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Define 13 trends in the future From two thousand and twenty-one

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Business leaders must understand the trends that shape the post epidemic era.

Authors: Kevin sneader and shubham Singhal

2021 is bound to be a turning point year. We usually divide twentieth Century into the twentieth Century before World War II and after World War II. Our descendants may divide the era into “pre COVID-19” and “post COVID-19”.

This article will introduce important trends in shaping post epidemic era, discuss how it will affect global economic trends, how enterprises adapt to these new trends, and what far-reaching impacts COVID-19 will have on human society.

1. Confidence restored and consumption vitality released

With the gradual recovery of consumer confidence, consumer spending is also gradually rebounding. Once the pent up demand is released, all walks of life will usher in “retaliatory consumption”. This has been proved without exception in the previous economic downturn. The difference is that the service industry is particularly affected by the epidemic. As a result, the rebound in consumption is likely to benefit more of these industries, especially restaurants and entertainment venues.

But consumers may not be in step. A consumer survey conducted by McKinsey at the end of October 2020 found that consumers in countries / regions with more elderly people, such as France, Italy and Japan, are less optimistic than those in countries / regions with more young people, such as India and Indonesia. But China is an exception – it has a large aging population, but consumers are very optimistic.

China was the first to discover the epidemic, and also the first to walk out of the epidemic haze. Now consumer confidence is back. In 2020, the sales volume of China’s two major e-commerce platforms will reach a new high.

It’s not just about consumer day. China’s manufacturing industry will take the lead in recovery in September 2020, and consumer spending will rebound. In addition to international air travel, Chinese consumer behavior and spending have gradually returned to pre epidemic levels. Australia also offers hope. With the epidemic basically under control in the country, household expenditure will drive the economy to achieve a 3.3% higher than expected growth in the third quarter of 2020, and the expenditure on goods and services will increase by 7.9%.

However, the speed and extent of confidence recovery remains to be seen. For example, a survey in late September 2020 showed that US consumers were cautiously optimistic. People will give less holiday gifts and care about discretionary spending. Only about a third of the respondents went out to shop. By comparison, China has 81%, France 49% and Mexico only 18%. New city closures and vaccinations are bound to have an impact on these data. The key is that consumer spending will grow rapidly only when people can be at ease – but attitudes vary significantly from country to country.

2. Leisure travel rebounded, while business travel remained sluggish

Leisure travel willingness has increased, which has been confirmed in China. The chief executive of a large tourism company revealed to us that from the third quarter of 2020, the company’s business “basically returned to normal”. But this “normal” is not that “normal”. Although the number of domestic tourists has soared, outbound tourism has not improved due to entry and exit restrictions and people’s concerns about health and safety. By the end of August 2020, China’s hotel occupancy rate and domestic airline passenger volume have returned to more than 90% of that in 2019. More than 600 million Chinese people traveled during the golden week, about 80% of last year’s. Due to people’s full confidence in the health and prevention and control measures taken by the government, domestic tourism has basically recovered to the level before the epidemic, and high-end domestic tourism has even improved.

Leisure travel belongs to non rigid expenditure, but business travel is more rigid. In 2018, the business travel expenditure reached US $1.4 trillion, accounting for more than 20% of the total expenditure of the hotel and tourism industry, and its contribution to the profit is particularly prominent – it contributed more than 70% of the global high-end hotel revenue. But during and after the epidemic, business travel needs to answer a question: under what circumstances is it necessary to travel? Business trips are almost certainly not as frequent as they were before the outbreak. Video call and remote collaboration tools can replace part of the live conference.

Historical experience shows that after the end of economic recession, the recovery speed of business travel is slower than that of leisure travel. For example, after the 2008-2009 financial crisis, it took five years for international business travel to recover, while it took only two years for international leisure travel.

Intra regional and domestic business travel is likely to rebound first. Some companies and industries want to resume face-to-face sales and customer meetings as soon as safety is ensured. Peer pressure can also have some impact: once a company resumes face-to-face meetings, competitors will keep up. A survey of business travel executives found that they expect to spend only half as much on business travel in 2021 as in 2019. Although business travel will eventually recover and global economic growth will generate new demand, executives in this field believe that it may never return to the level of 2019.

