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Year-Ahead Predictions

2017
Ten significant global events that will occur and trends
that will gain strength in the coming year.
December 2016
About Year-Ahead Predictions
Year-Ahead Predictions 2017 identifies 10 significant global
events that are likely to occur and highlights trends that will
gain strength in the coming year. Each of these events and
trends will have an important near-term impact on the global
business operating environment. Our examination of each
prediction first explains the current state of play and then
lays out our expectations for how it will unfold over the
next 12 months.

The A.T. Kearney Global Business Policy Council (GBPC)


continually scans the horizon for developments along the
key dimensions of demography, economy, environment,
geopolitics, governance, resources, and technology.
In assessing this wide range of dimensions, the GBPC
keeps its finger on the pulse of events and trends that
are likely to affect the global external strategic operating
environmentand helps business leaders and strategic
planners to be mindful of likely near-term events and
trends that will impact their company and industry.
Executive Summary
The Global Business Policy Council makes 10 key predictions for 2017, all of
which will have important implications for the global business environment:

1. The first crippling cyberattack will be launched on critical


infrastructure in a major economy.

2. Brexit and Trumps election will inspire more wins at the ballot box
for European populists.

3. A tripolar world will be cemented, as tensions between the United


States, Russia, and China grow.

4. Islandization will continue to fragment the global economy.

5. Frontier markets will recede into the frontier.

6. Global climate change policy coordination will limp along.

7. The Zika pandemic will go global.

8. Virtual reality will proliferate at an unprecedented rate, and not


just for gamers.

9. Global oil prices will remain below $60 per barrel.

10. The new space race will accelerate.

Year-Ahead Predictions 2017 1


Prediction #1
The first crippling cyberattack will be launched on
critical infrastructure in a major economy.
Over one million cyberattacks are estimated to take place every day, and the number of cyber
vulnerabilities being discovered continues to rise dramatically. Attacks are routinely made
against national governments, personal devices, banks, and corporations. Unsurprisingly in
such an environment, global executives surveyed in our 2016 Views from the C-Suite pointed to
rising cybersecurity risks as their top overall challenge in the business operating environment.
In October 2016, hundreds of popular websites including Twitter, Amazon.com, Netflix, PayPal,
and many news services were taken offline in the largest distributed denial-of-service (DDoS)
attack to have ever taken place in the United States. Other significant cyberattacks have recently
occurred in Israel, South Korea, Saudi Arabia, Russia, and elsewhere. And with the rapid prolif-
eration of the Internet of Things (IoT) permeating nearly every aspect of the modern worldfrom
smart home apps that can link thermostats and refrigerators to the Internet, to Internet-enabled
security cameras and fitness appsthe world has become more technologically connected
than ever before, and thus ever more vulnerable to cyberattack (see figure 1).

Figure 1
Growth in the number of devices connected globally is accelerating

Internet of Things (IoT) devices


(Billions) 34%
20.8
31%
29% CAGR
3.8 4.9 6.4

2014 2015 2016 2020f

Sources: Gartner; A.T.Kearney analysis

In 2017, the scale of cyberattacks will increase, and a major economy will suffer a crippling
attack on its critical infrastructure. The most likely targets are globally connected economies
that have Internet-enabled infrastructure and geopolitical foes, such as Germany, Japan, South
Korea, the United States, and the Gulf Cooperation Council countries. The attack will be of
a level of sophistication only possessed by select nation-states. Given the solidifying tripolar
world (see prediction #3), it is likely that Russia, China, Iran, or North Korea will be the source
of such a major cyberattack, though definitive attribution will be nearly impossible. The attack
will likely target an electrical grid, as cyberattacks have been increasing against such targets
in recent years and attackers now know how best to impair these systems. Such an attack will
cause a widespread electricity blackout followed by rolling brownouts as the electrical grid is
slowly brought back online. This will severely disrupt business operations in the affected areas
and possibly lead to vandalism at retail outlets. If the attack targets electricity in a major
financial center, it will also disrupt international payments systems for a short period of time.
All told, a major attack of this nature will cause billions of dollars in economic damage and
raise the risk of both copycat and counterattacks in the near future, further destabilizing the
business environment and reducing economic output.

