Continuously exploring the global political and business operating environment from dimensions such as population, economy, environment, geopolitics, resources, and technology is the core mission of the Kearney Global Business Policy Council. In previous years' reports, we have captured medium- to long-term trends such as climate deterioration, geopolitics, and artificial intelligence. In this year's report, we focus on "emerging trends" beyond these forces—medium- to long-term trends that may not seem very noticeable at present but will have a significant impact on the operation of business and government over the next five years. By identifying the top five global trends over the next five years, we hope to help businesses and governments build the capacity to adapt to future development changes in advance.
The wise adapt to the times, and the knowledgeable govern according to circumstances.
The intensity of industrial policy has reached a new high
As an important means of protecting national security and enhancing economic competitiveness, industrial policy is gaining more attention worldwide. After the pandemic, countries face many new challenges, such as excessive dependence on critical resources, high demand for clean energy, and the development and application of advanced technologies like artificial intelligence. These are driving a new round of adjustments to industrial policy.
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The U.S. Inflation Reduction Act, the EU Green Deal Industrial Plan, the Made in China 2025 action plan, and the Make in India initiative are just a few examples of large-scale industrial policies. Due to competitive goals between countries and the desire of each country to ensure sustainable economic growth and maintain financial and fiscal stability over the next five years, various industrial policies may exacerbate geopolitical turmoil and economic risks.
Global industrial policy is rapidly increasing. A study by the Global Economic Alert in 2009 tracked 90 interventions related to industrial policy, and by 2022, this number had grown to 2,083. From January to July 2023 alone, there have been 1,868 intervention events, almost exceeding the level of the entire year of 2022. While traditional industrial policies in manufacturing, infrastructure, oil and gas, steel, pharmaceuticals, automotive, and aviation have increased, challenges such as global supply chain instability, insufficient capacity, intensified competition, and net-zero transitions are also driving the enactment and application of new industrial policies in areas such as green energy, agricultural industry, and biotechnology.
Over the past 40 years, China has successfully used industrial policy to heavily invest in and promote the vigorous development of manufacturing and state-owned industries. Research by the Asia Society found that China's spending on industrial policy far exceeds that of any other major economy, accounting for more than 1.7% of GDP in 2019, or over 248 billion U.S. dollars. Industrial policy is increasingly seen as a tool to promote the development of emerging markets. For example, in the wind power industry, China has massively promoted industry development and the rise of manufacturing powerhouses through localization, technology transfer, and the establishment of joint ventures.
As industrial policy continues to advance, some countries have begun to implement discriminatory policy interventions to protect their domestic industries at the expense of foreign business interests. The United States is protecting the competitiveness of its domestic economic entities through increased industrial policy efforts and reducing dependence on China's key manufacturing and natural resources through policy interventions.Between the European Union and the United States, industrial policy can also strain their originally close relationship. European leaders have expressed concerns over the Biden administration's "Buy American" initiative, as well as the Inflation Reduction Act and the CHIPS Act, pointing out their protectionist hues. Both the EU and the US are providing financial support to promote the development of domestic semiconductor manufacturing, and critics argue that such competitive development will trigger a "global industrial policy arms race," leading to unnecessary oversupply and redundant expenditures, thereby reducing the efficiency of industrial development.
Industrial policies also contribute to the increasing global inequality. Developed countries use industrial policies to bring high-value manufacturing back home and promote local production through industrial subsidies, export controls, or tariff policies, further widening the gap with developing countries. Effectively coordinating industrial policies between countries from a global perspective will help prevent the further widening of income disparities.
Outlook and Implications for Businesses
As countries intensify their industrial policies based on their own interests, the rise of global industrial policies over the next five years may exacerbate geopolitical tensions. To mitigate the rising geopolitical risks, countries need to deepen cross-border coordination to reduce oversupply. Businesses should strengthen monitoring of violations of new tariffs and trade restrictions in industrial policies, seek opportunities related to direct subsidies, tax credits, and government procurement, and continuously explore opportunities for industry alliances and cooperation in areas such as R&D investment and industry standard setting, in order to enhance the overall efficiency of industrial development.
