global flows in a digital age
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One in three goods crosses national borders, and more than one-third of financial investments are international transactions. And in the next decade, global flows could triple, powered by rising prosperity and participation in the emerging world. In a new McKinsey Global Institute (MGI) report, "Global flows in a digital age: How trade, finance, people, and data connect the world economy," scenarios show that global flows could reach $54 trillion to $85 trillion by 2025.TRANSCRIPT
Speaker nameSpeaker titleApril 2014
May 2014
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
GLOBAL FLOWS IN A DIGITAL AGE: HOW TRADE, FINANCE, PEOPLE, AND DATA CONNECT THE WORLD ECONOMY
MCKINSEY GLOBAL INSTITUTE
Global flows are growing and knowledge-intensive flows dominate
All flows are growing faster than GDP, with the exception of people flows
Value and growth (%) of cross-border flow2012 value (CAGR 2000-2012)
Goods$17.5 trillion
Services$4.4
trillion
Financial$4
trillion
People194 million
people
Data and communication21.2 million megabits/sec
11% 10%6%
2%
52%
2
Global flows of goods, services, and finance reached $25.9 trillion in 2012 – and could triple by 2025
SOURCE: Comtrade; International Monetary Fund Balance of Payments; World Trade Organization; McKinsey Global Institute analysis
0
5
10
15
20
25
30
1995 20121990
25.9
11.5
7.6
5.0
24.6
29.3
2005
17.0
2000
Goods, services, and financial flows; share of GDP, 1980–2012$ trillion, nominal; %
3
23% 25% 36% 44% 36%
Goods flows
Financial flows
Service flows
X % global GDP
Scenarios for global flows in 2025$ trillion, nominal
38% 44% 49%
8 13 1810
13
16
36
44
50
0
10
20
30
40
50
60
70
80
90
Slowdown
85
54
Gaining momentum
Continuing momentum
70
Total value of flowsTrillion USD
2.1
Foreign direct investment
R&D-intensive manufacturing
25.9
8.5
1.8
13.5All other flows
Business, financial, legal services
5.5%
10.9%
7.9%
7.0%
Growth rate2002-12, %
SOURCE: Comtrade; World Development Indicators, World Bank; International Monetary Fund Balance of Payments; Telegography; McKinsey Global Institute analysis
Knowledge-intensive flows are half of total flows, and are growing faster than other types
4
Knowledge-intensive
The vast majority of knowledge-intensive flows occur in developed economies—with China as an outlier
Total knowledge-intensive inflows and outflows, 20121
Relative area corresponds to the portion of global inflows/outflows
Developed
Emerging
SOURCE: Comtrade; IMF Balance of Payments; McKinsey Global Institute analysis
1 A knowledge-intensive flow is a flow with embedded information, ideas, or expertise that is transferred when exchanged. Foreign direct investment is classed as a knowledge-intensive flow because it often entails the transfer of embedded ideas, management expertise, and technology.
