A very good evening to all of you.

As Peter introduced me I noticed he still preferred to call me by my full first name, Janamitra. A name which I have actually abandoned.  But I think Peter is being polite.   Please call me Dev, and I have a reason for this……

Today’s topic is about megatrends that may impact industries across the spectrum.  I want to begin my address with a few definitions, so that we are all on the same page.  I will also cover a wide spread of megatrends that I wont go into detail, and cover three specific ones with more detail.  I have not come up with a powerpoint.  After 12 years at Mckinsey, I can’t stand another powerpoint!  But I am happy to provide you with my notes later one.

First, what are megatrends?  There are many definitions.

My definition of it is that megatrends are global, sustained and macroeconomic forces of development that impact business, economy, society, cultures and personal lives. In so doing, it thereby defines our future world and dictates its pace of change. So, a megatrend needs to be global, not local.  Sustained, not temporary, and macroeconomic, not microeconomic.

Second, how long a horizon is involved in a mega trend?  Well, it does not matter.

• A megatrend that manifests in 5 years will mean you’d better take heed sooner—it is likely to affect you personally and your company and society as well.

• A megatrend that manifests itself in 40 years, could mean, you as leaders need to think about preparing your company and your society now for what is likely to happen possibly within your lifetime.

• Finally, if a megatrend manifest itself in a 100 years or more, you may need to worry about taking mitigating or opportunistic decisions that would benefit your great grandchildren. These are mega trends that, hopefully, politicians, if they are responsible, should be thinking about.

In all cases, megatrends set the stage for visionary thinking implicating how they would transform society, markets and cultures.

Third, I salivated when Peter told me to speak about this topic.  At the same time I knew it would be a challenge.  It is akin to a sheikh entering his harem.  He knows what he has to do, but has no idea where to begin.  One may question, how many megatrends there are?  This is yet another interesting question but difficult in many regards   There are countless megatrends.  Some lack credibility.  Others are simply too speculative with a high degree of uncertainty.  So, here are some quick headline megatrends I’ve heard of recently. I have some opinions on them:

• Developed countries’ ballooning deficits threaten global economy—the bubble bursts yet again.  Time period:  likely time period 2018 to 2023.  I don’t hold much water for this to happen.  Even if you look at the state of debt in the US, 100% of GDP as cumulative debt is still fine if you ask me.  Too much hype by some economists.

• Escalated terrorist activities, nuclear espionage, and increased conflict cause severe uncertainty to business investments.   Circa:  now till 2030.  I think this is real but a type of megatrend that you can’t really do anything about except to have ongoing programs to mitigate.   Disaster scenarios, crisis scenario planning, etc., can help.

• Shortening of business cycles.  Recessionary cycles fall from once every 10 years or so, to one every 3 to 5 years.  Totally unsubstantiated. They saw two cycles of this and say that this is a trend.  I don’t see fundamental changes outside of the shortening of shelve lives for products.  But that has been going on for 30 years already.

• Middle class will demand greater accountability and rule of law.  See, for e.g., Africa.  Yes, this is causing stability in many areas.  For e.g., half of Africa is now no longer a basket case.  They offer real possibilities.  It is because the middle class has risen and demanding greater accountability.  And they have a tool called the Internet!

• Water scarcity derails Brazil, China and India and countless EMs.  A predominantly southern hemisphere phenomenon.   This will derail government.  Watch for this to happen, but no clear indication of timing.  It will probably creep through intermittently.

• Recession of global proportions from cyber attacks.  (talk about Sunderesh Menon and my conversation, and why Singapore is concerned with it). Over last 5 years, from 5000 to over 50,000 incidents recorded.  If there is global shut down from cyber attack, expect a trillion dollars shaved off from global GDP every 5 days.  Likely to happen in a major way soon.  If it does, it will be worse than your typical recession.

• New disruptive technology.  Sure as hell this will be happening.  Digital universe paradox:  cost per GByte $19/GByte in 2005—Now it is 60cents/GB.  Total investments have gone from $2.5 trillion in 2005 to $5.2 trillion in 2015.  There is no doubt that there would be continued explosive inroads made especially in digital technology and the internet of things where practically everything could be using connected technologies—from cars, to watches, to glasses, to your home and offices.

I can go on.

