Canada in the Asian Century

McKinsey & Company |
Canada in the Asian Century
May 30, 2013
4Front Atlantic
Dominic Barton
Global Managing Director, McKinsey & Company

McKinsey & Company | 1
Topics for discussion
A new Asian Century is beginning1
Opportunities from Asia2
Implications for all of us3

Five mega-trends reshaping the global economy
Pricing the planet
The productivity imperative
The market state
The great rebalancing
The global grid

Old Shanghai …

… new Shanghai

What will these cities look like in 10 years?
Bogor, West Java, Indonesia
Anshun, Guizhou, China
Puducherry, India (Pondicherry)

3 billion new middle class consumers by 2030
3 billion
Asia
Europe
North America
Central and South America
Middle East and North Africa
Sub-Saharan Africa
2030
3.23
2020
1.74
2009
0.53
1.85
3.25
4.88
SOURCE: McKinsey Global Institute
1 Consuming class = $10 or more daily disposable income or $3,600 annual income (constant 2005 USD at purchasing power parity)
Global consuming class1
Billions of people

Incomes are rising in developing economies faster, and at a greater scale,
than at any previous point in history
SOURCE: Angus Maddison; University of Groningen; Resource Revolution: Meeting the world’s energy, materials, food,
and water needs, McKinsey Global Institute, 2011
9
840
1,023
27
48
28
10
Country
154
53
65
33
1700 1800 1900 2000
India
12
16
China
South Korea 10
Japan
Germany
United States
United Kingdom
Year
Population at start
of growth period
Years to double GDP per capita
Million

Million people
135
195
180
145
Consuming class
Below
consuming class
2030
280
2020
265
85
2010
240
45
40 90
Additional people in
the consuming class
since 2010
In Indonesia alone, 90 million people – 2.5x Canada’s current population –
will join the consuming class

McKinsey & Company | 9SOURCE: McKinsey Global Institute Cityscope 2.0
Percent contribution to global GDP growth, 2010–2025
100% = $50.2 trillion
6
27
26
100
28
Global
growth
Eastern
Europe &
Central Asia
Developed
countries
Other
emerging
regions
2
3
Middle East
& Africa
4
Latin
America
Southeast
Asia
South Asia
3
China
region
Asian cities
Emerging 440 (440 largest
cities in emerging markets)
440 cities in emerging markets will fuel nearly half
of the growth in global GDP through 2025
47%
of global
growth
440 largest
emerging
market cities
=
In China, 15-20 MM people move to a city each year –
equal to adding New York City twice
313 cities
in Asia

Middleweight cities in emerging markets will contribute
4.5x more to global GDP growth than emerging market megacities
SOURCE: McKinsey Global Institute CityScope 1.1
Developed economies
Emerging market small
cities and rural
Emerging market
megacities
(10 M+ people)
Emerging market middle-
weight cities
(150 k-10 M people)
100% = $54.9 T
26
30
8
36
Share of global GDP growth, 2007-25
Percent Examples
Surat, Gujarat
West coast of India
4 million inhabitants
40% of India’s textile production
Foshan, Guangdong
Southeast China
China’s 7th largest city by GDP
Pekanbaru, Riau
Island of Sumatra, western Indonesia
7.3% GDP CAGR expected through
2030

Chengdu
2010 GDP for urban clusters
$ Billions
`
Chongqing
Nanning
Hefei
Changzhutan
Hangzhou
Nanchang
Shenzhen
Yangzi mid-lower
Coast West
Shandong Byland
Nanjing
Shanghai
Guanzhong
Taiyuan
Central
Changchun-
Harbin
Guangzhou
(includes Foshan)
Kunming
Liao central-south
Jingjinji
Huhehaote
Cities can be grouped into clusters around a hub city – some clusters are
already economically larger than entire countries
357
378
418
469
475
527
527
Guangzhou
Austria
Shandong
Belgium
Jingjinji
Switzerland
Shanghai
Urban clusters in China and their hub cities

Disruptive technologies will have enormous economic impact by 2025
SOURCE: McKinsey Global Institute analysis
0.2–0.3
0.1–0.5
0.2–0.5
0.2–0.6
0.1–0.6
0.7–1.6
0.2–1.9
1.7–4.5
1.7–6.2
2.7–6.2
5.2–6.7
3.7–10.8
$ trillion, annual
Mobile Internet
Automation of knowledge work
Internet of Things
Cloud technology
Advanced robotics
Autonomous and near-autonomous
vehicles
Next-generation genomics
Energy storage
3D printing
Advanced materials
Advanced oil and gas exploration
and recovery
Renewable energy

