g-f(2)3114 CEO Strategic Guide: The Next Big Arenas of Competition

 

Executive Overview of McKinsey's Analysis of Future Growth Markets

By Fernando Machuca and Claude

Key Strategic Takeaways

1. The scale of Opportunity: 18 emerging arenas could generate $29-48 trillion in revenues by 2040, representing 10-16% of global GDP (up from 4% in 2022)
2. Economic Impact: These arenas could deliver:
• $2-6 trillion in annual profits by 2040
• 18-34% share of total GDP growth
• Significant market share shifts and industry restructuring

What Makes an Arena Different from a Regular Industry?

Arenas demonstrate two critical characteristics:

1. Exceptional Growth: Capture a disproportionate share of economic growth
2. High Dynamism: Experience substantial market share shifts between players

The "Arena Creation Potion" - Three Essential Elements

1. Technology/Business Model Step Changes
• Fundamental transformation in product development or delivery
• Creates new S-curves of adoption and innovation
2. Escalatory Investment Mechanism
• Returns increase with scale
• Creates "arms race" of iterative investment
• Drives quality improvements, not just quantity
3. Large/Growing Addressable Market
• Either taps existing large markets
• Or creates entirely new demand pools

Strategic Categories of Future Arenas

1. Continuing Arenas (Current arenas that will remain dynamic)
• E-commerce ($14-20T by 2040)
• Electric vehicles ($2.5-3.2T)
• Cloud services ($1.6-3.4T)
• Semiconductors ($1.7-2.4T)
2. Spin-off Arenas (New segments from current arenas)
• AI software and services ($1.5-4.6T)
• Digital advertisements ($2.1-2.9T)
• Streaming video ($0.5-1.0T)
3. Emergent Arenas (Entirely new competitive spaces)
• Shared autonomous vehicles ($0.6-2.3T)
• Space ($1.0-1.6T)
• Cybersecurity ($0.6-1.2T)
• Batteries ($0.8-1.1T)
• And others including robotics, biotech, nuclear power

Critical Success Factors for Arena Competition

1. Investment Strategy
• Early and sustained R&D investment
• Capital expenditure for scale
• Network effect creation
2. Market Position
• First-mover advantages critical
• Scale benefits compound
• Regional vs. global strategy choices
3. Technology Leadership
• Core technology ownership
• Innovation pipeline
• Talent acquisition and retention

Major Swing Factors to Monitor

1. Geopolitical Developments
• Technology stack divergence
• Regional market access
• Supply chain restructuring
2. AI Development/Adoption
• Impact on productivity
• New use cases
• Industry transformation speed
3. Green Transition Pace
• Regulatory environment
• Consumer preferences
• Technology cost curves

Strategic Implications for CEOs

1. Portfolio Decisions
• Evaluate existing business exposure to arenas
• Consider entry strategies for promising arenas
• Plan for potential disruption of current businesses
2. Investment Priorities
• Align capital allocation with arena opportunities
• Build capabilities for chosen arenas
• Create options in multiple arenas
3. Organizational Readiness
• Develop arena-specific talent strategies
• Build flexible organizational structures
• Create appropriate risk management frameworks

Action Steps for CEOs

1. Immediate (Next 6 Months)
• Assess portfolio exposure to arenas
• Identify priority arenas for your organization
• Begin capability gap analysis
2. Medium Term (6-18 Months)
• Develop arena entry/expansion strategies
• Build key capabilities and partnerships
• Align investment portfolio
3. Long Term (18+ Months)
• Execute arena-specific strategies
• Monitor and adjust to swing factors
• Build sustainable competitive advantages

Key Performance Indicators to Track

1. Arena Development
• Market size growth rates
• Technology adoption curves
• Competitive intensity metrics
2. Company Position
• Market share in chosen arenas
• Relative investment levels
• Capability development progress
3. Risk Factors
• Regulatory changes
• Technology disruption
• Competitive moves

Conclusion

The emergence of these 18 arenas represents both significant opportunity and existential risk for incumbent businesses. Success will require careful strategic choices, sustained investment, and organizational transformation. CEOs must decide where and how to play in these emerging arenas while maintaining current business performance.

REFERENCES

The g-f GK Context

Chris Bradley, Michael Chui, Kevin Russell, Kweilin Ellingrud, Michael Birshan, and Suhayl Chettih, The next big arenas of competition, McKinsey, McKinsey Global Institute, Report, October 23, 2024.

