EY Megatrends Report 2015

Megatrends 2015 Making sense of a world in motion

Contents Welcome 1 Introduction 2 Executive summary

4

1. Digital future

6

Technology is disrupting all areas of enterprise, driving myriad opportunities and challenges

2. Entrepreneurship rising

14

Entrepreneurship around the world is growing, driving the need for more supportive ecosystems

3. Global marketplace

22

Economic power continues to shift east and south, driving new patterns of trade and investment

4. Urban world

30

Effective infrastructure investment and sound planning will make future cities competitive and resilient

5. Resourceful planet

38

Growing demand and shifting supply are driving innovation in the energy and resources space

6. Health reimagined Technology and demographics converge to drive a once-in-a-lifetime transformation

44

Welcome At EY, we describe megatrends as large, transformative global forces that define the future by having a far-reaching impact on business, economies, industries, societies and individuals.

We live in a world in constant motion. Goods, capital and labor are traveling globally at a faster pace than ever and moving in novel patterns. Technological innovation, including digital, is rewriting every industry and the way in which human beings manage their lives. In this world, the ever-increasing acceleration of change is one of the few constants.

EY has identified six megatrends. We think that each has the present and future capacity to disrupt and reshape the world in which we live in surprising and unexpected ways. We call them digital future; entrepreneurship rising; global marketplace; urban world; resourceful planet; and health reimagined.

With each megatrend, we present a set of observations and facts designed to cover what we deem to be the most important and interesting aspects. In total, they provide a “best guess” from where we sit today as to how these megatrends might unfold in the future.

As with any exercise of this type, we don’t claim to have a crystal ball. We do, however, believe in the fundamental importance of thinking critically about the implications embedded in these megatrends today, as well as scanning the horizon for new developments. For EY, the megatrends process is one of the key ways in which we gain insights that inform our mission of building a better working world.

The process helps us to better understand the challenges and opportunities that our clients face so that we can effectively respond to their shifting needs.

In this spirit, EY invites you to peruse this report to consider how these megatrends might also be impacting your business, your partners and your customers — opening up new opportunities to achieve adaptation, growth and success in the near and longer-term future.

Uschi Schreiber EY Global Vice Chair — Markets and Chair, Global Accounts Committee @uschischreiber Uschi.Schreiber@eyop.ey.com

Megatrends 2015 Making sense of a world in motion

1

Introduction

Making sense of a world in motion Megatrends are large, transformative global forces that impact everyone on the planet. EY has identified six megatrends that define our future by having a far-reaching impact on business, society, culture, economies and individuals.

While each of the megatrends stands on its own, there is clear interactivity. Digital, for example, is closely intertwined with expected transformations across the other five megatrends. Big data, sensors and social applications will underpin the reimagining of health management.

Digital technologies will drive the realization of tomorrow’s “intelligent cities.” Digital oil fields will lead to increased savings and output in the energy space, while “smart grids” will revolutionize the production, delivery and use of electricity worldwide. The ability to create digitally based business models has lowered the barrier to creating new and innovative ventures for entrepreneurs around the world.

In some cases, successful outcomes in one megatrend are related to

2

Megatrends 2015 Making sense of a world in motion

developments in another. As the world urbanizes to the tune of 750 cities contributing 61% of global GDP by 2030, urban areas will require sustainable and resilient solutions to optimize resources, reduce risks and promote the well-being of all citizens. The economic promise of an increasingly global marketplace will be dependent on major investment in infrastructure and related financing in the world’s new and existing cities.

The megatrends illustrate a world in motion. Economic power continues to shift eastward. New markets and new trade linkages are emerging. The boundaries between industry sectors are blurring. New entrants that are digitally native are overturning existing business models. Existing players in one sector (technology) are entering other sectors (health) with exciting new propositions. As we hurtle toward 2030, developments within these six megatrends, as well as the interplay between them, will certainly bear close watching.

Each megatrend is important in its own right. But they are also closely related to one another.

6

1 Digital future

2

Health reimagined

Entrepreneurship rising

5

Global marketplace

Resourceful planet

4 Urban world

3

More interactive Less interactive

Megatrends 2015 Making sense of a world in motion

3

Executive summary

The forces driving our future

Digital future

Entrepreneurship rising

Fueled by the convergence of social, mobile, cloud, big data and growing demand for anytime anywhere access to information, technology is disrupting all areas of the business enterprise. Disruption is taking place across all industries and in all geographies. Enormous opportunities exist for enterprises to take advantage of connected devices enabled by the “Internet of Things” to capture vast amounts of information, enter new markets, transform existing products, and introduce new business and delivery models. However, the evolution of the digital enterprise also presents significant challenges, including new competition, changing customer engagement and business models, unprecedented transparency, privacy concerns and cybersecurity threats.

Technology is also changing the ways that people work, and is increasingly enabling machines and software to substitute for humans. Enterprises and individuals who can seize the opportunities offered by digital advances stand to gain significantly, while those who cannot may lose everything.

The growth and prosperity of all economies, rapid-growth and mature, remains highly dependent on entrepreneurial activity. Entrepreneurs are the lifeblood of economic growth — they provide a source of income and employment for themselves, create employment for others, produce new and innovative products or services, and drive greater upstream and downstream value-chain activities.

While some entrepreneurial activity around the world is still driven by necessity, “high-impact” entrepreneurship, once largely confined to mature markets, is now an essential driver of economic expansion in rapid-growth markets. In some cases, these high-impact entrepreneurs are building innovative and scalable enterprises that capitalize on local needs and serve as role models for new entrepreneurs.

The face of entrepreneurship is also changing — across the world, entrepreneurs are increasingly young and/or female. Many of these new enterprises are digital from birth. Access to funding remains the primary obstacle for entrepreneurs from all markets. The public and private sector each have an important role to play in creating entrepreneurial ecosystems that, in addition to funding, are essential to promoting entrepreneurial success.

4

Global marketplace

Megatrends 2015 Making sense of a world in motion

Faster growth rates and favorable demographics in key rapid-growth markets will continue to be a feature of the next decade or so. The gulf between “mature” and “rapid-growth” countries continues to shrink. A new tier of emerging nations, driven by their own nascent middle classes, will draw global attention. Innovation will increasingly take place in rapid-growth markets, with Asia surfacing as a

major hub. In the global marketplace, the war for talent will become increasingly fierce, necessitating greater workforce diversity to secure competitive advantage.

The economies of the world will remain highly interdependent through trade, investment and financial system linkages, driving the need for stronger global policy coordination among nations and resilient supply chains for companies operating in this environment. At the same time, domestic interests will continue to clash and compete with the forces of global integration. Pushback and opposition to global integration manifests itself in various economic, political and cultural forms, including trade and currency protectionism, the imposition of sanctions to achieve political aims, anti-globalization protests, as well as the strengthening of nationalistic, religious and ethnic movements around the world.

Urban world

The number and scale of cities continues to grow across the globe — driven by rapid urbanization in emerging markets and continued urbanization in mature markets. The United Nations (UN) reports that 54% of the world’s population currently live in cities, and by 2050, this proportion will increase to 66%.

In order to harness the economic benefits of urbanization, policy-makers and the private sector must do effective planning and attract sustained investment in railroads, highways, bridges, ports, airports, water, power, energy, telecommunications and other types of infrastructure. Effective policy responses to the challenges that cities face, including climate change and poverty, will be essential to making cities of the future competitive, sustainable and resilient.

Resourceful planet

Absolute population growth, economic development and more middle-class consumers will drive increasing global demand for natural resources — both renewable and non-renewable. While the world’s supply of non-renewable resources is technically finite, new technologies continue to impact the future supply picture by allowing access to formerly hard-to-reach and valuable oil, gas and strategic mineral reserves. The application of new technologies, as well as the shifting supply environment, will drive business model adaptation and innovation in multiple sectors — as well as impact the geopolitical balance of power.

At the same time, natural resources must be more effectively managed, particularly from an environmental impact perspective. Growing concern over environmental degradation, securing strategic resources and the fate of our food and water supply are indicative of the fact that protecting and restoring the planet is a critical future imperative. Governments, societies and businesses must work in tandem to develop more sustainable approaches to the task of achieving economic growth while leveraging natural resource inputs.

Health reimagined

Health care — which already accounts for 10% of global GDP — is embarking on a once-in-a-lifetime transformation. Health systems and players are under increasing cost pressure — driving them to seek more sustainable approaches, including incentives that emphasize value. These cost pressures are exacerbated by changing demographics, rising incomes in rapid-growth markets and an imminent chronic-disease epidemic. An explosion in big data and mobile health technologies is enabling real-time information creation and analysis. Companies beyond health care as traditionally defined are entering the fray, providing new sources of competition and partnering.

These trends are starting to drive a fundamentally different approach — moving beyond the delivery of health care (by traditional health care companies in traditional ways, i.e., “sick care”) to the management of health (by diverse sets of players, with more focus on healthy behaviors, prevention and real-time care).

Success, in other words, demands that we reimagine our approach to health.

Megatrends 2015 Making sense of a world in motion

5

6

Megatrends 2015 Making sense of a world in motion

1

Digital future Fueled by the convergence of social, mobile, cloud, big data and growing demand for anytime anywhere access to information, technology is disrupting all areas of the business enterprise.

Disruption is taking place across all industries and in all geographies.

Enormous opportunities exist for enterprises to take advantage of connected devices enabled by the Internet of Things to capture vast amounts of information, enter new markets, transform existing products and introduce new business and delivery models. However, the evolution of the digital enterprise also presents significant challenges, including new competition, changing customer engagement and business models, unprecedented transparency, privacy concerns and cybersecurity threats.

Technology is also changing the ways that people work, and is increasingly enabling machines and software to substitute for humans. Enterprises and individuals who can seize the opportunities offered by digital advances stand to gain significantly, while those who cannot may lose everything.

Megatrends 2015 Making sense of a world in motion

7

Digital future

Technology is disrupting all areas of enterprise, driving myriad opportunities and challenges Digital enterprise megatrend

1. Digital transformation is changing business models — including revenue models

Rapid advances in cloud computing, connected devices, mobile, social media and data analytics are prompting many companies to reassess fundamental aspects of their business, including 2014 2018 what products and services they sell, how they deliver these and how they need to organize to support their operations. Digital US$204b US$626b technologies are facilitating the introduction of new products and services, and are providing new ways to develop recurring revenue streams after an initial sale. A recent Economist Intelligence Unit survey reveals that almost 80% of companies are seeing changes in how their customers access goodswill and services, and more than Consumer spending via mobile 51% increase are in thefrom process of changing how they price and deliver US$204b in 1 their2014 goods and services.

Subscription-based revenue models are to US$626b in 2018. of consumers gaining in popularity, while micropayments such as “freemium” and believ Almost half of all e-commerce sales recommendations versu pay-per-use models are also becoming more prevalent. will be from m-commerce.

80%

Almost 80% of companies say their customers are changing how they access goods and services. More than 51% of these companies are changing their pricing and delivery models.

Source: Supply on demand:Adapting to change in consumption and delivery models, Economist Intelligence Unit, 2013.

14%

Integrating digital technologies into product development and sales operations requires companies to adapt their pricing strategies, who trust a sales processes and distribution models. Selling digital products and services demands a different set of skills and proceeds on a different cycle to traditional goods. New organizational structures are needed to manage these operations.

Businesses are failing to use

80% of and services via digital channels approximately Finally, the distribution of goods generated. data nowissues (e.g., customer cloud) raises significant for revenue recognition and customer privacy that must be resolved. While these challenges are substantial, companies need to be able to manage them in order to serve their customers in the future.

By 2017, most consum manufacturers will get their innovation ca

crowdsourcing

Webpage views from mobile phones 8

outnumber views from PCs in 48

Megatrends 2015 Making sense of a world in motion

countries. Desktop access still

$375b–$575b p

2014 US$204b

2018 US$626b

Consumer spending via mobile will increase from US$204b in 2014 to US$626b in 2018.

Almost half of all e-commerce sales will be from m-commerce.

Almost 80% of companies say their customers are changing how they access goods and services. More than 51% of these companies are changing their pricing and delivery models.

2. Declining PC usage and increasing mobile device adoption is driving a “mobile first” world Digital enterprise megatrend

8 of

re

1

Businesses are failing to use approximately 80% of customer data now generated.

Mobile is leapfrogging fixed broadband in many countries, particularly in rapid-growth markets. Webpage views from mobile phones now outnumber those from PCs in 48 countries.2 Ericsson estimates that today’s 2 billion mobile broadband connections will expand to almost 8 billion by 2019.3 Users are expecting and demanding functionality using the cloud, mobile and social technologies that have become staples of their daily lives. They are interacting with brands through mobile devices more than via PCs, and they are using mobile more frequently to make purchases.

2014 US$204b

Webpage views from mobile phones

outnumber views from PCs in 48 Mobile devices are also becoming preferred countries. Desktop access still tools for work and communication. As accounts for 65% of webpage views more employees insist on the ability to worldwide, but mobile phones are “bring your own device” to the workplace, gaining share — from 17% in 2013 to companies need to be able to support nearly 29% in 2014. the latest mobile technologies. All of this Almost 80% of companies say their customers are presents significant challenges to many changing how they access goods andWeb services.

More than Source: “Mobile has now overtaken PC in 40 companies, where legacy IT infrastructures nations, including India, Nigeria and Bangladseh,” 51% of these companies are changing their pricing and are not ready for “mobile first” strategies. mobiForge website, 19 September 2014, mobiforge. delivery models. com/news-comment/mobile-web-has-now-overtakenRemedying this will require major pc-40-nations-including-india-nigeria-and-bangladesh, investments and large-scale restructuring accessed 7 January 2015. efforts. To address the changing market dynamics, technology companies are shifting their application development priorities. These firms are increasingly building applications and interfaces on a mobile platform first, instead of creating applications for the desktop or web browser and then developing compatible mobile apps.

B m t

2018

c

US$626b

Consumer spending via mobile will increase from US$204b in 2014 to US$626b in 2018.

Almost half of all e-commerce sales will be from m-commerce.

8 of

re

1

Source: Bill Siwicki, “Mobile commerce will be nearly half of e-commerce by 2018,“ Internet Retailer website, 10 March 2014, www.nternetretailer.com/2014/03/10/ mobile-commerce-will-be-nearly-half-e-commerce-2018, are to use accessed 8 January 2015.