3. The epidemic stimulates the wave of innovation and gives birth to a new generation of entrepreneurs

As Plato said: demand is the mother of invention. During the COVID-19, digital technology is developing rapidly. The turbulent environment has spawned a new generation of entrepreneurs, especially in the United States and other major economies. In the third quarter of 2020 alone, the number of new company applications in the United States increased by more than 1.5 million, almost double that of the same period in 2019.

Many of them are one-man companies, and they may still be in this state all the time – just like a restaurant chef changing to a banquet host, or a fresh graduate developing a cool new app. Interestingly, the most promising companies are also growing rapidly – 50% more than in 2019. In the first half of 2020, venture capital activities will only decline slightly.

This has not yet happened in the EU, perhaps because its recovery strategy focuses on protecting employment (while the US focuses on protecting income). Nevertheless, France added 84000 new companies in October 2020, a record high, 20% higher than the same period in 2019. The number of new enterprises in Germany is also higher than that in 2019, as is the case in Japan.

On the whole, COVID-19’s crackdown on small businesses is devastating. For example, the number of newly established small businesses in the United States in December 2020 decreased by 25.3% compared with the beginning of the year (the lowest value appeared in mid April, when the number was about half of the beginning of the year). The revenue of small businesses in the United States from January to December 2020 dropped by more than 30%. A blessing in disguise is a blessing in disguise. Once the economy recovers, the positive entrepreneurial momentum indicates employment growth and economic development.

4. Digitalization promotes productivity and boosts the fourth industrial revolution

Many executives said that in terms of establishing supply chain redundancy, improving data security and applying advanced technology in operation, the speed of promotion is 20 to 25 times faster than expected.

It is worth noting that the productivity of the United States increased by 4.6% in the third quarter of 2020, reaching 10.6% in the second quarter, the largest half year growth since 1965. The surprising figures in the second quarter of the United States are largely due to the largest decline in output and working hours since 1947, so it is not surprising.

In the past, it would take at least 10 years for revolutionary technology to transform from a cool concept to a real productivity driven solution. But COVID-19 has greatly increased the speed of transformation in the areas of artificial intelligence and digitalization, which is faster in Asia.

This process is not always smooth: enterprises have to implement or match new technologies under great pressure. This can lead to poor performance of some systems. The short-term challenge is how to change from dealing with the epidemic situation to building an effective plan and institutionalizing it. For the consumer industry, especially the retail industry, it needs to improve the digital and omni channel business model. The medical industry needs to turn virtual solutions into conventional options, the insurance industry should provide personalized customer experience, and the semiconductor industry should identify and invest in the next generation of products. No matter which industry will usher in new M & A opportunities, it is also urgent to invest in capacity building.

5. Changes in shopping behavior caused by the epidemic have changed consumer enterprises

McKinsey surveyed 13 major countries, nine of which at least two-thirds of consumers said they had tried new ways of shopping. At least 65% of consumers in all 13 countries are willing to keep trying.

Specifically speaking, it is a general trend for retail to move online. The forecast for 2019 shows that the penetration rate of e-commerce in the United States will reach 24% in 2024; by July 2020, the proportion of e-commerce in total retail sales in the United States will have reached 33%. In other words, the growth of e-commerce in the first half of 2020 will reach the sum of the previous 10 years. The payment and express infrastructure in Latin America is not as good as that in the United States, but the proportion of e-commerce has also risen from 5% to 10%. Digital application in Europe has been basically popularized (95%), much higher than 81% at the beginning of the epidemic. Under normal circumstances, it will take two or three years to reach this level.

It is worth noting that the most significant growth is in the countries / regions that were more cautious about online shopping. For example, Germany, Romania and Switzerland ranked three in online shopping penetration before COVID-19. Since the outbreak of the epidemic, their online shopping volume has increased by 28, 25 and 18 percentage points, ahead of other markets.

6. Supply chain rebalancing and transfer

COVID-19 has exposed the fragility of many companies’ lengthy and complex supply chains. Executives are determined to change the status quo. As a result, a grand rebalancing plan was launched. By 2025, as many as 1 / 4 of the world’s exports may shift, reaching US $4.5 trillion.