Year-Ahead Predictions 2017 2


Prediction #2
Brexit and Trumps election will inspire more wins at the
ballot box for European populists.
The United Kingdoms decision in June 2016 to leave the European Union and Donald Trumps
election as US president sent shockwaves across the globe. UK voters chose Brexit primarily
based on concerns about immigration and rising anti-EU sentiment, and the results have raised
questions as to whether this was a one-off event or the first of several anti-EU dominoes to fall.
Many Europeans, particularly disenchanted blue-collar workers who attribute a lack of jobs to
globalization and liberal immigration policies, are deeply concerned by inflows of immigrants
from Syria and elsewhere, high unemployment, slow economic growth, stagnant or falling
wages, and the politics of austerity that continue after the Global Financial Crisis. As a result,
political parties that had previously been regarded as fringe movements, such as the Dutch
Freedom Party, the French National Front, and Alternative for Germany (AfD), are steadily
gaining popular support. In this environment and in the aftermath of Brexit, the mood toward
Brussels and EU bureaucracy has never been more sour.

In 2017, such populist, nationalist, and xenophobic parties will continue to gain popular support
and seats in national parliaments. The European economy will continue its trajectory of slow
growth and the immigration crisis will persist, so frustrations with Brussels are unlikely to abate
in 2017. As the United Kingdom moves to invoke Article 50 in the spring, it will inspire populists
throughout Western Europe to heighten their nationalist, anti-EU rhetoric. Specifically, the
Dutch Party for Freedom may win the March 2017 general elections; right-wing nationalist
Marine Le Pen will make it to the second round of Frances April/May presidential elections (but
she will lose in the second round); and the AfD will see its support grow from its current 15 percent
nationwide. Although most of these parties are unlikely to win elections outright, their influence
on political rhetoric and policy nevertheless will be strongly felt. Many of these parties will play
the role of spoiler, criticizing government leaders while unconstrained by the challenges of
actually governing. As a result, popular sentiment and political discourse in Europe will continue
to shift further toward nationalist, protectionist, and anti-immigration policy proposals.

Year-Ahead Predictions 2017 3


Prediction #3
A tripolar world will be cemented, as tensions between
the United States, Russia, and China grow.
A tripolar world has emerged in which the United States, China, and Russia compete for
geopolitical influence in key regions around the globe. These three powers increasingly stand
alone on the world stage. Europe has turned inward while India remains focused on its own
region, complex internal politics, and economic development. During the past six years
Russian President Vladimir Putin and Chinese President Xi Jinping have effectively consolidated
domestic power. Putins public approval ratings continue to hover above 75 percent, while
Xis anticorruption campaign has removed many potential rivals from power and he was
recently recognized as core leadership of the Chinese Communist Party. Their assertive,
nationalist foreign policies bolster their domestic popularity. Meanwhile, the United States
has pursued a somewhat less muscular foreign policy under President Barack Obama
compared to the George W. Bush administration, and it has had difficulties shaping the
outcomes it desires in Afghanistan, Iraq, and Syria. Strong internal political divisions in the
United States have also contributed to a global narrative regarding its relative decline from
the unipolar moment of the 1990s.

In 2017, tripolar tensions will grow. Although US President-elect Donald Trump has pledged to
pursue a more cooperative relationship with Putin, he will find that the Russian president seeks
concessions incompatible with core US interests, and tensions will return. Trump is likely to
continue efforts to contain Chinas territorial claims in the South and East China Seas, while
also pursuing more aggressive trade enforcement actions against China. As the new US
administration settles in, it will become clear that American foreign policy is being predicated
on being unpredictable to keep adversaries off-balance. However, American policy will have the
unintended effect of shoring up domestic support for Putin and Xi, as these leaders push back
against a US-led world order. Tensions may also begin to grow between China and Russia, as
the spheres of influence of these two great powers increasingly overlap and historic distrust
returns. The tripolar world will accelerate the development of separate blocs of geopolitical
alliances and corresponding economic partnerships. The result will be a much more volatile
geopolitical environment in which tensions flare up with increasing frequency and the risk of
outright conflict rises.