119 other countries
United States China Germany
Netherlands Singapore Italy Canada Belgium Mexico Taiwan
SwedenMalaysiaBrazilRussiaIrelandIndiaSpainSwitzerland
South KoreaHong Kong
(China)FranceUnited KingdomJapan
Hungary Mauritius
Luxembourg
TH
A
AU
S
AU
T
PO
L
CZ
E
TU
R
SA
U
NO
R
DN
K
ISR
FIN
AR
G
VN
M
CH
L
SV
K
ZA
F
RO
M
UK
RP
HL
PR
T
5
Flow networks are broadening and deepening
Networks of global flows are expanding: Goods
SOURCE: Comtrade; World Development Indicators, World Bank; International Monetary Fund Balance of Payments; Telegography; McKinsey Global Institute analysis
Regions USUnited States and Canada
LALatin America
WEWestern Europe
EEEastern Europe and Central Asia
CHChina region
NENortheast Asia
AUAustralasia
OAOther Asia
MEMiddle East and Africa
0.25–0.500.05–0.10 0.50–1.00 >1.000.10–0.250.02–0.05% of global GDP
Goods flows
1980100% = $1.8 trillion
US
LA
WE
EE
CH
NE
AU
OA
ME
US
LA
WE
EE
CH
NE
AU
OA
ME
2011100% = $17.2 trillion
7
10x
Cross-border Internet traffic flows are dispersing rapidly
SOURCE: Comtrade; World Development Indicators, World Bank; International Monetary Fund Balance of Payments; Telegography; McKinsey Global Institute analysis
US
LA
WE
EE
CH
NE
AU
OA
ME
US
LA
WE
EE
CH
NE
AU
OA
ME
500,000–1 million
50,000–100,000
1 million–5 million
>5 million100,000–500,000
<50,000BandwidthMbps
2008100% = 29 million Mbps
2013100% = 201 million Mbps
8
Cross-border bandwidth
Regions USUnited States and Canada
LALatin America
WEWestern Europe
EEEastern Europe and Central Asia
CHChina region
NENortheast Asia
AUAustralasia
OAOther Asia
MEMiddle East and Africa
7x
SOURCE: IHS Global Insight; Comtrade; Teleogeography; International Monetary Fund Balance of Payments; World Development Indicators; McKinsey Global Institute analysis
Emerging economies’ share of total inflows and outflows%
Emerging economies are gaining share in global flows
9
1 Emerging economies accounted for 65.4 percent of migrants in 2000 and 64.7 percent in 2010.2 Measured by cross-border bandwidth.
26
9
22
10
18
Financial(2002–12)
37
Goods(2002–12)
39
Services(2002–12)
32
Knowledge-intensive(2002–11)1 33
Data and comms(2005–13)
24
Developed economy share%
Growth in share,base year–final year
Base year
76
68
63
61
67
Emerging markets’ share of global GDP, 2012
39%
Goods trade among emerging markets (“South-South”) has quadrupled its share of goods trade since 1990
SOURCE: The Direction of Trade, IMF; McKinsey Global Institute analysis
Goods trade among countries%; $ trillion
10
3442
60 48
6 10
24
45
31
100% =
2012
17.5
2000
6.5
1990
3.3
North-South
Between developed markets(North-North)
Between emerging markets(South-South)
Digitization istransforming all global flows
SOURCE: iResearch, Telegeography, OCED, Bureau of Economic Analysis
The digital component of global flows is growing quickly
3.0
3.0
51.0
39.0
63.0
12.1
Calls(Skype share of international calls)
Goods(E-commerce share of total goods trade)
Services (Digitally-enabled share of total services trade)
Category(digital component)
2005
2013Share of selected cross-border flows that are digital%
12
SOURCE: McKinsey Global Institute analysis
Digital goods
Online platforms
Digital wrappers
13
Digitization is transforming global flows in three ways
Online platforms enable businesses to attain global reach that comparable offline businesses have not achieved
SOURCE: Enterprise Surveys, World Bank, 2012; Australia Bureau of Statistics, 2012, 2007; eBay; McKinsey Global Institute analysis
9797
78
10010010010010098100
4
15
2
1118
14
25
412
16
United States
FranceAustraliaUkraineSouth Africa
PeruJordanIndonesiaIndiaChile
Share of eBay commercial sellers and offline SMEs that export, 2012%
Traditional SMEs
eBay sellers
Emerging economies Developed economies
14
Flows matter and country connectedness varies
Flows contribute 15 to 25 percent of GDP growth each year …
$250 billion–450 billionAnnual increase in world GDP from intensity of flows—worth 15–25% of world GDP growth
16
… and countries with more connections benefit more—with both inflows and outflows mattering for growth
+40%Difference in impact of flows on GDP growth for countries at the center of the network compared with ones at the periphery
17
