"Asia Is Asianizing!"

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McKinsey: Asia’s look’n good!
Since May of 2019, McKinsey & Company has been churning out research and thought papers on Asia and its future. These are just a few of many:

Asia’s Future Is Now
McKinsey in Southeast Asia
Why the Future is Asian

That McKinsey is bullish on Asia’s future is understatement. It’s obvious to most anyone that the Asian Century is for real and that it’s already here, and that it’s bulking up very quickly. Since the spring, McKinsey has been hammering home on what it sees as the key points of this transformation.

It’s also obvious to anyone that none of Asia’s bulking up would be possible either now or more so in the future without automation; manufacturing and logistics so desperately necessary for Asia to grow and sustain itself is impossible without automation.

A recent McKinsey podcast, A Conversation About the Future of Asia, featuring three of McKinsey’s senior partners stationed in Asia cuts to the chase about what is going on and why. The three McKinsey partners have three decades of combined experience in Asia; they are a good sounding board on Asian transformation…and future outlook.

Here in a bulleted list cut from the podcast’s transcript are the essential points of the future that Asia is shaping for itself. Download the full transcript here: PDF download.

Transcript excerpts from McKinsey podcast: A Conversation About the Future of Asia

Participants:
Wonsik Choi, senior partner McKinsey Seoul,
Oliver Tonby, senior partner McKinsey Singapore, and
Jonathan Woetzel is a senior partner McKinsey Shanghai

Asia is going to be home to 50 percent of world GDP by 2040. If you look at where the growth in consumption is coming from, the growth in the consuming class, it’s in Asia. China will remain an engine on growth, and the rest of Asia will contribute just as much.

Look at technology. In April, the world had an order of magnitude 300 unicorns, 119 of which are Asian. If you look at VC [venture capital] funding, 40 percent of VC funding globally is Asian. If you look at some of the world’s best-performing companies, they happen to be Asian.
In the past 50 years, seven countries in the world have grown at 3.5 percent or more in terms of GDP per capita. All of those countries are Asian countries. In the past 20 years, 11 countries have grown at or above 5 percent GDP per capita. More than half of them are Asian countries…
Half of the world in terms of GDP is going to be Asian. Half of the global middle class will be Asian. Forty percent of global consumption will be Asian. Simply put, in 20 years, half of the world will be Asia.

Twenty years ago, Asia had 2.2 billion people in the working age population. In 20 years, that number will increase to 3.4 billion people. That’s a whopping one-billion-person addition to the labor force.

What we’re starting to see now is Asia as an actual Asia where there are increasing linkages between the regions of Asia, both economically, and, for that matter, socially, environmentally, and physically. That is the context for it all. Whether we’re talking about manufacturing value chains that span multiple countries or innovation where finance unites the region across a whole bunch of multilocal solutions.
Or tourism, where there are flows to and from pretty much every Asian country, albeit with a substantial China focus or a China component to it, but with increasingly growing non-Chinese components. The flows which go regionally, not to and from China. I would say it’s an important side but trying to separate Asia into a China and a non-China would sort of miss the point of Asia: Asia as a region and Asia as an interconnected network.
60 percent of Asian trade now is intraregional trade. It’s a little bit lower than the European Union or little bit lower than Europe, but actually higher than North America, higher than Latin America, higher than any other region.
FDI [foreign direct investment]. Fifty percent of FDI is intraregional, meaning investments that are now going into the Indonesia and Malaysia and India are coming from within Asia.
Over the past ten years, we’ve finally started to see Chinese low-end value-added manufacturing migrate. Migrate internally, but also migrate to the region and throughout the region, notably to places that have a port, that have reliable local infrastructure, which are able to provide a low-cost, labor-intensive manufacturing option. That’s a finite number of places.

Some of the countries and regions that have picked up a share, have been of course Vietnam. We look at Hai Phong, for example, as an up-and-coming medium-sized city. That has really picked up a lot of share recently. There are others.

“Asia is Asianizing” —Parag Khanna, author of The Future Is Asian

If one goes to the Dhaka airport in Bangladesh, you see the same kinds of advertisements that we saw in China 25 years ago for Guangxi, for zipper manufacturers for the textile industry. I think that investments and manufacturing technologies are regional, with some things like machines from Japan or Korea or China, are now operated by people in Bangladesh or Cambodia or Vietnam.
On the technology side, I think what we start to observe—and I’ll link this a bit to finance—is that it is very multilocal in the sense that we have multiple ride-sharing technologies and networks and multiple internet search engines, reflecting the different regional characteristics.
What is common across many of these countries is the finance sources, in the sense that there is a regional venture capital, there’s a regional private equity, there’s a regional multilateral development bank network.
The flows in Japan and Korea, as the aging societies, are increasingly taking a leading role in the funding of technology, and by extension, by infrastructure, digital infrastructure, physical infrastructure, and the surpluses that are being generated by the aging societies are now increasingly being deployed across emerging Asia.
Then finally culture and tourism. I think it is fair to say that China is really driving the bus there. As we look at the flows we see this massive outgrowth in outbound tourism from China, notably to Bangkok, Thailand, where I understand Chinese tourists account for upwards of 9 or 10 percent of all Thai retail consumption, which is pretty amazing.
We look at what is called a power curve, which is, what are the companies that are delivering economic profit? In the top 10 percent globally, more than half of those happen to be Asian. These are the top 10 percent performing companies globally. More than half of them happen to be Asian. That’s performing in terms of economic value added over the cost of capital.
It’s important that we are aware of, if you look at the VC funding happening today in fields such as virtual reality, autonomous vehicles, 3-D printing, robotics, drones, AI [artificial intelligence], there is more VC funding for those happening in Asia than there is in the rest of the world.
One of the characteristics of Asian innovation I think is that it is multilocal in that while there is a sharing of the basic ideas and the standards, if you will, as well as the finance, but the actual marketplace that Asians are developing much of their technology for is an Asian marketplace.
It’s quite natural to see as areas and regions within Asia have a bigger local marketplace and they combine that with a source of human capital, and yes, a willing and large customer such as the government or a large employer, that they can and do develop their own local innovative capacities.
That’s what we mean by multilocal—it’s a cluster development. That’s what we are going to see across Asia, is a set of innovative clusters sharing global technology standards. We don’t think that, for example, there will be magically another 7G or 10G that sort of miraculously appears. China, Asia understands the value of having a common standard.
But a local development capacity to develop and to innovate against that standard, to meet that standard’s requirements. That’s what we are going to see.

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