Businesses failing approximately 80% of customer data now generated.

Megatrends 2015 Making sense of a world in motion

9

D

cu

$5

an

Digital enterprise megatrend Digital future

2014 US$204b

3. Digital transformation and a proliferation of data are fundamentally changing the relationship between businesses and their customers Almost 80% of companies say their customers are

changing how they access goods and services. More than 51% of these companies are changing pricingbusinesses and Reacting to thesetheir demands, are Businesses are gaining unprecedented delivery models. engaging individual consumers and virtual opportunities to understand consumer

needs, preferences and behaviors. The amount and types of customer data available from sources, including social media, online shopping behavior and geolocation information, are expanding at a rapid rate. Making sense of the volume and variety of this information, however, is a challenge.

Firms that can extract value from this information using data analytics will benefit greatly. They will gain a more precise understanding of customer segments.

Products and services can be tailored to the level of the individual. Altogether, they can deliver a much richer customer experience. This is important because consumers’ expectations are growing. They are demanding greater choice and control, more transparency, and anytime anywhere access to information. They also want their voices heard, and digital technologies are making it easier to gather and understand consumer feedback.

communities as co-creators.

As social media amplifies the voice of the customer, there are benefits and risks for companies. Individual “prosumers” may serve as powerful brand or product ambassadors, and online communities may provide key platforms for introducing and testing products, or for communicating important messages. On the other hand, companies are having a harder time controlling messages about themselves in this new era. An organization that fails to engage in a timely or appropriate manner through social media, or that issues an ill-fated message, can suffer rapid and significant damage to their brand. Real or perceived missteps made by companies or even their supply chain partners can mobile phones goWebpage viral withoutviews warningfrom — with negative outnumber views PCs in 48 repercussions.

In thisfrom environment,

2018 US$626b

Consumer spending via mobile will increase from US$204b in 2014 to US$626b in 2018.

Almost half of all e-commerce sales will be from m-commerce.

8 o

r

1

Businesses are failing to use approximately 80% of customer data now generated.

Source: Beth Schultz, “IDC: Tons of Customer Data Going to Waste,” AllAnalytics website, 19 December 2013, www.allanalytics.com/author.asp?section_ id=1411&doc_id=270622&_mc=MP_IW_EDT_STUB, accessed 8 January 2015.

Desktop access still countries. companies need to increase transparency, of webpage views accounts for 65% while proactively cultivating and managing phonesand are worldwide,with but mobile relationships their stakeholders gaining share — from 17% in 2013 to customers. nearly 29% in 2014.

D

c

$

a

10

Megatrends 2015 Making sense of a world in motion

4. Digital disruption is changing the market context and competitive landscape of most industries

ts

of m

2018

By 2018, one-third of the top-20 firms in most industries will be disrupted by industry-specific data platforms.

Source: Perspectives: TCS Consulting Journal, Vol. 05: The Digital Enterprise: A Framework for Transformation.

Tata Consultancy Services, 2013.

Technology is no longer just an industry unto itself; it continues to reshape nearly every other industry in dramatic ways.

The pervasiveness and power of new technologies are blurring sector boundaries as companies across industries develop their own digital strategies and solutions (either in-house, through acquisitions, or via partnerships with “traditional” technology firms). Many companies not traditionally thought of as technology players are positioning themselves in the market with their own digital platforms providing innovative solutions to meet the unique needs of their customers and partners. Increasingly, companies are pricing and delivering their products as a service via the cloud. In some cases, these companies are establishing their own bestof-breed platforms, commercializing their proprietary technology and selling it to others within their industry.

The growing prevalence of these industryfocused solutions and those already offered by traditional technology firms is enabling the expansion of digital ecosystems and is changing the competitive dynamics of the market. Industry solutions providers do not always own the end-to-end value chain and often rely on technology partners to help connect their offerings to the ecosystem.4 As this ecosystem expands, industry players are buying and implementing digital technologies from their competitors, as well as competing with their existing technology business partners in the market offering similar vertical solutions. The relationships between companies in this environment will continue to be very fluid, as partners in one channel are becoming competitors in another.5

5 of the 10 largest all-time data breaches occurred in 2013 and 2014. In 2013,

cyber attacks compromised 800+ million records.

Megatrends 2015 Making sense of a world in motion

11

of companies say their customers are

they access goods and services. More than companies are changing their pricing and Digital future s.

2018

Businesses are failing to use approximately 80% of customer data now generated.

By 2017, most consumer goods

By one-thirditofisthe top-20 5. manufacturers As cyberwillthreats continue to2018, multiply, get up to 75% of in most industries will be firms innovationharder capabilitiesto from their becoming safeguard data, intellectual disrupted by industry-specific data crowdsourcing platforms. property, and personal information

Data breaches are growing in size and frequency, with 5 of the 10 largest ever incidents occurring in 2013 2014.6 $375b–$575b perand year Webpage views mobile phones Theft of data and otherfrom forms of cybercrime outnumber from economic PCs in 48 toll. are creating aviews significant Desktop still countries.

The Center for Strategic access and International Studies (CSIS) that digital crime 65% of webpage views accounts forestimates and intellectual theft currently mobile(IP) phones are worldwide, butproperty costs between and in US$575b 2013per to gaining shareUS$375b — from 17% year — eclipsing annual 29% inthe 2014 . GDP of most nearly nations.7

Digital crime and IP theft

The mounting digitization of the world currently costs between $375b and and the rising connectivity of people, $575b per year — eclipsing the devices organizations provide new annualand GDP of most nations. vulnerabilities for cybercriminals to exploit.

Greater use of the internet, smartphones and tablets (in combination with bringyour-own-device policies) has made organizations’ data more accessible and vulnerable. There are also more access points to company and personal data as digital connections between entities and people increase.

Cloud-based services and third-party data management and storage have opened new channels of risk.8 As cyber risks increase rapidly, organizations and governments will need to mount concerted and sustained efforts to secure digital assets and protect confidential information.

12

Megatrends 2015 Making sense of a world in motion

By 2017, most consumer goods manufacturers will get up to 75% of their innovation capabilities from

crowdsourcing

By

fi di

pl

$375b–$575b per year

5 of the 10 largest all-time data breaches occurred in 2013 and 2014. In 2013,

cyber attacks compromised 800+ million records.

Sources: Dave Smith, “Chart of the Day: The Worst Company Data Breaches Ever,” Business Insider website, 6 August 2014, www.businessinsider.com/chart-of-theday-the-worst-organizational-data-breaches-ever-20148#ixzz3IDdEeF4y, accessed 7 January 2015; Special report: Cyber-security: Defending the digital frontier, The Economist, July 2014, www.economist.com/sites/ defaultfiles/20140712_cyber-security.pdf. accessed 8 January 2015.

Digital crime and IP theft

currently costs between $375b and $575b per year — eclipsing the annual GDP of most nations.

Source: Net Losses: Estimating the Global Cost of Cybercrime, Center for Strategic and International Studies and McAfee, June 2014.

5 oc

cy 8

53m people

83

%

of executives say

their firms are increasingly using

contingent, intermittent or consulting employees

54% 60%

of the American workforce

can be classified as

“freelancers”

34%

54% of today's college graduates are from leading emerging market countries — in 10 years it will be 60%.

6. Workstyles and the means to engage talent are becoming more agile in the digital world

By 2020, more than

50% of

the workforce will be Generation Y and Z members — and they have grown up connected, collaborative and mobile.

Source: Jakob Morgan, “Five Trends Shaping the Future of Work,” Forbes website, 20 June 2013, www.forbes. com/sites/jacobmorgan/2013/06/20/five-trendsshaping-the-future-of-work, accessed 7 January 2015.

While some industries (e.g., mining and manufacturing) still require workers that are time and location bound, it will become common in many sectors for workforces to be virtual, connecting to work anytime, from anywhere, and on any device. Mobile, social and cloud technologies, along Nearly half of #GenMobile with the ubiquity of Wi-Fi and broadband workers prefer non-traditional working connections, are making it possible for hours (outside of 9am-6pm) more employees to work at times and places of their own choosing. Office configurations that remain will be more flexible, and will support higher levels of collaboration among colleagues — all in alignment with the preferences of younger employees.9 By 2020, the Millennials and Generation Z will comprise more than half of the workforce. These individuals have grown up connected, collaborative and mobile, and their attitudes and expectations

Work unbound megatrend

will have a major impact upon how work is organized.10 Greater autonomy and flexibility of employee workstyles will be matched by new means of engaging with talent.

85% of large global Technological advances areenterprises making it surveyed agreed or strongly agreed that easier for companies to tap into networks crucial through to fostering ofdiversity anonymousisworkers online innovation in the workplace “crowdsourcing” and freelance platforms.

Firms that are making use of these models are in essence “network orchestrators,” connecting to skills and resources on demand rather than owning them.11 All of this will create new challenges for leaders, who must keep widely distributed workforces motivated, productive and satisfied.12 Not only are different skill sets required to manage remote and contingent workers, but existing organizational cultures will be harder to maintain.

7. Digital and robotic technologies will increasingly augment or replace workers Automation has long been a factor 2015, inBy eliminating jobs and unsafe work 60% of newbut jobs environments, this is set to accelerate skills willexpand requireover and the next decade. The that of only focus automation historically has been

47%

of occupations in advanced

economies are at risk” of being automated in the next 20 years.

“high

Source: Carl Benedikt Frey and Michael A. Osborne, “The Future of Employment: How Susceptible are Jobs to Computerisation?” Oxford Martin School, 17 September 2013.

83%

of executives say

their firms are increasingly using

contingent, intermittent or consulting

20% the on workof that requires routine, repetitive population tasks.

Technological limitations and capital possess . boundaries around the costs provided types of work affected. This is changing.

Advancements in technology are allowing for the mechanization of new categories of jobs, including some that previously seemed immune. Innovations in artificial intelligence and machine learning, exponential growth in computer processing power, and sophisticated mobile robotics are all fueling this expansion. While automation has traditionally impacted blue-collar jobs and will continue to do so, it will increasingly target white-collar jobs as well.13 54% 60%

54% of today's college graduates

The impact of the new technologies will not be entirely destructive to the job market, however. New opportunities to develop, service or operate the next generation of software and machines will arise. Drivers of mining trucks, for example, will be replaced with radio technicians who will monitor and control many driverless trucks. These Globallywill women outnumber positions requirenow advanced skills. While tertiary men at in the those top endeducation of the skills continuum (ratio of 108 to 100) — this larger will lead to may benefit greatly, a much increasingly highly skilled female number of individuals will be relegated participation in the workplace to lower-skilled service occupations that cannot easily be mechanized, or to the unemployment line. This will place significant pressure upon governments and social systems, and will require robust, 53m people flexible educational systems to develop can be and retool workers to operate in the new classified as of the environment. “freelancers”

American workforce

Megatrends 2015 Making sense of a world in motion

%

13

14

Megatrends 2015 Making sense of a world in motion

2

Entrepreneurship rising The growth and prosperity of all economies, rapid-growth and mature, remain highly dependent on entrepreneurial activity.

Entrepreneurs are the lifeblood of economic growth — they provide a source of income and employment for themselves, create employment for others, produce new and innovative products or services, and drive greater upstream and downstream valuechain activities. While some entrepreneurial activity around the world is still driven by necessity, high-impact entrepreneurship, once largely confined to mature markets, is now an essential driver of economic expansion in rapid-growth markets. In some cases, these high-impact entrepreneurs are building innovative and scalable enterprises that capitalize on local needs and serve as role models for new entrepreneurs.

The face of entrepreneurship is also changing — across the world, entrepreneurs are increasingly young and/or female.

Many of these new enterprises are digital from birth. Access to funding remains the primary obstacle for entrepreneurs from all markets. The public and private sector each have an important role to play in creating entrepreneurial ecosystems that, in addition to funding, are essential to promoting entrepreneurial success.

Megatrends 2015 Making sense of a world in motion

15

Entrepreneurship rising

Entrepreneurship around the world is growing, driving the need for more supportive ecosystems 1. The drivers of entrepreneurial activity in rapidgrowth markets are moving from necessity to opportunity

Rapid-growth markets have long had high rates of entrepreneurial activity, as measured by the Total Early Stage Entrepreneurial Activity Index (TEA rate), which represents the percentage of Overall climate for f individuals aged 18 to 64 in an economy who are in the process of entrepreneurism am starting or are already running new businesses.

Average TEA rate in 2013

2014

North America

11%

European Union

8% Latin America

19%

Sub-Saharan Africa

Asia-Pacific

12%

27%

2018

Rapid-growth economies often exhibit much higher TEA rates than mature economies due to the fact that entrepreneurs in these markets launch businesses out of necessity, including poverty and lack of wage-based employment opportunities. For example, the percentage of the TEA rate that is necessity driven is 31% for in 2 Sub-Saharan Africa versus 19% for North America and 23% for the EU Consumer (rates thatspending both rosevia inmobile the wake willof the financial crisis and are 1 likely to fall again as formal employment increase from US$204 billion in rebounds significantly).

Countries ranked in t 2014 to US$625 billion in Looking forward, an increase in the number of innovative rapidwere all mature mar 2018 ; almost half ofisallexpected. Innovative entrepreneurship growth market startups will be afrom maye-commerce be defined sales as creating product, service or process 9 ofthat the bottom 10 m-commerce represents a significant commercial opportunity (as opposed to rapid-growth mark necessity-driven entrepreneurship).

Global microfinance m grow at 19% for the next five years, risi US$5.7b in 2014 to ne US$14b in 2019.

Source: José Ernesto Amorós and Niels Bosma, Global Entrepreneurship Monitor: 2013 Global Report, Babson College, Universidad del Desarrollo, and Universiti Tun Abdul Razak, 2014.

expected to

% 80 of consumers

believe peer recommendations versus

14%

who trust advertisements

US$5.7b 600 US Entrepreneur Of The YearTM(EOY) contestants outperformed companies on both EY’s

the S&P 500 and the Russell 2000 in 2012 for median return on assets (16.8%

for EOY contestants versus 7.1% for the

16

Megatrends 2015 Making sense of a world in motion

S&P 500 and 1.6% for the Russell 2000).