Year-Ahead Predictions 2017 4


Prediction #4
Islandization will continue to fragment the global
economy.
Islandization is emerging as globalization has stagnated since the Global Financial Crisis,
with world trade relatively flat as a share of the global economy and cross-border investment
below its precrisis peak. Part of this is due to the state of the global economy. Emerging
markets, specifically China, had been driving global economic output and cross-border flows.
But their growth has slowed in recent years, and developed markets have not picked up the
slack. In addition, the previous period of rapid globalization exhausted the low-hanging fruit of
cross-border investment opportunities. At the same time, rising nationalist and protectionist
sentiments in many key markets are further inhibiting globalization. For instance, politics in
the United States, Europe, and elsewhere are increasingly hostile toward new liberalizing
trade deals and to continued openness to international migration.

In 2017, these antiglobalization trends that we label in aggregate as islandization will intensify.
Our Islandization scenario will materialize in 2017, with further growth stagnation, additional
popular backlash against trade deals, and consumer preferences turning against goods
manufactured abroad, leading to a fragmented global economy. The IMF predicts that global
growth will hover at around 3.4 percent in 2017, but that forecast is subject to downside risks
from rising protectionism. Continued macroeconomic uncertainty will combine with rising
geopolitical tensions to create a zero-sum global atmosphere. Economic inequality will also
remain high in key markets, driving further popular frustration with a globalized system that
seems to only benefit the elite. This will lead to increased calls on governments to reduce
immigration and promote domestic production over tradepolicies that will be championed
by the Trump administration in the United States. As a result, the Trans-Pacific Partnership (TPP)
and Transatlantic Trade and Investment Partnership (TTIP) will languish, and no new large trade
or investment agreements will be launched. Countries are also likely to continue to implement
new protectionist trade measures (see figure 2).

Figure 2
Protectionist measures are rising as trade growth slows

Trade barriers and export volume growth


(Number of barriers initiated, % of export volume growth)

3,000 20%
2,500 15%
2,000 10%
5%
1,500
0%
1,000 5%
500 10%
0 15%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Initiated nontariff barriers (left axis) Export volume growth (right axis)

Note: Data for 2016 is forecast as of November.


Sources: WTO, Integrated Trade Intelligence Portal (I-TIP); A.T.Kearney analysis

Year-Ahead Predictions 2017 5


Prediction #5
Frontier markets will recede into the frontier.
Frontier markets have long been at the fringes of cross-border global economic flows.1 For
instance, they account for only 5.0 percent of the worlds exports and 5.5 percent of global
foreign direct investment (FDI) stock. In recent years, though, frontier markets have enjoyed
greater interest from financial market investors, as growth has stagnated in developed markets
and slowed in many emerging markets. Frontier markets had also become attractive to investors
seeking yield as the first- and second-order effects of ultralow interest rates in major developed
markets took root across the developed and emerging asset classes. For instance, Sub-Saharan
African markets have leveraged this investor interest to issue Eurobonds at relatively low rates,
with annual issues of new such bonds rising from about $200 million in 2006 to about $6.3 billion
in 2014 and 2015.

However, frontier markets will again recede into the frontier in 2017. Developed market
economic growth will rise slightly in 2017, driven in large part by the United States and Canada.
With interest rates also likely to continue to slowly rise in North America, financial investors will
find more opportunities for yield in those markets. Emerging markets will also grow more
strongly in 2017. Most notably, the IMF forecasts that large emerging markets such as Russia and
Brazil will return to positive economic growth after bruising recessions, while India and China
will continue growing robustly. And some frontier markets will start to suffer under the weight of
the debt burdens they have taken on in recent years. In this shifting global economic landscape,
the luster of frontier markets will wane as financial investors once again prefer the relatively
more liquid and transparent emerging market investment environments. And, as investors told
us in the 2016 A.T. Kearney Foreign Direct Investment Confidence Index, companies engaging
in FDI will also shy away from frontiers in favor of the relative stability of developed markets and
the renewed growth opportunities in emerging markets.

Frontier markets are developing economies that have lower income per capita, less advanced regulatory environments,
1

and weaker integration with the global financial system than emerging markets.

