End of the Line for Corporate Business as Usual?

Sep 28, 2015 5:30 PM ET

Has corporate business as usual reached its peak? That’s the implication of a new report by the McKinsey Global Institute, as reported in The Economist. On the one hand, the report finds that corporate profits have more than tripled from 1980, rising from 7.6 percent of global GDP to 10 percent, of which Western companies captured more than two-thirds. On the other hand, the report notes, there’s increased competition—there are more than twice as many multinationals operating today as in 1990.

And two new developments are disrupting traditional business models. Emerging market competitors are expanding rapidly. The share of Fortune 500 companies based in emerging markets has increased from five percent during 1980 to 2000 to 26 percent today. And the rise of high-tech companies has provided avenues to quick, huge global growth at low cost.

In light of these factors, MGI projects that corporate profits may fall from 10 percent of global GDP to eight percent over the next 10 years. What’s the solution for future corporate business? MGI advises companies to focus on ideas. Today, the “idea sector” accounts for 31 percent of profits generated by Western companies, almost twice as much as in 1999. Now that’s a concept worth thinking about.

I’m John Howell for 3BL Media.

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