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Global Trends 20152025

Divergence, Disruption,
and Innovation
Twelve key trends will shape the global outlook and
operating environment through 2025.

Global Trends 20152025: Divergence, Disruption, and Innovation 1


Executive Summary
Geopolitical realignment: Geopolitical instability is increasing, with near-term instability
concentrated in the Middle East, North Africa, and South Asia. The United States and China
compete for global influence across a range of areas, from cybersecurity affairs to territorial
disputes.

Continued global violent extremism: Terrorism has intensified sharply over recent years
in conflict areas and poses increasing risk to major economies around the world.

U.S. economic resurgence: The United States is increasingly the main engine of global
economic growth, thanks to its domestic oil and gas boom, an improved labor market,
continued rising consumer demand, and world-leading technology innovation.

Post-BRICS emerging markets: Global growth drivers are shifting toward the Pacific
Basin and seven new emerging markets that have the potential to perform strongly in the
coming years.

New resource slump cycle: Global supply and demand factors have ushered in a 13- to
15-year period of lower global commodity prices. While this slump may boost consumer
spending power, it will also create challenges for many resource-exporting countries.

Accelerating global climate change: As extreme weather events become more frequent,
the economic costs of climate change are growing. Melting ice in the Arctic is accelerating
sea level rises globally while opening up new shipping lanes and unlocking access to
natural resources.

Depopulation waves: Emerging markets will contend with outward migration and brain
drain, but rapid aging in developed markets will create the greatest depopulation challenges
with the most significant economic outcomes.

IT revolution 2.0: Emerging technologies will blur the line between real and virtual life and
lead to growing personalization of consumer goods and retail experiences.

Rise of the machines: The increasing technological sophistication and expanding presence
of smart devices, unmanned systems, and robots will reshape businesses and households.

Evolving artificial intelligence: Advancements in artificial intelligence are expanding oppor-


tunities for research and development, as well as business use cases, but are raising serious
questions about the future of labor and even of humanity itself.

Cyber insecurity: Growing cyber security issues will challenge governments and businesses
while simultaneously empowering and dislocating individual citizens.

Changing nature of power: Power is increasingly diffuse and fleeting. A leadership void is
complicating the ability to develop effective responses to mounting policy challenges.

Global Trends 20152025: Divergence, Disruption, and Innovation 1


Global Trends 20152025: Divergence, Disruption, and Innovation 2
Introduction
Global Trends 20152025 offers an analysis of the critical trends shaping our world today and in
the decade ahead. We have identified 12 macro trends that will play an outsize role in the current
and future operating environment for businesses, governments, and citizens around the globe.

In fulfilling its core mandate to help leaders anticipate and plan for the future, the A.T. Kearney
Global Business Policy Council (GBPC) continually scans the horizon for developments across
the global external strategic operating environment in the key dimensions of demography,
economy, environment, geopolitics, governance, resources, and technology. In assessing these
dimensions, the GBPC identifies those emerging trends that are likely to have the most signif-
icant implications for how businesses and governments operate over the next decade. Global
Trends 20152025 explores how each of these trends is evolving today and analyzes the one-,
five-, and 10-year outlooks in each case.

Global Trends 20152025 is meant for anyone who has an interest in anticipating and shaping the
future, but it is designed to be particularly relevant for business leaders and strategic planners.
The goal of Global Trends 20152025 is foremost to help leaders across sectors in questioning
their assumptions and developing greater agility in adapting to the futurewhatever it might
bring. As such, the GBPCs global trends analysis can help organizations to develop monitoring
systems for the evolution of trends that are especially germane to their industry, mitigate
downside risks, seize opportunities, and generally inform their long-term strategies.

Global Trends 20152025: Divergence, Disruption, and Innovation 3


1. Geopolitical Realignment
The continued fragmentation of global power and the rise of new
challenges have combined to create an increasingly volatile, uncertain,
complex, and ambiguous (VUCA) world.

Global economic and political power are increasingly diffuse, compli-


cating leadership efforts within the international system. In the years
since the Global Financial Crisis, the United States and other Western powers have receded from
the global stage for reasons both proximate (domestic economic focus) and remote (decreasing
voter support for assertive international engagement). Simultaneously, rising regional powers
particularly large emerging marketshave increased their political influence in line with growing
global economic strength (see figure 1). Despite recent forecasts of lower growth in emerging
markets in the near term from the International Monetary Fund (IMF), World Bank, and others,
emerging economies share of global gross domestic product (GDP) will continue to rise, from
43 percent in 2000 to 61 percent in 2020. The IMF predicts that China, India, Indonesia, Brazil,
and Russia will be among the 10 largest global economies by 2020, ahead of countries such as
the United Kingdom and France when measured in GDP at purchasing power parity.

These changing power dynamics are decreasing the effectiveness of global political institu-
tions. Since their birth at the close of the Second World War, these institutions have transformed
little and are failing to accommodate shifting power dynamics. As an example, the United States
maintains its long-standing veto power at the IMF by controlling 16.74 percent of voting rights,
while Chinathe worlds second largest economycontrols only 3.81 percent. The United
States has yet to ratify the agreed-to 2008 quota reform that more accurately reflects emerging

Figure 1
Global economic power is shifting toward emerging markets

Share of global GDP


%
80

70

60

50

40

30

Developed markets
20
Emerging and frontier markets

10

0
2000 2002 2004 2006 2008 2010 2012 2014 2016f 2018f 2020f

Note: GDP is measured at purchasing power parity.


Sources: International Monetary Fund World Economic Outlook October 2015, A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 4


markets increased role in the global economy. In response to the unchanged global power
structures, rising powers have created new institutions such as the New Development Bank and
the Asian Infrastructure Investment Bank. Regional economic and political institutions, such as
the ASEAN Economic Community in Southeast Asia, are also becoming more prevalent in a
variety of emerging market regions.

Another key indicator of a global system in transition, global arms spending, has grown in recent
years after decades of decline following the conclusion of the Cold War, and shifts in the regional
breakdown reflect changing perceptions of threat. While North Americain particular the United
Statescontinues to dominate global arms spending, the global military balance is changing.
In recent years, spending has grown most sharply in Russia and Central Asia. Middle Eastern
countries arms spending has risen by a dramatic 73 percent since 2000, now accounting for
10 percent of the world total. East Asias share of global arms spending has risen by 6 percentage
points from 2000 to 2014, and it now represents 19 percent of the global total. Given the events
of recent yearsincluding the Ukraine crisis, the Arab Spring, and territorial tensions in the
South China Seait is hardly surprising that countries in these regions are increasing their
military spending. In contrast, despite rising tensions between Russia and North Atlantic Treaty
Organization (NATO) members, Europe was the only region to experience an absolute decline
in military spending over this period, dropping to just 17 percent of the global total in 2014.

Todays most pressing issues, including security concerns, are global in nature and require
coordinated solutions. However, cooperation has proved increasingly difficult in the current
international environment. For instance, the international security architecture has been slow to
address global terrorism and transnational organized crime. Moreover, lack of trust in govern-
ments and businesses complicates international efforts to prevent cyber threats. On the other
hand, the 2014 Lima Accord to reduce global carbon emissions and growing U.S.-China cooper-
ation on this issue are promising developments for world climate change negotiationsand a
welcome example of global cooperation, albeit limited in scope thus far.