Year-Ahead Predictions 2017 6


Prediction #6
Global climate change policy coordination will
limp along.
Average global temperatures have been rising for at least a century, and 2014 set the record for
the hottest year everbut that record was shattered the following year, and there are indica-
tions that 2016 will similarly break the 2015 record. In the last quarter of 2016, though, several
important international actions were taken in the fight against climate change. The International
Civil Aviation Organization agreed for the first time to an emissions reduction scheme that uses
carbon offsets to reduce the significant climate change impact of passenger and cargo flights.
In addition, more than 200 countries agreed to cut the use of hydrofluorocarbons (HFCs)
which have 1,000 times the heat-trapping potency of carbon dioxide in the atmospherein
refrigerators and air conditioners worldwide. And, most notably, the UN Framework Convention
on Climate Change (UNFCCC) 2015 Paris Agreement entered into force on 4 November after
more than 55 countries accounting for at least 55 percent of global carbon emissions ratified
the agreementincluding the two largest emitters, China and the United States. However, this
progress was called into question by the US election of Donald Trump, as he has said he will
cancel the Paris Agreement.

In 2017, progress to limit greenhouse gas emissions and reduce global warming will slow.
The United States will either seek to cancel its ratification of the UNFCCC Paris Agreement or
simply ignore its emissions targets. China will emerge as the global leader on climate change
efforts, with its moratorium on new coal-fired electricity generation plants through 2017, the
introduction of an emissions trading scheme in 2017, continued growth in its electric vehicles
sector, and other measures. More signatories will ratify the Paris Agreement in the coming
yearincluding most notably Iran and more EU membersbut ratifications will slow in the
wake of US abandonment of its support for the agreement. The rest of the parties to the Paris
Agreement will also make progress on negotiating the detailed rules that will govern its operation,
including the type of information countries should provide when they submit their next round
of commitments and the way that countries actions will be reviewed. However, a cloud will hang
over these discussions as US carbon emissions begin to increase after several years of declines.

Year-Ahead Predictions 2017 7


Prediction #7
The Zika pandemic will go global.
A large outbreak of Zika, a tropical mosquito-borne virus (from the Aedes aegypti mosquito),
began in Brazil in 2015. In February 2016, the World Health Organization declared a global state of
emergency over the virus, which they rescinded in November due to an acknowledgement that
Zika is not a flash-in-the-pan emergency but rather an enduring public health challenge requiring
a sustained program of work. What makes Zika particularly dangerous is that it is the first
mosquito-borne virus known to cause severe congenital disorders, including microcephaly, which
causes babies to be born with very small heads and other brain abnormalities. While Brazilians
have suffered the most from the viruss outbreak (more than 120,000 became infected in the first
half of 2016), Zika currently affects more than 50 countries and territories (see figure 3). Colombia
and Puerto Rico have also been hard hit, with tens of thousands of reported cases. In Singapore,
258 people were reportedly infected in just one week in September, and cases of infection through-
out Southeast Asia soon followed. There is currently no known vaccine or cure for the Zika virus.

Zika will become a global pandemic in 2017 because of the unique science and biology of the
virus, and the difficulty governments and organizations have in implementing an effective
response. Travelers infected in heavily afflicted regions in Latin America and Asia will return to
their home countries unknowingly carrying the virus. The majority of these individuals will
remain asymptomatic, and even in areas where the Aedes aegypti mosquito is not prevalent,
the virus will continue to spread (albeit much more slowly) through sexual transmission. In areas
with active mosquito-borne Zika transmission, governments and local organizations will face
significant challenges controlling mosquito populations and informing the public of Zika risks,
particularly in economically disadvantaged regions with poor sanitation. Compounding the Zika
challenge will be the inability of scientists to bring a Zika vaccine to market by the end of 2017.
A growing number of governments will issue travel advisories about areas heavily affected by
Zika, which will reduce tourism receipts in a variety of countries. As a result, economic growth
will likely slow in tourism-dependent economies in Latin America and Southeast Asia.

