The high-growth industries reshaping the global economy

The next big arenas of competition

At a glance

Arenas are a unique category of industries defined by two characteristics: high growth and dynamism. They capture an outsize share of the economy’s growth, and the market shares of players within them change to an outsize degree.
We have identified 18 potential arenas of the future that could reshape the global economy, generating $29 trillion to $48 trillion in revenues by 2040. These arenas range from AI software and services to cybersecurity, from future air mobility to drugs for obesity and related conditions, and from robotics to nonmedical biotechnology. These future arenas could generate $2 trillion to $6 trillion in profit by 2040. Their collective share of global GDP could increase from 4 percent today to 10 to 16 percent by 2040.
Twelve arenas of today showed outsize growth and dynamism from 2005 to 2020. These industries include e-commerce, biopharma, electric vehicles, consumer internet, and cloud services. They had a revenue CAGR of 10 percent and market capitalization CAGR of 16 percent, and they tripled their global GDP share from 3 to 9 percent in the period. By contrast, non-arenas had only a 4 percent revenue CAGR and a 6 percent market cap CAGR over the same period.
The many striking differences between the 12 arenas of today and non-arenas inform our understanding of the arenas of the future. Arenas earn far greater profits than other industries do, they spawn a disproportionate number of global giants, and they offer unusually strong opportunities for new entrants to become powerhouses.
Three combined ingredients in an “arena-creation potion” tend to generate the escalatory mode of competition that characterizes arenas. The telltale elements of a forming arena are business model or technological step changes, escalatory investments, and a large and/or growing addressable market. The presence of these elements can lead to escalatory competition among players, who make large investments to gain not only market share but also a product quality edge, compounding the benefits and further setting them apart from other companies in a race to the top.

Certain industries create more value and have a greater impact than others. We call these outperformers arenas of competition. They are defined by two characteristics: high growth and high dynamism. Due to their growth, they capture an outsize share of the economy’s overall expansion; in terms of dynamism, market share within them changes hands to an outsize degree.

Acknowledgments

The research was led by Chris Bradley, McKinsey senior partner in the Sydney office and a director of the McKinsey Global Institute (MGI); Kweilin Ellingrud, an MGI director; Michael Birshan, a member of the MGI Council and a senior partner based in London; Michael Chui, a QuantumBlack senior fellow in the Bay Area office; and Kevin Russell, an MGI senior fellow based in the Charlotte office.

We give particular thanks to McKinsey colleagues who co-authored write-ups exploring the 18 arenas of the future: for digital advertising, Craig Macdonald, a partner in London, and Lia Grigg, associate partner in Denver; for cloud services, Bhargs Srivathsan, a partner in the Bay Area; for video games, Andrew Chang, an associate partner in Tokyo; for streaming video, Clayton O’Toole, a partner in Minneapolis; for AI software and services, Ben Ellencweig, a senior partner in Stamford; for batteries, Alexandre van de Rijt, an associate partner in Stuttgart; for industrial and consumer biotechnology, Tom Brennan, a partner in Philadelphia; for e-commerce, Roberto Longo, a partner in Milan; for semiconductors, Nikolaus Lehmann, an associate partner in Munich; for cybersecurity, Jeffrey Caso, a partner in Washington, DC; for robotics and shared autonomous vehicles, Ani Kelkar, a partner in the Greater Boston office; for nuclear fission power plants, Chad Cramer, an associate partner in Columbus; for space, Andrew Sierra, an associate partner in Chicago; for drugs for obesity and related conditions, Josh Sternberg, a partner in the Greater Boston office, and Corina Curschellas, a partner in Zurich; for modular construction, Jan Mischke, a partner in Zurich, and Dave Dauphinais, an associate partner in the Greater Boston office; for future air mobility, Robin Riedel, a partner in the Bay Area office; and for electric vehicles, Moritz Rittstieg, a partner in Chicago, and Patrick Schaufuss, a partner in Munich.

The project team was led by Alexis Yumeng Yang, Giorgi Suladze, Peter Kaufman, Sophie Chinchilla, and Suhayl Chettih. We are grateful to Max Berley, senior editor, and Benjamin Plotinsky, senior editor, who helped write and edit the report.

The project team was supported by Alexa Wright, Anna Chopp, Aurola Qin, Chaeyoon Kim, Daniel Paletz, David Randl, Delfin Villafuerte, Edward Kalaydjian, Emily Chen, Emmanuel Daniel-Aguebor, Feyi Edun, Finn Wang, Geoffrey Gao, Grace Kamara, Jose Betancourt, Katharina Marquat, Lorenzo Flores, Nine Chantawasinkul, Onyx Bengston, Richard Yang, Robin van Aeken, Rodrigo Garcia, Shania Robinson, Shekhar Kumar, Shreyvardhan Sharma, Thiago Cersosimo, Venassa Omoruna, Will Lepry, Yixuan Chen, Yoana Sidzhimova, and Zander Cowan.