Figure 2
Outlook for geopolitical realignment

One year Five years Ten years

Europe turns inward to grapple Uncertainty and volatility reign Revamped multilateral institutions
with internal political challenges in key regions, particularly in the begin to deal with the multiplicity
and the migrant crisis Middle East, East Asia, and Eurasia of threats demanding collective
action
Tensions persist between Russia Regional institutions grow in
and the West stature, increasing pressure on Regional trade and economic
the IMF and the UN to adapt to integration increases, as bilateral
U.S.-Sino relations remain strained
shifts in economic power and regional trade agreements
over maritime claims and cyber
continue to grow
activities

Business implications: The return of geopolitics creates greater uncertainty in the business environment. Heightened
nationalism leads to the protection of key industries and sectors around the world. Increased country tensions over air and
sea transportation channelsparticularly in the South China Sea, Black Sea, and Arctic Oceancreate security risks for
global logistics.

Notes: IMF is International Monetary Fund. UN is United Nations.


Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 5


2. Continued Global Violent Extremism
The attacks of September 11, 2001, symbolized for many in the West
the pinnacle of the global terrorist threat. Yet the reality is that the
geography of violent extremism has spread very significantly over the
past decade, with active fronts in Syria, Iraq, Yemen, Lebanon, Somalia,
Libya, Mali, Nigeria, Afghanistan, and Pakistan, as well as smaller threat
cells around the rest of the world, including within all G20 nations. Data
from the U.S.-based National Consortium for the Study of Terrorism and Responses to Terrorism
shows a more than sixfold increase in the number of global terror attacks, from just 2,750
attacks in 2006 to more than 16,000 in 2014 (see figure 3).

The embrace of extremist ideologies appears to be driven by a diverse range of issues and
emotions, but it is still not fully understood. Factors contributing to the rise in violent extremism
run the gamut from economic marginalization and unaccountable political systems, to boredom
and a sense that traditional values are being threatened. Comprised of individuals that feel
excluded from modern global society and economic opportunity in one way or another, extremist
groups push back by adopting fundamentalist religious or cultural principles. This is not just
a phenomenon in the arc of instability in the Middle East and Africa, as the United Nations
Security Council estimates that fighters in these extremist groups represent more than 100
nationalities.

Globalization magnifies the threat, as violent networks use legitimate technologies to advertise,
raise funds, and recruit. Social media can be used to attract new members and publicize attacks.
For instance, the self-proclaimed Islamic State (ISIS) produces sophisticated propaganda

Figure 3
Terror attacks are on the rise around the world

Terror attacks
Annual count by region

2006 2,750
Asia and Pacific
2007 3,240
Middle East and North Africa

2008 4,789 Sub-Saharan Africa

Europe and Eurasia


2009 4,724
Americas

2010 4,819

2011 5,065

2012 8,480

2013 11,952

2014 16,818

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

Sources: Global Terrorism Database of the National Consortium for the Study of Terrorism and Responses to Terrorism (START); A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 6


videos, and its supporters have at least 46,000 Twitter accounts. International air travel networks,
visa-free travel areas, and the reluctance of some governments to share passengers personal
data or rigorously monitor border crossings can hamper efforts to detect people traveling to
join extremist groups. And international shipping routes are utilized in illicit fundraising activ-
ities such as drug trafficking, while global money transfer networks (often used for remittances)
can also channel funds to these groups.

Government weakness in some areas provides an opening for violent extremist groups to
actually rule territory, which challenges the stability of the international system. Two factors in
particular create an opening for extremist groups to defy governments: low levels of government
legitimacy and inadequate public service provision. Based on the 2015 Fragile States Index,
countries such as Afghanistan, Somalia, and Nigeria are at particularly high risk. Furthermore,
from Iraq to Libya, and from Syria to Yemen, the international communitys actions have often
done little to improve the situation on the ground.

Government policy will continue to be stressed by the conflict between identifying threats
and protecting citizens rights and expectations of privacy. This tension is more acute now due
to three factors. First, big data provides law enforcement agencies with more information to
analyze, but it can also expose the private information of law-abiding citizens to government
monitors. Moreover, improved awareness of government policy, due to revelations such as
those of former U.S. National Security Agency (NSA) contractor Edward Snowden, is under-
scoring the growing tension between privacy and security in an age of big data. Finally, the
transnational nature of global extremist networks further complicates policy, raising questions
about intergovernmental coordination and the rights of foreign nationals. A recent Pew Research
Center survey highlights this tension. While almost two-thirds of respondents globally found it
acceptable for the U.S. government to monitor terrorist suspects, only 12 percent thought it
was acceptable for the U.S. government to monitor citizens of their own country.

Figure 4
Outlook for continued global violent extremism

One year Five years Ten years

Extremism shows no signs of Governments and their inter- Several leading violent extremist
abating and continues to attract national partners win back control groups have overextended them-
new followers of most of the territory held by selves and are losing the capacity
violent extremists to carry out attacks
Boko Haram and Al-Shabaab
perpetrate large attacks in cities Extremist groups shift strategy to Extremist groups decentralized
farther from their home bases utilize foreign recruits to carry out nature leads them to splinter
attacks when they return to their into smaller, more localized groups
ISIS retains control of large swaths
home countries
of Syria and Iraq

Business implications: Heightened violent extremism disrupts business operations and potentially harms growth prospects.
Larger and more frequent attacks on targets in developed markets reduce consumer confidence and divert government
spending toward heightened security. Tension between technology companies, governments, and consumers grows, with
increasing concerns about privacy and civil liberties.

Note: ISIS refers to the group that calls itself the Islamic State.
Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 7


3. U.S. Economic Resurgence
The U.S. economy is expected to lead large developed markets in
near-term growth, helping to propel the global economy. Recent IMF
and World Bank forecasts place U.S. GDP growth at around 2.5 to 3.0
percent in 2015. The American economy is projected to continue to
grow at an annual average rate of more than 2 percent through 2020,
although there could be downside risks to this forecast in the short
term due to sluggish economies in other regions of the world. The U.S. economic resurgence
is spurred by a host of factors, including rising consumer demand, the shale oil and gas boom,
financial sector stability, private sector growth, and an improved labor market.

The stronger labor market is evident in falling unemployment levels and significant productivity
gains from technology. The U.S. unemployment rate hit a high of 10 percent in October 2009, but
has since fallen to 5.1 percent as of September 2015, and the economy is approaching full employ-
ment. However, about 27 percent of those who remain unemployed are long-term unemployed,
meaning that they have been without work for 27 weeks or more. In addition, the labor market
still faces the challenge of stagnant wage growth. Moreover, an estimated 47 percent of U.S.
jobs are at risk of computerization as a result of the substitution of capital for labor, highlighting
the long-standing trend of technology pressures on skilled middle-class workers.

The impact of lower global oil prices on the United States, now the worlds largest oil producer,
is complicated, but on balance it is positive. Although the drop in global oil prices led to a
dramatic 46 percent reduction in the number of U.S. oil rigs in operation from October 2014
to March 2015, the wells that remain active are those with the lowest operating costs and the
highest productivity. In addition, drilling services costs continue to fall, enabling U.S. oil
producers to operate in a lower-price environment. As a result, domestic oil production is
expected to average 9.3 million barrels per day through 2016, and then to resume growing

Figure 5
The U.S. dollar has appreciated rapidly since July 2014

U.S. dollar trade-weighted index


Index (January 1997=100)

130

120

110

100

90

80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sources: U.S. Federal Reserve; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 8


again. Additionally, lower oil prices helped push The Conference Boards Consumer Confidence
Index above 100 in March 2015, the highest level since the 20082009 financial crisis, presaging
an increase in consumer spending.