After studying the operation mode of their own supply chain, enterprises found three things. First, supply chain disruption is not uncommon. Every 3.7 years, any company may encounter a supply chain interruption lasting for about one month. Therefore, such an impact is far from unprecedented. Supply chain problems belong to the scope of conventional management of enterprises.

Second, the cost gap between developed and developing markets has gradually narrowed. Manufacturing enterprises that develop industry 4.0 (i.e., data application, analysis, human-computer interaction, advanced robotics, 3D printing and other technologies) can offset half of the labor cost differences between China and the United States. If we consider the rigid cost, the gap will be further narrowed: end to end optimization is more important than the sum of individual transaction costs. This is one of the reasons why the U.S. Department of defense and other organizations diversify their suppliers of necessities, such as medical manufacturing and microelectronics.

Third, most enterprises don’t know much about the situation of sub suppliers, while the secondary and tertiary suppliers seem insignificant, but in fact they are very important. This is also the source of most supply chain disruptions. Two thirds said they were unable to confirm business continuity issues with sub suppliers. Fortunately, with the progress of AI and data analysis technology, enterprises will be able to improve their understanding of the whole value chain.

7. The future has come – work

McKinsey Global Institute (MGI) estimates that more than 20% of the world’s workers, most of whom are in highly skilled occupations such as finance, insurance and it, can complete most of their jobs with quality and quantity even if they are not in the office. This is not only because COVID-19 is forced to do it, but also because of the progress of automation and digital technology, which makes remote work possible. The popularity of these technologies has greatly accelerated during the epidemic.

There are two important challenges that need to be overcome to move to remote mode. One is to define the role of the office. In the traditional workplace context, organizational culture and sense of belonging are created here. The enterprise must formulate the plan from the real estate (do we need the current office building, office space or floor?) How much space should be reserved between desks? Is the tea room safe?) And then to training and career development (can we carry out remote guidance and other projects?) And so on.

The second is how to make employees adapt to automation, digitization and other technical requirements. This is a common challenge for all walks of life, even those unrelated to telecommuting.

Labor training is an important issue before the epidemic. Enterprises should first understand what skills they need at present and in the near future, then tailor learning opportunities to meet these needs, and finally evaluate the effect. But perhaps the most important thing is to get high-level commitment to build a lifelong learning culture.

8. Start the biopharmaceutical revolution

Previous vaccines used inactivation or attenuated technology to produce virus antibodies. Moderna and biontech Pfizer chose mRNA technology this time. This platform has been developed for many years, but it is the first time that it has been approved by the regulatory authorities. The “m” in mRNA refers to “messenger”, because molecules carry gene instructions into cells to produce proteins that can stimulate immune response. The human body can decompose mRNA and its lipid carrier in a few hours. (the World Health Organization lists 60 new coronal vaccines in clinical trials, many of which do not use mRNA.)

Regulators show creativity while responding quickly, setting clear guidelines and encouraging close cooperation. They did not relax the safety and effectiveness requirements, and quickly completed the data collection and evaluation work. If we use these experiences to deal with other diseases, we can lay a foundation for accelerating the development of treatment programs.

What McKinsey Global Research Institute calls the “biological revolution” (covering biomolecules, biological systems, biological machines and biological computing technologies) has great potential, and the research and development of new crown vaccine is only one of the most concerned examples. A report released in May 2020 by the McKinsey Global Institute estimates that “45% of the global burden of disease can be solved by today’s predictable scientific capabilities.”

The potential of the biological revolution goes far beyond medicine. According to the calculation of McKinsey Global Research Institute, theoretically, up to 60% of the solid materials in the global economy can be produced by biotechnology. For example, agriculture (creating high-temperature or drought resistant crops through genetic modification or solving vitamin A deficiency problems), energy (creating biofuels through genetically engineered microorganisms) and materials (artificial spider silk and self repairing fabrics).

