Ten IT-enabled business trends for the

decade ahead
May 2013 | byJacques Bughin, Michael Chui, and James Manyika

Three years ago, we described ten information technology–enabled business trends that were
profoundly altering the business landscape. 1 The pace of technology change, innovation, and business
adoption since then has been stunning. Consider that the world’s stock of data is now doubling every
20 months; the number of Internet-connected devices has reached 12 billion; and payments by mobile
phone are hurtling toward the $1 trillion mark.
This progress both reflects the trends we described three years ago and is influencing their shape. The
article that follows updates our 2010 list. (For a more detailed treatment, download the related white
paper [PDF–1MB] from the McKinsey Global Institute.) In addition to describing how several trends
have grown in importance, we have added a few that are rapidly gathering momentum, while removing
those that have entered the mainstream.
The dramatic pace at which two trends have been advancing is transforming them into 21st-century
business “antes”: competitive necessities for most if not all companies. Big data and advanced
analytics have swiftly moved from the frontier of our trends to a set of capabilities that need to be
deeply embedded across functions and operations, enabling managers to have a better basis for
understanding markets and making business decisions. Meanwhile, social technologies are becoming a
powerful social matrix—a key piece of organizational infrastructure that links and engages employees,
customers, and suppliers as never before.
Implicit in our earlier work, and explicit in this update, is a focus on information and communication
technologies. Other forms of technology are changing, too, of course, and as we’ve been updating this
list, we’ve also been conducting new research on the most disruptive technologies of all types. Four of
the trends described here reflect IT disruptions elaborated in that separate but related research, which
encompasses fields as wide-ranging as genomics and energy and materials science.2 The Internet of All
Things, the linking of physical objects with embedded sensors, is being exploited at breakneck pace,
simultaneously creating massive network effects and opportunities. “The cloud,” with its ability to
deliver digital power at low cost and in small increments, is not only changing the profile of corporate
IT departments but also helping to spawn a range of new business models by shifting the economics of
“rent versus buy” trade-offs for companies and consumers. The result is an acceleration of a trend we
identified in 2010: the delivery of anything as a service. The creeping automation of knowledge work,
which affects the fastest-growing employee segment worldwide, promises a new phase of corporate
productivity. Finally, up to three billion new consumers, mostly in emerging markets, could soon
become fully digital players, thanks chiefly to mobile technologies. Our research suggests that the
collective economic impact (in the applications that we examined) of information technologies
underlying these four trends could range from $10 trillion to $20 trillion annually in 2025.3
The next three trends will be most familiar to digital marketers, but their relevance is expanding across
the enterprise, starting with customer-experience, product, and channel management. The integration
of digital and physical experiences is creating new ways for businesses to interact with customers, by
using digital information to augment individual experiences with products and services. Consumer
demand is rising for products that are free, intuitive, and radically user oriented. And the
rapid evolution of IT-enabled commerce is reducing entry barriers and opening new revenue streams
to a range of individuals and companies.
Finally, consider the extent to which government, education, and health care—which often seem
outside the purview of business leaders—could benefit from adopting digital technologies at the same
level as many industries have. Productivity gains could help address the imperative (created by aging
populations) to do more with less, while technological innovation could improve the quality and reach
of many services. The embrace of digital technologies by these sectors is thus a trend of immense
importance to business, which indirectly finances many services and would benefit greatly from the
rising skills and improved health of citizens everywhere.
1. Joining the social matrix
Social technologies are much more than a consumer phenomenon: they connect many organizations
internally and increasingly reach outside their borders. The social matrix also extends beyond the co-
creation of products and the organizational networks we examined in our 2010 article. Now it has
become the environment in which more and more business is conducted. Many organizations rely on
distributed problem solving, tapping the brain power of customers and experts from within and
outside the company for breakthrough thinking. Pharmaceutical player Boehringer Ingelheim
sponsored a competition on Kaggle (a platform for data-analysis contests) to predict the likelihood
that a new drug molecule would cause genetic mutations. The winning team, from among nearly 9,000
competitors, combined experience in insurance, physics, and neuroscience, and its analysis beat
existing predictive methods by more than 25 percent.

In other research, we have described how searching for information, reading and responding to e-
mails, and collaborating with colleagues take up about 60 percent of typical knowledge workers’ time—
and how they could become up to 25 percent more productive through the use of social
technologies.4 Global IT-services supplier Atos has pledged to become a “zero e-mail” company by
2014, aiming to boost employee productivity by replacing internal e-mail with a collaborative social-
networking platform.
Companies also are becoming more porous, able to reach across units speedily and to assemble teams
with specialized knowledge. Kraft Foods, for example, has invested in a more powerful social-
technology platform that supports micro blogging, content tagging, and the creation and maintenance
of communities of practice (such as pricing experts). Benefits include accelerated knowledge sharing,
shorter product-development cycles, and faster competitive response times. Companies still have
ample running room, though: just 10 percent of the executives we surveyed last year said their
organizations were realizing substantial value from the use of social technologies to connect all
stakeholders: customers, employees, and business partners.5
Social features, meanwhile, can become part of any digital communication or transaction—embedded
in products, markets, and business systems. Users can “like” things and may soon be able to register
what they “want,” facilitating new levels of commercial engagement. Department-store chain Macy’s
has used Facebook likes to decide on colors for upcoming apparel lines, while Wal-Mart Stores chooses
its weekly toy specials through input from user panels. In broadcasting, Europe’s RTL Group is using
social media to create viewer feedback loops for popular shows such as the X Factor. A steady stream
of reactions from avid fans allows RTL to fine-tune episode plots.
Indeed, our research suggests that when social perceptions and user experiences (both individual and
collective) matter in product selection and satisfaction, the potential impact of social technologies on
revenue streams can be pronounced. 6We are starting to see these effects in sectors ranging from
automobiles to retailing as innovative companies mine social experiences to shape their products and
services.
2. Competing with ‘big data’ and advanced analytics
Three years ago, we described new opportunities to experiment with and segment consumer markets
using big data. As with the social matrix, we now see data and analytics as part of a new foundation for
competitiveness. Global data volumes—surging from social Web sites, sensors, smartphones, and more
—are doubling faster than every two years.7 The power of analytics is rising while costs are falling. Data
visualization, wireless communications, and cloud infrastructure are extending the power and reach of
information.
With abundant data from multiple touch points and new analytic tools, companies are getting better
and better at customizing products and services through the creation of ever-finer consumer
microsegments. US-based Acxiom offers clients, from banks to auto companies, profiles of 500 million
customers—each profile enriched by more than 1,500 data points gleaned from the analysis of up to 50
trillion transactions. Companies are learning to test and experiment using this type of data. They are
borrowing from the pioneering efforts of companies such as Amazon.com or Google, continuously
using what’s known as A/B testing not only to improve Web-site designs and experiences but also to
raise real-world corporate performance. Many advanced marketing organizations are assembling data
from real-time monitoring of blogs, news reports, and Tweets to detect subtle shifts in sentiment that
can affect product and pricing strategy.
Advanced analytic software allows machines to identify patterns hidden in massive data flows or
documents. This machine “intelligence” means that a wider range of knowledge tasks may be
automated at lower cost (see the fifth trend, below, for details). And as companies collect more data
from operations, they may gain additional new revenue streams by selling sanitized information on
spending patterns or physical activities to third parties ranging from economic forecasters to health-
care companies.