U.S. economic resurgence is causing the dollar to appreciate against other major currencies,
which has both positive and negative effects for the economy. The U.S. dollar has increased in
value by roughly 11 percent against major currencies on a trade-weighted basis since July 2014
(see figure 5 on page 8). A key driver behind the rise of the dollar is higher economic growth
in the United States compared to many developed markets and some emerging markets.
Furthermore, as investors seek both safety and higher yields, there are increasing financial
inflows to the United States. While the dollar appreciation makes U.S. exports less competitive
abroad, imported consumer goods are also less expensive, which makes consumers feel better
off and holds down inflation. In contrast, dollar appreciation could negatively affect emerging
marketsparticularly those where dollar-denominated borrowing has soared in recent years.

U.S. economic resurgence is causing the


dollar to appreciate, with both positive and
negative effects for the economy.
U.S. economic resurgence will help the global economy to grow and could push the United States
to be more active on the world stage. In a recent Gallup poll conducted in the United States, half
of respondents said that it is important for the U.S. to be No. 1 in the world economicallyan
increase of 11 percentage points since 2007. American economic strength could bolster the
self-confidence of the American people and government and even spark a resurgence of global
support for free market capitalism.

Figure 6
Outlook for U.S. economic resurgence

One year Five years Ten years

The U.S. economy continues The U.S. economy, led by its The U.S. oil and gas sector
to recover, consolidating gains innovation sector, is one of the continues to be a source of
in the labor and housing markets primary drivers of global growth strength, but faces increasing
as consumer spending increases global competition from solar
U.S. consumer confidence
and other renewables
Wage stagnation and income increases thanks to rising wages
inequality remain front of mind and a modest decrease in U.S. economic strength propels
for many Americans, despite inequality higher growth in other developed
recovery and emerging markets

Business implications: A more vigorous U.S. economy opens new opportunities to domestic and foreign businesses in the
American market. Firms find investment opportunities in the manufacturing sector as cheap energy, continued high domestic
demand, and the innovation economy intersect. A stronger U.S. dollar lowers the cost of imported business inputs, but
erodes export competitiveness.

Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 9


4. Post-BRICS Emerging Markets
Historically, economic growth in emerging markets has been volatile,
with periods of both rapid expansion and crisis. After the Latin
American debt crisis in the early 1980s and the Asian financial crisis in
the late 1990s, economic growth in emerging markets rapidly picked
up in the 2000s, averaging 7 percent from 2000 to 2007. Much of the
growth was spurred by favorable external conditions, including high
commodity prices, growing global trade, and cheap financing. While emerging markets
bounced back quickly from the 20082009 financial crisis, more than 70 percent of emerging
markets have experienced decelerating growth from 2010 to 2014, mainly driven by globally
weaker external demand and inadequate policy responses to the changing global environment.
Despite this volatility, emerging markets share of global GDP at purchasing power parity has
risen steadily, from just 41 percent in 1995 to 57 percent in 2015.

The BRICS (Brazil, Russia, India, China, and South Africa) are no longer the drivers of the global
economy, though, as they face both structural and cyclical growth constraints (see figure 7).
With growth in China slowing, Indias economic growth is forecast to outstrip Chinas. However,
unleashing Indias economic potential is partly contingent upon implementation of Prime Minister
Narendra Modis proposed reform agenda. At the same time, a critical uncertainty is Chinas
ability to rebalance its economy from investment- to consumption-led growth. Geopolitical
tensions, sanctions, lower oil prices, and structural weaknesses will continue to hinder Russias
economic prospects, while falling commodity prices will also hurt Brazil and South Africa.

On the other hand, GBPC analysis has revealed that a new wave of global growth will come
from a set of mostly smaller emerging marketsthe 2020Sevenconsisting of Chile, China,
Malaysia, Mexico, Peru, the Philippines, and Poland. This is due to their strength across a range
of economic factors, as well as the size and quality of their labor forces, the quality of their
infrastructure, their regulatory environments, and the status of their structural reform agendas.

Figure 7
The 2020Seven and Sub-Saharan Africa overtake the BRICS as the drivers of
emerging market growth

Real GDP growth


%
9
Emerging markets BRICS
8
2020Seven Sub-Saharan Africa
7

3
2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f

Notes: The 2020Seven are China, Malaysia, Chile, Poland, Peru, Mexico, and the Philippines. The BRICS are Brazil, Russia, India, China, and South Africa.
Sources: Economist Intelligence Unit; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 10


As an example, Malaysias business-friendly regulatory environment and relatively high per-capita
income provide growth opportunities. Its membership in the Association of Southeast Asian
Nations (ASEAN) and Trans-Pacific Partnership (TPP) negotiations also positions Malaysia well
for growth. These seven economies are diverse in terms of size, industry composition, geography,
and many other factors. And while they are by no means a sure bet, if each is able to meet its
unique policy challenges, these seven markets are positioned to outperform their peers and
play a greater role in the world economy through 2020.

Policies and reforms to boost competitive-


ness are essential for emerging markets to
achieve their full potential.
Several Sub-Saharan Africa markets also have the potential to drive growth in the coming years,
thanks to young and urbanizing demographic profiles, natural resource endowments, emerging
middle classes, growth in manufacturing, sound fiscal and monetary policies, and increased
political stability. The IMF forecasts that countries such as Ethiopia, Cte dIvoire, Tanzania,
Kenya, and Zambia will experience annual economic growth exceeding 6 percent on average
from 2015 to 2020. And with a population of 178 million in 2015, Nigeria will continue to offer
opportunities to retailers, consumer goods firms, and other businesses.

Realizing emerging markets growth potential will depend on macroeconomic policies and
reforms to boost competitiveness. Policy challenges and priorities for emerging market govern-
ments include fostering inclusive growth, raising productivity, and investing in infrastructure,
among many others. The policy mix will be specific to each market, but necessary reforms will
help to attract investment, create jobs, and stimulate economic growth.

Figure 8
Outlook for post-BRICS emerging markets

One year Five years Ten years

Countries with heterodox Following five years of growth and The Pacific Rim is a prominent
economic policies (Venezuela) reform, the 2020Seven markets locus of trade and investment,
or high levels of geopolitical risk provide many of the most interest- led by large emerging markets
(Russia) are hardest hit by ing opportunities for emerging in Asia and Latin America
economic slowdown market investment
Most emerging markets are more
Emerging markets that have High-performing Sub-Saharan open to investment and integrated
begun a reform process (India) African markets begin transition into the global economy
begin to grow more robustly from frontier to emerging markets

Business implications: Emerging markets continue to offer a variety of business opportunities, but understanding their
diversity is critical. Despite slower emerging market growth overall, many markets still grow robustly and offer continued
opportunities to sell to the emerging middle classes. Businesses with a diverse, globalized strategy are better placed to
weather downturns in any single market.

Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 11


5. New Resource Slump Cycle
The resource super-cycle of the early 2000s, in which the global prices
for energy and minerals hit 50-year highs and agriculture prices hit a
30-year record, has ended. A new global resource slump cycle began
in 2014, characterized by a dramatic oil price drop of more than 50
percent from mid-June to the end of the year, falling to about $50 per
barrel. According to the IMFs World Commodity Price indexes, energy
prices have fallen the most sharply, at 27 percent, but the prices of metals and food have also
dropped by 10 percent or more in the first half of 2015 compared to their average values in 2014.