2014

Average TEA rate in 2013

O e

2014

North America

11%

European Union

8%

Asia-Pacific

12% 2. High-impact entrepreneurs to build Latin transformative businesses both rapid-growth America in27% and mature markets 19% Sub-Saharan will continue Africa

Mature markets have seen numerous start-ups with great ideas scale and take off, making a high-impact. In some cases, these new companies have disrupted existing industries and created new industries or industry segments. Google, Facebook, Twitter, Virgin Airlines, and GoPro are among the examples that come to mind. Rapid-growth markets are beginning to see their fair share of high impact entrepreneurs. For example, recent EY World Entrepreneur Of The YearTM (WEOY) winners have come from India (Kotak Mahindra Bank), Kenya (Kenya’s Equity Bank Limited), Singapore (Hyflux Limited), and China (Fuyao Glass Industry Group).2 The expansion of successful new businesses in rapid-growth markets is due, in part, to growing consumer power in these regions and opportunities for frugal

innovation — offering lower-cost products and services tailored to unmet and local market needs. The democratization of code-writing is lowering the barrier to creating an innovative venture, while digital technologies are also facilitating of consumers believe peer the rapid scaling up of new businesses recommendations versus at a lower cost. The opportunity for new companies to expand their business models into other markets is whorapid-growth trust advertisements enormous. Looking ahead, more innovative ventures are expected in the developing world as countries such as China and India actively seek to create more vibrant regulatory and financing environments in which to launch and nurture native-born enterprises. But what stands out today is the financial success that these high-impact entrepreneurs are enjoying across the world.

2018

Consumer spending via mobile will increase from US$204 billion in 2014 to US$625 billion in 2018; almost half of all e-commerce sales will be from

m-commerce

Gl

ex

for

80%

U U

14%

US

2

600 US Entrepreneur Of The YearTM(EOY) contestants outperformed companies on both EY’s

the S&P 500 and the Russell 2000 in 2012 for median return on assets (16.8%

for EOY contestants versus 7.1% for the S&P 500 and 1.6% for the Russell 2000).

Source: The Bold Ones — High-Impact Entrepreneurs Who Transform Industries, World Economic Forum, September 2014.

Digital crime and IP theft

currently costs between $375 and $575 billion per year — eclipsing the annual GDP of most nations

Megatrends 2015 Making sense of a world in motion

17

Global GDP of rapid-growth markets

from Entrepreneurship rising

7.2b

9.6b

8.1b

38% 63% US$223t

2013

2025

Home to world’s largest companies China India Brazil US UK Germany

2000 18 1 3 179 38 37

2014 95 4 4 128 28 28

2050

from 7.2 billion in 2013 – to 8.1 billion in 2025 – to 9.6 billion by 2050. Of the population added by 2050, over 95% will be born in developing countries.

By 2030, rapid-growth markets will comprise 63% of global GDP, up from 38% today and amounting to US$223t.

3. The face of entrepreneurship is increasingly young Youth unemployment has reached a critical level in most G20 countries.

2bThe in 2050 International Labour Organization (ILO) reports that globally, almost 13% of young people (close to 75 million people) are unemployed.3 The real rate is likely higher.

In response to this, young people are increasingly turning to entrepreneurship, particularly in regions where wage employment is difficult to obtain.

1.2b in 2014 In mature economies, entrepreneurship has emerged as a desired course for Millennials Theborn world’s population 10 toas 24 (those between 1984 andof1996), a function both job losses during the great , of which 89% live in less yearofolds recession, the decaying contract developed countries,social will grow from 1.2 between employers employees, as well today to and 2 billion in 2050 . billion as changing work and lifestyle preferences.

The global working age population (ages 15 – 64) is set to more than double in the world’s least developed nations between 2014 and 2050, with most of that growth coming from

In a Universum survey of 16,000 Millennials from 42 countries, 70% of respondents viewed themselves as entrepreneurs.4 Another key driver has been the boom in entrepreneurial education. The Kauffman Foundation reports that more than 5,000 entrepreneurship courses are offered in the US today, compared with 100 in 1975.5 This is important because, along with training, young entrepreneurs across the G20 need additional support to launch Two-thirds of the global middle andclass scale their including an willenterprises, be Asia-Pacific expanded range of funding alternatives, residents by 2030, up from mentoring, taxone-third incentives a reduction in just under in and 2009. red tape.6

To ra US ne

Th ma of

Nearly 50% of the world’s entrepreneurs are between the ages of 25 and 44.

25 to 34 year olds show the highest

rates of entrepreneurial activity.

U

57% of China’s entrepreneurs are between the ages of 25 to 34.

sub-Saharan Africa.

Source: José Ernesto Amorós and Niels Bosma, Global Entrepreneurship Monitor: 2013 Global Report, Babson College, Universidad del Desarrollo, and Universiti Tun Abdul Razak, 2014.

2

By 2030, rapid-growth markets will account for 47% of gross global inflows, up from 23% in 2010.

in

Asian countries

have grown their share of global spending on R&D from 33% to 40% in the past five years.

China and India will become the world’s largest investors.

18

Megatrends 2015 Making sense of a world in motion

S

in n

Southeast Asia has become the world’s largest region for new research investments — a trend expected to continue through the decade.

Today, roughly 126 million women are launching or operating brand new businesses in

67 economies around the world.

At least 48 million female entrepreneurs

and 64 million female business owners currently

employ one or more people in their

businesses.

s

e of

Nearly 50% of the world’s entrepreneurs are between the ages of 25 and 44.

25 to 34 year olds show the highest rates of entrepreneurial activity.

57% of China’s entrepreneurs are between the ages of 25 to 34.

US$8.7t US$1.6t 2012

2035

4.Services The face of entrepreneurship is increasingly trade will see its value female increase from nearly US$1.6t to

Today, roughly 126 million women are launching or operating brand new businesses in

67 economies around the world.

ears.

s

At least 48 million female entrepreneurs

and 64 million female business owners currently

employ one or more people in their

businesses.

nearly US$8.7t between Millions of women across the world are , a five-fold 2012 and 2035 starting or operating new businesses, increase. many of whom are driven by opportunity rather than necessity (see p.16). Women’s entrepreneurial ventures are also an increasingly important source of new jobs.

From the perspective of small and mediumsize enterprises (SMEs), the World Bank reports that women-owned companies in the US are expanding at more than double the rate of all other firms, contributing nearly US$3t to the US$16b US economy (19%) and directly delivering 23 million jobs (16% of all jobs).7 In developing countries, women-run SMEs are also increasing.

Across the globe, there are roughly 8 million to 10 million formal SMEs with at least one woman owner.8 Women entrepreneurs also intend to expand their businesses. A predicted 7 million female entrepreneurs

and 5 million female established business owners plan to grow their businesses by at least six employees over the next five years.9 Access to finance remains a hurdle for female entrepreneurs, particularly in countries where financial markets are less developed, but also in countries with more sophisticated entrepreneurial systems.

From 2011–13, just 15% of US companies receiving venture capital funding had a woman on the executive team. This is up 10 percentage points since 1999, but all-men teams in 2013 are still more than four times more likely to receive funding from venture capital investors.10 Policy-makers and other stakeholders will be increasingly challenged to create enabling environments for female entrepreneurs across the globe.

Source: Global Entrepreneurship Monitor: 2012 Women’s Report, Babson College Universidad del Desarrollo, Universiti Tun Abdul Razak, and london Business School 2013.

Megatrends 2015 Making sense of a world in motion

19

Entrepreneurship rising

5. More supportive environments are evolving to underpin entrepreneurial growth

US$1.4b US$1.4b

Overall climate for fostering Overall climate among for fostering entrepreneurism the entrepreneurism among the

8 018

than doubledbetween from US$600m to US$1.4b 2006 and to US$1.4b between 2006 and 2012, driven by regulatory 2012, driven by regulatory changes: changes:

US$600m US$600m

Elimination of tax on Elimination of tax on capital gains capital gains Relaxation of rules Relaxation of rules preventing foreign preventing foreign investment investment

in 2013 in 2013 Countries ranked in the top Countries ranked in the top were all mature markets. were all mature markets.

in

f ts

hboth 2012 12

9 of the bottom 1010were 9 of the bottom were rapid-growth markets. rapid-growth markets.

Source: The Power of Three: The EY G20 Entrepreneurship Barometer, EY, 2013.

Global microfinance market Global microfinance marketis is grow atat 19% annually expected to 19% annually expected to grow Supportive environments are increasingly essential to next successful entrepreneurship , rising for for thethe next fivefive years , risingfrom from years and these are evolving across the world.

US$5.7b in 2014 to nearly US$5.7b in 2014 to nearly The ideal entrepreneurial US$14b 2019.environment US$14b in in 2019.

has five pillars: (1) access to funding; (2) entrepreneurial culture; (3) supportive US$14b regulatory and tax regimes; (4)US$14b educational 2019 2019 systems that support entrepreneurial mindsets; and (5) a coordinated approach US$5.7b US$5.7b that links the public, private and voluntary 11 2014 sectors.

There are still huge areas where 2014 G20 countries need to take urgent action to improve support for their entrepreneurs.

In India, venture In India,investment venture more capital more capital investment than doubled from US$600m

Source: Adapting and evolving: Global venture capital insights and trends 2014, EY, 2014.

Crowdfunding Crowdfundingmarket marketfor for

developing countries ––which developing countries which was US$5b US$5b The developed economies are was ahead of inin2013 ——could rise to US$96b by 2013 could rise to US$96b by the emerging markets, as they tend to 2025, 2025,since sincethere thereare are344 344million million have deeper and more extensive funding households householdsininrapid-growth rapid-growtheconomies economies options, stronger education systems, more capableofofmaking makingcrowdfunding crowdfunding capable mature and stable tax and regulatory investmentsinintheir theirlocal localcommunities. communities. investments environments, and more well-developed entrepreneurial cultures.

US$5b US$5b

US$96b US$96b

and 68% of exports and has started to focus on improving the regulatory and tax environment for new ventures and SMEs.12

However, rapid-growth markets 2012 2025 are 2012 2025 beginning to act relative to the imperatives these pillars represent. China’s Ministry of Commerce recently acknowledged that entrepreneurial ventures are currently responsible for 75% of new jobs each year

rfor

Many rapid-growth markets also have high-profile projects underway to stimulate clusters of entrepreneurial activity. In 2014, there were more than 90 technology hubs, many offering incubators and accelerators, across Africa.13

An An EY EY survey surveyof ofG20 G20entrepreneurs entrepreneurs identified identifiedimproved improvedaccess accesstoto as the most effective funding waytoto funding as the most effectiveway accelerate entrepreneurship — while 70% accelerate entrepreneurship — while 70% reported it is difficult to obtain financing in reported it is difficult to obtain financing in their own countries. their own countries.

r the e 00).

20

Megatrends 2015 Making sense of a world in motion

2025 2025

2b in 2050 2b in 2050

e TEA rate in 2013

1.4b

Overall climate for fostering In India, venture entrepreneurism among the capital investment more

018

than doubled from US$600m to US$1.4b between 2006 and 2012, driven by regulatory changes:

US$1.4b 2014

2018

US$600m

Elimination of tax on in 2013 capital gains

in

Latin 6.

America

19%

$5b

27% a range of options is essential

Global microfinance market is grow at 19% annually for the next five years, rising from US$5.7b % in 2014 to nearly US$14b in 2019. of consumers believe peer

80

es

es.

recommendations versus

6b

14%

US$14b 2019

who trust advertisements

Crowdfunding market for

developing countries – which was US$5b in 2013 — could rise to US$96b by 2025, since there are 344 million households in rapid-growth economies capable of making crowdfunding investments in their local communities.

US$5b 2012

US$5.7b

s

both 2012

for

the 0).

An EY survey of G20 entrepreneurs 2014 identified improved access to funding as the most effective way to accelerate entrepreneurship — while 70% reported it is difficult to obtain financing in their own countries.

Source: The Power of Three: The EY G20 Entrepreneurship Barometer, EY, 2013.

Entrepreneurs point to funding shortfalls in both launching and scaling new businesses as the single area where improvements are most urgently needed. Along with failure to 2b be in 2050 profitable, lack of funding is cited as the primary reason for business discontinuance around the world.14

25

Digital crime and IP theft

As entrepreneurial businesses currently costs between $375 and grow and develop, the sources of finance $575 billion per year — eclipsingthey rely on change. traditional the annual GDP ofThe most nations venture capital

014

industry continues to globalize, but smart governments are creating a range of mechanisms and institutions to provide entrepreneurs with financing options to

than doubled from US$600m to US$1.4b between 2006 and 2012, driven by regulatory changes:

Elimination of tax on capital gains in 2013

Consumer spending via mobile will Relaxation of rules increase from US$204 billion in Countries ranked in the top European Union preventing foreign 2014 to US$625 billion in were all mature markets.

8% investment Asia-Pacific 2018; almost half of all e-commerce sales will be from Sub-Saharan 12% 9 of the bottom 10 were m-commerce Africa rapid-growth markets.remains the biggest hurdle — Access to funding

expected to

Overall climate for fostering In India, ventureamong the entrepreneurism capital investment more

Relaxation of rules Countries ranked in the top preventing foreign were all mature markets. investment 9 of the bottom 10 were rapid-growth markets.

US$14b

US$96b 2025

600 US Entrepreneur Of The YearTM(EOY) contestants outperformed companies on both EY’s

the S&P 500 and the Russell 2000 in 2012 for median return on assets (16.8%

for EOY contestants versus 7.1% for the

Source: Crowdfunding’s the Developing S&P 500 and 1.6%Potential for thefor Russell 2000).

World, The World Bank, 2013.

Cro

Global microfinance market is grow at 19% annually for the next five years, rising from US$5.7b in 2014 to nearly US$14b in 2019.

expected to

2019

US$5.7b

An EY survey of G20 entrepreneurs 2014 identified improved access to funding as the most effective way to accelerate entrepreneurship — while 70% reported it is difficult to obtain financing in their own countries.

Source: Microfinance Market Outlook 2015: Growth driven by vast market potential, responsability, November 2014.

meet these changing requirements. They In many countries, credit guarantee are establishing targeted venture capital schemes (CGSs) are used by banks, funds and incentivizing private sector often with public sector support, to ease investors to focus more on startups through the constraints SMEs face in accessing 2025 2b in finance.