The Rise of Digital Twins
Digital twins will become mainstream in the next five years. The concept of digital twins has existed since 1991, which is the digital representation of physical systems, products, and processes, forming indistinguishable counterparts for simulation, testing, monitoring, and maintenance. Due to a general lack of understanding of their utility and higher costs, they have not yet widely become tools for government or business operations. Improving government processes, supporting urban planning, and aiding in disease diagnosis are just the tip of the iceberg for the use cases of this technology.
Governments around the world have already begun to use digital twin technology. For example, the U.S. Food and Drug Administration (FDA) is developing a digital twin model to help assess medical devices before their use; the European Union is undertaking an initiative called "Destination Earth," which will use a vast amount of environmental, socio-economic, and satellite data to develop a digital twin of the Earth, aiming to help policymakers and the public better address climate change.
Digital twins can also help reshape global cities. It is estimated that over 500 urban digital twins will be developed by 2025, and by 2030, the technology could save approximately $280 billion by enhancing urban planning capabilities and creating smart cities.
The digital twin market will rapidly expand at a compound annual growth rate of 50% to 70% over the next five years, with the specific growth rate depending on different industries, mainly concentrated in manufacturing, aviation, and the automotive industry (see Figure 10).
Digital twins can also improve supply chain operations, empower equipment layout testing, and model various production outputs based on changes in demand.Prospective Outlook and Implications for Enterprises
Digital twins have the potential to revolutionize the operations of governments and businesses. Within the next five years, enterprises that integrate digital twins with other 4IR technologies, such as AR and VR functionalities, will emerge in droves. The convergence of innovative technologies will elevate the level at which business leaders utilize technology for strategic planning.
Firstly, assess whether and how digital twins can serve your business; secondly, ensure that cybersecurity measures are in place; and lastly, strengthen data management processes.
Enhancing Biodiversity Protection
Among the existing 8.7 million species of plants and animals, 1 million are at risk of extinction within decades. According to World Bank data, the degradation of ecosystems, exacerbated by the extinction of economically beneficial wildlife such as fish, could lead to a global loss of $2.7 trillion per year by 2030, or 2.3% of global GDP. Given the urgency of biodiversity issues, governments and businesses are under increasing pressure, and efforts to prevent species extinction will intensify over the next five years. "Nature-based solutions," which involve the conservation, management, and restoration of natural systems to address societal challenges, will garner more attention. Such solutions include funding initiatives for reforestation and reducing water waste.
According to the World Wildlife Fund's "2022 Living Planet Report," wildlife populations have declined by an average of 69% since 1970. The extent of biodiversity loss varies across regions.
Human activities pose a long-term threat to biodiversity. Overfishing, as one of the main issues, not only endangers populations but also has negative impacts on employment and the global economy. The continuous increase in global demand for fish means that more businesses and job opportunities rely on the dwindling fish resources. As fish disappear, employment and coastal economies will vanish as well.
The burning of fossil fuels and the industrialization of agriculture greatly affect the Earth's biota and ecosystems. Wild areas are being cleared on a large scale to accommodate the expansion of livestock farming and crop cultivation, leading to a reduction in wilderness, the destruction of ecosystems, and the endangerment of global biodiversity.
We anticipate that governments and businesses will enhance collaborative efforts to mitigate biodiversity loss over the next five years. The High Seas Treaty is an important step in the right direction. Currently, only about 1% of the high seas are protected, and this agreement will help achieve the biodiversity framework targets adopted by COP15: to protect at least 30% of the global land and sea area by 2030.
In July 2023, the European Union passed the "Nature Restoration Law," aimed at restoring degraded ecosystems in Europe, with plans to restore 20% of land and 20% of the sea by 2030, and all ecosystems by 2050. This is the first significant legislation for biodiversity protection in the EU in the past 30 years.Enterprises are also actively exploring "nature-based solutions" to reduce biodiversity loss. The Million Mangroves Project, launched in 2018, has a mission to harness the power of business to fund mangrove restoration efforts. Companies supporting this project have pledged to plant over 750,000 mangrove trees. In addition, groups such as L'Oréal, Mars, Unilever, Nestlé, Danone, and Kering have joined the One Planet Business for Biodiversity (OP2B) alliance, aiming to explore alternative agricultural practices and protect biodiversity on a large scale.