Despite the widespread recognition of big data’s potential, organizational and technological
complexities, as well as the desire for perfection, often slow progress. Gaps between leaders and
laggards are opening up as the former find new ways to test, learn, organize, and compete. For
companies trying to keep pace, developing a big-data plan is becoming a critical new priority—one
whose importance our colleagues likened, in a recent article, to the birth of strategic planning 40 years
ago.8
Planning must extend beyond data strategy to encompass needed changes in organization and culture,
the design of analytic and visualization tools frontline managers can use effectively, and the
recruitment of scarce data scientists (which may require creative approaches, such as partnering with
universities). Decisions about where corporate capabilities should reside, how external data will be
merged with propriety information, and how to instill a culture of data-driven experimentation are
becoming major leadership issues.

3. Deploying the Internet of All Things

Tiny sensors and actuators, proliferating at astounding rates, are expected to explode in number over
the next decade, potentially linking over 50 billion physical entities as costs plummet and networks
become more pervasive. What we described as nascent three years ago is fast becoming ubiquitous,
which gives managers unimagined possibilities to fine-tune processes and manage operations.9
Through FedEx’s SenseAware program, for example, customers place a small device the size of a
mobile phone into packages. The device includes a global positioning system, as well as sensors to
monitor temperature, light, humidity, barometric pressure, and more—critical to some biological
products and sensitive electronics. The customer knows continuously not only where a product is but
also whether ambient conditions have changed. These new data-rich renditions of radio-frequency-
identification (RFID) tags have major implications for companies managing complex supply chains.

Companies are starting to use such technologies to run—not just monitor—complex operations, so that
systems make autonomous decisions based on data the sensors report. Smart networks now use
sensors to monitor vehicle flows and reprogram traffic signals accordingly or to confirm whether
repairs have been made effectively in electric-power grids.

New technologies are leading to what’s known as the “quantified self” movement, allowing people to
become highly involved with their health care by using devices that monitor blood pressure and
activity—even sleep patterns. Leading-edge ingestible sensors take this approach further, relaying
information via smartphones to physicians, thereby providing new opportunities to manage health and
disease.

4. Offering anything as a service

The buying and selling of services derived from physical products is a business-model shift that’s
gaining steam. An attraction for buyers is the opportunity to replace big blocks of capital investment
with more flexible and granular operating expenditures. A prominent example of this shift is the
embrace of cloud-based IT services. Cosmetics maker Revlon, for example, now operates more than
500 of its IT applications in a private cloud built and operated by its IT team. It saved $70 million over
two years, and when an entire factory, including a data center in Venezuela, was destroyed by a fire,
the company was able to shift operations to New Jersey in under two hours. Moves like this, which
suggest that cloud-delivered IT can be reliable and resilient, create new possibilities for the provision
of mission-critical IT through internal or external assets and suppliers.
This model is spreading beyond IT as a range of companies test ways to monetize underused assets by
transforming them into services, benefitting corporate buyers that can sidestep owning them.
Companies with trucking fleets, for instance, are creating new B2B businesses renting out idle vehicles
by the day or the hour. And a growing number of companies with excess office space are finding that
they can generate revenue by offering space for short-term uses. The Los Angeles Times has rented
space to film crews, for example. Cloud-based online services are feeding the trend both by facilitating
remote-work patterns that free up space and by connecting that space with organizations which need
it.
Other companies are seizing opportunities in consumer markets. Online services now allow rentals of
everything from designer clothing and handbags to college textbooks. Home Depot rents out products
from household tools to trucks. IT that can track usage and bill for services is what makes these models
possible.

While we and others have written about the importance of cloud-based IT services for some time, the
potential impact of this trend is in its early stages. Companies have much to discover about the
efficiencies and flexibility possible through reenvisioning their assets, whether that entails shifting
from capital ownership to “expensed” services or assembling assets to play in this arena, as
Amazon.com has done by offering server capacity to a range of businesses. Moreover, an
understanding of what’s most amenable to being delivered as a service is still evolving—as are the
attitudes and appetites of buyers. Thus, much of the disruption lies ahead.

5. Automating knowledge work

Physical labor and transactional tasks have been widely automated over the last three decades. Now
advances in data analytics, low-cost computer power, machine learning, and interfaces that
“understand” humans are moving the automation frontier rapidly toward the world’s more than 200
million knowledge workers.

Powerful productivity-enhancing technologies already are taking root. Developments in how machines
process language and understand context are allowing computers to search for information and find
patterns of meaning at superhuman speed. At Clearwell Systems, a Silicon Valley company that
analyzes legal documents for pretrial discovery, machines recently scanned more than a half million
documents and pinpointed the 0.5 percent of them that were relevant for an upcoming trial. What
would have taken a large team of lawyers several weeks took only three days. Machines also are
becoming adept at structuring basic content for reports, automatically generating marketing and
financial materials by scanning documents and data.

Signaling a new milepost in the quest for artificial intelligence, IBM’s Jeopardy-winning computer
Watson has turned its attention to cancer research. Watson “trained” for the work by reading more
than 600,000 medical-evidence reports, 1.5 million patient records, and 2.0 million pages of clinical-
trial reports and medical-journal articles. Now it is the backbone of a decision-support application for
oncologists at Memorial Sloan-Kettering Cancer Center, in New York.

At information-intensive companies, the culture and structure of the organization could change if
machines start occupying positions along the knowledge-work value chain. Now is the time to begin
planning for an era when the employee base might consist both of low-cost Watsons and of higher-
priced workers with the judgment and technical skills to manage the new knowledge “workforce.” At
the same time, business and government leaders will be jointly responsible for mitigating the
destabilization caused by the displacement of knowledge workers and their reallocation to new roles.
Retraining workers, redesigning education, and redefining the nature of work will all be important
elements of this effort.10
6. Engaging the next three billion digital citizens
As incomes rise in developing nations, their citizens are becoming wired, connected by mobile
computing devices, particularly smartphones that will only increase in power and versatility. Although
several emerging markets have experienced double-digit growth in Internet adoption, enormous
growth potential remains: India’s digital penetration is only 10 percent and China’s is around 40
percent. Rising levels of connectivity will stimulate financial inclusion, local entrepreneurship, and
enormous opportunities for business.