But on most of these, they are scenarios of possibilities.  There are no certainties on when they would occur, even though they are real possibilities.  I think it behooves all of us to be aware of them and to take the necessary precautions.  For example, if your boards are not thinking about what to do in the event of a cyber attack, they are probably sleeping on their jobs.

What I would like to focus on for this session are a few certainties.  That is, that we know with a high degree of accuracy that these will happen. No ifs, no buts.   And the impact on global industry, markets, and lifestyles will be significant from each of these.

• Demographic Change.

  • The UN uses a term called Demographic window of opportunity.  It is estimated by identifying those years in which the proportion of children (aged 0 to 14) in the total population is less than 30 percent and the proportion of seniors (65 and over) is less than 15 percent.  In other words, when a country’s working population is large enough to support both the very young and the retired communities.  Makes sense right?

  • Well guess what.  Japan’s DWO was from 1965 to 1995, Germany’s 1950 to 1990; UK’s 1950 to 1980.

  • The US’s DWO is from 1970 to 2015. Yes, next year it ends.

  • Ah, but the good news is Brazil’s is from 2000 to 2030; China’s is from 1990 to 2025, and India’s is from 2015 to 2050.

  • All this translates coincidently with the fact that China and India’s middle class, together will command slightly greater than 50% of global share by 2050.  They currently command about 11 percent. The US, Japan and Europe together command only 11% in 2050. They currently command 45% of global middle class consumption.  This is almost a flipping of the status quo.  And, we don’t have to wait till 2050.  China and India and other Asia (besides Japan) will command over 50% of middle class consumption power around 2030.

  • What are the implications of all of these?

  • Well, for one, it means significant purchasing power and volume to spend if Brazil, China and India continue to grow.  It will be an era characterized by a new dictatorship of consumer demand, taste and preferences–a dictatorship that will determine who gets to sell what in which geography.  A dictatorship of a new citizenry that is—that is no longer western dominated.  You better know how to relate to local tastes from basic cuisines to fashion.  You better know where even infrastructure spending is going to be in the not-too-distant-future.

  • Second, as people live longer and state support declines, the competitive frontline is likely to shift from lending towards helping people to fund and manage their retirements.  Reputation and trust will be crucial in sustaining market share in an increasingly empowered and knowledgeable retirement market.

  • Third, on the more counter intuitive side, there is what economists call supply-side changes that will change business cost structure significantly. Why?  Well because those countries with shrinking worker pools will aggressively try to fill the gap with immigration, later retirements and productivity gains. This means, India and China do not get free rides.  They would continue to see a war for talent that will become very aggressive.  On this, I see the US continuing to take the lead in being a hotbed for talent.  I don’t see it in Europe unless there is a major cultural shift there.

• Urbanization and the reconfiguration of productive capacity.

  • All of you have by now heard about this particular mega trend. A couple of years ago the world’s population base tipped the scale in favor of living in urban areas.  Yes, slightly more than 50 percent of the global population.  By 2030 this proportion will grow to 60 percent.  By 2050, about 70 to 75% will be urbanized.  This is not speculation.  It is real.

  • Now there are over 400 cities with over one million in population. In beginning of 20^th century only 16 cities in the world with over 1 m population.

  • In China alone, over 500 million people urbanized since Deng Xiao Peng’s opening of the iron curtains.  In India, urbanization is only beginning.  Although slower, a significant population will become urbanized.

  • Africa and Asia will see the greatest amount of urbanization.

  • Implications:

    • Expanding populations will mean rising investment in urban infrastructure that will put an enormous strain on commodity prices—iron and steel, cement, aluminum, etc.

    • How to deal with the poverty challenge in cities. One in four will be poor.

    • Urban centers growing size will see a resurgence in powerful city states

    • Resource pressures on water, electricity, and containment of urban pollution will almost surely create new industrial landscapes.  New opportunities.

    • Enormous pressures on existing city infrastructure on water treatment, sewerage capacity, electricity and energy, which means enormous opportunities as well.

    • New reconfiguration between industry and city spaces.  Likely reverse migration. Industry likely to be suburban while people move back to cities.  Cities in the US already seeing some of this with young people flocking into NY and DC.

    • If the world shifts to urban centers what must happen to productivity on the rural side?  It must jump several fold to sustain agriculture and food security.  This means there is huge scope for even greater mechanization and science to boost crop yields and productivity in general.  Huge implications for China especially which has amongst the lowest in agri productivity.