Both supply and demand factors have contributed to the steep decline in global commodity
prices. On the supply side, rising unconventional oil production enabled by new technologies
(particularly the U.S. shale revolution) and increasing production of biofuels have contributed to
excess resources. Despite lower prices, Organization of the Petroleum Exporting Countries
(OPEC) members have maintained sustained production levels, further augmenting global
supply. On the demand side, Chinas slowing economic growth has meant a double-digit
decline in its import commodity growth. There also has been an increase in energy efficiency
and a decline in the oil intensity of energy consumption, especially in Organisation for
Economic Co-operation and Development (OECD) economies.

These underlying dynamics mean that the resource slump cycle will continue into the fore-
seeable future. Recent forecasts from the IMF and World Bank predict that the global resource
slump cycle will continue through at least 2020, with the oil price forecast to rise to just over $60
per barrel by 2020 (see figure 9). Other commodities are similarly affected. For instance, the IMF
forecasts that the price of Australian coal will remain about $70 per metric ton through 2020,
after reaching highs of more than $100 between 2010 and 2012. Moreover, due to weak global
economic growth and increased energy efficiency, global oil demand has only risen by 7 percent
since 2009. On the other hand, global reserves have grown by 23 percent since 2009, fueled by
increased investment as a result of rising prices from the last super-cycle. Excess global reserves

Figure 9
The global resource slump will continue through at least 2020

Global oil price 


$ per barrel
120
Stable, low prices Super-cycle Slump cycle
100

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 15f 16f 17f 18f 19f 20f

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

Global Trends 20152025: Divergence, Disruption, and Innovation 12


together with sluggish demand growth imply that the world may be at the beginning of a long
period of lower prices. Past resource cycles have continued on average for 13 to 15 years, because
it takes time for supply infrastructure to realign with demand dynamics. Therefore, the current
mismatch in demand and supply is likely to persist until 20272029.

During the resource slump cycle, investment in hydrocarbon exploration and new production sites
will slow. More than $100 billion worth of oil projects in the first five months of 2015 were slowed,
delayed, or canceled, with Canada, Australia, and Norway most severely affected. On the other
hand, renewable energy is a wild card. It is expected to continue to attract steady investment
despite lower priceslikely as a result of less costly technologies, government regulations, and
consumer preferences for cleaner power (particularly in developed markets). As a result, the
International Energy Agency (IEA) forecasts that renewable energy electricity capacity will rise by
51 percent from 2013 to 2020, reflecting increasing competitiveness and attractiveness.

The resource slump cycle will create economic headwinds for commodity export-dependent
countries, compounding other political and structural issues. Countries that rely heavily on
resource exports will suffer economicallymost notably, Russia, Venezuela, Iran, Iraq, Libya,
Nigeria, Saudi Arabia, and minerals producers in South America and Sub-Saharan Africaand
some could experience economic and resulting political crises in the coming years.

Overall, though, the global economy is expected to benefit from lower oil and commodity
prices due to two factors. First, lower input costs will lead to higher growth in industries such as
petrochemicals, paper, and aluminum. Second, household real income will increase because of
lower energy prices, suggesting that households worldwide will have more disposable income
to spend on items other than fuel and food, raising consumer demand. Furthermore, declining
oil prices could also lower inflation expectations, with central banks responding with expan-
sionary monetary policy to spur economic activity. In the past, a 30 percent decline in the price
of oil has led to a 0.5 percent increase in global growth in the medium term.

Figure 10
Outlook for new resource slump cycle

One year Five years Ten years

Lower commodity prices help Oil demand is structurally lower Businesses, governments, and
stabilize the global economy, in developed markets and China consumers have internalized
as growth begins to accelerate due to uptake of energy-efficient OPECs loss of power over global
technologies and renewables energy supplies
While the United States benefits
from its oil renaissance and higher With unconventional oil producers Markets with large mining and
consumer spending, the econo- continuing to lower costs, OPEC minerals sectors see stronger
mies of some oil exporters start finally cuts output to stabilize growth as demand accelerates
to crack global oil prices

Business implications: Despite decreased revenues, many business opportunities still exist in natural resources.
Divestments and M&As in the oil, gas, and mining sectors are likely to increase. Companies with more efficient natural
resource extraction techniques, such as autonomous mine technologies and predictive analytics, will also have
opportunities, giving a possible advantage to international oil companies.

Note: OPEC is the Organization of the Petroleum Exporting Countries.


Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 13


6. Accelerating Global Climate Change
Greenhouse gases in the atmosphere are at the highest level in
recorded history, which has caused the earth to experience warmer
average temperatures and higher sea level rises. According to the U.S.
National Air and Space Administration (NASA) Goddard Institute for
Space Studies, global temperatures rose approximately 0.85 degrees
Celsius (1.4 degrees Fahrenheit) from 1880 to 2012. Sea levels have
risen at an average rate of 1.7 millimeters (0.07 inches) annually since the early 20th century, but
this rate has increased in recent yearsaveraging an estimated 3.2 millimeters (0.13 inches)
annually from 1993 to 2010, according to the Intergovernmental Panel on Climate Change
(IPCC)as temperatures have risen more rapidly.

Climate change will disrupt global food production and foment the spread of tropical diseases.
Among the top five cereal producersChina, the United States, India, Brazil, and Russiadroughts
have decreased global cereal production by more than 6 percent in recent years. This volatility
has negative implications for the affordability of food, which could cause second-order problems
such as social unrest. Higher temperatures have also enabled tropical diseases to spread far
outside of the tropics, with malaria and dengue appearing more frequently in new regions such
as Europe and North America, creating public health challenges.

The frequency and severity of extreme weather events are also increasing around the world,
damaging economic prospects. More than 7,500 incidents of floods, storms, droughts, and
extreme temperatures occurred globally between 1980 and 2012. Extreme weather disrupts
business operations and imposes heavy costs. For instance, Typhoon Haiyan, one of the largest
recorded storms, hit the Philippines in November 2013, leaving an estimated $12.7 billion in
damages and lossesequivalent to approximately 5 percent of Philippine GDP that year.

Figure 11
A growing number of countries and megacities are at heightened risk of climate change

Countries at high risk


Overall
Moscow
Extreme weather
Sea level rise
Paris
Beijing
Agricultural loss
Los Angeles New York
Istanbul Tianjin
Tokyo
Delhi Shanghai Osaka
Mexico City Cairo Karachi
Chongqing Megacities
Dhaka Guangzhou
Kolkata High risk
Mumbai Manila
Low risk
Lagos

Kinshasa

Rio de Janeiro
So Paulo

Buenos Aires

Note: Countries at high risk are the 25 at greatest risk in each category. If a country ranks in the top 25 on overall risk, its ranking in underlying categories
is not considered.
Sources: IMF World Economic Outlook, UN Population Division, Center for Global Development; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 14


According to the United Nations Development Programme (UNDP), over the past two decades,
disasters have affected more than 4.4 billion people and cost the global economy at least
$2 trillion.

The IPCC estimates that a 2.5 degree Celsius (4.5 degrees Fahrenheit) global mean temperature
rise may lead to a loss of 0.22.0 percent of GDP. This aggregation hides large differences in
impact between and within countries, though. For instance, certain countries and megacities
are at heightened risk of climate change impacts, with China and India as the two countries at
greatest risk from climate change (see figure 11 on page 14). Fully 17 of the worlds 25 largest
urban areas, which account for more than 7 percent of global GDP and 4 percent of global
population, are in coastal areas that are at increased risk from storms and flooding. Worryingly,
many of the areas that face the highest risks from climate change are those with limited
resources to build resiliency and respond to adverse shocks.