As Internet-enabled smartphones and other mobile devices move rapidly down the cost curve, they
will enable vast new applications and sources of value. A harbinger of the value to come is the success
of mobile-payment services across a number of developing economies. Dutch–Bangla Bank Limited
(DBBL), in Bangladesh, for example, garnered over a million mobile-payment subscribers in ten
months. Standard Bank of South Africa reduced its origination costs for new customers by 80 percent
using mobile devices.

Another source of value is local matching services that connect supply with demand. Kenya’s Google-
backed iHub project uses technology services to identify and finance entrepreneurs. Technology also
helps multinationals adapt products and business models to local conditions. In India, Unilever
provides mobile devices to rural distributors, including traditional mom-and-pop stores. The devices
relay information (such as stock levels and pricing) back to the company, so Unilever can improve its
demand forecasts, inventory management, and marketing strategy—raising sales in rural stores by a
third.

7. Charting experiences where digital meets physical

The borders of the digital and physical world have been blurring for many years as consumers learned
to shop in virtual stores and to meet in virtual spaces. In those cases, the online world mirrors
experiences of the physical world. Increasingly, we’re seeing an inversion as real-life activities, from
shopping to factory work, become rich with digital information and as the mobile Internet and
advances in natural user interfaces give the physical world digital characteristics.

Today’s clever apps use smartphone technology to sense our locations and those of our friends or even
allow us to point to foreign street signs for quick translations. Augmented reality will go further with
next-generation wearable devices such as Google Glass, which deploys cameras and wireless
connections to project information, on demand, through eyeglasses. Other wearable technologies are
also gathering steam, from “intelligent textiles” to wristwatch computers that can not only display e-
mails and texts but also run mobile apps. Technologies pioneered in game consoles allow us to use
physical movements and gestures to interact with digital devices.

Companies are applying these technologies to experiences that have remained resolutely physical,
creating a new domain of customer interaction. Food retailers Tesco and Delhaize have deployed life-
size store displays at South Korean and Belgian subway stations, respectively. The screens allow
commuters waiting for trains to use smartphones to order groceries, which are then shipped to their
homes or available for pickup at a physical store location. Other retailers are using similar displays in
their physical stores so consumers can easily order out-of-stock products. Macy’s has installed “magic
mirrors” in store dressing rooms: a 72-inch display that allows shoppers to “try on” clothes virtually to
help them make their selection.

Businesses are also integrating the digital world into physical work activities, thereby boosting their
productivity and effectiveness. Boeing uses virtual-reality glasses so that factory workers assembling
its 747 aircraft need to consult manuals less frequently. Annotated pop-ups point to drilling locations
and display proper wire connections.

Executives need to examine their businesses to find areas where immersive experiences or interactive
touch points can stimulate engagement with “always on” customers. And they should reflect on the
potential for interactive digital platforms to play roles in product design and marketing or in gathering
customer feedback. These possibilities will grow in importance as customers and employees come to
expect interaction between heightened digital and physical offerings.

8. ‘Freeing’ your business model through Internet-inspired personalization and

simplification
After nearly two decades of shopping, reading, watching, seeking information, and interacting on the
Internet, customers expect services to be free, personalized, and easy to use without instructions. This
ethos presents a challenge for business, since customers expect instant results, as well as superb and
transparent customer service, for all interactions—from Web sites to brick-and-mortar stores. Fail to
deliver, and competitors’ offerings are only an app download away.11
A number of businesses have battled in the free-services arena against tough digital competitors such
as Craigslist, peer-to-peer music services, and Wikipedia. In 2012, Electronic Arts lost 400,000 players
when it began charging for its online Star Wars game. Players came back when the company designed
a “freemium” offer: users paid only after the first 50 levels. Additional challenges to traditional pricing
power appear each day with comparative price apps that allow consumers to “showroom” at physical
stores and then buy online at lower prices.
Indeed, users will probably never pay for many valuable technology-enabled services, such as search—
and the list seems to be growing rapidly. Providers of these “free” services will need to innovate with
alternative business models. The most successful are likely to be multisided ones, which tap large
profit pools that can be generated from information gathered by an adjacent free activity that’s
commercially relevant. A familiar example is Google’s policy of offering its search services free of
charge while garnering revenues at the other side of the platform by selling advertising or insights into
customer behavior. In a world of free, the hunt is on for such monetization ideas. More and more
companies, for example, are exploring opportunities to sell to third parties or to create new services
based on sanitized information (“exhaust data”).

Consumers, meanwhile, expect to be valued by companies and treated as individuals. In the online
world, Spotify and Netflix analyze their customers’ histories to create “for me” experiences when
recommending music and movies. Services are becoming even more hassle free online: new Web and
mobile apps are designed to be so easy to use that instructions are no longer needed. The demand for
“quick and easy” is compelling companies to modify how they deliver real-world offerings—for
example, by allowing customers to photograph checks and deposit them using smartphone apps.

A world of digitized instant gratification and low switching costs could force many businesses to seek
innovative business models that provide more products and services free of charge or at lower cost.
They’ll also have to think about offering more personalization in their products and services:
customization at a mass level. This approach could require changes to back-end systems, which are
often designed for mass production. Businesses will need new ways to collect information that furthers
personalization, to embed experimentation into product-development efforts, and to ensure that
offerings are easy to use—and even fun.

9. Buying and selling as digital commerce leaps ahead

The rise of the mobile Internet and the evolution of core technologies that cut costs and vastly simplify
the process of completing transactions online are reducing barriers to entry across a wide swath of
economic activity. Amped-up technology platforms are enabling peer-to-peer commerce to replace
activities traditionally carried out by companies and giving birth to new kinds of payment systems and
monetization models.

