In the latest Forbes list of the world's richest people, mainland China shows up as home to 64 billionaires, the highest number outside the United States. The speed of this wealth shift is surprising even to Peter Bisson, chair of McKinsey & Co.'s knowledge committee and leader of the multinational consulting firm's global forces study. He is a close watcher of the shift in economic power to emerging markets. He was also part of the army of McKinsey's global partners, 1,400 in all, who descended on Toronto last week for their annual meeting. Mr. Bisson's message was that amid tumultuous change there is cause for hope, particularly for resource-rich Canada.
What are your starting assumptions about the global economy?
The financial crisis is just a little earthquake in a long process of fundamental economic realignment. It is a comma rather than a period. People keep talking about a "new normal" and there is no new normal. Instead, we are partway through a 40-year trend of restructuring how different economies work, the balance of economic power and things like that.
And globalization is basically a good thing. It has lifted huge numbers of people out of poverty and it is effectively irreversible, short of total catastrophe. Even so, business leaders must be very unsettled.
The navigational aids about how things work have shifted. A lot of the institutions that have guided global development and collaboration seem to be struggling to cope. It's bumpy. What we describe as the "Washington consensus" - including the sense that "markets will cause a fine outcome, and don't worry"- is not a shared philosophy any longer.
Yet despite the end of an implicit liberal market orthodoxy, it has not been replaced by anything - and that leaves business leaders at sea.
How do you bring them back to land?
There are what we call "crucibles of innovation." The first one is the Great Rebalancing: For the first time in hundreds of years, there will be more growth in emerging markets than in developed markets. We are doubling the size of the global middle class. We are adding billions of people to it, which can be a good thing, despite the stresses it causes.
Goods and services that meet the needs of these people are "value-based products" - they have to be tailored to the needs and price points that work in those markets.
For a Western company, what are the implications?
As [Harvard business professor] Clay Christensen says: You often see the upset come from someone who starts at the lower end of the market. We find a disconnect between market share in terms of revenue and in unit share - the share of a market in unit sales. The opportunity for some Asian companies to get unit-share leadership is very powerful right now.
Take the construction equipment market, and list the largest companies in the world. Revenue share is clearly dominated by Western companies, but plenty of Chinese companies are pretty damn serious competitors in terms of unit sales. Those Chinese companies, most of whom nobody has heard of, already have 30 per cent of the market share in emerging markets outside China. The tendency will be for them to move up the value chain.
Are there other realities businesses have to confront?
There is a need to drive productivity in the developed economies. Because of demography, we don't have the ability to add all that much to the labour force. Almost all our true GDP growth has to come from productivity in most of the Western world.
But the work force in a lot of the West still fits a 20th century economy. For example, in the U.S., there is only 3 per cent unemployment in the most highly educated groups, but 30 per cent unemployment in the bottom 10 per cent of education. We are drifting toward this chronically unemployed group because skill sets don't match.
Demography is running against us, as compared with the emerging markets, which have demography and urbanization going for them. So we have to deal with the productivity challenge and the lack of alignment in our work force.
Is there any hope?
Look at the productivity variability of different types of workers. The range in performance among manufacturing workers is, very close - let's say, X amount - but for knowledge workers, the range is more like 5X. It means the management science of how to get the most out of knowledge workers is still evolving.