Climate change is affecting the Arctic more profoundly than any other region of the world,
with sweeping global implications. A warming Arctic causes sea levels to rise even more and
releases additional carbon into the atmosphere, further accelerating global climate change.
But as the polar ice caps continue to melt, the Arctic is becoming more viable as both a desti-
nation and a transshipping passageway. In addition, access to the regions natural resources,
including minerals, rare earths, and vast amounts of oil and gas, will improve. However, geopo-
litical competition for sovereign rights in the Arctic will complicate the business landscape and
create regulatory uncertainty.

After decades of no substantial progress on global climate change negotiations, almost 200
countries agreed to the Lima Accord in December 2014the first time that all participating nations
agreed to reduce greenhouse gas emissions. The G7 also committed at their May 2015 meeting in
Schloss Elmau, Germany, to cut greenhouse gas emissions by the upper end of a range between
40 and 70 percent of 2010 levels by 2050. Although these agreements are important steps forward
on international policy coordination, it remains to be seen how effective they will be.

Figure 12
Outlook for accelerating global climate change

One year Five years Ten years

Policy makers congratulate Stumbling blocks arise as national Reliance on fossil fuels continues
themselves for reaching a governments try to translate the and greenhouse gas emissions
comprehensive international Paris agreement into national persist at unsustainable levels, but
climate change accord in Paris policies use of more energy-efficient
processes and appliances is
Meanwhile, El Nio fuels a record Summer ice cover in the Arctic
increasing
storm season in the Northern reaches new lows, prompting
Hemisphereparticularly in the increased use of shipping lanes The economic and human toll of
Pacific and natural resource exploration climate change continues to rise

Business implications: Greater uncertainty around weather patterns disrupts supply chains and changes consumption
patterns. More frequent extreme weather events raise the costs for businesses to insure their properties and production
facilities. Consumers prefer businesses that are actively engaged in mitigating climate change, creating an opportunity
for business leaders to build their reputation in that regard.

Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 15


7. Depopulation Waves
As global population growth slows, some countries populations
are already shrinking and others are on track to join them. Based on
estimates from the United Nations World Population Prospects, global
population growth is decelerating, from an annual average of 1.8
percent in the second half of the 20th century to just 1.1 percent in the
20002025 period (see figure 13). Countries in Europe and East Asia are
hardest hit, as population growth becomes negative in many cases. The three main drivers of
depopulation are aging, international migration, and high mortality and morbidity rates.

Population aging is an increasingly global phenomenon, but developed markets are most
affected in the near to medium term. The super-aged economiesmarkets in which more than
20 percent of the population is above the age of 65by 2025 will include many large developed
markets such as Japan, Germany, France, and Canada. Emerging markets are not immune to
aging, as key countries are transitioning out of the demographic dividend phase in which the
prime working-age cohort temporarily grows more rapidly than the total population, freeing up
resources for investment and fostering higher economic growth. Working-age populations in
China, Thailand, Russia, and Poland, for instance, will decline through 2025, with Russia experi-
encing the most dramatic drop, from 72 percent of the population being working aged in 2010
to just 64 percent in 2025.

International migration is another key depopulation driver, with people moving away from conflict
zones and places with fewer economic opportunities (such as South Asia, Central America and
the Caribbean, and Western Africa) to markets with greater stability and economic opportunities

Figure 13
Europe and East Asia are seeing the steepest declines in population growth

Population growth
%
1.5

1.0
World

United
0.5 Kingdom

South Korea
China

0.0 Thailand
Germany
Russia
Japan
0.5
200005 200510 201015f 201520f 202025f

Sources: United Nations World Population Prospects: The 2015 Revision; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 16


(such as North America, Western Europe, and Australia). From 2015 to 2025, for instance, South
Asia is forecast to lose a massive 10 million migrants in net. Brain drain will thus challenge a
significant number of emerging markets. Furthermore, a dramatic migration from rural to urban
areas is underway worldwide, decimating towns and villages. Although this can actually help to
reduce rural poverty in emerging markets, it creates new challenges for servicing the urban poor
and is likely to reduce government focus on rural areas. In developed markets, continued rural-to-
urban migration is leaving many smaller towns with blighted infrastructure and without the
workers needed to sustain those communities.

Finally, high mortality rates drive depopulation in some countries, while chronic disease burdens
reduce labor productivity in others. The majority of markets in which mortality rates are high
and thus life expectancy is loware in Sub-Saharan Africa. High mortality rates typically corre-
spond with low-skilled workforces and low economic growth rates. Morbidity, on the other hand,
affects many developed countries as a result of chronic diseases such as diabetes. The rate of
such diseases is also rising in a large number of emerging markets. According to the World Health
Organization, the average life expectancy is 71 years globally, but healthy life expectancytaking
into account the average number of years that a person can live in full healthis only 62 years.
Such chronic disease burdens reduce worker productivity due to absences, and skew consumer
and government spending toward the healthcare sector.

Depopulation presents a range of challenges that are likely to hinder economic growth. A key
impact on business is labor shortages, which drive up the wages that employers must pay to
attract workers. Another impact on business is weaker consumer demand due to fewer house-
holds and consumers. With Japans shrinking population, household consumption has averaged
only 1 percent annual growth since 2005. Depopulation also means lower tax revenue, poten-
tially leading to reductions in investment in infrastructure, education, and other government
services. Unless governments can address these challenges, their effect is to lower a depopu-
lating countrys economic growthboth now and in the future.

Figure 14
Outlook for depopulation waves

One year Five years Ten years

Large numbers of immigrants Many super-aged countries As Chinas working age


continue to flow into the United in Western Europe raise population continues to decline,
States from Central America, and retirement ages and actively Beijing dramatically shifts its
into Europe from Africa and the seek young migrants to fill immigration system and adopts
Middle East gaps in their aging workforces pronatalist policies

Debate about sustainable Healthcare enjoys substantial The relative size and power of
retirement and old-age benefits growth in both developed European and Northeast Asian
continues in developed markets and large emerging markets economies continues to diminish

Business implications: Smaller populations (in markets with aging populations and a lack of immigrants) strain government
finances, weaken consumer demand, and dampen economic growth prospects. Governments enact labor reforms, such as
parental leave and flexible work policies, that affect the way businesses attract and retain workers. Consumer demand and
economic growth will be lower in markets with aging population and few immigrants, providing fewer opportunities for
business growth.

Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 17


8. IT Revolution 2.0
Current trends in IT will disrupt regulation in various sectors and
challenge traditional business models. For instance, technology
companiesespecially network orchestrators or platform economy
creatorshave higher valuations than traditional firms, with price-to-
revenue ratios much higher than other types of firms including
technology creators, service providers, and asset builders (see figure
15). Network orchestrators make use of mobile labor pools and assets that are currently under-
utilized without having to make large investments of their own in these assets. As an example,
Airbnb bookings are on pace to triple in the next year, outpacing those of the largest hotel
chains in the worldsuch as Hilton and Marriottby as early as late 2016. With the new sharing
economy, workers formerly displaced by advancing technology now have an opportunity to
reenter the workforce. And since collaborative consumption forms the basis of the sharing
economy, it is likely to become increasingly favored as younger generations dominate the
workforce globally.