Amount of data is exploding in all sectors globally
220 B photos
stored
1 M transactions
every hour
2 M searches
every minute
4 B page views
every day
Mobile data traffic doubled
in 2012
More data transmitted online
in 2010, than all previous years
More information created
than from 0 AD-2003
15 out of 17
U.S. sectors
have more data
per company than the
U.S. Library of Congress

33%
8%
6%
2006
10%
2010
33%
9%
2009
36%
2011
16%
6%
2007
7%
25%
2008
20%
2011
34%
10%
Purchase decisions and sales are increasingly being made online –
in both Western markets and in Asia
Online
Offline
influenced
by online
United States Shanghai
Online-related retail sales
Percent of total retail sales

People will need to work longer, retire later, and engage in lifelong learning
10 working adults support
1 retiree
2000
1 retiree
2020
1 retiree
2050
Emerging markets

We will also face a global shortage of skilled workers
and a surplus of low-skilled workers
94
-45-41
Low-skillMedium-skillHigh-skill
Global balance of workers, 2020E
Million workers

The continuing rise of emerging markets will further strain global
resources to an unprecedented level
Water FoodEnergy
Increasing gap between
demand and supply of
fossil fuels; e.g., by 2030
▪ 25% gap for oil
▪ 30% gap for gas
10,000 years of
historical food
production that
must be matched
in the next 50 years
~40% gap between
supply and demand by
2030

After declining over the 20th century, commodity prices have more than
doubled in the last decade
40
60
80
100
120
140
160
180
200
220
240
260
1990 2000 20101900 19801970196019501940193019201910
World War I
Postwar
depression
Great
Depression
World War II 1970s oil shock
McKinsey Commodity Price Index (years 1999 - 2001 = 100)
Turning point
in price trend

Volatility – growth will not be a straight line
(there will be asset bubbles)
Rising income inequality plus technology
Resource scarcity
Interregional conflict
Healthcare challenges – pandemics
Education does not keep pace with urbanization
Risks associated with pursuit of growth opportunities

The lifespan for companies is decreasing
Estimated lifespan of S&P 500 companies, years
18
22
30
45
90
20111995197519551935

Seven significant opportunities from Asia
▪ Consumers – $22 T consumption in emerging markets in 2025 and 2.7 B
new middle class consumers by 2030
▪ Education – 1 B Asian youth to educate in any given year and a 36 M
shortage of skilled workers in China and India by 2020
▪ Infrastructure – $57 T global demand over next 18 years, with $27 T
expected spend in emerging Asia
▪ Tourism – approximately 80 million outbound Chinese travelers in 2012,
growing to over 110 million in 2015
▪ Natural resources – 30% increase in global energy needs and 80% in steel
needs by 2030
▪ Agriculture & food – 2x global increase in meat demand by 2050 due to rise
of emerging markets, anticipated 60+% rise in meat consumption in China
▪ Health care – a $7 trillion global industry; costs expected to triple across
Asia by 2020

Emerging market consumption will be $30 trillion by 2025,
nearly half of global total
$ Trillions
26
34
12
30
Developed
Emerging
2025
64
2010
38 Brazil 3
India
10
China 8
Total 30
1
Other
Poland 1
Turkey 1
Indonesia 1
Mexico
Russia 2
3
World consumption Emerging market consumption in 2025

McKinsey & Company | 24SOURCE: McKinsey analysis; Global Insight; Economist Intelligence Unit
2,823
2000
1,858
1990
817
2010
+245%
Asian consumers’ disposable incomes have been rapidly increasing
over the last two decades
+165%
1990
N/A
20102000
381
1,010
1990
+133%446
2000
465
1,040
2010
Indonesia
+204%
20102000
2,464
7,480
2,989
1990
80
247
522
201020001990
+553%
India
Turkey Vietnam
Urban China
Per capita disposable income
USD (2010 real terms)