Prospects and Corporate Insights
The continuous decline of biodiversity is a crisis for survival. As business is highly dependent on nature, the economic cost will be enormous if governments, corporations, and society do not take swift action. The World Economic Forum (WEF) estimates that by 2030, strengthening infrastructure that benefits nature could bring over $3 trillion in business opportunities and 117 million jobs annually.
In addition to exploring "nature-based solutions," companies also need to establish a multi-dimensional ESG assessment system, rather than focusing solely on reducing carbon emissions as the single goal, because climate change, especially challenges related to biodiversity, is not driven solely by carbon emissions. Taking action now to avoid future losses is the best choice for all businesses.
Unlocking the Value of E-Waste
E-waste is piling up globally. According to the International Telecommunication Union (ITU), e-waste is "one of the fastest-growing waste streams in the world." Discarded mobile phones, computers, televisions, microwaves, IT servers, and other electrical devices contribute to the current 53.6 million metric tons (Mt) of e-waste worldwide, equivalent to about 5,300 Eiffel Towers.
A significant portion of this waste is unaccounted for and improperly recycled, partly due to lagging regulations in developed and emerging markets. Informal handling of e-waste exposes people to toxic substances that harm human health. Proper recycling and reuse of e-waste can reduce the amount of mining needed to produce new electronic devices, curb carbon emissions, and create a virtuous cycle. The ITU predicts that effective recycling of e-waste could bring an economic return of over $62.5 billion annually and become a key part of the thriving circular economy.
From mobile phones and laptops to refrigerators and televisions, all discarded household or commercial items with circuits or electrical components, as well as power or battery power, are part of the rapid growth of global e-waste. By 2030, the generation of e-waste is expected to grow to 74.7 Mt, and if conditions remain unchanged, it will reach 110 Mt by 2050.
E-waste generates a massive carbon footprint and artificially accelerates global warming. The production of electronic devices requires the extraction of various minerals, such as gold, lithium, tin, and copper. As electronic production expands, traditional mining will not be able to meet the demand for rare earth elements in electronic devices. The current demand for rare earth elements exceeds the supply by 3,000 tons, and it is projected that the supply-demand gap will continue to widen by the end of the century. Currently, the recycling capacity for e-waste is still insufficient to fill the gap; tracking e-waste is necessary to ensure its recycling, but it is also extremely challenging.
Furthermore, untracked e-waste also poses a threat to human health and the environment. E-waste contains large amounts of substances such as mercury, cadmium, and lead. Improper handling of e-waste releases harmful pollutants, which can seep into groundwater, contaminate food, pollute ecosystems, and damage air quality, leading to increased levels of heavy metals and pollutants in the blood of people living in areas exposed to e-waste.If recycled properly, electronic waste can bring in billions of dollars in economic returns. Up to 69 periodic elements can be found in electrical and electronic equipment, including raw materials and precious metals, with the total value of raw materials in electronic waste reaching $57 billion. Establishing a broad system for collecting and utilizing discarded electronic waste, as well as recycling key components, will reduce the demand for new raw materials. A circular economy based on electronic waste can create job opportunities and economic growth, while also reducing emissions.
Better regulation and financial incentives are crucial for capturing the value of electronic waste. Initial electronic waste legislation is in place, but stronger regulatory and economic incentives are needed to expand recycling and the circular economy.
Outlook and Implications for Businesses
In the next five years, more companies will invest in the circular economy based on electronic waste and incorporate electronic waste recycling into their business models. Increased regulation and economic incentives can encourage businesses to utilize electronic waste recycling and develop business lines to capitalize on the benefits of electronic waste management. Large-scale international cooperation in this field may also be on the horizon.
Firstly, it is necessary to monitor legislation in the field of electronic waste and ensure compliance with all existing and emerging laws; secondly, closely track electronic waste in the supply chain. Lastly, utilize relevant tools and skills to promote the development of the circular economy.