Advances in data generation, storage, and analysis will allow nearly everything to be person-
alized, from media to advertising to medicine. For instance, the quantified self movement has
allowed for personalized tracking through consumer wearables, creating a new market for these
goods and the data they generate. These shifts in IT toward usability, mobility, and sociability
will affect how consumers interact with one another and with businesses, potentially disrupting
established business models.

Figure 15
Technology companies have higher valuations than traditional firms

Price-to-revenue ratio
10

8.2
8

6
4.8

4
2.6
2.0
2

0
Asset builder Service Technology Network
provider creator orchestrator

Ford Accenture Microsoft Uber


Examples

Walmart JPMorgan Oracle Airbnb


FedEx Chase Amgen TripAdvisor
eBay

Note: Based on 2013 data for S&P 500 companies


Sources: Harvard Business Review; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 18


The eldercare and healthcare sectors are particularly likely to revolutionize, harnessing robotics
and advanced analytics. The global population is aging rapidly, with a forecast 5.6 percentage
point increase in the share of the population aged 60 or over from 1990 to 2025. The aging
population creates the opportunity for new technologies to serve a growing consumer segment.
As more elderly people live alone, robotics and wearables will become an increasingly vital way to
monitor and care for them remotely and more cost effectively. In fact, the medical robot systems
market is estimated to grow at a 16.1 percent compound annual rate through 2018. The United
States is currently the worlds biggest user and developer of medical robots, but growth in Asian
marketsled by South Koreais expected to outpace growth in the United States and Europe.

The top global companies will increasingly be dominated by IT firms and those in other sectors
that have weathered digital destruction. According to A.T. Kearneys 2015 Views from the
C-Suite, technology is a central focus of global business executives, who see it as both a
challenge and an opportunity, especially for cloud computing, big data, and mobile technology.
Successful innovators are those companies that effectively leverage IT across a range of sectors
and activities. For instance, Siemens innovative manufacturing products use sensors, machine-
to-machine communicationmore commonly known as the Internet of Things (IoT) and deep
learning predictive analytics so that products can talk to each other as they move indepen-
dently through the production process.

As these shifts in IT develop, the lines between real and virtual life will blur, with implications for
society more broadly. This is increasingly evident as people spend more than eight hours each
day consuming media worldwide, driven by time spent on the Internet. Social networking
accounts for almost 30 percent of daily Internet usage, and continues to grow as more social
interactions are carried out online. By 2020, 70 percent of people will own a smartphone,
facilitating the rise of connected devices and promoting further virtual integration. This is not
unambiguously positive, however, as some studies show that spending more time indoors and
online due to less face-to-face interaction may be correlated with higher rates of depression.

Figure 16
Outlook for IT revolution 2.0

One year Five years Ten years

Predictive analytics and machine Personalized medicine becomes Over 80% of mobile data traffic
learning apps are increasingly the standard, and telemedicine worldwide is on smartphones,
adopted, improving personalization takes off as mobile usage grows and life
moves increasingly to the virtual
Mobile is the preferred method Declining cost and growing
worldwide to access and receive availability of data has broad Companies embrace of IT creates
information implications for personalized high demand for IT professionals,
marketing, demographics, but businesses face a major skills
and other fields deficit

Business implications: Rapidly advancing technologies change how businesses interact with customers and employees.
The ability to convert big data into shared value for the customer through greater product personalization is an increasingly
important business differentiator. Businesses face challenges finding skilled employees to operate and service new
technologies, raising the cost to attract and retain them.

Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 19


9. Rise of the Machines
The IoT is a fast-growing constellation of connected smart devices,
from smartphones and household appliances to industrial robots and
smart electrical grids. According to Gartners growth forecast, loT
devices will grow from fewer than 4 billion in 2014 to a staggering
25 billion in 2020 (see figure 17). With continued dramatic growth in
connectivity, these machines increasingly transmit information to
one another and take real-world actions without humans in the loop. Today, 53 percent of IoT
connected devices are concentrated in the United States, Germany, South Korea, and China.

Industrial robots are an important IoT growth sector. China is forecast to become the worlds
largest user of industrial robots by 2017, with important implications for its domestic econ-
omy as well as the global labor market. Chinese adoption of this technology poses a direct
challenge to claims by some analysts that the rise of robotics will lead to rapid reshoring of
manufacturing to advanced economies. Based upon forecasts from the International Federation
of Robotics, industrial robots in China will more than double from 180,000 in 2014 to 430,000
in 2017, surpassing major countries in the European Union (EU) and North America, as well
as Japan. Globally, the automotive sector is the largest customer of industrial robots, with
annual sales of 69,000 units, followed by electronics (36,000 units), and metal and machinery
(16,500 units).

Continued global growth will also occur over the next decade in unmanned or optionally
manned systems for a range of military and commercial applications, from small unmanned
aerial vehicles (commonly referred to as drones) to self-driving cars and even massive

Figure 17
Staggering growth of the Internet of Things (loT)

IoT units installed


Billion
30

25.1
25
3.2 Vertical business

20 3.5 Automotive

5.2 Generic business


15

10

4.9 13.2 Consumer


5 3.7
3.0 1.0
0.8 0.6 0.4
0.7 0.5 0.2
0.4 0.1
2.2 2.9
1.8
0
2013 2014 2015f 2020f

Sources: Gartner Symposium/ITxpo; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 20


post-Panamax cargo ships. Teal Groups estimates suggest a more than twofold increase in
global procurement of drones, reaching almost $8 billion by 2024. However, heavy regulation
and politicization of these technologies could dramatically slow adoption, particularly in the
United States and the EU. The defense sector will continue to dominate the global drone market
for the next decade. However, as total sales volumes grow, the commercial sector will gain
share, with decreases in cost and advances in autonomy and sense-and-avoid technology. In
particular, cargo aviation will increasingly use drones to achieve greater safety and cost savings.

Surprise and disruption will be the norm, as the rapid evolution and implementation of new
systems is ongoing. Robots will continue to take new and unexpected forms, copying from
nature in the fast-growing field of biomimeticsthe study and emulation of the models, systems,
and elements of nature for human-engineered solutionsand harnessing new advances in
miniaturization, materials, and manufacturing. In particular, Googles entry into self-driving cars
puts the automotive industry on notice, spurring greater overall research and development in
autonomous vehicles. In early 2015, Uber unveiled a new state-of-the-art autonomous car facility
in the U.S. city of Pittsburgh, Pennsylvania, which could even disrupt its own shared economy
business model. The global market for self-driving cars is projected to grow rapidly, reaching
$87 billion by 2030. Self-driving cars will have spillover consequences in a variety of sectors,
from insurance to general transportation.

This rise of machines is a self-propelling phenomenon, with interconnected technology drivers


that will perpetuate the further rise of machines in the future. Exponential growth and rapidly
decreasing costs of a variety of technologies will have far-reaching implications for the incorpo-
ration of smart machines into our daily lives and work. From cheaper, faster, and more capable
sensors to more dependable, flexible, and higher-bandwidth wireless networks, to greater
safety and more efficient software, the end result will be a landscape of ever-greater reliance
upon machines to bring order to our lives and work, with machines looking after machines in
the physical world.

Figure 18
Outlook for rise of the machines

One year Five years Ten years

Unmanned systems and robotics Safety and efficiency spur the Robotics erode cheap labors
move from niche applications to commercial availability of full role in undergirding national
broader use autonomy in niche applications, manufacturing competitiveness
particularly in automobiles
IoT grows but is considered more Self-driving cars are widely
of a novelty than a necessity Reduced or optional manning available
in commercial air and sea cargo
Governments scramble to keep up IoT changes daily life for
vessels begins
with regulating new technologies consumers, from healthcare
to home maintenance

Business implications: New and more connected machines create opportunities to innovate business models and sell
new products. The rapid emergence of new use cases and new business models favors companies that are flexible and
can rapidly adopt technologies to capture market share. Consumers demand increasing security for connected devices
and are loyal to businesses that can provide it.