The Chinese market already rivals Western markets
in regards to consumption
2nd largest digital camera market
after the US – more units than Japan, South Korea, and
Singapore combined
Flat-screen TV sales of 50 million
– 42 M sold in the US and Canada
Largest retail market for laptop computers
(27 M units vs. 22 M units in the US in 2012)
Laundry softener sales have grown
20% annually for the past 5 years
– surpassing sales in Germany and France

SOURCE: FAO World Food and Agriculture to 2030/2050; FAO Expert Meeting on How to Feed the World in 2050;
McKinsey analysis
Global growth by 2050
As incomes grow, caloric intake, especially from meat, will rise
892
~2x
475
2050E2010
Million tons of dairy
1.44
~1.5x
1.00
2050E2010
Billion tons of cereals
464
227
~2x
2050E2010
Million tons of meat

China – the world’s largest market for meat at $300 B –
has substantial room to grow further
45
50
57
66
76
109
130
+61%
Japan
China
South Korea
Taiwan
EU-27
US
Hong Kong
Per capita meat consumption 2010
kilo/year
50
85 90 94
50
15 10 6
100% =
ROW
China
Dairy
383
Beef
260
Poultry
173
Pork
400
SOURCE: USDA, NBS
China’s share of consumption
%, 100% = $B Total

22
120
79
22
119
74
23
119
77
22
116
93
21
109
113
IndonesiaIndiaChina
20-24
15-19
10-14
5-9
0-4
School-age population, 2013
Millions
Ages
Asia has over 1 billion people to educate at any one time
436 M 583 M 110 M
India needs to put 50
million people through
vocational training
each year—and yet
has capacity for only
4 million
SOURCE: Economist Intelligence Unit

Despite growing domestic education systems, China and India will not be
able to meet demand for talent
In 2020
41M
23M
45M
13M
global shortage of tertiary educated workers
in China alone
global shortage of high school graduates
in India alone

0
50,000
100,000
150,000
200,000
2011-122010-112009-102008-092007-08
International students in the United States
China is sending more students abroad – while other countries stagnate
SOURCE: Institute of International Education
Turkey
Mexico
Vietnam
Japan
Canada
Taiwan
Saudi Arabia
South Korea
India
China

112
78
70
57
31
+15% p.a.
+26% p.a.
2012201120102005 2015E
Overseas tourism has soared in China and is expected to grow further
SOURCE: CEIC, China tourism yearbook, Euromonitor
China outbound travelers
Millions

% of total respondents
SOURCE: Insights China; 2010 China Consumer Survey, focus groups; team analysis
Relieving pressure and escaping to nature are Chinese travelers’
top motivators
63
11
19
Increase foreign
exposure
Learn knowledge
and culture
Relieve work
pressure & relax 10
4
4
8
14
Other (e.g., visit family)
Shopping
Entertainment
(e.g., karaoke)
Folk culture
Historic sites
Natural
landscape
(e.g., sea,
mountains)
59
% of respondents
The first thing that we seek is natural
landscape, especially things that we
can’t see here such as the sea
Wuhan participant
Primary purpose for travelTop 3 motivations for travel

McKinsey & Company | 33SOURCE: McKinsey Insights China; McKinsey Global Economic Growth Database; McKinsey Global Institute
1 Stock of net fixed assets at the end of the year, assuming 5% depreciation rate for all the assets
Demand for infrastructure rises as income increases
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
Capital stock per capita1
140
120
100
80
60
40
20
0
GDP per capita
Urban
China
China
India
Germany
South Korea
Japan
Italy
UK
US
Capital stock vs. GDP per capita by country and year, 1980–2008
$ Thousands, sample of selected countries, constant 2005 prices and exchange rates

Length of expressways
Thousand km
Length of railways
Thousand km
Airports
Number of airports
Capacity of container terminals
M TEU (20-foot equivalent units)
120
90
78
+33%
202020102007
China plans to rapidly expand infrastructure
100
65
54
+54%
202020102007
244
192
152
+27%
202020102007
240
136
95
+76%
202020102007
SOURCE: CIA factbook; S&P; World Bank; IWG; Difu; Yearbook of China Transportation and Communications; team
analysis

Pudong District, Shanghai
$27 trillion
Asia infrastructure
investment need
2013-2030
SOURCE: Lujiazui Road, Pudong District, Shanghai
$57 trillion
global infrastructure
investment need
2013-2030