Figure 3
Zika infections are concentrated in the Americas, but are spreading to Southeast Asia

Countries with active Zika infections

Sources: World Health Organization Zika Situation Report (November 2016); A.T.Kearney analysis

Year-Ahead Predictions 2017 8


Prediction #8
Virtual reality will proliferate at an unprecedented rate,
and not just for gamers.
Ever since a 1930s science fiction story included a set of virtual reality (VR) goggles, technologists
have predicted the forthcoming VR revolution. That revolution finally started to arrive in 2016.
With the release of Facebooks Oculus Rift and the HTC Vive, early adopters are experiencing
unprecedented levels of immersion. VR also has wide-ranging applications well beyond gaming.
It is already used to engineer new cars and complex machinery, conduct advanced training
simulations for military personnel and astronauts, and virtually simulate complicated surgeries
prior to the actual operation. Application also extends to schooling, with students taking
educational VR tours across space and time. And for retailers, VR is enabling virtual tours of
storefronts to consumers anywhere in the world. While these applications are today only in
limited use, that is about to change.

The application of VR will expand further in 2017. For example, Facebook will launch software that
optimizes VR for social purposes, with people meeting in VR chat rooms and forming relationships
as digital avatars. VR will also reach a much wider audience in the coming year. Prices on
high-end equipment will fall while these devices also yield increased power. Even more
important will be the spread of lower quality but cheaper VR headsets that utilize mobile
devices. Mobile technology brought gaming to previously unreached demographicsfor
example, women 18 years and older account for almost two times as many American gamers as
do boys 18 years and younger in recent years, a trend widely attributed to the rise of mobile
gaming. Similarly, mobiles influence on VR will bring in wider-ranging demographics to this
formerly niche technology in 2017. Customers will flock to products such as Samsungs Gear VR,
which allows users to simply insert their Samsung Galaxy smartphone into a headset to be taken
away into the virtual world of their choosing, and Googles recently launched Daydream View,
which has a cloth headset compatible with all Android smartphones. Developers are already
familiar with coding for Android, so an increasing number of VR-compatible programs will be
available for these headsets in a matter of months. As a result, sales of low-end VR headsets will
soar across age, gender, and geography. While 2016 may have been a breakthrough year for VR,
2017 will be the year that low-end mobile VR products top the lists of gadgets on holiday gift lists.

Year-Ahead Predictions 2017 9


Prediction #9
Global oil prices will remain below $60 per barrel.
Supply and demand factors have ushered in a period of sustained low oil prices. Global oil
prices hit a decade low of $29 per barrel in January 2016, rising slowly throughout the year to
reach a high of $50 in early June 2016still far below the peak of $154 in June 2008and
averaging only $43 throughout 2016. Slower global economic growthin China in particular
and improvements in energy efficiency have reduced global oil demand growth. On the supply
side, although security issues and natural disasters in Nigeria, Colombia, and Canada contributed
to temporary eases in the oil glut in mid-2016, global production and inventory largely rebounded
by the end of the year. The most dramatic contribution to global oil production in recent years
has been US shale producers, who have been more resilient than expected in the face of a
multiyear strategy by the Organization of the Petroleum Exporting Countries (OPEC) to push
them out of the market through sustained lower prices. OPEC production increased to near
record levels in October 2016, further contributing to global oversupply. As a consequence of
all of these factors, global supply outpaced demand by 0.8 million barrels per day in 2016. But
after months of negotiation, in late November 2016 OPEC members agreed to a production cut
of 4.5 percent, or 1.2 million barrels per day.

In 2017, this resource slump cycle will continue, preventing oil from exceeding $60 per barrel
(see figure 4). This is true despite the OPEC cuts, which are expected to come into force at the
beginning of the year, because oil markets will remain well supplied due to a variety of factors.
Most importantly, OPECs new target is higher than its 2015 production levels. Saudi Arabia
agreed to make the largest cut, but this cut will be measured against the historically high levels
at which it was producing oil in 2016. In addition, certain OPEC member states have a poor track
record of compliance with agreed-to cuts. While Russia and some other non-OPEC members
have also agreed to cut production somewhat, their willingness to adhere to these cuts is
questionable. In the United States, the Trump administration will try to spur additional energy
production by reducing regulations and opening more federal land to drilling. Any price rises
brought on by OPEC restraint will also incentivize additional US production, particularly among
shale producers as they can scale up quickly. In addition to a strong supply picture, oil demand
growth globally will continue to be weak. In particular, China and Indias oil demand will
continue the deceleration that began in 2016, and developed countries demand will also
decrease as a result of both low economic growth and increased energy efficiency.