2050 Government start-up programs improved tax incentives. Alternative funding platforms, such as crowdfunding have become one of the most valuable and microfinance, are gaining traction sources of help. Public money is a powerful for seed and early-stage companies, but catalyst, particularly when delivered in require regulatory support to achieve partnership with private sector funds. scale. The global microfinance market Corporate venturing also continues to grow, has the potential to help small enterprises with almost 1,000 units worldwide — and become tax-paying members of the formal becoming more widespread in rapid-growth 1.2b in 2014 economy.15 markets.16

Megatrends 2015 Making sense of a world in motion

21

deve in 20 2025 hous capa inves

US

22

Megatrends 2015 Making sense of a world in motion

3

Global marketplace Faster growth rates and favorable demographics in key rapid-growth markets will continue to be a feature of the next decade or so. The gulf between mature and rapid-growth countries continues to shrink. A new tier of emerging nations, driven by their own nascent middle classes, will draw global attention.

Innovation will increasingly take place in rapid-growth markets, with Asia surfacing as a major hub. In the global marketplace, the war for talent will become increasingly fierce, necessitating greater workforce diversity to secure competitive advantage.

The economies of the world will remain highly interdependent through trade, investment and financial system linkages, driving the need for stronger global policy coordination among nations and resilient supply chains for companies operating in this environment. At the same time, domestic interests will continue to clash and compete with the forces of global integration. Pushback and opposition to global integration manifests itself in various economic, political and cultural forms, including trade and currency protectionism, the imposition of sanctions to achieve political aims, anti-globalization protests, as well as the strengthening of nationalistic, religious and ethnic movements around the world.

Megatrends 2015 Making sense of a world in motion

23

Global marketplace

Economic power continues to shift east and south, driving new patterns of trade and investment

1. Global economic power will continue shifting to rapid-growth economies gatrend

US$63t US$12t

Global GDP of rapid-growth markets

38% 63% US$223t

Home to world’s largest companies China India Brazil US UK Germany

2000 18 1 3 179 38 37

2014 95 4 4 128 28 28

By 2030, rapid-growth markets will comprise 63% of global GDP, up from 38% today and amounting to US$223t.

n

Growth in rapid-growth markets is expected to taper somewhat going forward, but should nevertheless2030 remain very healthy.

For 2014-2030, projected growth rates for major players such 2014 as China (+5.9%), and India (+6.7%), as well as fast-developing regions such as Sub-Saharan Africa (+5.8) Total global and the Middle East and North Africa annual consumer (MENA) (+4.9%) will continue tipping the spending in world’s center of economic gravity toward rapid-growth the east and south.1

ill Sources: “The super-cycle lives: emerging markets growth is key,” Standard Chartered, November 2013, www. sc.com/en/news-and-media/news/global/2013-11-06-super-cycle-EM-growth-is-key.html; and EY Analysis of 2000 and 2014 Global Fortune 500 lists, November 2014.

markets

With growing economies, and supported by socioeconomic trends such as urban migration, declining dependency ratios, favorable demographics and growing income levels, rapid-growth markets will become increasingly venues in Total global annual important consumer spending for conducting global business.

For allfrom rapid-growth markets will increase companies global ambitions — both US$12t inwith 2014 to US$63t in 2030 — nearly a five-fold increase. established multinationals and their rapidgrowth market challengers — this great shift in economic power will force major adjustments The shareinofstrategy. intra-emerging

market will increase to one-third of global trade by 2020.

Up from 10% in 1995.

050

4

.2

Two-thirds of the global middle class will be Asia-Pacific residents by 2030, up from just under one-third in 2009.

24

Megatrends 2015 Making sense of a world in motion

Nearly 50% of the world’s entrepreneurs are between the ages of 25 and 44.

US$8.7t

US UK Germany

179 38 37

128 28 28

0

lion in he 5% will growth

By 2030, rapid-growth markets will comprise 63% of global GDP, up from 38% today and amounting to US$223t.

US$63t 2014 US$12t 2030

markets

Home to world’s largest companies

China in 2050 India Brazil US UK Germany

2000 18 1 3 179 38 37

2014 95 4 4 128 28 28

comprise 63% of global GDP, up from 38% today

to 24

ess m 1.2 50.

Two-thirds of the global middle class will be Asia-Pacific residents by 2030, up from just under one-third in 2009.

Total global annual consumer spending in rapid-growth markets

ped with

d’s

s

e of

o

years.

Up from 10% in 1995.

Total global annual consumer spending in

Nearly 50% of the world’s entrepreneurs are between the The share of intra-emerging ages of 25 and 44.

57% of China’s entrepreneurs are between the ages of 25 to 34.

US$8.7t US$1.6t 2012

2035

Services trade will see its value increase from nearly US$1.6t to nearly US$8.7t between 2012 and 2035, a five-fold increase.

will

ia

The share of intra-emerging market will increase to one-third of global trade by 2020.

marketspatterns will increase from 2.rapid-growth Trade-flow will undergo continued US$12t in 2014 to US$63t in 2030 — transformation nearly a five-fold increase.

market will increase to one-third to 34trade year olds the . highest of 25 global byshow 2020 rates of entrepreneurial Up from 10% in 1995. activity.

n

Total global annual consumer spending in rapid-growth markets will increase from US$12t in 2014 to US$63t in 2030 — nearly a five-fold increase.

Today, roughly 126

Nearly 50% of the world’s Asian countries entrepreneurs are between the share of have grown their ages of 25 and 44 . global spending on

million women are to Source: “Lamy says Europe needs a good compass sail through crisis,” World Trade Organization website, launching or operating www.wto.org/english/news_e/sppl_e/sppl275_e.htm, brand new businesses in accessed 17 October 2014.

US$8.7t 67 economies around the world.

Global merchandise trade is forecast to and should 40% in the past five years. grow 8% annually to 2030, rates of entrepreneurial outpace GDP growth.2 . activity US$1.6t Southeast Asia has become the world’s China, which is already the largest goods largest region for new research 57% of China’s entrepreneurs investments — a trend expected to trader, will further consolidate its position 2012 2035 in are between the ages of 25 to 34. continue through the decade. world trade. Other markets, such At emerging least 48 million female as India and Vietnam, areentrepreneurs also expected to and 64 million female over post double-digit annual export Services trade will seegrowth its value business owners currently 3 theincrease next seven years.

The increasing role to from employ nearly US$1.6t one or more of the developingpeople world in trade, coupled in their nearly US$8.7t between with rapid advances in communication 2012 and businesses.

2035 , a five-fold and technology, will lead to further increase. fragmentation of supply chains. By 2030, Today, roughly 126 the World Trade Organization estimates million women are that the import content of exports will rise launching or operating to 60%, as compared to 20% in 1990s and brand new businesses in 67 economies around 40% in 2012.4 the world.

Overall, the global trade landscape will be marked by increasingly high levels

from 33% to 25 to 34 year olds R&D show the highest

Source: World Trade Report 2013, World Trade Organization, July 2013.

of integration. Asia is likely to emerge as the fulcrum of future global trade architecture, and will remain at the center of the world’s fastest-growing trade routes (e.g., Asia-MENA, Asia-Latin America and Asia-Africa).5 The Middle East and Africa will become new trade hubs, driven by economic integration with Asia, proximity to Europe, capacity for low-cost production and growing domestic markets. The major brake on increasing trade will be protectionist impulses. While dealing with the ever-present spectre of protectionism, the economies of the world will remain highly interdependent through trade and financial system linkages, driving the need for stronger global policy coordination among nations and resilient supply chains for companies operating in this environment.

s Megatrends 2015 Making sense of a world in motion

25

Global marketplace

1.2b in 2014 The world’s population of 10 to 24 year olds, of which 89% live in less developed countries, will grow from 1.2 billion today to 2 billion in 2050.

Two-thirds of the global middle class will be Asia-Pacific residents by 2030, up from just under one-third in 2009.

25 to 34 year olds show the highest

rates of entrepreneurial activity.

The global working age population (ages 15 – 64) is set to more than double in the world’s least developed nations between 2014 and 2050, with most of that growth coming from

3. Developing countries will continue to grow their sub-Saharan Africa. share of capital inflows and outflows By 2030, rapid-growth markets will account for 47% of gross global inflows, up from 23% in 2010.

China and India will become the world’s largest investors.

Source: Capital for the Future: Saving and Investment in an Interdependent World, World Bank, 2013.

Rapid-growth markets are expected to comprise a far greater share of gross capital inflows and outflows (including foreign investment, equity and debt portfolio investment, bank loans and other investment) in the future, according to the World Bank. By 2030, rapid-growth markets Asian countries haveofgrown share of will account for 47% grosstheir global inflows, global on up from 23% in 2010.

Thespending increasing R&D from 33% maturity of political institutions andto the in the past five years.

40% ongoing global and regional integration ofSoutheast financial markets make developing Asia has become the world’s largest region new research countries morefor attractive sources and investmentsfor — acapital trend expected to destinations flows. These continue through the decade. developments also increase their potential to perform as intermediaries of global capital flows in the future. Looking at 2013 foreign direct investment (FDI) flows, rapidgrowth economies garnered 54% of total investment, while mature markets attracted 39%, and frontier or transitional markets drew 7%.

Changing patterns of investment are becoming apparent. Intra-African flows are becoming a larger component of Africa’s 4% growth in FDI. Developing Asia

26

Megatrends 2015 Making sense of a world in motion

Nearly 50% of the world’s entrepreneurs are between the ages of 25 and 44.

57% of China’s entrepreneurs are between the ages of 25 to 34.

US$

20

Ser remains the world’s leading FDI destination (30% share), with China also continuing to emerge as a source for outward FDI, particularly to Latinroughly America and Southeast Today, 126 Asia. Sectoral reforms in Mexico million women areand shale gas development in Argentina, along with launching or operating brand new businesses prospects in strong automotive manufacturing 67 economies around in Brazil and Mexico, will continue to attract the world. investment dollars in Latin America.

The share of FDI in the extractive sectors across rapid-growth markets appears to be tapering off. In 2013, greenfield investment in manufacturing and services comprised 90% of inward African FDI.6 All At least 48 million of these shifts put theentrepreneurs onus on national female policy-makers to 64 create more businessand million female business owners currently friendly investment environments in rapidemploy one orfall more growth markets, or they will behind. people in their Political and other kinds of volatility could businesses. also continue to deter FDI inflows in rapidgrowth markets. For example, Russia has seen inward FDI diminish drastically as a result of the Ukraine conflict, while the Ebola virus outbreak has dampened investor enthusiasm at least temporarily in West Africa.

incre nearl

201

incre

w

in

will

US$63t 2014 US$12t 2030

Global GDP of rapid-growth markets

38% 63%

Home to world’s largest companies 2000 18 1 3 179 38 37

China India Brazil US UK Germany

US$223t

2030,growing rapid-growth global markets willmiddle comprise 63% of global GDP,continue up from 38% today 4.ByThe class will to and amounting to US$223t. drive the emergence of lucrative new markets

US$63t 2014 US$12t 2030

growth markets

050

Home to world’s largest companies China India Brazil US UK Germany

2000 18 1 3 179 38 37

Total global annual consumer spending in rapid-growth markets

2014 95 4 4 128 28 28

Two-thirds of the global middle class will be Asia-Pacific residents by 2030, up from 24 l comprise 63% of global GDP, up from 38% today just under one-third in 2009.

.2 Source: Hitting the Sweet Spot: The Growth of the Middle Class in Emerging Markets, EY and Skolkovo Institute for Emerging Market Studies, 2013.

Total global annual consumer spending in rapid-growth markets will increase from Nearly 50% of the world’s US$12t in 2014 to US$63t in 2030 — entrepreneurs are between the nearly a five-fold increase. ages of 25 and 44.

25 to 34 year olds show the highest

Source: Tassos Stassopoulos, “Growing Older in rates of entrepreneurial Emerging Markets,” website, The share of AllianceBernstein intra-emerging 19activity September.2014, blog.alliancebernstein.com/index. market will increase to one-third php/2014/09/19/growing-older-in-emerging-markets.

57% of China’s entrepreneurs of global trade by 2020.

h

e

2014 95 4 4 128 28 28

are between the ages of 25 to 34.

Up from 10% in 1995.

Total global annual consumer spending in rapid-growth markets

Total global annual consumer spending in rapid-growth markets will increase from US$12t in 2014 to US$63t in 2030 — nearly a five-fold increase.

Rapidly growing, young populations The share ofstrong intra-emerging combined with economic growth will increase to one-third market are producing a surge of middle income of global trade by 2020. markets. consumers in key rapid-growth The World Bank projects that 50% of the from 10% in 1995. total global stock of Up capital will reside in the developing world by 2030 (up from 33% in 2010), illustrating the shift in the global distribution of wealth.7 Nowhere is this trend stronger than in the Asia-Pacific region.

Moreover, a significant proportion of the new Asian middle class will reside at the upper end of the income bracket and possess significant spending power.

The rapid expansion of middle income populations will be matched by a rapid increase in consumer spending.

US$8.7t

As a result, these fast-growing countries are becoming prime markets for global and home-grown companies, and competition is increasing apace. In these crowded marketplaces, companies need to carefully position their brands and portfolios to meet 2012 of increasingly empowered 2035 the needs and diverse consumer bases.

US$1.6t

Services trade will see its value increase from nearly US$1.6t to nearly US$8.7t between 2012 and 2035, a five-fold increase.

Today, roughly 126 million women are launching or operating brand new businesses in

Asian countries

67 economies around the world.

have grown their share of global spending on Nearly 50% of the world’s R&D from 33% to entrepreneurs are between the in the past five years.

40% ages of 25 and 44.

Southeast Asiaolds has show become world’s 25 to 34 year thethe highest largest region for new research rates of entrepreneurial investments — a trend expected to activity. continue through the decade.

57% of China’s entrepreneurs are between the ages of 25 to 34.

US$8.7t

US$1.6t 2012

At least 48 million female entrepreneurs 2035

and 64 million female business owners currently

employ one or more people in their

Megatrends 2015 Making sense of a world in motion

27

Global marketplace 1.2b in 2014 The world’s population of 10 to 24 year olds, of which 89% live in less developed countries, will grow from 1.2 billion today to 2 billion in 2050.

Two-thirds of the global middle class will be Asia-Pacific residents by 2030, up from just under one-third in 2009.

25 t

rat act

57% are

sub-Saharan Africa.