9. Asset restructuring accelerated

In October 2020, McKinsey’s “Z-score” assessed the bankruptcy probability of 1500 companies. The higher the score, the better the financial situation. In this epidemic, 20% of the enterprises with the best improvement in Z-score (“emerging resilient enterprises”) increased their earnings before interest, tax, depreciation and amortization by 5%, while other enterprises decreased by 19%. There is evidence that emerging resilient enterprises are widening the gap with other enterprises.

This means that economic recovery will give resilience a premium. Excellent enterprises will not be satisfied with the existing advantages, but will build new advantages through mergers and acquisitions, as they did in the previous recession. Therefore, we expect that companies with relatively healthy balance sheets will look for opportunities to adjust their asset portfolios substantially against the background of asset discounts and declining valuations. In fact, this may have happened, and trading has been picking up since the middle of last year.

Private capital is the second factor in favor of asset restructuring. McKinsey recently pointed out that special purpose acquisition companies (which can be listed by merging with a company) will have a strong momentum in 2020. As of the end of August 2020, there are 81 such IPOs out of 111 IPOs in the United States.

Private equity funds (PE) play a more important role. Globally, PE companies hold about $1.5 trillion of “ammunition” – that is, they are ready to invest in undistributed capital. COVID-19 had a certain impact on this field. In the first three quarters of 2020, the volume of global PE transactions decreased by 12% compared with the same period in 2019, and the number of transactions decreased by 30%.

On the other hand, global financing momentum remains strong. By the end of September 2020, it has reached 348.5 billion US dollars, which is equivalent to the level of the previous five years, and the transaction volume in Asia has more than doubled. Overall, as many new investment opportunities will certainly emerge in the future, we believe that PE industry will not keep “ammunition” for a long time.

10. Green became the main color of the recovery, but mixed with a touch of brown

Governments have come to a consensus on the cost of pollution and the benefits of environmental protection. China, India and some Gulf countries are speeding up the development of green energy with the incredible scale of investment 10 years ago. European countries, including the UK, are working together to tackle climate change. The United States has also gradually abandoned coal and innovated various green technologies such as batteries, carbon capture methods and electric vehicles.

During the 2008-2009 financial crisis, governments introduced many stimulus programs, but few of them integrated into the climate and environmental agenda. Now it’s changed a lot:

The EU plans to take about 30% of the $880 billion COVID-19 rescue plan and deploy measures related to climate change, including at least $240 billion in green bonds.

In September 2020, China promised to strive for carbon neutrality by 2060.

Japan is committed to carbon neutrality by 2050.

As part of South Korea’s economic recovery plan, the country’s “Green New Deal” has invested in the development of greener infrastructure and technology, with the goal of achieving zero carbon emissions by 2050.

US President Joe Biden pledged to invest $2 trillion in clean energy related to transportation, electricity and construction during his campaign.

Canada links economic recovery to climate targets.

Nigeria plans to phase out fossil fuel subsidies and install solar systems for about 25 million people.

Colombia is pushing ahead with plans to plant 180 million trees.

The challenges faced by enterprises in two aspects are particularly urgent. First, respond to investors’ concerns about sustainable development. Therefore, it is reasonable for enterprises to control their own climate risk, make their capital investment more climate resilient, or enhance the degree of diversification of their supply chain.

More importantly, the growth opportunities contained in the green economy may be huge, covering many fields such as energy, travel and agriculture. Just as the digital economy has driven the stock market up in the past few decades, green technology companies are likely to play the same role in the coming decades.

11. The health care system is changing

Health care system reform is not easy. Although human life is of vital importance and prudence is the top priority, it often hinders the process of modernization. The experience accumulated during COVID-19 can provide a direction for the construction of a stronger medical system after the disease.

Governments around the world will undoubtedly set up working groups, investigation teams and committees to investigate COVID-19 related actions. How to better prepare for the next outbreak at the national and international levels must become an important issue. Investments to strengthen epidemic prevention and control and public health capabilities are often underestimated. COVID-19’s painful lessons prove that this idea may cost a lot in life and livelihood. The upgrading of public health infrastructure and the modernization of medical system (including the wider use of telemedicine and virtual health technology) are two key areas.

