Dear Colleagues! This is Asrar Qureshi’s Blog Post #1042 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to pharmaveterans2017@gmail.com for publishing our contributions here.
This blogpost is based on a survey report of MGI – Mckinsey Global Institute. Owing to the enormity of subject, it will take more than one blog post. Link at the end.
Preamble
The McKinsey Global Institute was established in 1990. Its mission is to provide a fact base to support decision making on the economic and business issues most critical to the companies around the world and policy leaders. MGI works independently and none of its work is commissioned or funded by any business, government, or any other institution. Chris Bradley, Michael Chui, Kevin Russel, Kweilin Ellingrud, Michael Birshan, and Suhayl Chettih authored/ compiled the report under discussion. It was published on December 3, 2024.
Arena is a general English term mostly used in relation to sports and is reserved for a center stage or an oval space in the center of the ground where competitions take place. Arena is also used to describe ‘a field of conflict, activity, or endeavor’, which is the meaning here.
Arenas are a unique category of industries defined by two characteristics and three elements. The two characteristics are: high growth and dynamism. Three elements are: business model or technological step changes; heavy investments that change the pace of growth; and a large and/or growing relevant market.
This survey identifies 12 arenas from 2005 to 2020, in which certain companies grew much bigger than others. Based on this learning, they have identified 18 arenas of today which possibly would shape the global economy, generating $29 trillion to $48 trillion in revenue by 2040.
Market Scenario
Certain industries create more value and have a greater impact than others. These outperformers are termed here as ‘arenas of competition’. Due to their high growth and high dynamism, they capture an outsize share of the economy’s overall expansion, while the market share within them changes hands to outsize degrees.
If you go back to 2005 which was not too far away, the top ten titans of industry were oil companies, retailers, pharmaceutical companies and one software company, Microsoft. The average market cap was $250 billion. Today, nine out of those top ten companies have been replaced by companies that are giant – eight times bigger in value at 1.9 trillion. Almost all are driven by new technologies and business models.
An arena typically starts with a significant breakthrough in technology or business model that fundamentally changes how a product is developed or delivered. They also receive an ever-escalating rate of investment so they can expand at breakneck speed, improving in quality and scaling in size, and operate in a large or growing addressable market.
There have been striking differences between arenas and non-arenas. For example, the arenas of today generated only 9% of total sample’s economic profit in 2005; by 2019, they accounted of 49% of economic profit.
12 Arenas of Today
The twelve arenas that grew between 2005 and 2020 are given below. Their current market capitalization is also given below.
- Software – market cap $3.6 trillion
- Semiconductors – market cap $3.5 trillion
- Consumer internet – market cap #3.5 trillion
- E-commerce – market cap $3.3 trillion
- Consumer electronics – market cap $2.5 trillion
- Biopharma – market cap $2.3 trillion
- Industrial electronics – $2.0 trillion
- Payments – market cap $1.6 trillion
- Video and audio entertainment – market cap $1.5 trillion
- Cloud services – market cap $1.0 trillion
- Electric vehicles – market cap $940 billion
- Information-enabled business services – market cap $890 billion
The above arenas stand out from other industries in six ways.
- Arenas captured an increasing share of economic profit – In 2005, they generated $55 billion, but by 2019, they were generating $250 billion in economic profit.
- Arenas attracted outsize levels of investment for innovation – their share of R&D investment was already high in 2005, but that figure increased to 65% of US business R&D spend in 2020.
- Arenas enabled new entrants to grow – In 2020, 33% of arenas’ total market capitalization was held by companies that were either considered ‘outsiders’ in 2005, or had market caps of less than $3.5 billion, or existed but did not pose meaningful competition, or did not exist yet.
- Arenas spawned giants – In 2020, 74% of arenas’ total market cap was held by companies with market cap greater than $50 billion. Within this, 50% of total market cap was held by companies with market cap greater than $200 billion. Microsoft had a market cap of $278 bullion in 2005, which rose to $1.6 trillion in 2020, and stands at $3.34 trillion in December 2024.
- Arenas tended to be more concentrated – For example. The top ten players in five arenas – cloud services, consumer electronics, consumer internet, EVs, and payments – accounted for about 90% of total market cap of arenas.
- Arenas were more global – On average, 50% of arena revenues were generated outside companies’ home regions. Companies in arenas were also much more likely to be multinational. The software arena is particularly global. Its four largest companies by 2020, revenues – Microsoft, IBM, Oracle, and SAP – generated more than 60% of their revenues outside their home countries.
Sum Up
These 12 arenas tell the story of extraordinary achievements between 2005 and 2020. COVID19 was a major disruption but it created much more business, particularly new one, than the losses it might have created.
The takeaway for students is to see what kind of knowledge and skills are more relevant for future. For businesspeople, it would be a compass to set future direction when this discussion is completed.
Concluded.
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For most blogs, I research from several sources which are open to public. Their links are mentioned under references. There is no intent to infringe upon anyone’s copyrights. If, however, it happens unintentionally, I offer my sincere regrets.
Reference:
https://www.mckinsey.com/mgi/our-research/the-next-big-arenas-of-competition