ABOUT THE AUTHORS

Chris Bradley is a McKinsey senior partner in the Sydney office and a director of the McKinsey Global Institute (MGI). Michael Chui is a QuantumBlack senior fellow in the Bay Area office. Kevin Russell is an MGI senior fellow based in the Charlotte office. Kweilin Ellingrud is an MGI director based in Minneapolis. Michael Birshan is a member of the MGI Council and a senior partner based in London. Suhayl Chettih is a consultant based in New York.

This article was edited by senior editor Max Berley with data visualizations by Chuck Burke.

Classical Summary of the Report

This comprehensive McKinsey Global Institute report identifies and analyzes 18 emerging industries—termed "arenas"—that could fundamentally reshape the global economy by 2040. The study defines arenas as unique industries characterized by both exceptional growth and high market dynamism, with potential combined revenues of $29-48 trillion by 2040.

Key Findings:

1. Scale and Impact:
• Projected growth from 4% of global GDP in 2022 to 10-16% by 2040
• Potential to generate $2-6 trillion in annual profits
• Could contribute 18-34% of total GDP growth through 2040
2. Arena Categories:
• Continuing Arenas: Including e-commerce, electric vehicles, cloud services, semiconductors
• Spin-off Arenas: AI software, digital advertisements, streaming video
• Emergent Arenas: Including shared autonomous vehicles, space, cybersecurity
3. Arena Formation Elements:
• Technology or business model step changes
• Escalatory investment mechanisms
• Large or growing addressable markets

Methodology:

The research analyzed historical data from 2005-2020 to identify patterns in successful arenas, examining:

• Market capitalization trends
• Revenue growth patterns
• Industry dynamism metrics
• Investment patterns
• Global market penetration

Major Conclusions:

1. Success Factors:
• Early and sustained R&D investment
• Strategic market positioning
• Technology leadership
• Global scale capabilities
2. Critical Swing Factors:
• Geopolitical developments
• AI technology evolution
• Green transition pace
3. Regional Implications:
• Strong representation from US and Chinese companies
• Potential for regional competition and specialization
• Varying adoption rates across markets

The report provides a strategic framework for business leaders and policymakers to understand and capitalize on these emerging opportunities while managing associated risks and challenges.

Significance:

This research represents one of the most comprehensive analyses of future growth markets, offering macroeconomic insights and practical strategic guidance for business leaders navigating the next wave of global economic transformation.

Chris Bradley

By Copilot

Chris Bradley is a Senior Partner at McKinsey & Company, where he has built a distinguished career in advising clients on strategy, growth, and organizational transformation. Based in the Sydney office, Chris is also a Director of the McKinsey Global Institute (MGI), McKinsey's business and economics research arm.

With extensive experience in corporate strategy, Chris has worked with top executives and boards across a wide range of industries, including energy, natural resources, and industrials. His expertise lies in helping organizations navigate complex business environments and drive sustainable growth. He is particularly passionate about assisting talented executives in their roles and has co-led McKinsey's research on CEO excellence.

Chris is a thought leader in competitive strategy and has contributed to numerous influential publications. His insights have helped shape the strategic direction of many global companies, enabling them to achieve their long-term objectives.

He holds an MBA from Harvard Business School and a BA in Philosophy, Politics, and Economics from the University of Oxford. Chris's educational background, combined with his extensive industry experience, positions him as a leading expert in strategic management and organizational transformation.

Michael Chui

By Copilot

Michael Chui is a Partner at McKinsey & Company and a Director of the McKinsey Global Institute (MGI), where he leads research on the impact of disruptive technologies, including artificial intelligence, automation, and digital transformation, on business and society.

Michael is renowned for his expertise in AI and technology. He has authored numerous reports and articles on these subjects, exploring their implications for industries and economies worldwide. His work often focuses on how businesses can leverage emerging technologies to drive innovation, efficiency, and competitive advantage.

Before joining McKinsey, Michael earned his Ph.D. in Computer Science and Master’s degree in Electrical Engineering and Computer Science from the Massachusetts Institute of Technology (MIT). He also holds a Bachelor’s degree in Electrical Engineering from Princeton University.

Michael's insights are frequently sought by global media outlets, and he is a regular speaker at major conferences and industry events. His research and thought leadership have made significant contributions to understanding the opportunities and challenges posed by technological advancements.

Throughout his career, Michael has been dedicated to helping businesses and policymakers navigate the complex landscape of technology and innovation. His work continues to influence strategic decisions and shape the future of industries across the globe.