12. With the expansion of government debt, the sequelae gradually appear

Countries and regions have taken unprecedented financial measures to deal with COVID-19, which has reached 3 times the financial crisis from 2008 to 2009. The fiscal stimulus of G20 countries alone exceeded 10 trillion US dollars.

In February 2020, Janet Yellen, the current US Treasury Secretary, said that “under the current tax and spending plans, the US debt path is totally unsustainable.” Since then, the federal government has invested trillions of dollars in COVID-19 rescue funds. This has ushered in a new fiscal era for the United States, where public debt is expected to surpass the size of the country’s economy in fiscal 2021 – the last time this happened shortly after the end of World War II.

Canada’s fiscal deficit is expected to reach C $343 billion, an increase of more than 1000% over 2019, pushing the country’s debt level above C $1 trillion for the first time. In 2020, China’s fiscal deficit rate will be set at more than 3.6%. Britain’s debt exceeds 2 trillion pounds, not only a record amount, but also more than the country’s GDP. In October 2020, the total budget deficit of the euro area reached 11.6% of GDP, only 2.5% in the first quarter of 2020, and the total debt of the euro area reached a record 95% of GDP. But these figures seem to be dwarfed by Japan, which has the highest debt to GDP ratio in the world, more than 200%. Although 73 poor countries / regions have been allowed to freeze their maturing debts, they have not been forgiven.

As the haze of the epidemic gradually dissipates, the government must also find ways to solve the financial difficulties. However, interest rates are generally low, which means that the government needs to increase taxes or cut spending, or both. Doing so could drag down the recovery and raise political risks.

Although transitional measures such as improving government efficiency, promoting asset monetization and plugging fiscal loopholes can play a role, only economic growth and productivity improvement are the long-term solutions.

13. Stakeholder capitalism is valued

Many surveys and elections show that people have lost trust in business. This is what stakeholder capitalism is all about. It serves as a bridge between enterprises and their communities. COVID-19 highlights the link between business and society.

Several of my colleagues recently pointed out that “if there is one word to describe an enlightened company that has the most perfect intention but does not make money, it is to close down.” In fact, they want to inject a sense of mission into the easy to measure index of profit – this is the instinctive pursuit of human beings.

We don’t think there is a conflict between the two. McKinsey Global Research Institute conducted a survey on the performance of 615 large and medium-sized listed companies in the United States from 2001 to 2015, and found that enterprises with a long-term perspective (which is the core of stakeholder capitalism) are better than other enterprises in terms of profit, revenue, investment and employment growth. In a survey conducted by McKinsey Global Research Institute in February 2020, the vast majority of executives and investment experts interviewed believe that projects focusing on environmental protection, society and Governance (ESG) have created short-term and long-term value, and the value will be higher in the next five years.

The key to stakeholder capitalism is to build the trust that enterprises need to continue their business, which we call “social capital”. In addition, we should realize that creating long-term shareholder value can not only focus on shareholders.

In March 2020, some of my colleagues thought that dealing with the COVID-19 crisis would become an urgent task in the present era. A month later, we also pointed out that COVID-19 may bring about a dramatic restructuring of the economic and social order. We still hold these views. COVID-19 is no doubt an economic catastrophe and a human disaster, and it is far from over. With the advance of vaccination, we may be cautiously optimistic that the next new normal may come this year or next year.

Author:

Schnander is the global president of McKinsey, based in New York

Shubham Singhal is a senior managing partner and global head of McKinsey’s healthcare business, based in Detroit

China’s China China novel coronavirus pneumonia industry: the new normal analysis of the industry, the “unstable air”, the China Airlines how to make a move forward: McKinsey: the future road of electric transportation: McKinsey Consulting: CAO guide to survival in big data era: McKinsey: 2019 China Banking CEO summer Journal McKinsey financial industry white paper: the road of high quality development of China’s financial industry (with download) the future has come: Development road of smart hospital (with download) facing 2020: how the chief risk officer promotes the transformation and upgrading of digital risk (with download) McKinsey: will the traditional automobile enterprises see themselves subverted and helpless McKinsey: the next decade of China’s private banking The overall impact of financial technology on the banking industry and the coping strategies of banks (with download)

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