Entry costs have fallen to the point where people who knit sweaters, for example, can tap into a global
market of customers. Airbnb brokers deals between travelers and people with spare rooms to rent in
their homes or apartments. It booked more than ten million overnight stays in 2012 and could soon be
selling more room nights than major international hotel chains do. Similar marketplaces are springing
up for bicycles, cars,12 labor,13 and more.
Mobile-payment networks, sometimes augmented with services that extend beyond pure transactions,
are a second area of evolution for e-commerce as costs fall. Starbucks envisions extending its
pioneering use of smartphones for payments to include instant photo verification of buyers. New
mobile-commerce platforms that manage transactions can offer customers the option of paying with
credit credentials they established for other merchants. The mobile-payments provider Square offers
customers using its service access to their sales data from any transaction and allows them to set up
customer-loyalty programs easily.
This trend will become more striking over the next decade or so: 600 cities, most in emerging markets,
will account for roughly two-thirds of the world’s GDP growth. One likely consequence for fast-
growing cities will be the rapid development of dense, digitally enabled commerce—new, highly
evolved ecosystems combining devices, payment systems, digital and technology infrastructure, and
logistics.14
10. Transforming government, health care, and education
The private sector has a big stake in the successful transformation of government, health care, and
education, which together account for a third of global GDP. They have lagged behind in productivity
growth at least in part because they have been slow to adopt Web-based platforms, big-data analytics,
and other IT innovations. Technology-enabled productivity growth could help reduce the cost burden
while improving the quality of services and outcomes, as well as boosting long-term global-growth
prospects.

Many governments are already using the Web to improve services and reduce waste. India has enrolled
380 million citizens in the world’s largest biometric-identity program, Aadhaar, and plans to use the
system to make over $50 billion in cash transfers to poor citizens, saving $6 billion in fraudulent
payments. In 2011, the US government introduced a Cloud First policy, which laid out a vision to shift
a quarter of the $80 billion in annual federal spending to the cloud from in-house data centers, thus
saving 20 to 30 percent on the cost of the shifted work. Governments can also use IT to better engage
citizens, as South Korea has done with its e-People site, which helps citizens send online civil petitions
for policy changes or reports of corruption.

Technology also is opening new opportunities to contain rising health-care costs and improve access.
In rural Bangladesh, 90 percent of births occur outside hospitals. A mobile-notification system alerts
clinics to dispatch nurse–midwife teams, who are now present in 89 percent of births. In China, a
public–private partnership created a cardiovascular-monitoring system that allows patients to self-
administer electrocardiograms and transmit data to specialists in Beijing, who can suggest treatments
by phone. At New York’s Mount Sinai Hospital, a venture with General Electric uses smart tags to track
the flow of hundreds of patients, treatments, and medical assets in real time. The hospital estimates it
could potentially treat 10,000 more patients each year as a result and generate $120 million in savings
and revenues over several years.

Finally, there’s education, which represents 4.5 percent of global GDP. Technology is starting to
change the equation. Using game technologies and immersive math courseware, DreamBox makes
learning more fun, while algorithms adapt the learning experience to each student’s needs.
Brilliant.org allows talented mathematicians and physics students around the world to learn at their
own pace. Global massive online open courses (MOOCs) offer university-level “classes” using social
networks, videos, and community interactions.

Smartphones and tablets are entering classrooms en masse to deliver personalized content. India is
running trials of the sub-$50 Aakash tablet to link more than 25,000 colleges in an e-learning
program. Other technologies are improving teachers’ skills and performance through online
collaboration, access to best-in-class pedagogies, and better tracking of student achievement, which
facilitates targeted interventions.

What does all this mean for busy senior executives—beyond the obvious that there’s no escaping these
trends, that they will continue to evolve, and that their implications, which will vary for different types
of organizations, merit serious attention? We’d suggest that the era of pervasive connectedness
underlying these trends also implies a need for more focused attention on issues such as the following:

Transparent and innovative business models. Real-time information, instant price discovery, and
quick problem resolution are becoming basic expectations of consumers, citizens, and business
customers in the digital realm. Collectively, they will force many companies to rethink elements of
their business models. Leaders will need to make their companies more transparent and elevate rapid
responsiveness to the level of a core competency. Business models built on transparency and
responsiveness will not only satisfy customers but also help companies become more nimble,
innovative, and credible with all their stakeholders.

Article|McKinsey Quarterly
Six global trends shaping the
business world Emerging markets
increase their global powerglobal
Summary: Today, emerging markets serve as the world's economic growth
engine, and the far-reaching effects of their spectacular rise continue to play out.
But their risks are often downplayed. Therefore, taking advantage of emerging-
market opportunities requires careful planning.
As the greatest hope for growth in the global economy for the past two years, the emerging markets have become
the darlings of the financial press and a favorite talking point of C-suite executives worldwide.

Once attractive only for their natural resources or as a source of cheap labor and low-cost manufacturing,
emerging markets are now seen as promising markets in their own right. Rapid population growth, sustained
economic development and a growing middle class are making many companies look at emerging markets in a
whole new way.

As the emerging markets rise, so do their companies.

Many companies that had previously posed no competitive threat to multinational corporations now do so.

These emerging market leaders represent a major shift in the global competitive landscape — a trend that will
only strengthen as they grow in size, establish dominance and seek new opportunities beyond their traditional
domestic and near-shore markets.

In particular, we see the following trends ahead:

Leading emerging markets will continue to drive global growth

Estimates show that 70% of world growth over the next few years will come from emerging markets, with China
and India accounting for 40% of that growth.

Adjusted for variations in purchasing power parity, the ascent of emerging markets is even more impressive: the
International Monetary Fund (IMF) forecasts that the total GDP of emerging markets could overtake that of the
developed economies as early as 2014.

The forecasts suggest that investors will continue to invest in emerging markets for some time to come. The
emerging markets already attract almost 50% of foreign direct investment (FDI) global inflows and account for
25% of FDI outflows.

The brightest spots for FDI continue to be Africa, the Middle East, and Brazil, Russia, India and China (the
BRICs), with Asian markets of particular interest at the moment.

By 2020, the BRICs are expected to account for nearly 50% of all global GDP growth. Securing a strong base in
these countries will be critical for investors seeking growth beyond them.

Emerging market leaders will become a disruptive force in the global

competitive landscape
As emerging market countries gain in stature, new companies are taking center stage. The rise of these emerging
market leaders will constitute one of the fastest-growing global trends of this decade.

These emerging market companies will continue to be critical competitors in their home markets while
increasingly making outbound investments into other emerging and developed economies.
Working to serve customers of limited means, the emerging market leaders often produce innovative designs that
reduce manufacturing costs and sometimes disrupt entire industries.

A case in point: India's Tata Motors' US$2,900 Nano, priced at less than half the cost of any other car on the
market worldwide. A version is set to go on sale in Europe this year.

Many emerging market leaders have grown up in markets with "institutional voids," where support systems such
as retail distribution channels, reliable transportation and telecommunications systems and adequate water supply
simply don't exist.

