The forces shaping Asia’s future

Oliver Tonby, senior partner in McKinsey’s Singapore office, discusses the reasons to be positive about the outlook of the Asian economy and how the region is strengthening its position as the epicenter of global growth. He identifies the questions that are on CEOs’ minds and touches on why the key worry for Asian cities is sustainability.

What are the top three most disruptive forces at play when you consider Asia in the next 10 years?

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So I’m glad you asked the question that way, that you asked about the long term. In the short term, we’ve heard a lot of worry. We worry about the ongoing trade war, we heard worry about the slowdown in China now to only six-point-something percent.

So a lot of worries in the short term.

Longer term, we are much more positive about the outlook. We see a number of things that are really shaping Asia going forward.

Number one, we do see that Asia, it already is, it is going to continue to strengthen its position as the epicenter of global growth and economic activity going forward.

We know already today, even at 6 percent, China is adding the size of the Dutch or the Turkish economy every single year. We know that South-South trades or China-to-South trade has gone from 8 percent to 20 percent of global trade.

Asia really is at the epicenter of growth, and it’s going to continue to stay that way, and actually increase in importance going forward.

Let’s remember that India and ASEAN, both of which are $2-3 trillion dollar economies are growing at 7 percent and 5 percent per year, respectively.

So we see a lot of growth going forward in Asia overall. Second thing we see is shifting value chains, it comes as a result of technology, it comes as a result of shifting demand. We see growing demand in many of the countries around, but look at what’s happened in Vietnam, it’s risen to become a huge exporter, a globally relevant export of electronics goods.

So we see many of these value chains that are being shifted. We see for example today, the manufacturing cost in Vietnam and Indonesia is about is less than one-third of what it is in China.

So we’re going to continue to see these shifts in value chains across the regions.

It opens up lots of opportunities for many countries as well as companies.

The third thing I would point out is just growing consumer demand, the growing consumer class in Asia. We’re going to have more than a billion new consumers added into the population, which obviously drives demand. And the kind of demand, the kind of goods needs to be tailored for India, needs to be tailored for Indonesia and so forth. So this, again, creates a ton of opportunity.

The final thing I think is very important to mention is the role of technology. There is a technology revolution happening as we know - that is absolutely happening in Asia too.

And we see it. For example, if you go to Japan and even though the overall economic growth might be sluggish, there’s a different dynamism there that wasn’t there a few years ago. You see companies really wanting to transform, they want to innovate, they want to use technology.

You go to India and you look at the importance of the system integrator, it’s globally relevant. These are huge companies now playing in a different league than they used to.

You go to Southeast Asia, you see the Grabs, the Go-Jeks, the Seas of this world which are all unicorns that have grabbed the opportunities that come from technology. That revolution has just started.

Go to Korea, one of the most innovative, ranked as the most innovative economy in the world. So you just see that technology is reshaping everything that is happening.

The combination of all these forces, and you say, listen, Asia going forward? It is very interesting, and you know there’s reason to be positive about the outlook.

How should CEOs and companies be responding when they consider these forces at play?

I would say there are three or four questions that CEOs need to be asking themselves.

Number one: “How is the value chain in my industry being reshaped?” Being reshaped by the shift in demand patterns, by technology, by trade. And therefore, “What does that mean for my operational footprint?” “My supply chain?” “Where do I place what?” and so forth.

I think that's the first question.

Second question is in and around technology: “Which technologies do I bet on?”, “How do I make sure I stay ahead of the game?”, “Who do I partner with?”, and “Who do I compete with?” These are important questions.

The final one that I would point out is skilling, specifically, re-skilling. Re-skilling the workforce of the future is what I think is on most CEOs’ minds. “What kind of skills do I need?” You need different skills. You need data scientists, you need IT engineers, you need behavioral scientists, but also different kinds of skills. The importance of communication, of creative thinking, of teamwork, and collaboration. These are different types of skills that you need more of going forward, which all poses a huge, “Where do I get the talent?” but also, “How do I re-skill my own team and organization?” So these are at least three questions that are on top of CEOs’ minds.

Whey you consider all of these, what are the worries and opportunities that come to mind?

Well let me point out, as much as I think we should be positive about the the long-term outlook, I think one big worry is sustainability. You don’t need to travel far around the region to see how smog is affecting some of the cities, the plastics in the water—8 million tons that have been put into the rivers—and the majority of those large rivers are in Asia that is affecting our populations.

So I think the whole topic of sustainability, particularly “How do you get sustainable economic growth for the populations around this part of the world?” I think that is a key worry for everybody.

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