How Asia is shaping the next phase of globalization

Kevin Sneader, global managing partner of McKinsey, describes how movement of goods, capital and people within Asia is changing the pattern of global flows.

What are the top three most disruptive, powerful forces shaping the world today?

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Well, the number one reason for the rising share of global flows is of course the reality that Asia is going to power the world’s GDP growth, and in particular its consumption growth. So, let me just parse that out a little.

First, Asia back in the year 2000 was roughly one-third of global GDP. As we look ahead in 2040, it is reasonable to assume that it will be half of the world’s GDP. And that’s the first fact of the sheer scale of Asia.

Secondly, the Asian consumer. The Asian consumer is beginning to consume. That’s not a surprise because they’ve entered into the middle class. They have disposable income. But the rise of the Asian consumer means that 50 percent of all consumption growth will happen in Asia.

A third reason is the digital economy—Asia’s digital economy. That digital economy is beginning to grow in a way that I think will also propel increasing cross-border flows of data and contribute to the service economy.

But of course, if you add that all up perhaps the most interesting factor that’s now coming into play is the regionalization element. One of the realities is that global trade flows actually peaked in many cases when it comes to physical goods. And yet if you look at Asia, regionalization has yet to reach its full potential.

Today, I think Asia is roughly 52 percent of the goods and services flow within the Asia region, compared to 63 percent of the European Union. It implies that is still room to grow, it also underscores the need to be present in Asia for Asia because that regionalization is what is really going to benefit from the trends I just discussed.

How should companies and governments prepare for this next phase of globalization?

Well, the regionalization forces which occurred in Asia—but also will be a factor in the European Union and indeed in the North American context—mean that you have to be present. You have to think about what it means to be present in the Asian marketplace.

Secondly, your relationship with Asian corporates needs to evolve. Asian corporates are becoming global factors and forces in their own right. Being in participatory arrangements with them, understanding those global companies that are now coming out of Asia is going to be also important. Just one small factoid: if you look at the fortune Global 500, it is reasonable to say that roughly over 200 companies will be members of that Global 500 will be from China, of which I understand that over 100 will be state-owned enterprises.

So that in and of itself is a force and a factor that everyone needs to understand.

Thirdly, I think it will be important to understand the digital economy and how that’s going to play in Asia and what it means for executives to really be aware of the digital players in the Asian context. Because they’re not necessarily and are often not the same as the players you may know if you’re used to interacting with digital players in the West.

All those factors of course matter. Perhaps the biggest factor is that you'll need to understand the Asian consumer. That Asian consumer who’s going to be driving a lot of these factors which are leading to the growth of these corporations, which are propelling the growth in consumption and GDP. Understanding the Asian consumer—their needs, their wants—means you really have to develop the listening capabilities on the ground in Asia that will allow you to be truly participate in the Asian marketplace.

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