    • Positive potentials if cities accelerate the development of well networked cities using technology to make strides. New York, Singapore, London, Seoul have taken advantage of this.  Lots of other countries not even looking at smart city concepts.

    • Finally, think about competition for labor and talent, and competition for location.   Everyone competing for a shrinking pie of talent.  That is urbanization together with shrinking of the demographic window of opportunity.

• Inclusion.
  Did you know that 2.5 billion people today do not have access to nor possess a savings account?  Well, that is true.  This is a good 40 percent of the world’s population who are still floating around in the invisible economy, yet to be formalized.  What if they suddenly come into the picture?

  • Well, it is happening already.

  • How many of you have heard about India’s experimentation with the Unique Identification Number using biotechnology (retina scans and fingerprints). Explain why this is important.  No ID means no savings.  But if you solve this problem then the business model works.  This was a topic that Queen Maxima, Bill Gates and I discussed at length just two years ago to ask what is the business model that would make the problem go away.  For a while we were stumped.  Whatever the World Bank or the Gates Foundation spent to solve the problem was not going anywhere

  • Until this guy from India comes in—Nandan Nilkarni, the former head of Infosys.

  • India, as we speak has already ID’ed about 100m people and its target is to go to all 1.2 b people.

  • The implications are that it will open the doors to widespread financial access.  Through financial access, we know that consumption goes up in leaps and bounds.  India will benefit first with first mover advantage, but it is a matter of time before the technology is available to all.  Trillions of dollars will be knocked free.

  • But I marvel at the fact that so few companies have even noted this phenomenon taking place under our very noses. Worse still few are doing anything about it to reap the rewards.  Few have even strategic appraisals to assess how it would affect their markets.

  • No one is even attempting to shape the thing to come in this dimension

• Conclusion.
  Much has been said about China and India.  Much has been said about the US as well and how it is declining. Unfortunately, there is a lot of misinformation out there.
  • Myth # 1 – We are not all going to speak Chinese and wear the latest in Chinese fashion—not that I have anything against that.

    • Yes, indeed, China and India will become larger than the US.  China will overtake the US in GDP terms by 2040. Myth:  this does not mean it becomes the next superpower then. For that to happen, you need to wait a while longer until per capita GDP takes over.

    • That will happen in 75 years or roughly around 2090 assuming that china grows at 5% per year for the rest of the century and the US grows at a 2% average. Now, when that happens, you can in fact safely say, “China is the new global superpower”.  And, likewise India will eventually catch up after China becomes the mature economy and about 75 years later, I expect sometime around 2150, India will likely take over from China, everything else remaining equal.

    • Now does this mean that all of us will be preaching Confucian tenets then?  Not necessarily.  When Kipling uttered the ditty “never the twain shall meet”, he did not have the phenomenon of globalization to contend with.  Remember that China’s history in the 20^th century has been sculpted by almost all western precepts, viz democracy and republicanism, capitalism and Marxism.  So, don’t expect a regurgitation of the ancient Chinese culture of Confucianism.  The truth is that modern china is already intellectually much more westernized than one might imagine.

  • Myth #2 – Don’t discount the US.

    • The US is still the most productive country in the world.  Singapore’s productivity has caught up but is still 75% that of the US

    • The US has also got to be the luckiest country in the world.  Just when things were going south, they discovered new energy in the form of fracturing and are about to overtake the Russians as the largest natural gas producer and Saudi Arabia by 2020 or so as the largest oil producer.  The implications of this, my prediction is that all those estimated years I gave you earlier about when China would overtake the US is basically all garbage.

    • The US in terms of per unit cost of production terms is now the most competitive country in the world.  So much so, that European manufacturing is taking a hard look at whether or not they should relocate production to the US.  This has already begun to happen and will accelerate at the expense of Europe.  Japan will follow and I am sure China too.  So, in a nutshell, expect a major manufacturing resurgence over the next 20 years in the United States. I expect manufacturing, as a percentage of GDP of the US will rise towards 20% from the current dismal, but still large, in volume terms, 12% or so.  Services component of manufacturing is also likely to rise.  Remember that most large manufacturing companies now boast of huge services share in their value added.

This has been truly enjoyable.  I appreciate the time and thank Peter for inviting me to speak with you.

I am open to any and all questions now.