As a result, these companies possess a more innovative, entrepreneurial culture and have developed greater
flexibility to meet the demands of their local and "bottom-of-the-pyramid" customers.

Rising population and prosperity drive new consumer growth and urbanization

Between now and 2050, the world's population is expected to grow by 2.3 billion people, eventually reaching 9.1
billion. The combined purchasing power of the global middle classes is estimated to more than double by 2030 to
US$56 trillion. Over 80% of this demand will come from Asia.

Most of the world's new middle class will live in the emerging world, and almost all will live in cities, often in
smaller cities not yet built. This surge of urbanization will stimulate business but put huge strains on infrastructure.

Physical infrastructure, such as water supply, sanitation and electricity systems, and soft infrastructure, such as
recruitment agencies and intermediaries to deal with customer credit checks, will need to be built or upgraded to
cope with the growing urban middle class.

Addressing such concerns in Asia alone will require an estimated US$7.5 trillion in investments by 2020. Meeting
these needs will likely entail public-private partnerships, new approaches to equity funding and the development
of capital markets.

Emerging markets will become the new battleground

The BRICs are having a major impact on their regional trading partners and more distant, resource-rich countries,
an increasing number of which are being pulled into their economic orbit.

In 2009, emerging-to-emerging (E2E) trade reached US$2.9 trillion. This massive flow of investment among
emerging markets is well on its way to creating a second tier of emerging market leaders.

As pressure for resources increases, we expect a battle for first-mover advantage among emerging heroes, global
players and emerging market governments in regions such as the Middle East and Africa.

Global influence grows

Inevitably, the BRICs' growing economic strength is leading to greater power to influence world economic policy.

In October 2010, for example, emerging economies gained a greater voice under a landmark agreement that
gave 6% of voting shares in the IMF to dynamic emerging countries such as China. Under the agreement, China
will become the IMF's third-biggest member.
Of course, it would be a mistake to see economic growth in the emerging markets as a winner-take-all contest,
with developed countries on the losing side. Billions of new middle-class consumers in the emerging markets
represent new markets for developed-world exports and companies based in developed countries.

Emerging market corporations are another big new market: business-to-business sales to China and India, for
example, are a key factor in Germany's strong export economy.
Six global trends shaping the
business worldCleantech becomes
a competitive advantage
There is still a large gap between the capital required and the capital
available to fuel the transition to a low-carbon economy.

Summary: Governments and organizations are announcing plans to shrink their

carbon footprints. The move to cleantech may represent a second industrial
revolution that will have effects as great as the first.
The cleantech-enabled transformation to a low-carbon, resource-efficient economy may be the next industrial
revolution.

As this transformation accelerates, global corporations are increasingly realizing that they must understand the
impact of cleantech on their industries and develop strategic plans to adapt to this change.

Going big: the rising influence of corporations on cleantech growth, EY's 2010 global survey of corporations with
more than US$1b in revenue, showed that cleantech is an organization-wide or business-unit-level initiative for
89% of respondents; 33% spend 3% or more of total revenues on cleantech and 75% expect cleantech spending
to increase over the next five years.

Governments also view cleantech as a national strategic platform for creating jobs, fostering innovation and
establishing local industries. According to Bloomberg New Energy Finance, investment in cleantech surged 30%
in 2010 over the previous year to US$243b, double the amount recorded in 2006 and nearly five times that of
2004.

But this is not enough.

There is still a large gap between the capital required and the capital available to fuel the transition to a low-
carbon economy. Primary energy demand is expected to grow by 36% worldwide between 2019 and 2035, with
the bulk of that new energy use (93%) coming from emerging markets.

By 2035, China alone will see its energy needs rise by 75%, according to the International Energy Agency (IEA)
report, World Energy Outlook 2010.

In the coming years, surging demand, energy prices, energy security concerns and scarcity of natural resources
will encourage governments and companies to work harder to diversify their energy portfolio mix and to continue
investments in clean energy innovation, deployment and adoption.

This inevitable move to a low-carbon, resource-efficient economy presents an opportunity to stake out and
capture a strategic competitive position — not just for governments, but also for innovators, investors and
corporations, too.

Looking ahead, we see a number of important changes:

The energy mix evolves

Renewable energy is still expensive in most places, which will limit its use in the short run. But as wind, solar and
other renewable projects scale up, their prices will continue to fall.

The IEA predicts that power generation using renewables will triple between 2010 and 2035. Fossil fuels such as
oil and coal will lose market share over time, as natural gas and nuclear power contribute to the diversified energy
mix.
There has been a surge in construction of nuclear power reactors worldwide. Natural gas, a cleaner-burning fossil
fuel, is expected to grow more important, serving as a bridge to a renewables-based economy.

Clean energy is a national competitive advantage

Many governments are aggressively implementing clean energy policies, setting emissions targets and providing
incentives for cleantech investing.

China, Germany, India and Brazil are gaining leadership positions in solar, wind and biofuels.

The US remains a cleantech leader because of its entrepreneurial culture and vibrant venture capital
environment. Policy-makers are betting that cleantech investments will yield other benefits such as job creation
and innovation-led economic growth.

Notably, private investment is flowing to countries with comprehensive, clear and long-term energy policies aimed
at incentivizing renewable energy use, promoting efficiency and reducing carbon emissions.

Companies make cleantech a strategic priority

Sensing commercial opportunity, companies increasingly are building cleantech into their growth strategies. Many
are also "greening" their existing products in response to increasing consumer demand.

Others are moving into growth areas that fall outside their traditional lines of business, hoping to achieve first-
mover advantage as the landscape evolves. For example, Google and Cisco have both entered the home energy
management space.

In the past year, corporate activity in the cleantech marketplace has significantly increased through direct
investments, partnerships and acquisitions of newly formed cleantech companies.

Raw materials are strategic assets, especially in a time of scarcity. To secure them, some governments have
turned outward. China, for example, is now deeply invested in Africa.

Companies, meanwhile, are reconfiguring supply chains, seeking greater flexibility in an effort to mitigate the
impact of raw materials shortages, higher commodity costs and price volatility. Some businesses are protecting
their supply chains by acquiring their raw material suppliers. Steelmakers, for example, have recently bought
several iron ore and coal mines in different countries to guard against supply chain disruptions.

Organizations are more transparent about sustainability

As concerns about resource scarcity, including energy and water, become more pressing, companies will face
increasing pressure from their stakeholders to demonstrate that their businesses are sustainable.

Companies will also have to disclose the social and environmental impact of their business activities. Although
most sustainability reporting is currently voluntary, the broad trend is toward greater disclosure.

More than 3,000 companies worldwide issue such reports, following such voluntary guidelines as the AA1000
AccountAbility Principles Standard and the Global Reporting Initiative Reporting Framework.

