Megatrends: Tailwinds for Growth in a Low-Growth Environment

Megatrends: Tailwinds for Growth in a Low-Growth Environment

          
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Megatrends: Tailwinds for Growth in a Low-Growth Environment

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    Megatrends in the Downturn

    The recent recession offered a powerful reality test for megatrends. The ones that survived the downturn and even grew in spite of it will be worth paying attention to as the economy recovers. BCG has been tracking the development and interaction of 78 megatrends since 2005. We have found that nearly 80 percent of these trends continued to grow during the downturn, with 23 actually strengthening in importance. (See Exhibit 1.) This behavior during the recession underscores the value of megatrends as tailwinds. Of the 16 trends (21 percent) that lost momentum—among them trading up, increasing mergers and acquisitions, and a growing wealthy global elite—many are linked to prosperity and are therefore expected to regain their importance once the economy rebounds.

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    Megatrends That Kept Growing. The group of trends that kept their momentum includes demographic trends—for example, the aging of the population, the rise in obesity and dieting, and urbanization. Futurists rely on demographic trends because of their steadiness and imperviousness to economic cycles or changes. Yet some companies are slow to incorporate demographic trends into their growth strategies because they seem like old news. Such a summary dismissal leaves a lot of money on the table. For example, the “silver market” (goods and services for consumers over 60), now worth more than $700 billion globally, is fast becoming a valuable source of growth for companies in sectors as diverse as cosmetics and financial services.

    Aside from demographics, many other trends continued to grow during the recession. These trends are likely to gain new momentum after the downturn and offer powerful growth opportunities. This group includes health and wellness, nanotechnology, the rise of India, and the proliferation of smart devices. Of the trends that kept growing, we estimate that 44 percent represent opportunities with a global market size greater than $500 million.

    Megatrends That Strengthened. The trends in this group had growth rates that were especially strong or that even significantly increased during the downturn—and our analysis suggests that their underlying drivers will conspire to sustain this level of growth for the foreseeable future. Thus, we consider these trends to have undergone a structural shift in their influence on markets. They include trading down, product commoditization, capital flows to developing countries, the dominance of “new media,” the increase in wireless communications, and the rise of China, among others. Because the shift is structural, not temporary, these trends open up new strategic landscapes for companies that move quickly to leverage them. Consequently, companies that assume they have been tracking these trends all along would do well to take a second look.

    Consider trading down, one of the significant megatrends in this group. Before the downturn, both trading up to premium products and trading down to no-frills products were going strong—at the expense of products in the middle. But as the recession’s grip on the economy tightened, trading up receded and trading down shot forward with the reinforcing support of other megatrends, such as the increased mainstreaming of private-label products. As a result, low-price retailers such as Wal-Mart were among the few retailers that came out winners. Wal-Mart is using the cash flow from its success to position itself for the next wave of growth in China, where it has already expanded to serve 89 cities with 146 stores.

    Some of the megatrends in this group strengthened because the recession provided companies and consumers an opportunity to accelerate changes that they would inevitably have had to make at some point down the road. For example, the growth of wireless communications increased during the downturn because cell phone users gave up their landlines in order to economize. This shift was clearly a negative development for landline businesses—and interestingly, it also created problems for companies whose customer databases contain mostly landline numbers. Executives not only need to keep on top of megatrends, they should also anticipate the second- and third-level implications for R&D, marketing, sourcing, manufacturing, distribution, and strategy.