For kindly sharing insights, we thank adviser Matthew J. Slaughter, Dean of the Tuck School of Business, Dartmouth College.

Many McKinsey colleagues gave us input and guidance. We want to thank: Brian Gregg, Aamer Baig, Alex Singla, Chandra Gnanasambandam, Ryan Brukardt, Jesse Klempner, Philipp Kampshoff, Martin Linder, Jakob Fleischmann, Humayun Tai, Jose Luis Blanco, Erik Sjödin, Kabir Ahuja, Marc Brodherson, Gayatri Shenai, James Kaplan, Jeremy Schneider, Arun Arora, Brooke Stokes, Timo Möller, Kersten Heineke, Patrick Schaufuss, Ting Wu, Martin Kellner, Jeffrey Algazy, Jamie Vickers, Jordan Bank, Kevin Wei Wang, Jamie Vickers, Quentin George, Chris Donahue, Will Ardron, Chhavi Adtani, Lei Xu, Hejin Kim, Jonathan Tilley, Russell Hensley, Bil Lacivita, Jochen Latz, Lars Hartenstein, Brad Herbig, Cary Mei, Erlend Spets, Erik Johnson, Veronica Retana, Ben Ellencweig, Alok Singh, Deston Barger, Nick Inchastegui, Laura Millroy, Anna Stepien, Freek Kelkensberg, Sari Varpa, and Mike Friedman.

In MGI’s publishing team, we would like to thank Rachel Robinson, Rishabh Chaturvedi, and David Batcheck. For data visualization, we would like to thank Chuck Burke. In communications, our thanks go to Rebeca Robboy, Nienke Beuwer, Shannon Ensor, Ashley Grant, Crystal Zhu, and Cathy Gui. Thanks also go to McKinsey’s design team, especially Diane Rice, Nathan R. Wilson, Stephen Landau, Janet Michaud, and Sean M. Conrad. We are also grateful for the collaboration of McKinsey’s digital production team, including Mary Gayen, Katie Shearer, Dana Sand, Charmaine Rice, and Regina Small.

As with all MGI research, this work is independent and has not been commissioned or sponsored in any way by any business, government, or other institution. While we gathered a variety of perspectives, our views have been independently formed and articulated in this report. Any errors are our own.

This report from the McKinsey Global Institute identifies 18 future arenas that could reshape the global economy between now and 2040. To do so, we first analyze a data set of the world’s 3,000 largest companies from 2005 to 2020 and pinpoint 12 arenas of today, including biopharmaceuticals, cloud services, e-commerce, and electric vehicles (Exhibit 1). Arenas of today refers to the arenas that formed over the past two decades. We used 2005 to 2020 as our analytical interval to delineate a clean decade boundary and ensure consistent, well-established data.

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We found striking differences between arenas and non-arenas. For example, the arenas of today generated 9 percent of our total sample’s economic profit in 2005. By 2019, they accounted for 49 percent of economic profit. These arenas are where major shifts in investment, R&D, value creation, and the rise of global corporations occur.

We also identified an arena-creation potion by observing the evolution of our arenas of today, giving us a deeper understanding of arena emergence. The distinctive elements of a forming arena are a business model or technological step change, incentives for escalatory investments—those that improve quality and often have increasing returns to scale—and a large or growing addressable market. We discuss these elements and how they generate a particularly intense mode of competition in each of the 12 arenas of today.

We use our understanding of the arenas of today as a lens for exploring 18 potential arenas of tomorrow. We describe signs that the three elements of arena creation may be emerging, marking these potential future arenas’ development. Together, these potential future arenas could generate $29 trillion to $48 trillion in revenues by 2040. Assuming they have profit margins after taxes that are typical of similar industries today, they could generate $2 trillion to $6 trillion in profit by 2040. Their collective global GDP share could increase from 4 percent today to 10 to 16 percent by 2040.

Understanding potential arenas is relevant for entrepreneurs and incumbent companies that want to compete directly in arenas, other companies that would be affected by the emergence of arenas, as well as investors looking to allocate capital to these industries, along with people seeking jobs in the winning industries of the coming decades, and policy makers interested in how and where these industries affect their nations. Of course, we can’t know the future, so our analysis includes a discussion of other industries that were considered for having some characteristic arena elements but ultimately were not selected because there is less certainty about high growth and dynamism.

A compendium at the end of this report includes descriptions of the 18 potential arenas of tomorrow through the lenses of growth and dynamism. They should not be considered comprehensive accounts. Instead, they provide a rationale for the range of scenarios for growth and dynamism over the coming decades that we present in the main report and describe some swing factors that could alter the outcomes. To read about each of the 18 potential future arenas in greater depth, click on the tiles below.

The full report can be downloaded here.