5. A “new knowledge world order” is emerging, with Asia as a hub By 2030, rapid-growth markets will account for 47%

China’s heavy investment in education is bearing fruit, as the country has overtaken the US in the number of doctorates awarded in science and engineering.8 China currently has around 1.6 million researchers and academics and more than 30 million students enrolled in higher education institutions.9 Since 2011, China has also accounted for the greatest number of patent applications globally.10 By 2022, China is expected to overtake the US as the largest global spender on research and development (R&D).11 While the major developed nations will continue to have

28

Megatrends 2015 Making sense of a world in motion

of gross , global inflows very significant educational and research up from going 23% inforward, 2010. momentum in capabilities this sphere is shifting from West to East, along with global growth patterns.

One of the expected outcomes of this knowledge shift will be increased homegrown innovation and more outsourcing of services to the wealthiest rapid-growth markets. Along with this shift, diminishing labor cost advantages in markets that were once premier outsourcing and destinations for both Western manufacturing and will become the world’s shared services is driving these markets largest investors. to outsource lower-value work to the next set of rapid-growth markets. As their labor costs rise, Chinese companies, for example, have begun to outsource manufacturing to Africa, South America and the Middle East.12

China

India

ent

age

The global working age population (ages 15 – 64) is set to more than double in the world’s least developed nations between 2014 and 2050, with most of that growth coming from

There is a growing shift in knowledge production toward Asia, primarily China.

Whereas countries like the US, Japan, the UK and Germany traditionally led the way in investment in research and education, rapid-growth markets are steadily increasing their academic and research output, particularly in Asia.

Nea

Asian countries

have grown their share of global spending on R&D from 33% to 40% in the past five years.

Southeast Asia has become the world’s largest region for new research investments — a trend expected to continue through the decade.

Source: 2014 Global R&D Funding Forecast, Battelle and R&D (rdmag.com), December 2013.

Work unbound megatrend Work unbound megatrend 6. The war for talent grows increasingly fierce, with greater workforce diversity providing competitive advantage The worldwide competition for qualified talent is at its highest level since the prerecession period.13 Employers in a majority of the 31 countries covered by the Hays Global Skills Index had more difficulty hiring talent in 2014 than 2013.14 The situation is particularly acute when trying to find employees skilled in science, technology, engineering and mathematics.

The greatest labor market pressures currently exist in mature economies.

Emerging market countries, such as Brazil, Mexico and India, have seen conditions ease somewhat, due in part to investments made in education.15 Many emerging markets have rapidly expanded the number of college graduates that they produce.

By 2025, the South rather than the North may become the major source of technical talent in the global economy.16 As companies continue to globalize and as talent becomes harder to find, they will employ more highly diverse workforces.

47%% 47

The labor force for many organizations will become multigenerational, with four of occupations generations working side-by-side.17 The in advanced economies are at composition of the workforce will become of occupations high risk” of being automated “ more multicultural, as companies spread in advanced economies are at next 20 years. in the their operations geographically and tap into “high risk” of being automated local talent pools. in the next 20 years.

Increased worker mobility and technological advances allowing for cross-border collaboration are bringing together workers from many different backgrounds.

Finally, workforces are becoming more % While women have gender-balanced. long been a big part of labor markets % of executives say in many countries, they are currently their firms are moving in force into the workplace in many of executives increasingly using say their firms are other locations (particularly in emerging contingent, increasingly using markets).

By 2015, 60% of new jobs By 2015, will require skills that 60%only of new jobs skills will require 20% of the that only population

20% of the possess . population possess.

Source: Talent Acquisition Forecast 2015, Qualigence, 2014.

83 83

intermittent contingent, or consulting intermittent or employees consulting employees

Glo me Glob (ra men inc (rati par incr part

Ao wo Am wo

54% 60% 54% 60% graduates 54% of today's college leading emerging market are from 54% of today's college graduates countries — in 10 years it will be 60%. are from leading emerging market countries — in 10 years it will be 60%.

Source: Global Talent 2021: How the new geography of talent will transform human resources strategies, Oxford Economics, 2012.

By 2020, By 2020, more than

moreofthan 50% 50% of the workforce will be Generation

Y

the workforce will be—Generation and they have Y and Z members

Nearly half of #GenMobile Nearly half of non-traditional #GenMobileworking prefer workers prefer of non-traditional working workers (outside 9am-6pm) hours hours (outside of 9am-6pm)

and Z members — and they have grown up connected, grown up connected, collaborative and mobile. collaborative and mobile.

Megatrends 2015 Making sense of a world in motion

29

85 sur 85% surv div dive inn inno

30

Megatrends 2015 Making sense of a world in motion

4

Urban world The number and scale of cities continues to grow across the globe — driven by rapid urbanization in emerging markets and continued urbanization in mature markets.

The United Nations (UN) reports that 54% of the world’s population currently live in cities, and by 2050, this proportion will increase to 66%.

In order to harness the economic benefits of urbanization, policymakers and the private sector must do effective planning and attract sustained investment in railroads, highways, bridges, ports, airports, water, power, energy, telecommunications, and other types of infrastructure. Effective policy responses to the challenges that cities face, including climate change and poverty, will be essential to making cities of the future competitive, sustainable and resilient.

Megatrends 2015 Making sense of a world in motion

31

Urban world

Urban world megatrend

Effective infrastructure investment and sound planning will make future cities competitive and resilient 750 biggest cities

1. Global cities will accrue greater economic power and affluence Urban world megatrend A 2014 study conducted by Oxford Economics and EY projects that the pace and scale of global urbanization is set to continue, with Asia and Africa urbanizing at the fastest rate among regions. Rapid urbanization will drive the world’s future economic growth.

The world’s 750 biggest cities account for 57% of global GDP. By 2030, they will contribute 61% of total world GDP — close to US$80t (in 2012 prices).

220 million 90% of 0-14 age consumers

9

Th yo

citi Sal rap In f gro citi

2030

The impact will be seen in the shift in spending power to urban areas.

Growth in spending on non-essential products for the world’s largest cities will outpace growth in consumer spending on essential items, reflecting the rising affluence of urban residents across the globe.

750 biggest cities The world’s 750 biggest cities account for 57% of global GDP. By 2030, they will contribute 61% of total world GDP — close to US$80t (in 2012 prices).

The largest urban explosion of young people will be in Africa, with

cities suchthe asworld’s Lagos, 750 Abuja, Dar escities By 2030, biggest Salaam seeing extremely 220Luanda, million additional will gain and rapid growth of their young populations. middle-class consumers and 90% of the 0–14 age In fact, a fullof form 60% total global group residing in cities on the 750 growth spending, including an 88%top will live in Africa in 2030. cities list in spending on non-essential products.

Byc2 By the have GDP shrin pop By 2 loca larg Italy US$

Source: Future Trends and Market Opportunities in the World’s Largest 750 Cities, Oxford Economics, 2014.

220 million consumers

China GDP

US$8t US$25t

32

Megatrends 2015 Making sense of a world in motion

By 2030, the world’s 750 biggest cities will gain 220 million additional middle-class consumers and form 60% of total global spending, including an 88% growth in spending on non-essential products.

By 2030, 40% of the 50 largest cities in the world in terms of constant-prices GDP will be in China. offer the potential ICT-enabled solutions to reduce annual emissions by an By 2030,9.1 thegigatons total GDPofofgreenhouse China’s 150 estimated largest cities is expected to triple16.5% to gases by 2020, which represents up fromtotal US$8t today. ofUS$25t, the projected in 2020.

Unle over

glob dou

d

nt

s

h .

2. Demographic patterns will help steer the trajectory of urban growth around the globe 90% of 0-14 age

From a demographic perspective, “old” and “new” cities will arise. Both will face risks.

Young populations can help to create large and productive labor forces, but also drive unrest in countries with underemployment and other social ills. Aging populations leave the work force without an adequate younger cohort to replace them, depressing growth and straining public resources.

2030

The largest urban explosion of young people will be in Africa, with cities such as Lagos, Abuja, Dar es Salaam and Luanda, seeing extremely rapid growth of their young populations.

In fact, a full 90% of the 0–14 age group residing in cities on the top 750 cities list will live in Africa in 2030.

By contrast, 122 of the top 750 cities have populations that are expected to shrink by 2030, in part due to aging populations. Most of these cities are located in Eastern Europe, Germany, Italy, Japan, South Korea and China.

While the populations of 30 of China’s top 150 cities are expected to contract, others (e.g., Beijing, Tianjin, Shanghai and Guangzhou) will grow as working-age people are drawn to the economic opportunities Fivecities. of theCities top sixincities in 2030 willare be in these the Middle East

ofin their also traditional expected to seecenters expansions : business and commerce working age populations.

Cities forecast Tokyo, Los Angeles, London to shrink asNew theirYork, populations grow elderly and Paris. are in Latin America (e.g., São Paolo and Mexico City) and other parts of Asia (e.g., Mumbai and Jakarta).2

Source: Future Trends and Market Opportunities in the World’s Largest 750 Cities, Oxford Economics, 2014.

China GDP

US$8t US$25t

70% of primary energy consumption and

80% of global greenhouse gas (GhG) emissions ...

By 2030, 40% of the 50 largest cities in the world in terms of constant-prices GDP will be in China.

By 2030, the total GDP of China’s 150 largest cities is expected to triple to US$25t, up from US$8t today.

Unless significant progress takes place over the next 15 years, the number of

global slum dwellers is expected to double to 2 billion people.

... are derived from cities, while up to 80% of the US$100b per year in climate-adaptation costs will be assumed by urban areas.

Megatrends 2015 Making sense of a world in motion

33

Urban world

750 biggest cities

The largest urban explosion of young people will be in Africa, with

The world’s 750 biggest cities account for 57% of global GDP. By 2030, they will contribute 61% of total world GDP — close to US$80t (in 2012 prices).

cities such as Lagos, Abuja, Dar es Salaam and Luanda, seeing extremely rapid growth of their young populations.

In fact, a full 90% of the 0–14 age group residing in cities on the top 750 cities list will live in Africa in 2030.

3. The economic order of cities will shift eastward The balance of economic power held by cities will shift eastward, tilting2030 particularly 220 million toward China. consumers 90% of 0-14 age In addition, the fastest-growing urban economies over the next 15 years will actually be mid-sized cities. As their per capita incomes begin to climb, mid-sized cities will begin to register on the radars of global companies as potential new markets. This group includes cities such as Surat (India), Luanda (Angola), Ho Chi Minh City (Vietnam), Phnom Penh The largestYangon urban(Myanmar) explosion (Cambodia), and of Dhaka will be in Africa , with young people (Bangladesh). But even as new megacities By 2030, the world’s 750 biggest cities cities as Lagos, Dartoesgrow in and such mid-sized citiesAbuja, continue 220 million additional will gain Salaam and Luanda, seeing extremely Asia and Latin America, mature markets and middle-class consumers rapid growth of their young populations. will still retain some of the largest and most forma 60% of of total global the 0–14 age In fact, full 90% important urban centers in the world.3 including antop 88%750 growth spending group residing in,cities on the in list spending on non-essential products. will live in Africa in 2030. cities

By contrast, 122 of the top 750 cities have populations that are expected to shrink by 2030, in part due to aging populations. Most of these cities are located in Eastern Europe, Germany, Italy, Japan, South Korea and China.

China GDP

US$8t US$25t

By 2030, 40% of the 50 largest cities in By contrast, 122 of the of top 750 cities the world in terms constant-prices haveGDP populations that are expected to will be in China. shrink by 2030, in part due to aging populations. of these are 150 By 2030,Most the total GDPcities of China’s located in Eastern Europe, Germany, largest cities is expected to triple to Italy,US$25t, Japan, South Korea andtoday.

China. up from US$8t

Unless takeswill place Five of significant the top six progress cities in 2030 be over the next 15 years, the traditional centers ofnumber of

global slum dwellers is expected to business commerce double to 2and billion people. : Tokyo, New York, Los Angeles, London and Paris.

Source: Future Trends and Market Opportunities in the World’s Largest 750 Cities, Oxford Economics, 2014.

GDP 4. China Urbanization will drive important Urbanization will drive sector shifts and changing employment patterns over the period lasting until 2030. Rapid urbanization in Africa is helping new service industries to emerge, as well as a steady shift from agriculture to manufacturing.

Asian cities will continue to dominate jobs growth in the industrial sector, while mature market cities such as Tokyo, Osaka, Seoul and Taipei, which have high land and labor will shed these of jobs.

Bycosts, 2030, 40% of the 50kinds largest cities in the world in terms of constant-prices Manufacturing is forecastoffer to expand ICT-enabled solutions the potential GDP will be in China. specifically in rapid-growth to reduce annual emissionsmarket by an cities gigatons of greenhouse Byestimated 2030, the9.1 total GDP of China’s 150 gases by 2020, which to represents largest cities is expected triple to 16.5% of the up projected totaltoday. in 2020.

US$25t, from US$8t

US$8t US$25t

recommendations with adequate space to grow, such as for G20 nations couldis Chongqing in China, where industry generate: moving further inland. Seaboard cities with proximity to China’s large manufacturing US$8t worth of additional centers, such as Jakarta and Ho Chi Minh infrastructure capacity by City, are also expected to enjoy large 2030 increases in industrial employment. Urban US$1.6t additional areas such as Delhi andofHanoi will continue investment by businesses to benefit from their relatively competitive every year labor costs, attracting both manufacturing and outsourced services jobs, including and contribute up to Unless significant progress takes place of 2% 1% to the G20 target software development. numberover of the over the next 15 years, thegrowth additional

global slum next dwellers expected to five is years double to 2 billion people.

The B20 Infrastructure and Investment Taskforce’s six

34

recommendations for G20 nations could generate:

The B20 Infrastructure and Investment sector shifts six Taskforce’s

Megatrends 2015 Making sense of a world in motion

2012

2030

US$60t US$70t

2012

2030

US$60t US$70t Beijing, Lagos and Mumbai are all expected to create more financial service sector jobs than London from 2013 to 2030. However, New York, London and Hong Kong will still remain the world’s largest financial hubs. % primaryservice energyjobs growth Financial70 and of business consumption will, in turn, drive the realand estate office 80% of global greenhouse sector. The toemissions build new... infrastructure gasneed (GhG) in emerging cities, while upgrading Rapid urbanization will require infrastructure in mature cities, will US$60t to US$70t inmarket investment over continue to driveHowever, growth inthere construction 2012–2030. is also a are derived from while up 4 cities, funding gap.

Under current and... related sectors. to 80% of theonly US$100b peris year in US$45t likely conditions, climate-adaptation to be realized. costs will be assumed by urban areas.