SOURCE: Comtrade; IHS Global Insights; UN WTO; Telegeography; World Development Indicators, World Bank; McKinsey Global Institute analysis
Country connectedness index and overall flows data, 2012Rank of participation by flow as measured by trade intensity and share of world total
18
Connectedness of countries across flows varies, with Germany at the top of the list
Rank Country Rank
change
Goods Services Financial People Data Flows
value
Flow
intensity (%)
Change
intensity
1 Germany 1 3 5 7 5 2 3,770 110 53
2 Hong Kong 1 4 3 14 1,437 546
3 United States -1 8 9 5 1 7 5,622 35 2
4 Singapore 1 2 3 4 18 5 1,198 436 8
5 United Kingdom -1 13 6 9 7 3 1,471 60 -26
6 Netherlands 2 6 7 15 29 1 1,213 157 39
7 France -1 9 10 36 15 4 1,581 60 8
8 Canada -1 16 22 13 9 18 1,381 76 -3
9 Russia 19 30 16 2 21 1,277 63
9 Italy 2 11 20 31 16 10 1,187 59 4
16 Saudi Arabia 19 20 29 19 8 44 729 103 40
20 South Korea 4 7 14 25 58 34 1,393 123
21 Japan -1 14 24 10 82 15 2,652 44 18
25 China 5 5 21 6 93 33 5,124 62 8
30 India 16 27 13 26 47 64 1,131 61 37
43 Brazil 15 39 40 18 115 38 757 34 11
49 South Africa -3 43 50 49 56 73 242 63 12
53 Morocco 26 57 42 79 41 63 91 95 46
Development Developed
EmergingConnectivity Index
51+
26-50
11-25
1-10 <70%
70-99%
100%+Flow intensity
There were some surprises in our country-specific findings
SOURCE: McKinsey Global Institute analysis 19
The United Kingdom is highly connected across all flows but lags behind in goods flows—its flow intensity has dropped sharply
Germany overtook the United States as the most connected country, gaining in all flows
Russia is the most connected emerging market, at 9th overall. It is especially high on people flows
South Korea and Japan are export powerhouses but overall rank only 20th and 21st, respectively, due to low people flows
Argentina dropped 6 places —and 24 places on financial flows—after its 2002 financial crisis and sovereign default
Brazil gained 15 places from 1995 to 2012 due to services and financial flows, but ranks only 43rd overall
Mauritius and Moroccogained 28 and 26 places respectively, the most of any countries
Saudi Arabia gained 19 places from 1995 to 2012, largely due to booming financial flows
China is ranked very high on goods and financial flows but overall is only 25th due to very low people flows
India gained 16 places from 1995 to 2012 as net services imports changed to exports
Singapore’s high connectivity (4th overall) is mainly driven by its trade intensity, given its role as a waypoint
The United States ranks 3rd on the connectedness index but, among the large economies, has one of the lowest flow intensities (36%) relative to the size of its economy
South Africa ranks in the middle of the pack on the world stage but is in the top 3 sub-Saharan African countries for all 5 flows
SOURCE: Comtrade; International Monetary Fund Balance of Payments; World Development Indicators; McKinsey Global Institute analysis
84
52
50
39
28
25
21
21
10
4
South Asia
Eastern Europeand Central Asia
China region
Northeast Asia
Australasia
Western Europe
United Statesand Canada
Africa and Middle East
Latin America
Southeast Asia
Developed
Emerging
Country connectedness score by region, 20121
Average rankChange in rank, 1995-20122
-1.0
-0.8
-2.2
0.4
5.0
0.7
10.0
-2.6
5.2
-0.4Less c
onnecte
dM
ore
connecte
d
20
Advanced economies are the most connected regions with emerging regions far behind
Key insights on the United States
1. The US is highly connected, ranked third in the world in overall connectedness: it is first in people flows, and top ten in all other flows
2. Despite large gains in connectedness around the world in the last 15 years, the US is still at the top of the ranking
3. The US is the largest producer of knowledge-intensive flows and is central to the global knowledge network
4. However, US flow intensity is low, even compared to other large economies. This suggests room for growth
5. US flows are dominated by NAFTA countries and a few other large advanced economies; there is a big opportunity to diversify trade partners
6. The United States’ leading position in people flows could be slipping: it has lost share of foreign students , tourists, and business travelers
Thank you
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