Emerging economies now account for roughly half of world economic output (measured using purchasing-power-parity exchange rates), and their share is projected to continue growing over the next several years and beyond (see Figure 1). As they loom larger in global markets, emerging economies are also becoming more important as centers for all kinds of businesses, including the major multinational enterprises (MNEs) that traditionally have been concentrated in a handful of mature Western economies.
A new report from the McKinsey Global Institute (MGI) outlines the dimensions and consequences of this trend. According to the MGI researchers, in 2010 there were some 8,000 companies world-wide with annual revenues of $1 billion or more. Of these, fully three-quarters were based in developed economies like the US, Japan, the UK, Germany, Canada etc.
By 2025 the picture will be markedly different. MGI forecasts that in that year, the world will have 15,000 large multinational enterprises – almost double the current number. And at least 46% of these will actually have their corporate headquarters in emerging economies. Of the 7,000 “new” large enterprises expected to develop between 2010 and 2025, 70% will be based in emerging markets. China, in particular, is set to become a very significant home base for multinational firms, as some two-fifths of the 5,000 new large companies from the emerging world are likely to be located in the Greater China region.
Of interest, as more MNEs are created or expand their presence in emerging economies, the dispersion of MNEs among urban centres world-wide will undergo a substantial change. Today, just 20 major cities – almost all in the developed West – host one-third of all large global companies. But the emergence of many more MNEs in the developing world means that hundreds of “new” urban locations will end up hosting big companies. The McKinsey researchers forecast that by 2025, some 330 cities will be serving as the headquarters location for at least one large MNE for the first time.
As emerging market regions give birth to more rapidly-growing businesses and become the home base for more global-scale companies, these nations will reap many benefits. As the MGI study notes: “This shift will be profound because large companies have an outsized impact on their home economies – and even on the global economy through their role in trade flows…. Large companies matter – and not only for their ability to create jobs and generate higher incomes. They are also forces for higher productivity, innovation, standard-setting, and the dissemination of skills and technology.”
For Canada and British Columbia, the rise of emerging economies as a centre for multinational enterprises and the high-value business activities that go with them underscores the need to step up efforts to diversify our international trade, investment and other commercial linkages beyond the United States and other mature Western markets.