow from about 4 percent of GDP in 2022 to 10 to 16 percent by 2040. This translates to a 18 to 34 percent share of total GDP growth.”
“This shift in GDP share is a hallmark of arenas: if we perform a similar analysis on our arenas of today, we find that the sample companies increased their equivalent share of GDP from 3 percent in 2005 to 9 percent in 2020.” The 18 arena industries of 2040, and their estimated potential to generate exceptional revenue and profits (in $ billions) by 2040 are:
- E-commerce: 2040 revenue $14,000 to $20,000 billons; profit $280 to $1,000 billions;
- AI software and services: 2040 revenue $1,500 to $4,600; profit $230 to $920;
- Cloud services: 2040 revenue $1,600 to $3,400; profit $160 to $510;
- Electric vehicles: 2040 revenue $2,500 to $3,200; profit $100 to $320;
- Digital advertisements: 2040 revenue $2,100 to $2,900; profit $320 to $580;
- Semiconductors: 2040 revenue $1,700 to $2,400; profit $340 to $600;
- Shared autonomous vehicles: 2040 revenue $610 to $2,300); profit $20 to $460;
- Space: 2040 revenue $960 to $1,600; profit: $50 to $160;
- Cybersecurity: 2040 revenue $590 to $1,200; profit $90 to $240;
- Batteries: 2040 revenue $810 to $1,100; profit $40 to $110;
- Modular construction: 2040 revenue $540 to $1,100; profit $20 to $220;
- Streaming video: 2040 revenue $510 to $1,000; profit $50 to $150;
- Video games: 2040 revenue $550 to $910; profit $80 to $180;
- Robotics: 2040 revenue $190 to $910; profit $20 to $180;
- Industrial and consumer biotech: 2040 revenue $340 to $900; profit $10 to $270;
- Future air mobility: 2040 revenue $7 to $.340; profit $10 to $70;
- Drugs for obesity and related conditions: 2040 revenue $120 to $280; profit $30 to $100;
- Nuclear fission power plants: 2040 revenue $65 to $150; profit $5 to $50.
Each of the 18 potential arenas of tomorrow is explained in detail in the MGI report. They fall into three groups: continuing evolution of current arenas: e-commerce, electric vehicles, cloud services, and semiconductors; spinoffs of current arenas: AI software and services (spinoff from software), digital ads (spinoff from consumer internet), and streaming (spinoff from video and audio entertainment); and emergent industries which may grow to become arena industries by 2040, which could include shared autonomous vehicles, space cybersecurity, batteries, and robotics.
In addition, five of today arena industries, — biopharmaceuticals, consumer electronics, information-enabled business services, industrial electronics, and payments — could lose their arena status because they may not be able to maintain the growth and dynamism that would propel them into being arenas of tomorrow.
“Our analyses of present and future arenas reveal three key swing factors that go beyond uncertainties in the modeling and could be fundamental to the evolution of the arenas of tomorrow in technology, investment patterns, and sources of demand. These factors are developments in geopolitics affecting regulation of innovation and technological regionalization, advances and adoption of AI technology in a range of industries, and the pace of the green transition, which aims to alter the course of climate change and could drive demand in various parts of the market.”
“The 18 arenas of tomorrow we have identified could be even more materially transformative than the 12 arenas of today, shaping how we consume and process data, approach health and wellness, and interact and communicate with one another,” said the report in conclusion. “They could introduce new options for our lives as well as new questions about our social progress, from the morality and ethics underpinning data and privacy to imperatives for businesses to be inclusive and sustainable. Recognizing how and when arenas originate, understanding how they evolve, and anticipating the way they could change society can offer a unique view of the arc of society’s progress.”
Y (thx)... only surprise (priority)?
TELEHEALTH? ... Japan Society 5.0..in-home CARE
-> US 20% of GDP...50% as effective as EU
AI services! ..who-do-you-call (CARE::scenarios) ...is feature of chatBOT (agents)?
-> note: demographics... ex: Japan/China/EU aging...Q: when are 50% over 65?
Posted by: stan curtis | November 28, 2024 at 01:59 PM