Emerging markets have significant infrastructure capacity to develop
SOURCE: CIA World Factbook 2012; Infrastructure Africa; Economic Research Institute for ASEAN and East Asia; World
Economic Forum, Global Competitiveness Report 2011–2012; McKinsey Global Institute analysis
3
6
23
40
66
Kazakhstan
Russia
Indonesia
China
United States
Germany 181
Japan 320
6
5
3
9
23
72
118
23
35
97
47
529
902
378
Developing
Developed
Airports
Airports per million sq km
Rail
Rail km per 1,000 sq km
Roads
Road km per 1,000 sq km

McKinsey & Company | 37SOURCE: Global Insight; IEA; UN Environment Program (UNEP); FAO; World Steel Association; McKinsey analysis
398
654
+33%
2030
4922010
2000
5682020
+80%
1,847
2,290
1,271
761
6,350
+41%
5,500
4,500
4,000
234
191
137
287
+50%
Rising middle class, urbanization, and infrastructure build-up will drive
strong global resource demand
Fertilizer
Million tonnes
Water
Cubic kilometers
Steel
Million tonnes
Primary energy
Quadrillion BTU1
1 British Thermal Units

McKinsey & Company | 38SOURCE: McKinsey 2011 global copper, iron ore, steel, and metallurgical coal models
31
20 +55%
2,559
1,935 +32%
1,178
837 +41%
Global demand for basic materials will also rise significantly
Global demand
Million metric tonnes
Coal
Iron ore
Copper
2010 2020

China and India will account for over 60% of the growth in
energy demand through 2030
Energy demand
Quadrillion BTUs (British Thermal Unit), Percent
41
20
5
31
Share of growth
%
4
SOURCE: McKinsey analysis
42%
36% 33%
28% 27% 28%
2030
654
9%
100%
5%
2020
578
India
China
Global
(e.g., planes)
OECD & EU-27
7%
25%
5%
2010
492
5%
20%
5%
Rest of world
25%

McKinsey & Company | 41SOURCE: Compete to Win, Canada Competition Policy Review Panel, 2008
What will it take to deliver to our
grandchildren the same measure
of progress we have enjoyed?
We believe that it will take a
more competitive mindset.
We must embrace competition
as savvy and determined players
with a focus on Canada’s
interests.
We must skate harder, shoot
harder and keep our elbows up
in the corners.

Yukon
British
Columbia
Alberta Manitoba
Newfoundland
and Labrador
Northwest
Territories
New Brunswick
Ontario
Québec
Saskat-
chewan
Nunavut
Nova Scotia
Prince Edward Island
39
46
19 17
16 12
16
Most Canadians do not consider our country to be part of the Asia Pacific
SOURCE: Asia Pacific Foundation of Canada National Opinion Poll: Canadian Views of Asia, 2012
I consider Canada to be part of the Asia Pacific region
Percent in agreement
17

Exports from Atlantic Canada remain heavily US-focused
2
12
75
USA
5China
5
Rest of Asia
1Europe
Africa LatAm
SOURCE: Industry Canada, 2012

Australia’s curriculum reflects the imperative for the next generation
to succeed in Asia
 Asia is a cross-subject priority from kindergarten to grade
10 – English, Asian languages, history, science, and math
 Every Australian child will have opportunity to study an Asian
language (Mandarin, Hindi, Indonesian, or Japanese)
 Goal is to enable Australians to live, work, and learn in Asia
 Australian business leaders visit secondary schools to build
awareness of the importance of Asia
 Australia-Asia BRIDGE connects schools in both regions –
400 teacher exchange, 250+ virtual classrooms

Ideas for increasing Asian awareness in Atlantic Canada
Establish an “Atlantic Canada EDB” to increase focus on Asian FDI and
enable one stop access to investment opportunities in Atlantic Canada
Establish Asian advisory group for Atlantic Canada (comprised of 10-20
Asian CEOs, meet annually for two day summit) to develop engagement
strategy and provide direct linkage
Launch annual roadshow for Asian investors (e.g., Victor Chu, Far Eastern
Finance) to engage with opportunities in Atlantic Canada (led by ‘EDB’)
Cluster SMEs with larger companies on Asian investment trips (e.g., similar to
Siemens approach)
Establish city pairings (top 10 Atlantic Canada cities with 10 rapidly developing
cities in Asia) to increase awareness, enable student exchanges etc.
Increase two-way awareness through targeted education initiatives
▪ Boost foreign student intake (tertiary, vocational, language) by 50% (9,000)
▪ Expand student exchange programs for both secondary and tertiary students
(consider making mandatory in select tertiary disciplines)
▪ Develop “Canadian boot camp” for Asian CEOs
Develop Asia-specific tourism initiatives for Chinese, Japanese and
Korean markets (e.g., Atlantic Canada 2015 campaigns)
11
22
33
77
44
55
66

