Shifting centers of economic activity The world is undergoing a massive realignment of economic activity, whose outlines are clearly visible in the changes occurring in the energy and materials sectors. Growth in demand for energy and basic materials (such as steel and copper) is moving from developed countries to developing ones, predominantly in Asia. Demand for oil in China and India, for example, will nearly double from 2003 to 2020, to 15.4 million barrels a day. Asia’s oil consumption will approach that of the United States—the world’s largest consumer—by the end of that period...
Over the next decade, resources (gas, minerals, steel, and pulp and paper, among others) will generally be developed and produced farther away from the points of consumption than ever before; Brazilian fiber, for instance, will be converted into paper products in China...
To be sure, the rising levels of global connectivity required to meet the world’s energy needs in the coming years will have positive economic effects, such as greater market liquidity and more globally priced commodities. At the same time, longer and more complex supply chains, combined with the mounting possibility that geopolitical events could curtail supply, will make prices more volatile.
Rising demand, rising environmental concerns As economic growth accelerates, particularly in developing economies, the world is consuming natural resources at an unprecedented rate. In China, for example, oil consumption nearly doubled from 1995 to 2004, and demand for aluminum, nickel, and steel more than tripled. Likewise, China, India, the Middle East, and Russia are struggling to build power generation capacity and grids fast enough to meet growth in demand...
What’s more, local resource owners (such as those in the Middle East and Russia) with cheaply extracted reserves are increasingly exerting control to seek a greater share of the profits. The security of energy supplies is a matter of growing concern—particularly in countries and regions (such as China, Europe, and the United States) that consume more energy than they produce...
Meanwhile, the environment is becoming more important to business. Growing pressure to reduce greenhouse gas emissions (especially carbon dioxide) may have a far-reaching impact, starting with Europe but extending globally as well... One effect is a redoubled interest in renewable sources of energy, such as wind and solar power. Indeed, renewables have become a substantial business, accounting for 30 percent of power generation investments globally in 2005, for example. By 2020, renewables could provide more than 10 percent of all electricity generated, and technologies such as wind, solar, and biomass could be economical even without subsidies.
A changing consumer landscape Economic growth in the developing world will usher nearly a billion new consumers into the global market-place over the next decade, as household incomes reach the level (around $5,000) associated with discretionary spending. Although these consumers will have less spending power than do their counterparts in the developed world, they will have similar demands as well as access to global brands. Many industries therefore face polarized markets where premium and no-frills offerings are squeezing middle-of-the-road ones.
The battlefield for talent In the coming decade, a global strategy for talent will be as important to many companies as a global strategy for sourcing or manufacturing is today. Two themes stand out. First, the growth of knowledge-intensive industries underscores the importance and scarcity of well-trained employees. Second, the integration of global labor markets is opening up vast new sources of talent. Indeed, more than twice as many university-educated young professionals—33 million—are available in developing countries as in developed ones.
Emerging industry structures In response to changing market regulation and the advent of new technologies, new industry structures are emerging in the energy and materials sectors. At the upstream end—for instance, the extraction of materials and oil exploration and production—large economies of scale predominate; in iron ore, for instance, the top three players control around 70 percent of globally traded volumes. The picture is similar in coal and other minerals; in oil, international companies have consolidated to a significant extent during the past few years...
Meanwhile, small niche companies across the value chains of the energy and materials sectors are setting the pace of global innovation by developing key technologies in petroleum, biotechnology, and clean fuel generation such as biomass and coal-to-liquids technologies. As these technologies mature, giant companies will be tempted to acquire or ally with such innovators in portfolio arrangements; for instance, Iogen, a biotechnology company, is cooperating with Royal Dutch/Shell and Volkswagen to study the economic feasibility of producing cellulose ethanol on an industrial scale.
Business in the Spotlight During the next decade, businesses everywhere will face increased societal scrutiny as they expand their size and reach and as the economy’s demands on the environment intensify. Energy and materials players are squarely in the spotlight on these issues. These companies are magnets for controversy because of their size, the sometimes corrupt governments in the often unstable regions where they operate, and, in the case of natural monopolies (such as electricity production), their high profiles in local markets. Likewise, the fact that major oil and electric power companies are enjoying record profits at a time of high prices does not endear them to consumers.
Moreover, the activities of energy and materials companies necessarily have a big impact, both direct and indirect, on the environment—for example, when they lay pipelines through nature reserves in Alaska or affect the climate through greenhouse gas emissions. Such companies also face the constant risk of mishaps that can have major environmental consequences.
In the years to come, regulators will increasingly intervene in and monitor the operations of companies in the energy and materials sectors...In response, energy and materials players must continue to improve their health, safety, and environmental performance, a challenge given the dispersed and technically demanding nature of their operations. It will no longer be enough to deploy skillful public relations and to have robust internal control over these issues. Companies in the energy and materials sectors will need to take the lead in engaging with governments, local communities, and nongovernmental organizations to develop new codes of conduct. Companies that do so effectively can transform themselves from victims—or worse, villains—into role models.
I think the Business in the Spotlight trend is not just for energy companies - every company in every industry will be looked at, prodded, probed and examined. There are no secrets anymore - you have to act as if there's a camera on you at all times.
Our priorities are changing and we are willing to pay a little bit more if we feel more in control of what we buy. Technology is making it easier for us to feel connected and for us to understand the details that make products unique. It will be interesting to see if this trend continues to maintain similar levels of popularity in the years to come. While price seems to play the largest role in overall product selection, transparency often is a little detail that can make a big difference.