N p li

•

•

•

•

s

h .

al

%

China GDP

China GDP

consumers

US$8t US$25t

US$8t US$25t

70% of primary energy consumption and

80% of global greenhouse gas (GhG) emissions ...

By 2030, 40% of the 50 largest cities in the world in terms of constant-prices GDP will be in China.

By 2030, the total GDP of China’s 150 largest cities is expected to triple to US$25t, up from US$8t today.

The B20 Infrastructure and Investment Taskforce’s six

recommendations for G20 nations could generate:

By 2030, the world’s 750 biggest cities will gain 220 million additional Unless significant progress takes place middle-class consumers and over the next 15 years, the number of form 60% total global global slumofdwellers is expected to including an 88% growth spending double to 2 ,billion people. in spending on non-essential products.

and contribute up to

1% to the G20 target of 2% additional growth over the next five years

Unle over

glob dou

5. An urban world requires major investment in infrastructure, but funding will remain challenging

2012

The B20 Infrastructure and Investment Taskforce’s six

2030

recommendations for G20 nations could generate:

US$60t US$70t

US$8t worth of additional infrastructure capacity by 2030

Nearly 1 billion people currently US$1.6t of additional live in slums: investment by businesses

US$8t worth of additional infrastructure capacity by 2030 US$1.6t of additional investment by businesses every year

By 2030, 40% of the 50 largest cities in the world in terms of constant-prices from cities, while up GDP ... willare bederived in China. to 80% of the US$100b per year in climate-adaptation will150 be By 2030, the total GDP ofcosts China’s assumed by urban areas. largest cities is expected to triple to US$25t, up from US$8t today.

Rapid urbanization will require US$60t to US$70t in investment over 2012–2030. However, there is also a ICT-enabled solutions offer the potential funding gap.

Under current to reduce annual emissions conditions, only US$45tbyisanlikely estimated 9.1 gigatons of greenhouse to be realized. gases by 2020, which represents 16.5% of the projected total in 2020.

every year

62% of Sub-Saharan Africa and contribute up to • 43%1% ofto South Asiatarget of 2% the G20 additional growth over the • 37%next of East five Asia years • 27% of Latin America •

and the Caribbean

Source: B20 Infrastructure and investment Taskforce: Policy Summary, B20 Australia 2014, July 2014.

Nearly all cities have a growth agenda; high-quality infrastructure contributes to well-functioning, growth-primed cities that can attract new residents and keep their existing ones. Many emerging nations face the challenge of building new urban infrastructure from scratch, while many developed nations face the problem of aging infrastructure.

The B20 Infrastructure and Investment Taskforce’s six recommendations for actions that G20 nations should take include: setting specific targets for infrastructure in their national growth plans, establishing a Global Infrastructure Hub and increasing the availability of long-term financing for investment.

With government budgets around the world under pressure, many will continue to finance infrastructure projects using publicprivate partnership (PPP) models, with new “flavors” emerging to meet local needs.

Infrastructure funds and pension funds are expected to invest more in infrastructure, as investors focus on alternative assets for diversification or potentially higher returns.

Those markets that harness the promise of urbanization by finding creative solutions to financing infrastructure needs will be those that enjoy economic growth.

Megatrends 2015 Making sense of a world in motion

35

Ra US 20 fu co

to

Urban world

220 million consumers

of

th

s.

e

al by

s

2% he

By contrast, 122 of the top 750 cities have populations that are expected to shrink by 2030, in part due to aging populations. Most of these cities are located in Eastern Europe, Germany, Italy, Japan, South Korea and China.

Five of the top six cities in 2030 will be

traditional centers of business and commerce:

Tokyo, New York, Los Angeles, London 6. Sustainable and resilient urbanization will be and Paris. instrumental to the world’s future prospects

While urbanization affords economic opportunity, it also presents significant resource risks. Rapid urbanization is contributing to global resource depletion, while some of the effects of climate change (e.g., rising sea levels around coastal cities and extreme weather events) will hit cities hardest. The World Health Organization (WHO) reports that 7 million 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 monitored (which is just 12% of the total global urban population) is exposed to air Unless significant pollution that is atprogress least 2.5takes timesplace higher number of over next 15 years, thelevels.

6 thanthe WHO recommended

70% of primary energy consumption and

80% of global greenhouse gas (GhG) emissions ...

... are derived from cities, while up to 80% of the US$100b per year in climate-adaptation costs will be assumed by urban areas.

global slum dwellers is expected to double tonational 2 billion people. along Local and policy-makers,

with other important stakeholders, will need to work closely together to plan, build and govern more sustainable cities.

“Green” and “smart” will become important features of the sustainable and competitive city. Green cities will have energy-efficient buildings, reduced waste and rely heavily 2012 2030 on renewable energy sources and energyUS$60t US$70t efficient transportation systems. Enabled by digital, competitive cities will also make use of state-of-the-art information and communication technology (ICT) to build smart mobility solutions, smart grids and other solutions.

Rapid urbanization will require US$60t to US$70t in investment over 2012–2030. However, there is also a funding gap. Under current conditions, only US$45t is likely

to be realized.

36

Megatrends 2015 Making sense of a world in motion

By 2030, the world’s 750 biggest cities will gain 220 million additional middle-class consumers and form 60% of total global spending, including an 88% growth in spending on non-essential products.

Source: “Global Dialogue on Climate Resilient Cities,” World Bank Climate Change Practice, May 2011.

Nearly 1 billion people currently live in slums: 62% of Sub-Saharan Africa • 43% of South Asia • 37% of East Asia • 27% of Latin America •

and the Caribbean

ICT-enabled solutions offer the potential to reduce annual emissions by an estimated 9.1 gigatons of greenhouse gases by 2020, which represents 16.5% of the projected total in 2020.

Source: GeSI SMARTer: The Role of ICT in Driving a Sustainable Future, Global e-Sustainability Initiative and Boston Consulting Group, December 2012.

By th GD

By lar US

nd 90% of 0-14 age

70% of primary energy consumption and

80% of global greenhouse gas (GhG) emissions ...

The largest urban explosion of young people will be in Africa, with cities such as Lagos, Abuja, Dar es Salaam Luanda, ... areand derived fromseeing cities, extremely while up rapid growth of US$100b their young populations. to 80% of the per year in climate-adaptation costs0–14 will be age In fact, a full 90% of the assumedinby urban group residing cities onareas. the top 750 cities list will live in Africa in 2030.

unt

fo

es

h s.

tial

%

2030

By contrast, 122 of the top 750 cities have populations that are expected to shrink by 2030, in part due to aging populations. Most of these cities are located in Eastern Europe, Germany, Italy, Japan, South Korea and China.

Five of the top six cities in 2030 will be

traditional centers of business and commerce:

7. Truly sustainable cities must also target urban poverty and marginalized populations

China GDP

US$8t US$25t

Nearly 1 billion people currently live in slums:

62% of Sub-Saharan Africa • 43% • 37% • By27% of Latin America 2030, the total GDP of China’s 150 •

By 2030, 40% of the 50 largest cities in of South Asia the world in terms of constant-prices of in East Asia GDP will be China.

andisthe Caribbean largest cities expected to triple to US$25t, up from US$8t today.

Source: United Nations.

The B20 Infrastructure and Investment Taskforce’s six

recommendations for G20 nations could generate:

Unless significant progress takes place over the next 15 years, the number of

global slum dwellers is expected to double to 2 billion people.

Source: Naison Mutizwa-Mangiza, Sustainable Urbanization in the Post-2015 UN Development Agenda, Experts Group meeting on the Post-2015 UN Development Agenda, UN Habitat, 27–29 February, 2012.

2012 2030

US$60t US$70t

and contribute up to

1% to the G20 target of 2% additional growth over the next five years

While urban areas are projected to grow more affluent on the whole, cities will also face significant social problems — including the fact that not all citizens are reaping the positive aspects of urbanization. A negative byproduct of rapid urbanization is unplanned growth. Local municipal governments struggle to provide the basic requirements — adequate food, water, health care, and shelter slums and informal 70% —oftoprimary energy consumption andlocated in settlements, many of which are % of global greenhouse cities in the80 developing world. gas (GhG) emissions ...

Nearly 1 billion people currently live in slums, most of whom are located in emerging countries. But urban poverty is ... are derived from cities, while up not reserved for just rapid-growth markets. to 80% of the US$100b per year in For example, the 100 largest metro climate-adaptation costs willareas be in the US are home to 70% of the country’s assumed by urban areas. economically distressed census areas.7 The urban poor bear the brunt of traffic congestion, air pollution, crime and unsafe food and water supplies. The fact that the slum-dwelling global population could double over the next 15 years is a strong call for action. Truly sustainable cities must include effective planning, policy making, job-creation, institution-building, investment and governance to target and relieve urban poverty.

Nearly 1 billion people currently live in slums:

US$8t worth of additional infrastructure capacity by 2030 US$1.6t of additional investment by businesses every year

Tokyo, New York, Los Angeles, London and Paris.

Rapid urbanization will require US$60t to US$70t in investment over 2012–2030. However, there is also a funding gap. Under current conditions, only US$45t is likely

to be realized.

62% of Sub-Saharan Africa • 43% of South Asia • 37% of East Asia • 27% of Latin America •

and the Caribbean

Megatrends 2015 Making sense of a world in motion

37

38

Megatrends 2015 Making sense of a world in motion

5

Resourceful planet Absolute population growth, economic development and more middle-class consumers will drive increasing global demand for natural resources — both renewable and non-renewable. While the world’s supply of non-renewable resources is technically finite, new technologies continue to impact the future supply picture by allowing access to formerly hard-to-reach and valuable oil, gas and strategic mineral reserves. The application of new technologies, as well as the shifting supply environment, will drive business model adaptation and innovation in multiple sectors — as well as impact the geopolitical balance of power.

At the same time, natural resources must be more effectively managed, particularly from an environmental impact perspective. Growing concern over environmental degradation, securing strategic resources and the fate of our food and water supply are indicative of the fact that protecting and restoring the planet is a critical future imperative.

Governments, societies and businesses must work in tandem to develop more sustainable approaches to the task of achieving economic growth while leveraging natural resource inputs.

Megatrends 2015 Making sense of a world in motion

39

Resourceful planet

The UN estimates that by 2030 demand for water may be 40% more than supply, and water shortages could affect almost 50% of the world's population.

Growing demand and shifting supply are driving innovation in the energy and resources space US$420b

d

ase in world p op cre in

on by 2030 ati ul

30

1.2b

agnify

The UN estimates that by 2030 demand The UN estimates that by 2030 demand Globally, renewable sources contribute for water may be 40% more than supply, for water may be 40% more thantwo supply, one of every megawatts of power. and water shortages could affect almost needed in increased andannual water shortages could affect By 2030 thealmost share of electricity 50% of the world's population. spending on energy 50% of the world's population. generated by renewable energy 1. Competition for limited resources will intensify

agnify r-energy-food nexus will magnify efficiency by 2035.

could reach 50%.

of

1.2b

The UN that by 2030 90% ofestimates the world’s energy demand for water may be 40% more production depends on could than supply, and water shortages water. affect almost 50% of the world's population.

Source: World Population Prospects: The 2012 Revision, United Nations, esa.un.org/wpp, accessed 12 January 2015.

The addition of 1.2 billion people to the world population by 2030 (notably in developing nations) will significantly increase the demand for energy, commodities food and water.1 Technological 90% of the world’s energy developments have allowed for access to production depends on By 2030, freshwater shortages resources previously thought impractical water. cause to a 30% reduction in orcould impossible recover, thus evolving grain production. notions of the finite limits of these

40

Increase ase in world p op cre in global in energy demand by 2035

Megatrends 2015 Making sense of a world in motion

on by 2030 ati ul

s

US$420b 33%

ase in world p op cre in

on by 2030 ati ul

30 es d

1.2b

d, energy and water).

The majority of needed increased demandinwill come annual from China, India and spending on energy the Middle East. efficiency by 2035.

Source: The United Nations World Water Development Report 2014: Water and Energy — Volume 1, UN Water, 2014.

33%

Increase in global resources. Nonetheless, finding and energy accessing new sources of supply will be demand increasingly by 2035difficult and expensive.1 As

the strategic value and competition for The majority of increase, governments natural resources demand will come will put aof price onworld’s resource energy security through 90% the from China, India andThis will taxes and regulations. give rise to production depends on the Middle East. protectionism water. and community activism to control the resources. Such a scenario will

US$420b The cost of adapting

to climate change for developing countries will be US$70b to Globally, renewable sources contribute US$100b per year one of every twothrough megawatts of power.

2050.

By 2030 the shareannual of electricity needed in increased renewable energy generated by spending on energy could reach 50%. efficiency by 2035.

Source: World Energy Investment Outlook 2014, International Energy Agency, 2014.

33%

Increase The cost of adapting encourage greater resource toenergy climateand change for in global developingcorporate countriesand will energyat the consumer, efficiency demand US$70b toEnergy beInternational national levels. The by 2035 per year Agency estimatesUS$100b that increased annual through 2050. spending on energy efficiency needs to The majority of rise from US$130b today to more than demand will come2 US$550b by 2035. from China, India and

the Middle East.

Glo one

By

gen cou

The impact of the water-energy-food nexus will magnify

The UN estimates that by 2 for water may be 40% mor and water shortages could 50% of the world's popula

Water usage growing

at more than twice the rate of population growth in the last century

Over the next 20 years

unconventional sources of oil

will contribute to 70% of oil supply growth, while unconventional sources of gas will account for almost 50% of increases in global gas production.

Sources: BP Energy Outlook 2030, BP, January 2013; and World Energy Outlook 2012, International Energy Agency, 2012.

Globally, renewable sources contribute one of every two megawatts of power.

By 2030 the share of electricity generated by renewable energy could reach 50%.

Source: ”The People’s Climate,” Project Syndicate website, 24 September 2014, www.project-syndicate. org/commentary/monica-araya-and-hans-verolme-saythat-the-people-s-climate-march-was-just-the-startof-popular-pressure-on-world-leaders, accessed 12 January 2015. of adapting

The UN estimates that by 2030

ase in world p op cre in

on by 2030 ati ul

x2

1.2b

(interdependence between food, energy and water).

demand for water may be 40% more than supply, and water shortages could affect almost 50% of the world's population.

need

spen

effic

2. Increasing supply of unconventional and renewable sources of energy will change the dynamics of the global energy mix Fossil fuel-based energy sources will be with us for some time, particularly given recent technological advances to uncover By 2030, freshwater shortages unconventional supply. Horizontal drilling could cause afracturing 30% reduction in and hydraulic have released grain production. natural gas from shale formations. Along with natural gas, producers have developed advanced drilling and completion processes to produce oil from tight formations.