McKinsey & Company | 46SOURCE: Press search
Collaboration
Universities Local companies
Silicon Valley
Boston
Zhongguancun
Tel Aviv

A through-cycle, dedicated, tri-sector approach is needed
to capture the opportunity in Asia
Coordinated relationship building
▪ Identify key decision-makers
(business, government,
regulatory, etc.) in target markets
▪ Recruit domestic leaders to build
relationships in a coordinated
fashion
Support strategic objectives
▪ Counsel policymakers on goals
and strategic initiatives related to
foreign partnerships
▪ Secure the right participants for
events and trade missions
▪ Proactively cultivate FDI and
support companies in finding
suitable business partners
▪ Federal Minister for Asia
– Cabinet rank
– Responsible for whole
of Asia agenda
– Cuts across ministries
▪ Provincial leaders
▪ Educational institutions
– Universities
– Schools
▪ Cultural
– Cirque du Soleil
– Music
– Sports
▪ NGOs
R&D – from
1.8% to 2.5%
of GDP
Business
Government
Social
sector

Foreign companies have benefited from long-term, dependable support
from their governments in making deals with China
SOURCE: Press search
Hollande is returning to Paris with no less than 18
business deals with Beijing, including contracts for
60 Airbuses and a nuclear project
China buys 50 Airbus jets worth up to $4 billion
during Merkel visit
Obama attends Boeing signing ceremony in
Indonesia for deal worth up to $35 billion

SOURCE: “International Education: A Key Driver of Canada’s Future Prosperity,” Advisory Panel on
Canada’s International Education Strategy, August 2012; Government of Quebec
49
United
Kingdom
United
States
Canada
Australia
International student
market share (est.)
Percent
10
18
5
13
International
students
Number
428,000
723,000
240,000
557,000
3 out of 5
university/college
international students
in Australia began their
studies in an Australian
language, technical or
other school
There is great opportunity to grow education as a major export to Asia

Canada has an opportunity to capture a much higher share
of Chinese travellers
Mongolia 0.3
Canada
0.3
0.3Germany
0.4
0.4
Indonesia 0.6
United Kingdom
1.1
Cambodia
Thailand
Australia
Singapore
1.5
1.2
1.0
USA
Russia
0.7
0.8
Vietnam
1.4
France
South Korea
1.6
2.4
1.8
1.7
Taiwan
Japan
Malaysia
SOURCE: CEIC, China tourism yearbook, Euromonitor (2011)
China international travellers by destination
Millions, 2011

1. Thailand
2. Hong Kong (Macau)
3. Europe
4. South Korea
5. Taiwan
6. Malaysia
7. Singapore
8. Australia
9. Bali
10. Japan
SOURCE: Ctrip survey 2/2013; China Tourism Academy “China outbound travel satisfaction survey”
Singapore 79.5
Germany 80.0
South Africa 80.2
Brazil 80.3
Agentina 81.0
France 82.3
New Zealand 82.5
Spain 82.6
Italy 82.7
Canada 84.5
Canada is not a high priority destination for Chinese travelers –
but those who do visit Canada enjoy it
Chinese tourist satisfaction rate
Top 10 most requested destinations
for Chinese outbound travelers
Although an government-approved
destination for Chinese tour operators,
Canada is not in the top 20 destinations

Years to break even Years to break even
11
7
8
4
10
8
Successful companies adopt a long-term investment mindset
to build a sizeable, profitable business
SOURCE: Press search; company reports
7
7
9
8
7
4

Leadership in a new era
Ready for
“trend breaks”
Tri-sector
athlete
Receptor
and connector
Strong
sense of
purpose
Calm in the
eye of the
hurricane
Always on
Telescope and
microscope
Marathon
and a
sprint
Role
Personal
attributes

Canada in the Asian Century

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