Rapid Transportation Accelerates Development
United Airlines and Archer Aviation plan to launch air taxis by 2025, which can transport passengers from downtown Chicago to O'Hare International Airport in 10 minutes—a journey that typically takes 30 to 90 minutes. California-based flying car company Aska unveiled its A5 flying car prototype in 2019 and started taking reservations in 2021, with the first aircraft delivery date expected in 2026. Hyperloop, also a developing rapid transportation technology, has the potential for commercial application by 2027. It can move passengers and cargo at speeds exceeding 700 miles per hour within large low-pressure tubes.
As flying cars, hyperloop, and other innovative rapid transportation technologies may become mainstream in the next five years, policymakers face increased pressure to implement policy regulations and address related safety issues. The development of rapid transportation capabilities will also have an impact on the environment and population, exacerbating the imbalance in regional economic development.
Key industries such as transportation, tourism, and healthcare will benefit from rapid transportation innovations. Flying cars and hyperloop will significantly save time for people traveling to remote destinations, thereby creating new development opportunities for the tourism and transportation industries, and providing more job opportunities for drivers.Rapid transportation innovation will impact multiple industries.
Industries such as transportation, tourism, and healthcare will benefit from rapid transportation innovation. With flying cars, people will be able to travel faster and farther than traditional cars, thus bringing more opportunities for transportation companies and creating more job opportunities for drivers (as well as pilots, in the case of flying cars). Flying cars and hyperloop systems will make it easier for people to reach distant destinations, creating new opportunities for tourism businesses; flying cars and cargo hyperloop vehicles can shorten construction time and reduce the cost of construction projects; the healthcare industry will also benefit from hyperloop systems.
As rapid transportation gains momentum, other industries and businesses may face challenges. With the rise of electric flying cars and energy-efficient hyperloops, the oil and gas industry may be impacted; e-commerce and logistics companies will have to reconsider their transportation methods to make them more environmentally friendly and cost-effective due to the hyperloop's ability to transport goods efficiently; short-haul airlines may also face the risk of being squeezed out of the market.
Rapid transportation will also have an impact on governance, the environment, and population.
As the commercialization of these two technologies accelerates, while policies and regulations are still in their infancy, they have been rapidly advanced in many countries/regions. In October 2022, Japan's transportation department signed an agreement with the Federal Aviation Administration of the United States to jointly develop rules and standards for the practical use of flying cars. It is expected that Japan will use flying cars as a means of transportation at the 2025 Osaka World Expo. The European Union is also working on a regulatory framework for hyperloop systems, expected to be completed in the first quarter of 2024. Policymakers have the responsibility to regulate and invest in this field in advance, and most importantly, to ensure vehicle safety.
The environmental impact of rapid transportation innovation has already shown promising results. According to a study by the University of Michigan's Center for Sustainable Systems and Ford Motor Company, a flying electric vehicle carrying one pilot and three passengers will "produce approximately 52% less greenhouse gas emissions than traditional cars and 6% less than electric cars. This advantage is most significant in cities with heavy traffic congestion.
Virgin Hyperloop One's performance has already proven the high energy-saving superiority of hyperloops. The company estimates that "if every passenger flight with a global range of 310 to 930 miles were replaced by a hyperloop, the aviation fossil fuel emissions could potentially be reduced by 58%."
Despite the astonishing technological advancement and convenience demonstrated by these new rapid transportation capabilities, they also have the potential to exacerbate global wealth inequality. After the infrastructure is built, the degree of inequality between countries that have the capacity to deploy new technologies on a large scale and those that do not may widen; however, at the same time, these technological advancements can also alleviate contradictions such as education and housing crises.Prospective Outlook and Implications for Enterprises
We are on the cusp of a rapid transportation revolution, where policymakers must strike a delicate balance between policy and regulation. Achieving this innovation can yield significant economic benefits, but safety concerns cannot be overlooked. Innovators in the field of rapid transportation need to collaborate across sectors with a multitude of groups, including railway operators, national aviation regulatory bodies, automobile companies, and civil society.
The next five years are filled with promise and challenges. Corporate leaders need to enhance resilience, keep pace, effectively respond to every major trend, fully leverage the value contained within, and navigate steadily towards a sustainable and impactful future.