These voluntary guidelines may soon become mandatory.

 Six global trends shaping the
business worldGlobal banking
seeks recovery
through transformation
rkets banks rose from the financial crisis without a scratch.

Summary: The global financial system remains in flux. The uncertain landscape
poses both opportunities and risks for financial institutions, alternative asset
managers and other enterprises that need funding to meet growth objectives.
Three years after the financial crisis began, the global financial system remains in flux. Regulatory clarity is
nearing, but many issues remain unresolved.

Initiatives of the G20, the Basel III global banking standards and the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the Dodd-Frank Act) in the US have begun to bring some aspects of the new rules into
focus.

While regulators have focused mostly on the systemic risk posed by some of the largest and most interconnected
institutions, banks are concerned with their ability to compete and the resulting regulatory impact on returns.

The final shape of the global regulatory framework is still unclear, but it seems clear that international banking will
change in fundamental ways, including:
 Limits on executive pay
 Heightened corporate governance
 Strengthened consumer protection
 More regulation and transparency of the over-the-counter (OTC) derivatives
 Restrictions on proprietary trading and investments in hedge funds and private equity (PE) funds in the
US

More specifically, we believe:

Emerging market financial institutions are gaining global stature

In the developed world many financial institutions continue to recover from the financial crisis, and, in many
cases, emerging market banks are in better shape. Many rose from the crisis with hardly a scratch.

While the traditional top two international financial centers — New York and London — remain secure in their
status, capitals of finance in Asia are rising in the rankings.

In The Global Financial Centres Index's September 2010 ranking, Hong Kong rose to third position, while
Singapore was fourth.

It is growing increasingly apparent that the banking sectors and institutions of emerging markets — particularly
those of China, India and Brazil — will make a strong move toward increasing their presence on the global scene.

As 2011 unfolds, emerging market banks are well positioned to continue to benefit from strong credit growth in
their local economies.
However, while many emerging market banks have the scale to consider expanding into other emerging or
developed markets, there remain a number of barriers to entry, including the lack, in many cases, of robust
investment banking capabilities.

G20 initiatives will require increased regulatory oversight

In the US, the Dodd-Frank Act mandates that OTC derivatives, for example, be regulated by the SEC and the
Commodity Futures Trading Commission (CFTC).

Similar rules are also expected in the EU and the UK.

At the same time, new consumer financial protection agencies have been created and proposals to strengthen
consumer protection authorities have been proposed.

New rules limiting executive compensation are a major regulatory focus affecting the sector. The goal is to ensure
that excessive risk-taking is not rewarded. These measures include an agreement to lower 2010's aggregate
bank bonuses in the UK from the previous year, increase transparency and reduce clawbacks and deferred
shares subject to vesting periods.

Regulation will drive up the cost of business for many large financial institutions
The substance of the new rules creates challenges. For instance, Basel III requires banks to boost capital and
liquidity levels, implement a leverage ratio, increase risk coverage for certain assets and activities and raise
standards for supervisory review.

In the US, the Dodd-Frank Act is more than 2,300 pages long and will require agencies to write 353 new rules and
conduct 68 studies.

Not surprisingly, large financial institutions cite regulatory uncertainty as the biggest challenge they face.

Their uncertainty is compounded by the fragmentation of regulations, as individual countries set out to make their
own rules.

Financial services will realign

As a result of this environment, large financial institutions will likely need to modify their business models. Morgan
Stanley Research recently estimated that the top 12 wholesale banks will sell off, reduce or shut down about
US$1.3 trillion of their risk-weighted assets under Basel III.

Banks will look to emerging markets for growth opportunities, but their success will very much depend on their
ability to build critical mass and successful operations in these economies.

Alternative asset managers may be positioned to benefit from realignment of the

financial services industry
As commercial and investment banks are compelled to scale back their businesses, alternative asset managers,
including PE firms and hedge funds, are positioned to benefit. Complex products will not disappear; instead, they
may simply move to less-regulated segments of the industry.

Alternative asset organizations are moving into both the investment banking and proprietary trading spaces.
Entire trading and banking teams have moved into the alternative funds areas.

We expect this trend to continue. Increasingly, innovation in the capital markets may originate in this space.
 Six global trends shaping the
business worldGovernments
enhance ties with the private
sector
connectedness of nations and their economies should drive greater levels of global
ordination, despite the bumps along the way.

Summary: The past year has been one of readjustment between developed and
emerging economies, between the public and private sectors and between global
institutions and nations. These adjustments will continue as governments,
organizations and institutions define their roles in the post-crisis world.
The global recession left many developed countries with falling tax revenues and rising expenses. Key emerging
market countries did not experience the disruptions caused by the financial crisis, but they face the need to
develop infrastructure, educational institutions and social safety nets for their fast-growing middle classes.

To meet those needs, governments of both mature and developing countries have three priorities:
 To strengthen their finances
 To deliver their services more efficiently, effectively and economically
 And to make sure that the private sector grows in an economically sustainable manner and ensures
better employment

To achieve those goals, many governments are trying to further their national interests through diverse vehicles
and activities, including state-owned corporations, sovereign wealth funds (SWFs), industrial planning and
regulation.

The challenges are serious enough that we see governments taking an extremely active role in the economy.

Looking ahead, we believe governments will increasingly take the lead in five key areas:

Developed countries rebalance their finances

After several years of rising debt-to-GDP ratios, most developed countries are now struggling to put their finances
in order.

From 2006 through 2009, the overall developed country market debt-to-GDP ratio rose from less than 80% to
95%.
In 2011, the debt ratio is expected to break the 100% mark. Deutsche Bank projects that the debt-to-GDP ratio for
developed countries will reach 133% of GDP by 2020.

Alarmed by these numbers, developed economies at the G20 Summit in Toronto in June 2010 committed
themselves to reducing their deficits by 2013, and to stabilizing or reducing government debt-to-GDP ratios
by 2016.

Emerging markets countries expand their social benefits

Emerging markets countries with a surplus need to boost social spending on pensions, health care and
infrastructure. In some markets, a stronger safety net is intended to promote economic growth.
 Most Chinese, for example, essentially insure themselves through extraordinarily high household savings rates.
To strengthen its consumer economy, China must first convince consumers that it is safe for them to spend.

Emerging market countries also need to improve the effectiveness of their tax administration, and to invest in
infrastructure, telecommunications, transportation, education and housing. Public-private partnerships (PPPs) are
likely to become important investment vehicles in these markets.