Note: IoT is Internet of Things.


Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 21


10. Evolving Artificial Intelligence
Artificial intelligence (AI) is already used in sectors as distinct as finance,
journalism, and engineering, and it continues to find new applications.
For instance, AI is used in security trading dark pools, writes breaking
news articles, and dominates humans in many games (such as chess,
backgammon, Scrabble, and even Jeopardy!). It is also being leveraged
in an attempt to cure cancer (as part of the Big Mechanism project
being run by the Pentagons Defense Advanced Research Projects Agency [DARPA]) and make
lethal decisions on the battlefield through its integration into the weapons systems of several
countries. Increasing investment in deep learning technologies will enable AI to expand to even
more sectors.

It remains to be seen whether AI will fundamentally change the correlation between produc-
tivity and employment, however. Recent data from the U.S. Bureau of Labor Statistics showed
that U.S. employment and output levels have been diverging since the 2000s, with employment
growing at a much slower pace than productivity. A key driver is technological progress, with
digital devices such as computers substituting for human labor. Scholars from the Massachusetts
Institute of Technology (MIT) have asked if AI will lead to a great decoupling of productivity
from employment, but technology evangelists argue that there is no reason to think that this
wave of technological innovation will be any different from previous periods in which technology
created more jobs than it destroyed. About half of experts (52 percent) in a recent Pew survey
say that technology will not displace more jobs than it creates in the next 10 years, but about
half (48 percent) say it will.

Figure 19
Developing superintelligent AI may be possible in this century

Timeline to artificial intelligence


System capability

Superintelligence
(ASI)

Human baseline
(AGI)
Takeoff
duration

Now Takeoff (~2075) Time


(~2045)

Note: AI is artificial intelligence, ASI is artificial superintelligence, and AGI is artificial general intelligence.
Sources: WaitButWhy.com, Nick Bostrom, Superintelligence: Paths, Dangers, Strategies; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 22


The concept of recursive intelligence also suggests that the first company or country to create
and deploy advanced AI might acquire a decisive advantage, with implications for commercial
competitiveness and national security. Public-private partnerships are making important
contributions in AI. For instance, DARPA, in conjunction with various research universities,
unveiled Memex, a search engine for the deep web that aims to revolutionize and compete with
commercial search engines. However, the development of these technologies creates new
policy challenges. Unlike revolutions in nuclear and digital technologieswhich were driven by
government projectsthe future of AI increasingly relies on commercial leaders for success.

The timeline for achieving human-like AI continues to shift, making it hard to know how much
of a game-changer it will be (see figure 19 on page 22). According to Nick Bostrom, an Oxford
philosopher and leading AI thinker who presented at the GBPCs 2015 CEO Retreat in San
Francisco, there are three major AI categories: Artificial Narrow Intelligence (ANI), which
specializes in only one area, and cannot perform any other tasks; Artificial General Intelligence
(AGI), which can perform any task that a human would be able to do (including complex
reasoning, thinking abstractly, and learning from experiences); and Artificial Superintelligence
(ASI), which is significantly more intelligent than humans in multiple areas and is the focus of
the concern about AI overtaking human beings. By one estimate, ASI is estimated to take off
around 2075, about 30 years after AGI is achieved.

The possibility of rapid evolution in machine self-design raises questions about how AI will
view and interact with humans. AI experts, ethicists and philosophers (such as Oxfords Nick
Bostrom), and other leading thinkers (Stephen Hawking and Elon Musk among them) have
warned of a possible AI revolution, in which machines not only outperform humans, but perhaps
ultimately decide they must eliminate humanity. Others, including Eric Schmidt from Google,
have argued that AI is a positive force because it makes people smarter and enables problem
solving through the use of large data sets. These wildly diverging opinions showcase that the
trend toward increasingly sophisticated AI raises many uncertainties about the future.

Figure 20
Outlook for evolving artificial intelligence

One year Five years Ten years

Several major companies continue Some industries become entirely Advances in quantum computing
to develop in-house R&D capa- autonomous, with new fields accelerate the time to AGI, while
bilities for deep learning benefiting from improved machine- also spelling danger for poorly
learning capabilities encrypted data and increasing
The most technologically advanced
the likelihood for cyber attacks
countries increase investment AI increasingly is able to perform
in AI, supported by private routine office tasks, creating Governments invest in worker
investments and public-private concerns about the future of retraining programs to deal with
sector partnerships low-level white-collar workers job destruction caused by AI

Business implications: The future of AI is highly uncertain, but its progress will leave no business sector untouched.
Businesses using AI find significant efficiency and cost savings through improved data and systems analysis, but questions
around timing for AI breakthroughs create uncertainties about labor needs. Businesses operating in remote or dangerous
locations utilize AI technology to reduce physical presence.

Note: AI is artificial intelligence, and AGI is artificial general intelligence.


Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 23


11. Cyber Insecurity
While the upside of the Internet is enormous, cyber threats continue to
multiply, compounding risks to businesses and individuals. Estimates
put global cyber crime losses at somewhere between $375 billion and
$575 billion annually, affecting key markets including the United States,
Germany, Japan, France, and the United Kingdom (see figure 21). All
connected devices and systems are vulnerable to attack. Computer
systems, for example, are vulnerable to ransomware. The growing IoT also lacks strong security
systems and is highly vulnerable to data theft, particularly for IoT devices in homes. In a recent
Pew Research Center survey of experts, 61 percent said that a major cyber attack causing
significant loss of life or more than $10 billion in damages would occur by 2025.

Major cyber breaches of companies in the past year or so, including Home Depot, British Airways,
and Sony, have demonstrated that hackers are increasingly sophisticated in harvesting consumer
and employee data. Home Depot experienced six months of a customized cyber attack that
compromised 56 million payment cards and cost the company $62 million. A mass scale attack
on British Airways frequent flyer records also affected tens of thousands of accounts and the
system had to be shut down for days. Recent attacks such as these show the depth and breadth
of business risks to the C-suite. According to the A.T. Kearney 2015 Foreign Direct Investment
Confidence Index, two-thirds of executives today are worried about cyber attacks. However,
what to do next remains elusive, even as the threat is escalating.

To make matters more complex, the cyber arena is a growing domain of warfare between
countries, in which businesses can be caught in the crossfire. According to Italian cyber
security expert Raoul Chiesa, as of 2013 at least 11 countries had confirmed offensive cyber
warfare capabilities, while many more had developed defensive capabilities. For example,

Figure 21
Cyber threats multiply in key markets

Average cyber crime cost per company in key markets


$ million
14
2013 2014
12

10

United Germany Japan France United Australia


States Kingdom

Sources: Ponemon Institute; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 24


Huawei and Microsoft lost business in the United States and China, respectively, after it emerged
that each companys home government may be using their services for cyber espionage.
In addition, Iran is believed to be behind cyber attacks on Saudi and Qatari energy firms that
took place in 2012, in retaliation for U.S. cyber operations. Russia is also suspected of sponsoring
cyber attacks against four U.S. banks in 2014 in retaliation for Western sanctions.

