Global forces: major trends and opportunities for B.C. An - PowerPoint PPT Presentation

Global forces: major trends and opportunities for B.C.

An organisation’s odds of success depend on 3 key factors 1 2 3 Starting Global Bold point trends moves “What you do” – “Who you are” – “Where you are” strategic choices in size, resources, – industry and M&A, capital structure, geographic trends expenditure, productivity resource allocation

The ‘power curve’ of profit – the most successful companies see disproportionate rewards Average annual economic profit generated from 2009-13, USD Billions N=2,243 companies, across industries Companies in the 10 top quintile see, on 9 average, 620x the 8 It is extremely profits of those in 7 difficult to move 6 the middle from the middle – 5 need to make bold 4 moves 3 2 1 Ø 63 0 -1 -2 -3 -4 -5 SOURCE: McKinsey Strategy Practice, McKinsey Corporate Performance Analytical Tool

BC needs to make bold moves to fully capitalise on positive global trends and its strong starting point 1 2 3 Starting Global Bold point trends moves ▪ Highly educated ▪ Emerging ▪ Agriculture population markets ▪ Tourism ▪ Natural resource ▪ Disruptive OR ▪ Innovation wealth technologies ▪ Education ▪ Diversified ▪ Aging population ▪ Infrastructure economic base ▪ Changing nature ▪ Ties to Asia ▪ And 2 enablers – of capitalism making full use of ▪ Return of assets, raising the (geo)politics ambition ?

1 Global trends

Five forces are changing the world at an unprecedented pace and scale 3 4 2 The aging of 1 the global 5 The power of The changing population disruptive nature of The rise of The return of technologies capitalism emerging (geo)politics markets

The world’s economic centre of gravity is shifting back to Asia Locations weighted in 3D space by GDP 2000 2010 1950 1940 2025 1500 0

There will be 2.2 billion new middle class consumers by 2030 Global middle class, Billions of people 5.0 4.2 2.2 billion Sub Saharan Africa 2.8 Middle East & North Africa US & Canada Latin America Europe Asia-Pacific 2013 2025 2030 SOURCE: United Nations World Population Prospects; McKinsey Global Institute CityScope 2.55

Emerging market cities will fuel nearly half of global growth Emerging 424 (424 largest cities in emerging markets) Global middle class, Billions of people Percent contribution to global GDP growth, 2012 – 2025, 100% = $42.5 trillion 100 424 largest 45% 28 emerging = of global market cities growth 25 4 4 6 26 3 2 China South Asia Southeast Latin Middle East Eastern Other Developed Global growth region Asia America & Africa Europe & emerging countries Central Asia regions In China, 18 MM people move to a city each year – equal to adding New York City proper twice SOURCE: McKinsey Global Institute Cityscope 2.55

The pace of digital disruption is accelerating Computer type Number of calculations per sec per $1,000 10 40 Exponentially Faster 10 30 … all human brains Smaller 10 20 Cheaper Better … 1 human brain 10 10 … 1 mouse brain … 1 insect brain 1 Where we Apple 10 -10 MAC II are now Univac I Hollerith tabulator 10 -20 Year ‘01 ‘10 ‘23 1900 1,925 1950 1,975 2,025 2050 2,075 SOURCE: Singularity University

Low High Disruptive technology will have substantial economic Range of sized potential X – Y economic impact impact by 2025 Economic impact of the 12 most significant disruptive technologies $ Trillions, annual 1 3.7 – 10.8 Mobile Internet 2 Automation of knowledge work 5.2 – 6.7 3 Internet of Things 2.7 – 6.2 4 Cloud technology 1.7 – 6.2 5 1.7 – 4.5 Advanced robotics 6 Autonomous and near-autonomous vehicles 0.2 – 1.9 7 Next-generations genomics 0.7 – 1.6 8 Energy storage 0.1 – 0.6 9 0.2 – 0.6 3D printing 10 Advanced materials 0.2 – 0.5 Advanced oil and gas exploration 11 0.1 – 0.5 and recovery 12 Renewable energy 0.2 – 0.3 SOURCE: McKinsey Global Institute

Technology is disrupting every aspect of our lives Cybersecurity threats

Digitization is driving massive improvements in efficiency Locomotive velocity Average miles per hour per day 23 Data analytics – optimized 22 1 scheduling and predictive maintenance reduce downtime, increasing velocity 1 mile per hour increase in velocity potentially worth $250 M in annual profit Typical Improvement Digital-enabled