Kevin Russell

By Copilot

Kevin Russell is a Senior Fellow at the McKinsey Global Institute (MGI) and a Partner at McKinsey & Company. Based in the Charlotte office, Kevin specializes in digital transformation and has extensive experience helping clients leverage technology to drive growth and innovation.

Kevin's work spans various industries, including financial services, healthcare, and telecommunications. He has led numerous projects focused on improving operational efficiency, enhancing customer experience, and driving digital strategy. His expertise in digital transformation has made him a valuable advisor to many global companies.

Before joining McKinsey, Kevin earned a Bachelor's degree in Computer Science from the Massachusetts Institute of Technology (MIT) and an MBA from Harvard Business School. His educational background, combined with his industry experience, positions him as a leading expert in leveraging technology for business success.

Kevin is passionate about helping organizations navigate the complexities of the digital age and achieve sustainable growth. His insights and thought leadership have contributed significantly to the field of digital transformation and have helped shape the strategies of many leading companies.

Kweilin Ellingrud

By Copilot

Kweilin Ellingrud is a distinguished Senior Partner at McKinsey & Company and serves as the Director of the McKinsey Global Institute (MGI). She is based in the Minneapolis office and has built a remarkable career focused on economic and business trends, digital transformation, and diversity and inclusion.

Kweilin is renowned for her expertise in redesigning operating models to increase operational efficiency and effectiveness through process redesign, digital, and analytics. She leads McKinsey's Diversity and Inclusion efforts globally, working to promote gender equality, racial equity, and the future of work. Her work has significantly contributed to advancing these crucial areas within organizations around the world.

Before her tenure at McKinsey, Kweilin earned her Bachelor's degree in Economics and Political Science from Harvard University and her MBA from Harvard Business School. Her academic background, combined with her extensive experience in consulting, positions her as a leading authority in her field.

Kweilin has been instrumental in leading several high-impact research projects on topics such as gender diversity, economic impact, and business performance. Her insights are widely recognized and have been featured in numerous influential publications and reports. She is also a frequent speaker at global conferences, sharing her knowledge and advocating for inclusive growth and innovation.

Her dedication to fostering a more equitable and efficient business environment has made her a valuable advisor to many global companies and a respected thought leader in the consulting industry.

Michael Birshan

By Copilot

Michael Birshan is a Senior Partner at McKinsey & Company and the Global Co-leader of the Strategy & Corporate Finance Practice. Based in the London office, Michael has established himself as a leading expert in corporate and business strategy, with a particular emphasis on the energy, materials, and industrial sectors.

Michael partners with bold and determined leaders to set strategy, transform organizations, and deliver sustainable value. He has extensive experience in advising companies at the board and executive committee levels, helping them navigate complex business environments and achieve long-term success.

Michael is passionate about helping executives succeed in their roles, and he has co-led McKinsey's research on CEO excellence. His thought leadership has been instrumental in shaping the strategic direction of numerous global companies, enabling them to build distinctive capabilities and maintain a competitive edge.

Before joining McKinsey, Michael earned his MBA with High Distinction from Harvard Business School and a BA in Philosophy, Politics, and Economics from the University of Oxford. His educational background, combined with his practical experience, positions him as a leading authority in strategic management and organizational transformation.

Throughout his career, Michael has been dedicated to helping organizations adapt to rapid change, drive innovation, and create lasting impact. His insights and expertise continue to influence strategic decisions and drive growth in various industries.

Suhayl Chettih

By Copilot

Suhayl Chettih is an Engagement Manager at McKinsey & Company, based in New York. He specializes in advising clients on strategy, operations, and digital transformation. Suhayl has a strong background in helping organizations navigate complex business challenges and drive sustainable growth.

Complementary g-f GK Context

“genioux facts”: The online program on "MASTERING THE BIG PICTURE OF THE DIGITAL AGE”, g-f(2)3113 Emerging Industries Shaping the Future: McKinsey's Key Arenas, Fernando Machuca and Copilot, October 27, 2024, Genioux.com Corporation.

g-f(2)3113 Emerging Industries Shaping the Future: McKinsey's Key Arenas

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REFERENCES

“genioux facts”: The online program on "MASTERING THE BIG PICTURE OF THE DIGITAL AGE”, g-f(2)3114, Fernando Machuca and Claude, October 27, 2024, Genioux.com Corporation.

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