Figure 4
The global resource slump cycle will continue in 2017

Global oil price ($ per barrel)


120
Stable, low prices Super cycle Slump
100
cycle
80
60
40
20
0
1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17f

Note: Oil price is the average of Brent, West Texas Intermediate, and Dubai prices.
Sources: International Monetary Fund World Economic Outlook October 2015; A.T.Kearney analysis

Year-Ahead Predictions 2017 10


Prediction #10
The new space race will accelerate.
Space exploration is entering a new golden era. The world is set to repeat the rapid progress in
space exploration in the mid-20th century, beginning with the launch of Sputnik 1 into orbit in 1957
and culminating with the Apollo 11 moon landing in 1969. While US government funding for space
exploration has declined in recent years, an increasing number of countries are making dramatic
strides in the space race, including China, India, Japan, and the European Union, among others.
Some specific achievements in recent years have generated new scientific discoveries and public
interest in space exploration. For instance, in 2014 the European Space Agencys Rosetta mission
was the first to land a probe on a comet. And in 2016, China launched its Tiangong-2 space lab
and then sent two astronauts to conduct experiments there, while India built on its expanding
space program by successfully launching a rocket with eight satellites into two different orbits.
It is not just government agencies that are making strides in space exploration. The private
sector is playing an increasingly important role, with Blue Origin, Moon Express, Planet, SpaceIL,
SpaceX, and Virgin Galactic among the companies leading the private space race.

In 2017, further daring space exploration projects will generate even more public excitement
and private and government investment in this sector. Moon Express recently became the first
company to receive regulatory approval to land a probe on the moon, and it will attempt to do so
in late 2017. If it is successful, it will win the coveted $20 million Google Lunar XPRIZE competition.
Even if Moon Express fails in 2017, its attempt will be widely followed by government space
agencies, potential space sector investors, and the global publicgenerating more interest and
investment in this area. Also grabbing global attention will be the Cassini missions Grand
Finale, which will involve almost 10 months of daring maneuvers around and between Saturns
rings before it will burn up in Saturns atmosphere in September. China will also launch Change-5
in 2017, its first probe to visit the moon and subsequently return to earth with lunar samples.
Private investors will closely watch Deep Space Industries 2017 launch of its Prospector-X
mission to experiment with asteroid mining. And by the end of 2017, the United States will
once again develop the capacity to put humans into space with the maiden launch of SpaceXs
Dragon 2. All of this progress will set the stage for further space exploration in the coming
years, including the planned 2018 launch of the James Webb Space Telescope, a 17-country
collaboration for an unprecedentedly powerful telescope that will study the formation of
galaxies and stars, and Elon Musks ambitious plan to begin sending humans to Mars on
SpaceXs Interplanetary Transit System in 2024.
Year-Ahead Predictions 2017 11
Authors

Paul Laudicina
Chairman emeritus of A.T. Kearney and chairman of the Global Business Policy Council
Washington, D.C.
paul.laudicina@atkearney.com

Erik Peterson
Partner and managing director of the Global Business Policy Council
Washington, D.C.
erik.peterson@atkearney.com

The authors would like to thank Stephanie Hollinger, Courtney Rickert McCaffrey, and Terence Toland for their
valuable contributions to this report.

About the Global Business Policy Council

A.T. Kearneys Global Business Policy Council (GBPC), established in 1992, is dedicated to helping business and
government leaders worldwide anticipate and plan for the future. Through regular publications, strategic
advisory services (global foresight, boardroom briefings, scenario planning, and strategy), and world-class
global forums, the Council is committed to engaging in thoughtful discussion and analysis of the trends that
affect business and governments around the globe.

Year-Ahead Predictions 2017 12


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