Aging populations and immigration inflows pose new spending challenges

Meeting the needs of people who are living longer, healthier lives will have a tremendous financial impact.
Standard & Poor's reports that the median age-related public spending for developed economies (including health
care, pensions, long-term care and unemployment) is expected to rise from 17% of GDP in 2010 to 27% in 2050,
versus 11% to 17% for emerging market countries.

Median public spending on age-related health care in developed economies is expected to grow from 6% of GDP
in 2010 to 11% in 2050, versus 4% to 11% of GDP for emerging market economies.

Increased immigration flows are also expected to put upward pressure on future government spending.

Governments direct their economies

Against the backdrop of uneven economic recovery around the globe, governments continue to be active in
economic life. An enormous amount of wealth remains concentrated under state control in the form of SWFs.

Although SWF assets fell in value after the recession, they are set to grow again. The total assets of SWFs are
expected to climb from roughly US$3.5 trillion in 2010 to US$8 trillion by 2015, making SWFs powerful sources of
capital for years to come.

State-owned enterprises (SOEs) will remain important to defending strategic industries and guaranteeing the
adequacy of critical infrastructure in some countries. SOEs are becoming larger and more globally competitive:
 Sixty-two percent of Indian companies on the 2010 Fortune Global 500 list are SOEs.
 Forty-six Chinese SOEs (excluding Taiwan-based companies) are on the 2010 list, up from 34 in 2009.
 Three of China's state-owned energy giants are now in the top 10.

Governments balance global cooperation with pursuit of their national interests

Greater globalization necessitates a new agenda for international economic cooperation, but at the same time,
diverging domestic needs are creating conflict.

The G20 agree in principle that global rebalancing is desirable to create long-term economic growth and financial
stability. Developed economies have to save more and spend less to get their financial houses in order.

Key emerging markets need to reduce their reliance on exports and stimulate domestic demand. Meanwhile, the
need for faster economic growth is fueling new rounds of trade protectionism and stimulus plans.

Trade and currency issues were high on the agenda at the G20 Summit in Seoul in November 2010.

Debate centered on varying perceptions of China's valuation of its currency to drive exports, as well as
quantitative easing in the US and its potential to increase capital inflows to emerging countries and fuel asset
bubbles.

Despite fragmented views, the G20 Seoul declaration managed to reaffirm the notion of working together, with a
focus on moving toward more market-determined exchange rate systems, refraining from competitive devaluation
of currencies and pursuing a full range of policies conducive to reducing excessive imbalances.

Six global trends shaping the

business worldRapid technology
innovation creates
a smart, mobile world
“Ten to 20 years from now, we may look back on the present as the dawn
of the Smart Era: a time when rapid and continuous innovation changed
almost everything about the way we live.”Patrick A. Hyek, Global Technology Sector
Leader, Ernst & Young

Summary: Smart technology offers the promise of remote access to health care
and education, while blurring boundaries between industries. The power of the
individual will grow and new competitors will emerge, disrupting industries and
creating new business models.
Over the past 25 years, the digital revolution has changed the way we work and play almost beyond recognition.
Yet the smart, interconnected world we live in now is still neither as smart, nor as connected, as we would like it to
be.

Consumers want more powerful devices and applications, while businesses seek more cost-effective technology
to cope with increasingly complex challenges.

Satisfying these demands will lead to explosive growth in data and analytics, to new competition in almost every
field, and to the disruption and realignment of many industries.

Specifically, we expect to see the following changes:

Businesses will compete on analytics to differentiate themselves

The growing number of embedded sensors collecting information about the world, and the rise of social networks
that store the data people share, will generate immense quantities of information. IDC, a market research firm,
suggests that the amount of digital information created each year will increase to 35 trillion gigabytes by 2020,
requiring 44 times more data storage than in 2009.

For example, telematics applications, similar to global positioning systems, will allow organizations to send,
receive and store information via telecommunications devices while controlling remote objects.

Although commonly associated with the automotive industry, telematics applications are being developed for use
in medical informatics, health care and other fields. Despite these advances in technology, simply collecting and
managing the massive volumes of data will provide minimal value.

The real payback comes when business intelligence is applied to enable companies to make better strategic
decisions.

Business intelligence, which enables organizations to gather quantifiable data on each area of the organization
and analyze it in a way that yields information they can act on — helping them enhance decision making, improve
performance, mitigate risk and sometimes even create new business models —; is growing in importance.

Smart mobility will change the way people interact

Increasingly, smart devices — portable tools that connect to the internet — have become a part of our lives. In the
last quarter of 2010, sales of smartphones outpaced those of PCs for the first time, according to data from IDC.

By 2014, more smart devices could be used to access the internet than traditional computers. The move to an
increasingly mobile world will create new players and new opportunities for a variety of industries.
We expect that new emerging market companies will be significant competitors, growing rapidly in part because a
lack of legacy systems will enable them to profit more quickly from new technology as it becomes available.

Emerging markets will create plenty of opportunities related to smart technology, and they will not be limited to
for-profit enterprises

In Kenya, for example, mobile phones are being used to collect data and report on disease-specific issues from
more than 175 health centers serving over 1 million people. This technology has reduced the cost of the country’s
health information system by 25% and cut the time needed to report the information from four weeks to one week.

Smart mobility: technology-enabled options driving transformation

Source: EY

Technology blurs boundaries

Many industries will be disrupted by the consequences of technology innovation. The "blur" created by digital
technologies will intertwine geographies, economies, industries, products and even private and business lives.
Technology insiders have long spoken of "true convergence," and this is it.

As smart devices become increasingly accepted, companies will move into adjacent markets to exploit new
revenue models such as mobile commerce and mobile payment systems. Already, a number of data and tech
giants are jockeying for position.

As these waves of disruption continue, whole new markets will be created even as long-established businesses
are destroyed. In this changing environment, network providers, for example, will be faced with a choice: either
evolve into the role of innovation provider, or be content simply to serve as a utility.

Over the long term, the ultimate blurring of boundaries might take the form of Web 3.0 — often called the
"semantic web" — a term that refers to functions and activities involving the integration of machines, the web and
human beings. Currently the stuff of science fiction, the semantic web is nevertheless an area to watch.

Cloud computing takes off — finally

Analysts have been talking about cloud computing for years, but cloud-based services are finally starting to take
off.

By 2016, Gartner, a consultancy, expects all Forbes’ Global 2000 companies to use public cloud services,
transforming much of the current IT hardware, software and database markets into infinitely flexible utilities.
When cloud computing becomes widespread, it will transform businesses and business models, potentially
reducing both initial and recurring costs for IT buyers, increasing their flexibility and lowering their risks. What’s
not to like about an infinitely scalable, pay-as-you-go business model?