Digitization has significant ripple effects Driverless Auto cars and ride- insurance sharing Construction (houses Healthcare and parking lots) Automotive Taxis industry

Not all challengers will survive, but incumbents will still have to respond – banking example

Extent of disruption over the next 5 years Extent of digital disruption, Percent 100 High tech 100 Media Retail 80 70 Healthcare 70 Financial services 60 Renewable energy 50 Professional services Government 50 Musk searches for industries 40 Infrastructure that have high margins and 40 Manufacturing large inefficiencies that can 40 Automotive be exploited 40 Agriculture 40 Consumer packaged goods – Elon Musk biography 30 Pharmaceuticals 30 Extractive industries

Average lifetime of companies is declining Average tenure on the S&P 500 Years 90 61 -80% 25 18 1935 1958 1980 2011

New technologies are upending the “fundamental truths” of business Disrupting companies What we used to believe 1 Need to own assets to leverage their value Marginal costs > 0 2 3 Core services need to be delivered by own employees 4 Competitors take years to emerge and scale Disruption comes from within your 5 v. industry

How companies can adapt 1. Prepare for disruption – e.g., assess your Digital Quotient; develop radar for shifts 2. Think about data holistically, and at the top – e.g., appoint a Chief Digital Officer; provide digital immersion for the senior team 3. Experiment and innovate at speed – e.g., crowdsource ideas; A/B test concepts 4. Redesign the organization – e.g., flatter, smaller, more autonomous structures 5. Invest more in education – e.g., subsidize “ nanodegree ” programs for employees; ensure lifelong learning 6. Manage risks – e.g., incumbent business loss; cybersecurity

2 BC’s starting point

BC has considerable strengths… ▪ Highly educated population Human ▪ Internationally experienced workforce capital ▪ Strong overall growth – 2.6% ▪ Positive fiscal position Industry ▪ Solid infrastructure base ▪ Diversified economy ▪ Access to Asia Pacific Geography ▪ Access to West Coast USA

…but also faces headwinds ▪ Talent retention issues Human ▪ Aging population capital ▪ Transitioning economy – shift from forestry, mining, and manufacturing Industry ▪ Turbulent commodities markets

3 Bold moves

Global forces create 5 potential ‘bold moves’ for BC 5 bold 5 1 2 3 4 moves… Agriculture Tourism Innovation Education Infra- structure & food Enabled 6 Making full use of assets by… 7 Raising the ambition

Aggressively pursue agrifoods growth to quadruple export value by 2025 Total BC agrifoods exports, 2011-2025E $ billions Key drivers of improved productivity: Exports at aspirational growth rate (11%) 8.2 Exports at current growth rate (6%) ▪ Harnessing the power of sensors and the Internet 3.7 ~2x of Things ▪ Leveraging advanced genomics 2.3 2.1 ▪ Transforming food 4.5 waste into a resource 2011 2013 2025 SOURCE: British Columbia Ministry of Agriculture Statistics and Research; MIT Observatory of Economic Complexity

Brazil’s tremendous growth in agrifood offers lessons for BC How Brazil has grown Lessons for BC ▪ 11% growth p.a. in agrifood exports since 1995 – ▪ Co-invest in innovation – with among top 3 producers of soybeans, sugar, coffee, citrus, beef, and poultry public and private sector R&D centers ▪ Driven by: ▪ Encourage private – Public sector policy – established R&D centers, sector innovation – subsidized credit for investment, and invested in with favorable policies universities and technical schools for making investments – Private sector investment in innovation – shared ▪ Invest in education R&D centers, developed infrastructure, and invested in advanced inputs and processing

Match the performance of top European destinations for Asian tourists to double total tourist visits – and raise $2.5B Foreign tourists per year, Millions 3.4 2 M more Additional Asian tourism – Asian 1.3 tourists aspirational growth (11%) could mean Additional Asian tourism – an 1.9 .7 1.7 “fair share” growth (5%) 1.7 additional >$2.5 B spent in 1.7 B.C. Current growth (~0%) annually 2005 2010 2012 2025 SOURCE: Euromonitor; BC Stats; China National Tourism Administration

Dubai provides a model for successfully investing in tourism Capital International investment, $B tourists, M Government, hotel chains, airlines, and 10 14 investors cooperated to 12 invest heavily in 10 tourism starting in the mid-1990s 8 5 6 Dubai’s revenues from 4 tourism are ~$6B today, 2 and have grown 10-15% p.a. since 2010 0 0 1990 1995 2000 2005 SOURCE: OAG; Reuters