Those who say that business success is all about execution are wrong. Choice of product market, technology and geography are critical components of long-term economic performance. Bad industries usually trump good management.
In sectors such as banking, telecommunications and technology, almost two-thirds of quoted western companies' organic growth can be attributed to being in the right markets and the right place. Companies that ride the currents succeed; those that swim against them usually struggle. Identifying these currents and developing strategies to navigate them is vital.
What are the currents that will make the world of 2015 a very different place in which to do business from the world of today? I would highlight five trends that will change the business landscape.
First, centres of economic activity will shift profoundly, not just globally but regionally. As a consequence of economic liberalisation, technological advances, capital market developments and demographic changes, the world has embarked on a massive realignment of economic activity.
Today, excluding Japan, Asia accounts for 13 per cent of world gross domestic product while western Europe accounts for more than 30 per cent. Within the next 20 years, the two will nearly converge. Some industries and functions - manufacturing and information technology services, for example - will shift even more dramatically. The story is not simply the march to Asia. Movements within regions are as significant as those across regions. The US will still account for the largest share of economic growth in the next two decades.
Second, the consumer landscape will change and expand significantly. Almost a billion new consumers will enter the global marketplace in the next decade as growth in emerging markets pushes them beyond the threshold of $5,000 (£2,800) annual household income - a point at which people generally begin to spend on discretionary goods. By 2015, annual consumer spending power in emerging economies will increase from $4,000bn to more than $9,000bn - nearly the current level in western Europe.
Shifts within consumer segments in developed economies will also be profound. Populations are ageing, but changing in other ways, too. For example, by 2015, the Hispanic population in the US will have spending power equal to 60 per cent of all consumers in China. And consumers will increasingly have information and access to the same products and brands, wherever they live.
Third, technological connectivity will transform how we live. The technology revolution is at an early stage. We are learning how to make the best use of IT in the design of processes and in developing and accessing knowledge. New technologies such as bio-technology, laser technology and nano-technology will also have a huge impact on products and services.
More transformational than technology itself is the shift in behaviour that it enables. We work not just globally but instantaneously. We are forming communities and relationships in new ways (12 per cent of American newlyweds last year met online). More than 2bn people now use cellphones. We send 9,000bn e-mails a year. We do a billion Google searches a day, over half not in the English language. For perhaps the first time in history, geography is not the primary constraint on the boundaries of social and economic organisation.
Fourth, the battlefield for talent will shift. Changes in the nature of labour and talent will be far more profound than the widely observed movement of jobs to low-wage countries. The shift to knowledge-intensive industries highlights the importance and scarcity of well trained talent. The increasing integration of global labour markets, however, is opening up vast new talent sources. The 33m university-educated young professionals in developing countries is more than double the number in developed countries. For many companies and governments, global labour and talent strategies will become as important as global sourcing and manufacturing strategies.
Finally, the role and behaviour of business will come under increasing scrutiny. As businesses expand their global reach, and as the economic demands on the environment intensify, the level of societal suspicion about big business is likely to increase. The tenets of current global business ideology - for example, shareholder value, free trade, intellectual property rights, profit repatriation - are not understood, let alone accepted, in many parts of the world.
Scandals and environmental mishaps seem as inevitable as the likelihood that these will be blown out of proportion, fuelling resentments and creating pressure for political and regulatory backlashes. The increasing pace and extent of global business and the emergence of truly giant global companies will exacerbate the pressures over the next 10 years.
Business will never be loved. It can, however, be more appreciated. Business leaders need to get on the front foot. They must demonstrate more forcibly the case for business in society and the massive contributions it makes to social welfare.
Companies need to understand the implications of these trends alongside customer needs and competitive developments. Those that align their strategies to them will be best placed to succeed. Time spent reflecting on the trends will be time well spent.
Ian Davis is Managing Director of McKinsey & Company.