Despite concerns related to data security, privacy and business continuity, its value proposition makes the
success of cloud computing inevitable. Over time, cloud-based services will grow increasingly sophisticated and
evolve into full-scale business processes as a service.

The power of the individual will spur innovation

Google, Facebook, Twitter, smartphones, tablets and e-readers — technologies that originated in the consumer
space — are now reshaping the way companies communicate and collaborate with employees, partners and
customers.

Through the new possibilities for "social listening," businesses are able to better understand what their customers
and employees need and want.

More change can be expected when the generation that has grown up with new technologies and instant
information gratification joins the workforce.

For example, by 2014, Gartner forecasts that social networks will become the main form of business
communication for 20% of employees worldwide.

Government’s role in innovation grows

Governments will increasingly become involved in technology, investing in a broad range of applications — from
home-grown innovation incubators to local manufacturing sites that create jobs and manage geopolitical risk.

In cloud computing, for example, governments are taking the lead, much as the US did in the development of the
internet.

In China, the Beijing Academy of Science and Technology has built the country’s largest industrial cloud-
computing platform, designed to serve small- and medium-sized enterprises in government-supported industries,
including biotech, pharmaceuticals, new energy and knowledge-intensive manufacturing.

At the same time, governments haven’t forgotten their regulatory role. As citizens share more personal data on
websites such as Facebook, many governments are considering regulations to protect citizens’ privacy and
corporations’ data.

The EU is developing stricter privacy rules, including an "online right to be forgotten," which would require
websites to delete data permanently at an individual’s request.

However, the public pressure to strengthen privacy protection through legislative means is likely to vary by region.
Consumers in regions such as North America, for example, seem willing to trade some privacy in return for
customized service.

Six global trends shaping the

business worldDemographic shifts
transform the global workforce
of employers worldwide find it difficult to fill positions because of talent shortages in

Summary: Never before has demographic change happened so quickly. Global

employers face the challenge that, despite a growing global population, they will
soon have to recruit from a shrinking workforce due to an aging population.
Despite a growing global population, the availability of skilled workers is actually shrinking, and no longer just in
advanced, aging countries such as Japan and Italy. Now, some emerging markets, such as China and Russia,
are also feeling a demographic pinch.

The data suggests that this is only the beginning. A “demographic divide” will soon arise between countries with
younger skilled workers and those that face an aging, shrinking workforce. The war for talent will become
increasingly acute in certain sectors, especially areas requiring high skill levels and more education.

More specifically, we expect:

Labor force demographics will shift profoundly

Despite projected growth in the global population from 6.9 billion in 2010 to 7.6 billion in 2020, the working-age
population is expected to decline in many countries. Japan already has more people exiting the workforce than
there are workers prepared to enter it.

In the European labor market, 2010 marked the first time more workers retired than joined the workforce. While
this labor gap is a relatively manageable 200,000, it will surge to 8.3 million by 2030.

By the end of this decade, other large economies such as Russia, Canada, South Korea and China will also have
more people at retirement age than are entering the workforce. Other, younger countries stand to profit from
those trends.

One-third of India’s population is now under the age of 15.

Other emerging market economies with young labor forces such as Brazil, Mexico and Indonesia may benefit
from a demographic dividend, a surge in productivity and growth as those workers join the labor pool.

But the dividend pays off only if the country provides its youth with adequate educational and economic
opportunities to develop their skills.

There is a growing mismatch between the skills employers need and the talent
available
An estimated 31% of employers worldwide find it difficult to fill positions because of talent shortages in their
markets, reports the 2010 Talent Shortage Survey from Manpower, an international employment agency.

When it comes to attracting employees with critical skills, the task becomes even more challenging. Today, 65%
of global companies and more than 80% of companies in fast-growth economies are having problems finding
employees with the skills they need, according to Towers Watson, an HR consultancy.

Why can’t companies find the right talent despite the growing ranks of college-educated workers and the high
unemployment in some of the best-educated markets?

Problems attracting 
critical-skill employees

Part of the answer has to do with the rising skill level needed in the evolving global economy.
Another element is the failure of educational systems to produce an adequate base of talent to meet these
changing needs. Although educational access is growing worldwide, not enough students graduate with the skills
desired by global employers.

“Generation U” and women to fill the skills gaps

Desperate for workers, many companies will become more accepting of diverse employees, particularly older
workers and women.

The leading US advocacy group for retired people, the AARP, believes that 80% of baby boomers will keep
working full- or part-time past their current retirement age.

The Pew Research Center predicts that Generation U (unretired) workers will fuel 93% of the growth in the US
labor market through 2016.

Women, an increasingly well-educated source of talent, have entered the workforce in ever greater numbers in
recent decades. However, their talents are still often underutilized.

This is particularly true in societies with traditional views of gender roles, including many fast-growing economies.

The talent market is increasingly global and mobile

Economic development and greater integration across markets in the past few decades have caused many
talented people to explore career opportunities overseas.

Cross-border migration has grown 42% in the last decade, from 150 million to 214 million, with most of the traffic
directed toward OECD countries.

Higher unemployment in developed markets has discouraged many migrants recently. Between a lack of
opportunity and local hostility to migrant workers, more would-be migrants are staying home.

New legal restrictions also have created a disincentive.

As the economy recovers, however, demand for labor is expected to bounce back — and migration along with it.
Some countries have taken initial steps to soften or reverse restrictive policy changes that they implemented at
the height of the recession.

The dramatic growth of emerging market countries is also beginning to change migration patterns. Although
developed markets are still a top choice for economic migrants, we are increasingly seeing reverse migration as
well.

According to the World Economic Forum, “The return migration of highly skilled workers to their home countries is
a growing trend for emerging countries.”

Employees gain more bargaining power

Over the past 20 or 30 years, the bond between company and employee has weakened, even in corporate
cultures where loyalty was once prized.

Fast-changing company needs and a desire to cut costs led first to more frequent layoffs, and then to
nontraditional relationships where the expectation was not decades of service, but only a few years.

In a period of high unemployment, this new social contract is an advantage for the employer. But as the market
turns, skilled employees should benefit. They will want a better understanding of their employment options and a
greater say in how work is assigned, assessed and rewarded.

The employer will no longer define the workplace; rather, employees’ priorities and preferences will dictate what
the future workplace will look like, particularly now that technology makes it easier than ever to design a variety of
flexible arrangements.

Companies operating in aging societies will have to craft methods to engage or re-engage the experienced base
of talent. Companies that fail to respond to this change and do not succeed in redefining their employee value
proposition will fail to attract, retain or develop talent effectively.