Meanwhile, the number of ultra-deepwater drilling rigs has increased 22% since 2012.3 With these advances, global energy production has begun to shift away from traditional suppliers in Eurasia and the Middle East to suppliers in North America, Australia, Brazil and Africa, with the potential to change trade patterns and the geopolitical balance of power. As ever, supply will be in tension with demand, thus influencing energy prices and impacting net importing and exporting countries in different ways. Oil and gas companies will need to adjust their production and spending plans to meet the demands of shifting price environments.

Newly found or newly exploitable unconventional energy sources will require a reassessment of government

budgets, energy policies and oil and gas contracts. Many countries will have to develop sign technology 90% ofexpertise, the world’s energy transfer agreements anddepends find cost-efficient production on ways to unleash the potential of unconventional water. resources.

Alongside the increased supply of unconventional energy resources, renewable energy will grow rapidly as clean technologies become more cost competitive. Globally, one out of two newly added megawatts of power comes from renewable sources.4 Consumers are increasingly taking matters into their own hands through the deployment of clean, distributed generation solutions such as rooftop solar photovoltaic units. The changing energy mix and empowerment of consumers will produce significant infrastructure demands from the public and private sector. This will require new models and sources of financing from banks and capital markets. Investors will become increasingly attuned to issues of carbon exposure and risk, and will be more likely to favor companies that have effective and transparent carbon reduction and energy-efficiency programs in place.

The cost

to climate change for developing countries will be US$70b to

US$100b per year through 2050.

Megatrends 2015 Making sense of a world in motion

41

Incr in g ene dem by 2

The m dema from the M

andwater watershortages shortagescou cou and 50%of ofthe theworld's world'spopul popu 50%

The impact impact of the the water-energy-food water-energy-food nexus nexus will will magnify magnify The Resourceful planetof (interdependencebetween betweenfood, food,energy energyand andwater). water). (interdependence

1.2b

20 y2 03 by on b 30 0 atiion uullat

x2 x2

nw aasseeini woorrldldpp oopp ccrere inin

The UN estimates that by 2030 demand for water may be 40% more than supply, TheUN UNestimates estimates thatby by2030 2030 The that demandfor forwater water maywater be40% 40%more more demand may be and shortages could affect almost thansupply, supply,and andwater watershortages shortagescould could than 50% ofworld's the world's population. affectalmost almost50% 50% ofthe the world's affect of

Waterusage usagegrowing growing Water

atmore morethan thantwice twicethe therate rateof of at populationgrowth growthin inthe thelast lastcentury century population

3. Water scarcity will challenge food and energy population. er-energy-food nexus will magnifypopulation. security d, energy and water).

l

s of

.

1.2b

The UN estimates that by 2030 unconventional sources ofoil oil unconventional of demand for water maysources be 40% more

willcontribute contribute to 70%of ofoil oilsupply supply will 70% than supply, andto water shortages could growth, while unconventional sourcesof of growth, while unconventional sources affect almost 50% of the world's gaswill willaccount accountfor foralmost almost50% 50%of of gas population. globalgas gasproduction. production. increasesininglobal increases

ase in world p op cre n i

on by 2030 ati ul

y

Overthe thenext next Over 20years years 20

By2030, 2030,freshwater freshwatershortages shortages By couldcause causeaa30% 30%reduction reductionin in could

grainproduction. production. grain

Source: The United Nations World Water Development Report 2014: Water and Energy — Volume 1, UN Water, 2014.

Source: Global Risks 2014: Ninth Edition, World Economic Forum, 2014.

Water usage has been growing at more than twice the rate of population growth in the last century. The UN estimates that by 2030 demand for water may be 40% more than supply, and water shortages could affect almost 50% of the world's population, and the global population may Bynearly 2030,half freshwater shortages 5 becould facingcause waterascarcity.

The situation 30% reduction in will be more acute in emerging economies. By grain production.

2025, it is projected that water withdrawals will increase by 50% in emerging countries and 18% in developed countries.6 Given this situation, there will be growing tensions

over the use of water and the impact that it has upon energy and food production (“water-food-energy nexus”). On a global level, agriculture is the largest consumer of freshwater, accounting for some 70% of total withdrawals. An estimated 870 million 90%are ofcurrently the world’s energy due people undernourished production depends on to food, to a lack of food or a lack of access water. and the situation may get worse.7

42

Megatrends 2015 Making sense of a world in motion

The need to reconcile the demands of food production (required to feed a growing population) with domestic and industrial use will rise.

US$420b

90%of ofthe theworld’s world’senergy energy 90% productiondepends dependson on production spending on energy water. water. efficiency by 2035. needed in increased annual

Source: World Water Development Report 2014, United Nations, 2014.

33%

InIncrease the face of competing demands, in global accessing dwindling water supplies energy for energy production or private demand consumption will become harder. The by 2035 critical interdependence between food, energy and water The majority of requires a response that addresses all three. demand will come Stronger collaboration from China, India and and businesses will between governments the Middle to East. be required drive innovation and tackle supply-side risks.

ne nee

sp spe

ef effi

In Inc in in en en de de by by

Glo Th The one de dem By fro fro gen the the cou

Globally, renewable sources contribute one of every two megawatts of power.

By 2030 the share of electricity generated by renewable energy could reach 50%.

The cost of adapting to climate change for developing countries will be US$70b to

US$100b per year through 2050.

Source: “Economics of Adaptation to Climate Change,” World Bank, 6 June 2011, www.worldbank.org/en/news/ feature/2011/06/06/economics-adaptation-climatechange, accessed 12 January 2015.

4. Climate change and extreme weather events will demand proactive measures to adapt or develop resiliency Between 1950 and 2010, the Earth's average surface temperature rose at a rate six times higher than in 1890-1950.8 The UN forecasts that the number of people in large cities who are exposed to cyclonic winds, earthquakes and flooding will more than double in the first half of this century.9 Changes to the climate and increased incidence of extreme weather events will have significant economic costs, and may pose serious security challenges in some regions. A recent report concludes that climate change impacts are already accelerating instability in vulnerable areas of the world and are serving as catalysts for conflict.10 The stresses created by climate change and weather events will be particularly acute for the world’s growing urban centers. As urban populations grow in the face of these challenges, action will

be needed to create resilient infrastructure, particularly in developing nations.

There will also be a pressing need to strengthen legacy infrastructure in the developed world to protect it from extreme weather events. As countries work to build (and retrofit) infrastructure that is climate-resilient, there will be an increased need for new funding models to raise the necessary capital. Beyond identifying and preparing for downside risks, governments and industry players are also taking more direct actions to manage the problem.

Many governments are working to move toward lower-carbon economies through policy instruments such as carbon taxes and emission trading programs. Leading companies are increasingly factoring a broad range of variables, including carbon costs, into their decision-making processes.

5. Transparency and security of global supply chains will become critical In a recent World Economic Forum survey, more than 90% of respondents indicated that supply chain and transport risk management has become a greater priority in their organizations over the last five years.11 The Allianz Risk Barometer for 2014 states that business interruption and supply chain losses account for around 50% to 70% of all insured property losses.12 Environmental, geopolitical, economic and technological triggers will continue to cause systemic disruptions to global supply chains. Businesses will pursue greater control over their raw materials through vertical integration and co-development partnerships with suppliers.

Practices such as sharing logistics may become popular, and resource efficiency and recycling will move up the agenda.

Product and process innovation, aimed at improving supply chain efficiency and security, will become a competitive differentiator. So too will transparency. In today’s hyperconnected world, companies are under greater scrutiny from all quarters. Regulators and conscientious consumers, empowered through social media channels, will demand greater raw material traceability and transparency of sourcing strategies. Companies with subpar social or environmental performance are at risk of suffering serious reputational damage in real time. With a wider variety of stakeholders taking interest, and with more powerful means of communication evolving, transparency will be an increasingly important attribute for all organizations.

Megatrends 2015 Making sense of a world in motion

43

44

Megatrends 2015 Making sense of a world in motion

6

Health reimagined Health care — which already accounts for 10% of global GDP — is embarking on a once-in-a-lifetime transformation.

Health systems and payers are under increasing cost pressure — driving them to seek more sustainable approaches, including incentives that emphasize value.

These cost pressures are exacerbated by changing demographics, rising incomes in rapid-growth markets and an imminent chronic-disease epidemic. An explosion in big data and mobile health technologies is enabling real-time information creation and analysis. Companies beyond health care as traditionally defined are entering the fray, providing new sources of competition and partnering.

These trends are starting to drive a fundamentally different approach — moving beyond the delivery of health care (by traditional health care companies in traditional ways, i.e., “sick care”) to the management of health (by diverse sets of players, with more focus on healthy behaviors, prevention and real-time care).

Success, in other words, demands that we reimagine our approach to health.

Megatrends 2015 Making sense of a world in motion

45

Health reimagined

Technology and demographics converge to drive a once-in-alifetime transformation 1. Cost, quality and access challenges will continue to spur health care reform initiatives Health care systems across the globe are grappling with three goals: taming escalating costs, improving quality and outcomes, and expanding access.

Indeed, the reform programs being considered or actively implemented in so many markets are essentially attempts to reconcile often conflicting pressures imposed by these three imperatives. Payers and providers are implementing measures

to boost the efficiency of current systems.

They are experimenting with new delivery and payment models based on outcomes and value. And they are increasing the transparency of information on quality, price and other metrics — enabling patients and others to make better decisions.

Health reimagined megatrend Health care costs are an increasingly urgent issue everywhere.

US — health care’s share of GDP will increase from 17% in 2012 to 23% in 2023.

Europe — 13% of adults in France

and 6% in the UK have serious problems in paying medical bills.

N d fo

h s

India — health care costs are a leading cause of poverty.

Sources: “NHE Fact Sheet,” Centers for Medicare & Medicaid Services website, September 2014, www.cms. gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/ NHE-Fact-Sheet.html; “Health Affairs Web First,” The Common Wealth Survey 2013, November 2013; and Kamayani Bali-Mahabal, “Health Workers Central to Improved Health Outcomes in India,” 9 April 2014, www.ghets.org/2014/04/health-workers-centralpetabytes improved-health-outcomes-india. Websites accessed by 2020 12 January 2015.

25,000

G ex an

50

petabytes today

Social media channels will generate significant health care data — from 50 petabytes today to 25,000 petabytes by 2020.

G fi 40 46

Megatrends 2015 Making sense of a world in motion

gatrend

ce

00

2. Incidence of chronic disease will explode, requiring behavioral solutions Over We are on the cusp of a global chronic disease epidemic. This chronic disease burden is projected to increase dramatically health in the years ahead, thankscare in part to aging smartphone apps are populations in the West, Japan and China, available — with more where the number people onof the way. over the age of 60 will more than double between 2010 and 2030.1

20,000

Noncommunicable diseases account for 75% of

health care spending

and will cause a loss of US$47 trillion to world GDP by 2030.

While chronic diseases were once largely present in more affluent countries, the number of chronically ill individuals across the globe will also swell due to increasing incomes, changed diets and increasingly

sedentary lifestyles in rapid-growth markets. Today, 80% of chronic disease deaths occur in low- and middle-income countries, up from just under 40% in 1990.2 Since chronic diseases progress slowly and have a strong behavioral component, tackling them requires new approaches to driving desirable behavioral change.

Areas for new behavioral approaches include tobacco use, harmful use of alcohol, physical inactivity and poor diet.

Source: The Global Economic Burden of Noncommunicable Diseases, Harvard School of Public Health and World Economic Forum, September 2011.

+23.7%

Price of personal genome sequencing has fallen below

2017

2012

Global health care analytics market will expand at 23.7% CAGR between 2012 and 2017.

2018

2013

US$1,000 — a benchmark precursor for mainstream adoption.

2018

+40%

es

2013

Global mobile health and fitness sensor market will grow at 40% CAGR between 2013 and 2018.

The personalized medicine diagnostics market will grow with a double-digit CAGR from 2013 to 2018.

Megatrends 2015 Making sense of a world in motion

47

Europe — 13% of adults in France and 6% in the UK have serious problems in paying medical bills.

Health reimagined

India — health care costs are a

18.

and 6% in the UK have serious problems in paying medical bills.

No dis for

he sp

India — health care costs are a Price of personal leading cause of poverty. genome sequencing has fallen below

+23.7%

US$1,000

2017

2012

— a benchmark precursor for mainstream adoption.

Global connected health care analytics willlife through the 3. Health care will become more tomarket daily expand at 23.7% CAGR between 2012 growth of mobile and socialandhealth solutions 25,000 2017. petabytes by 2020

50

petabytes today

Over

+40

health care

significant health care data — from 50 smartphone apps are petabytes today to 25,000 petabytes available — with more by 2020. on the way.

Source: Robert J. Szcerba, Why Mobile Health Technologies Haven’t Taken Off (Yet), Forbes website, 16 July 2014, www.forbes.com/sites/robertszczerba/2014/07/16/whymobile-health-technologies-havent-taken-off-yet, accessed 12 January 2015.

2018

2013

20,000 Social media channels will generate

rld

will 12

Europe — 13% of adults in France

leading cause of poverty.

47

7

US — health care’s share of GDP will increase from 17% in 2012 to 23% in 2023.

spending

50

25,000 petabytes by 2020

petabytes today

%

2013

Health reimagined megatrend Social media channels will generate Global mobile health and

fitness sensor market will grow at Health care costs 40% CAGR between 2013 and 2018. are an increasingly urgent issue Source: Infiniti Research Limited report, HIT Consultant, everywhere.

September 2014.

US$1,000

Social media sites are also playing an increasingly important role, connecting US — providers, health care’s of GDP patients and andshare allowing them will increase from 17% in 2012 to to interact and learn from each other in new 23% in 2023. ways.

Europe — 13% of adults in France The emerging field wearable and and 6% in theofUK have serious implantable sensors promises to integrate problems in paying medical bills.

— a benchmark precursor for mainstream adoption.

India — health care costs are a leading cause of poverty.