As cyber threats multiply, all connected devices


and systems are vulnerable to attack.
The Darknetparts of the Deep Web that are not discoverable by traditional search engines
remains a serious criminal threat, especially with the rise of crypto-currencies. It is cloaked with
encryption software that provides anonymity to users. The Darknet is used as a source of cyber
attacks, as well as a place to buy and sell ransomware and other cyber weapons. Another business
risk of the Darknet is that it provides a marketplace for stolen data collected through cyber attacks,
augmenting hackers motivation to continue conducting such attacks. Crypto-currencies such as
Bitcoin have enabled Darknet transactions to grow by providing an anonymous payment method.

Creating a more secure cyberspace requires a cross-sector, multinational responsebut this


is increasingly difficult to coordinate. The U.S. government surveillance programs exposed by
Edward Snowdens 2013 revelations, and particularly their dissemination and debate among
the general public, has led to complications in the global fight against cyber insecurity. Global
public trust in government plunged to a historic low in 2014, with a particularly large drop in the
United States. At the same time, both governments and citizens have lost trust in technology
firms. In years ahead, declining levels of trust as well as rising diplomatic tensions about cyber
espionage could potentially fragment the Internet as national governments consider setting up
stand-alone proprietary networks.

Figure 22
Outlook for worsening cyber insecurity

One year Five years Ten years

Cyber espionage and attacks Governments take steps to begin New actors and sites continue
by state actors continue, but to regain public trust, partnering to emerge on the Darknet, but
attribution remains difficult with the private sector in the authorities are better able to
process shut them down quickly
The tug-of-war over privacy
vs. surveillance and security Cyber attacks by both criminals A new standard arises to make
continues, as citizens persist and governments continue to individuals aware of who has
in distrusting their governments escalate, especially against access to their online data and
on this issue physical infrastructure how it is used

Business implications: Building robust cyber defenses becomes an increasing business imperative to protect employee
and customer data, avoid costly disruption of business operations, and safeguard corporate reputations. National
government measures to counteract growing cyber threats risk fragmenting the Internet and hampering cross-border
business-to-business and business-to-consumer activity.

Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 25


12. Changing Nature of Power
In todays world, power is increasingly fleeting and diffuse. No longer
concentrated among national governments, multinational corpora-
tions, and traditional news outlets, power is increasingly disseminated
across individuals empowered by new technologies such as search
engines and social media; to lower levels of government, including
cities; and to start-ups and user-driven networked organizations. At the
same time, existing institutions have found themselves under attack as they lose their previous
advantages in the control of information (as evidenced by social movements such as the Arab
Spring, with information facilitated by nontraditional sources such as WikiLeaks or Anonymous).
Moiss Nam, a leading thinker on the changing nature of power, has warned in his book The End
of Power that from boardrooms, to battlefields and churches, to Statespower is becoming
more feeble, transient and constrained.

Individualsas consumers, citizens, and independent actorsare radically empowered by new


technology and increasingly available information, leading to soaring expectations for services,
transparency, and rapid changeparticularly among the younger, digital-native millennial
generation. Furthermore, the rise of the global middle class is leading to greater individualism
and expectations for service from their governments and from businesses, with consumers
having never had a broader freedom of choice. The new global individual is radically empowered,
inspired to question existing standards and institutions, and expects to be part of rising global
prosperity.

In contrast, global trust in most institutions reached an all-time low in 2015, with governments
continuing to be the least-trusted institution. The forces that are empowering individuals are
simultaneously leading to a lack of trust in traditional institutions. According to a recent Edelman

Figure 23
Governments are the least trusted institution

Global trust levels by institution


%
2014
66
NGOs 2015
63

59
Business
57

53
Media
51

45
Government
48

0 10 20 30 40 50 60 70 80

Note: NGO is nongovernmental organization.


Sources: Edelman Trust Barometer; A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 26


Trust Barometer study, nongovernmental organizations (NGOs) enjoy the highest level of trust,
followed by businesses (see figure 23 on page 26). Among institutions of all types, it is telling
that government ranked the lowest in both 2014 and 2015.

The new, radically empowered global


individual questions existing standards
and institutions.
As more people worldwide move to urban areas, power is increasingly concentrated in cities
and with mayors, as citizens expect their local governments to present innovative policies and
deliver rapid results. The United Nations estimates that as of 2015, 54 percent of the worlds
population, or 3.9 billion people, reside in urban areasa proportion that will rise to 58 percent
in 2025. By that year, the world will also have 36 megacitiescities of more than 10 million
inhabitants. This urban growth will be concentrated in Asia and Africa. With cities growing and
multiplying, new challenges and opportunities arise, including the need for local governments
to address water and sanitation issues, traffic congestion, and youth unemployment. City
governments have the opportunity to take the initiative in addressing these challenges and so
gain the trust of their residents. Such actions will further shift power from national to municipal
governments, as mayors from New York to London and Johannesburg to Mumbai are increas-
ingly considered the policy makers who can get stuff done while national politicians stumble.

Successful leadership and governance are still possible in this world, but leaders need to adapt
to meet the rising expectations of the new globally empowered individuals, whether they be
citizens, employees, or customers. Leaders must focus on four key competenciesstrategic
foresight, vision, determination, and agilityin order to regain trust and govern effectively.

Figure 24
Outlook for changing nature of power

One year Five years Ten years

Offense-defense balance Leaders and organizations that Negotiating the relationship


continues to favor aggressors have adapted to the reality of the between the individual, society,
and abusers (for example, new era enjoy growing competitive and institutions continues to be
cyber attackers) advantages a complex balancing act

Individuals are both elated and Those that continue with business Business models look very
terrified by changes, especially as usual have either been wiped different, centered on customer
in technology, and expectations off the map or are on a slow path transparency, personalization,
and concerns have soared of decline and a shared value proposition

Business implications: Businesses that foster trust, legitimacy, and accountability among stakeholders are better positioned
to grow. The imperative for businesses to respond quickly and effectively to empowered individuals grows, as reputational
risks from appearing unresponsive rise. People-centric businesses that tap into the power of each employee engender higher
morale and retention, as well as foster innovation.

Source: A.T.Kearney analysis

Global Trends 20152025: Divergence, Disruption, and Innovation 27


Authors

Paul Laudicina, Erik Peterson,


chairman emeritus of A.T. Kearney and partner and managing director of
chairman of the Global Business Policy the Global Business Policy Council,
Council, Washington, D.C. Washington, D.C.
paul.laudicina@atkearney.com erik.peterson@atkearney.com

The authors would like to thank Courtney Rickert McCaffrey, Samuel Brannen, Victoria Pisini, and Xinrui Zeng
for their valuable contributions to this report.

About the Global Business Policy Council

A.T. Kearneys Global Business Policy Council, established in 1992, is dedicated to helping business and government
leaders worldwide anticipate and plan for the future. Through strategic advisory services, regular publications, and
world-class global meetings, the Council is committed to engaging in thoughtful discussion and analysis of the
trends that shape business and government around the globe.

Global Trends 20152025: Divergence, Disruption, and Innovation 28


Methodology
The GBPCs Global Trends 20152025 is guided by the Councils continuous scanning of the
horizon for developments in seven key dimensions of the global external strategic operating
environmentdemography, economy, environment, geopolitics, governance, resources, and
technologyin order to identify emerging trends. The Council then conducts detailed research
and engages its global network of thought leaders to determine how the trends are likely to
manifest and evolve over one, five, and ten-year time horizons. Finally, the GBPC analyzes the
implications of each of the trends for the global external strategic operating environment.
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