An explosion in mobile health technologies is empowering patients with more transparent information and more control Price of personal over their health. Smartphone apps and genome sequencing wirelessly connected medical devices are has fallen below creating real-time data and enabling realtime interventions.

2018

The personalized medicine

significant health care data — from 50 diagnostics market will grow with a petabytes today to 25,000 petabytes double-digit CAGR from 2013 to 2018. by 2020.

Source: Care customization: applying big data to clinical analytics and life sciences, Healthcare IT News, October 2013.

mobile health technologies even more seamlessly into our everyday lives. These Noncommunicable and will cause a technologies are transforming “health diseases account loss of US$47 care” (delivered in hospitals and for 75% of primarily trillion to world clinics) into “health” (managed GDP bywherever 2030. health care the patient is).

spending

4. Health care has entered the era of big data Reams of information being generated by electronic health records, payer claims, pharmacy data, mobile health technologies and more offer enticing possibilities to 2018 utilize “big data” technologies in the service of health care. Many entities — from startups to consortiums to large firms — are actively integrating and analyzing these disparate streams of data to improve the 2013 from drug R&D to efficiency of everything care-coordination. Life sciences R&D will The personalized medicine improve the sector’s productivity, using big diagnostics market will grow with a double-digit CAGR from 2013 to 2018.

48

Megatrends 2015 Making sense of a world in motion

Glo exp an

data analytics to recognize research failures more quickly, to design more streamlined clinical trials, and speed the discovery and approval of new medicines. The ability to build and analyze large repositories of genetic, phenotypic, prescribing, health outcomes, population and other kinds of data will be integral to the ultimate success of both predictive and preventive health care.

25,000

50

petabytes by 2020

petabytes today

Social media channels will generate significant health care data — from 50 petabytes today to 25,000 petabytes

+23.7% 2017

2012

Global health care analytics market will expand at 23.7% CAGR between 2012 and 2017.

Source: Denise Amrich, “Healthcare analytics market to exceed $10bn by 2017,” ZDNet, 31 March 2013, www. zdnet.com/healthcare-analytics-market-to-exceed-10bby-2017-7000013322, accessed 12 January 2018 2015.

2013

+40%

Glo fit 40

ce

47

rld

00

7

es

will 12

18.

Over

20,000 health care

Noncommunicable diseases account for 75% of

health care spending

and will cause a loss of US$47 trillion to world GDP by 2030.

smartphone apps are available — with more on the way.

Over

5. Genetic and genomic information is transforming 20,000 drug development health care

+23.7

% genomic apps are The availability of smartphone genetic and available — with more information (pharmacogenetics and on the way. pharmacogenomics) is helping to bring in sweeping changes in the development of new therapies. Genes and gene products 2017 (such as proteins) thought to be involved in 2012 specific disease mechanisms represent new Global health care analytics market will expand at 23.7% CAGR between 2012 and 2017.

targets for intervention, driving promising Price of personal new drug discovery programs.

Gene genome sequencing expression profiling help gain novel has will fallen below insights into drug-disease interactions, showing how the cells react to a particular treatments. Combined, these techniques will make major improvements the — a benchmarkin precursor for mainstream adoption.

US$1,000

identification of new drug candidates.

Pharmacogenetics will also reduce the number of new molecules that fail in clinical trials, thus reducing drug development costs.

6. Personalized medicine will come of age

2013

2018 Price of personal genome sequencing

2018

has fallen below

% +40 US$1,000 — a benchmark precursor for mainstream adoption. mobile health and

Global fitness sensor market will grow at 40% CAGR between 2013 and 2018.

2013

The personalized medicine diagnostics market will grow with a double-digit CAGR from 2013 to 2018.

Source: “Personalized Medicine Diagnostics Market and Forecast,” RnRMarketResearch.com, July 2014.

2018

At the clinical level, the long-awaited personalized medicine revolution is finally arriving. With the price of personal genome sequencing falling significantly, manufacturers are increasingly focused on personalized medicine approaches.

The high price of targeted therapeutics is poised to exacerbate the pressure on payers, while the anticipated increase in genomic data will create new opportunities, and challenges, for companies looking to gain access to, and make sense of, this information. The personalized medicine diagnostics market, for example, is expected to grow with a double-digit CAGR for the period of 2013 to 2018.3

7. Health care companies will increasingly compete with entrants from nontraditional fields 2013 Companies from sectors once far removed The personalized medicine from health care are entering the health market will grow diagnostics business.

Telecommunications firmswith area double-digit CAGR from 2013 to 2018. developing approaches to empower patients in managing their health. Information

technology companies are entering the fray to tackle the challenge of data analytics. Retailers and food manufacturers are experimenting with healthier foods and could play a role in guiding healthy

behaviors. These approaches create new opportunities for cross-sector partnering — but also raise the specter of disruption for mature health care incumbents.

Megatrends 2015 Making sense of a world in motion

49

Sources

1 Digital future

1. Supply on demand: Adapting to change in consumption and delivery models, Economist Intelligence Unit, 2013.

2. “Mobile Web has now overtaken PC in 40 nations, including India, Nigeria and Bangladesh,” mobiForge website, 19 September 2014, mobiforge.com/newscomment/mobile-web-has-now-overtaken-pc40-nations-including-india-nigeria-andbangladesh, accessed 7 January 2015.

3. Ericsson Mobility Report: On the Pulse of the Networked Society, Ericsson, June 2014.

4. Perspectives: TCS Consulting Journal, Vol. 05: The Digital Enterprise: A Framework for Transformation, Tata Consultancy Services, 2013.

5. P erspectives: TCS Consulting Journal, Vol. 05.

6. Dave Smith, “Chart of the Day: The Worst Company Data Breaches Ever,” Business Insider website, 6 August 2014, www. businessinsider.com/chart-of-the-day-theworst-organizational-data-breaches-ever2014-8#ixzz3IDdEeF4y, accessed 7 January 2015.

7. Net Losses: Estimating the Global Cost of Cybercrime — Economic impact of cybercrime II, Center for Strategic and International

2

Entrepreneurship rising

9. U ntethered employees: The evolution of a wireless workplace, The Economist Intelligence Unit, 2014.

10. Jacob Morgan, “Five Trends Shaping the Future of Work,” Forbes website, 20 June 2013, www.forbes.com/sites/ jacobmorgan/2013/06/20/five-trendsshaping-the-future-of-work, accessed 7 January 2015.

11. The Future of Work: Jobs and Skills in 2030, UK Commission on Employment and Skills, 2014.

12. Mark Dixon, “How to Manage the New Mobile Workforce,” Forbes website, 9 October 2012, www.forbes.com/sites/ forbesleadershipforum/2012/10/09/ how-to-manage-the-new-mobile-workforce, accessed 7 January 2015.

13. Aaron Smith and Janna Andersen, “AI, Robotics, and the Future of Jobs,” Pew Research Internet Project website, 6 August 2014, www.pewinternet.org/2014/08/06/ future-of-jobs, accessed 8 January 2015.

9. Global Entrepreneurship Monitor: 2012 Women’s Report, Babson College, Universidad del Desarrollo, Universiti tun Abdul Razak, and London Business School, 2013.

2. “World Entrepreneur of the Year: Past Winners,” EY Entrepreneur Of The Year Award website, www.ey.com/GL/en/ About-us/Entrepreneurship/Entrepreneur-OfThe-Year/World-Entrepreneur-Of-The-Year--Past-winners, accessed 7 January 2015.

10. Candida Brush et al.,, Diana Report: Women Entrepreneurs 2014 — Bridging the Gender Gap in Venture Capital, EY, Babson College, the Diana Project, September 2014.

4. Joakim Ström, “How Millennials View Themselves and Their Status,” Universum, 3 December 2014, universumglobal.com/ articles/2014/12/millennials-view-status, accessed 7 January 2015.

5. Entrepreneurship Education Comes of Age on Campus, Kauffman Foundation, 2013.

6. Avoiding a lost generation: Young entrepreneurs identify five imperatives for action, EY and the G20 Young Entrepreneurs Alliance, June 2013.

7. “Female Entrepreneurship Resource Point — Introduction and Module 1: Why Gender Matters,“ The World Bank website, go. worldbank.org/UI27QY1330, accessed 8 January 2015.

8. Ibid.

Megatrends 2015 Making sense of a world in motion

8. Get ahead of cybercrime: EY’s Global Information Security Survey 2014, EY, 2014.

1. José Ernesto Amorós and Niels Bosma, Global Entrepreneurship Monitor: 2013 Global Report, Babson College, Universidad del Desarrollo, and Universiti Tun Abdul Razak, 2014.

3. Global Employment Trends 2013, International Labour Organization, 2013.

50

Studies and McAfee, June 2014.

11. The Power of Three: The EY G20 Entrepreneurship Barometer 2013, EY, 2013.

12. Jonathan Ortmans, “What’s Ahead for China’s Entrepreneurs,” Kauffman Foundation website, 23 June 2014.

13. Tim Kelly, “Tech Hubs Across Africa: Which will be the legacy-makers?” The World Bank website, 30 April 2014, blogs.worldbank.org/ ic4d/tech-hubs-across-africa-which-will-belegacy-makers. accessed 8 January 2015.

14. Global Entrepreneurship Monitor 2013 Global Report.

15. Microfinance Market Outlook 2015: Growth driven by vast market potential, responsAbility, November 2014.

16. Toby Lewis, “Corporate venturing participants near 1,000,” Global Corporate Venturing website, 9 April 2013, www. globalcorporateventuring.com/article. php/6001/corporate-venturing-participantsnear-1000, accessed 8 January 2015.

3

Global marketplace

1. “The super-cycle lives: emerging markets growth is key,” Standard Chartered, November 2013, www.sc.com/en/news-andmedia/news/global/2013-11-06-super-cycleEM-growth-is-key.html, accessed 8 January 2015.

9. The shape of things to come: higher education global trends and emerging opportunities to 2020, The British Council, 2012.

2. HSBC Glob al Connections Report , HSBC, March 2014.

11. 2014 Global R&D Funding Forecast, Battelle and R&D (rdmag.com), December 2013.

3. Claire Jones, “Emerging markets to transform trade flows,” Financial Times, 27 February 2013, www.ft.com/intl/cms/s/0/ d39237d4-8038-11e2-96ba00144feabdc0.html?siteedition=uk#axzz3Gt K1XI2K, accessed 9 January 2015.

4. Special Report: Global trade unbundled, Standard Chartered, April 2014.

5. Ibid.

6. World Investment Report 2014, United Nations Conference on Trade and Development, 2014.

7. Capital for the Future: Saving and Investment in an Interdependent World, World Bank, 2013.

8. “Science and Engineering Indicators 2012,” National Science Foundation website, www. nsf.gov/statistics/seind12/c2/c2h.htm, accessed 9 January 2015.

4 Urban world

5

Resourceful planet

1. Future Trends and Market Opportunities in the World’s Largest 750 Cities, Oxford Economics, 2014.

2. Ibid.

3. Ibid.

4. Ibid.

5. “Air Quality Deteriorating in many of the World’s Cities,“ World Health Organization, 7 May 2014, www.who.int/mediacentre/news/ 1. “Critical Materials for clean energy technologies,“ Critical Materials Institute, November 2013.

2. World Energy Investment Outlook 2014, International Energy Agency, 2014.

3. Ted Moon, “Deep water drilling rig fleet faces short-term slowdown, long-term growth,” Offshore website, 17 July 2014, www. offshore-mag.com/articles/print/volume-74/ issue-7/rig-report/deepwater-drilling-rig-fleetfaces-short-term-slowdown-long-termgrowth.html, accessed 12 January 2015.

4. “The People’s Climate,” Project Syndicate website, 24 September 2014, www.project-syndicate. org/commentary/monica-araya-and-hansverolme-say-that-the-people-s-climate-marchwas-just-the-start-of-popular-pressure-onworld-leaders , accessed 12 January 2015.

6

Health reimagined

1. ”World Population Prospects: The 2012 Revision,” United Nations, Department of Economic and Social Affairs website, esa.un. org/wpp, accessed 12 January 2015.

2. The Global Economic Burden of Noncommunicable Diseases, Harvard School of

10. WIPO IP Facts and Figures, World Intellectual Property Organization, 2013.

12. George McKibbens, “Why Chinese companies are creating foreign jobs,” South China Morning Post, 18 January 2013.

13. “The War for Talent Has Resumed — Once Again,” The Herman Trend Alert, Herman Group website, 15 October 2014, www. hermangroup.com/alert/ archive_10-15-2014.html, accessed 9 January 2015.

14. The Perfect Talent Storm: The Hays Global Skills Index 2014, Hays plc., 2014.

15. Ibid.

16. Global Talent 2021: How the new geography of talent will transform human resource strategies, Oxford Economics, 2012.

17. The Future of Work: Jobs and Skills in 2030, UK Commission on Employment and Skills, 2014.

releases/2014/air-quality/en, accessed 12 January 2015.

6. Ibid.

Elizabeth Kneebone, “The Growth and Spread of Concentrated Poverty, 2000 to 20082012,” The Brookings Institution website, 31 July 2014, www.brookings.edu/research/ interactives/2014/concentrated-poverty#/ M10420, accessed 12 January 2015.

5. World Energy Investment Outlook 2014.

6. ”Water,” Global Environment Outlook 4, United Nations Environmental Program, 2007.

7. The United Nations World Water Development Report 2014: Water and Energy — Volume 1, UN Water, 2014.

8. ”Water,” Global Environment Outlook 4.

9. Global Risks 2014: Ninth Edition, World Economic Forum, 2014.

10. National Security and the Accelerating Risks of Climate Change, CNA Military Advisory Board, May 2014.

11. New Models for Addressing Supply Chain and Transport Risk, World Economic Forum, February 2012.

12. Allianz Risk Pulse: Allianz Risk Barometer on Business Risks 2014, Allianz, January 2014.

Public Health and World Economic Forum, September 2011.

3. ”Personalized Medicine Diagnostics Market and Forecast”, RnRMarketResearch.com, July 2014.

Megatrends 2015 Making sense of a world in motion

51

52

Megatrends 2015 Making sense of a world in motion

Megatrends 2015 Making sense of a world in motion

53

EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Š 2015 EYGM Limited.

All Rights Reserved.

EYG no. EX0253 EMEIA Marketing Agency 1001663 ED None In line with EY’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

ey.com