According to a McKinsey report, the field known today as the "Arena" significantly outperforms other industries in six key metrics. These indicators include: the share of economic profits, the share of R&D growth, the proportion of new entrants, the proportion of companies with a market capitalization of more than $200 billion, the concentration of the top 10 companies in terms of market capitalization, and the proportion of companies with overseas revenues exceeding 20%.
The absolute lead of economic profits
The flow of economic profit (net operating profit after deducting the cost of capital) is the most indicative of the competitiveness of the industry. The data shows that the share of economic profits in these frontier sectors soared from just 9% ($55 billion) globally in 2005 to 49% ($250 billion) in 2019. Even in 2020, when the epidemic was raging, when traditional industries collectively fell into losses, these areas still maintained a profit growth trend and showed strong anti-risk ability.
Specifically, consumer electronics led the way with an economic profit of $58 billion, followed by consumer internet ($48 billion) and semiconductors ($45 billion). The average ROI of 28% in these industries is much higher than the 12% in traditional industries, and the gap has continued to widen over the past 15 years. In contrast, traditional sectors such as oil and gas (-$143 billion) and banking (-$69 billion) are experiencing severe profit declines, a trend that has been further exacerbated during the pandemic.
R&D investment continues to increase
Innovation is the core driving force behind these business arenas to stay ahead of the curve. Between 2005 and 2020, 65% of U.S. R&D funding continued to flow to these areas and related industries. More notably, the intensity of R&D investment (R&D expenditure as a percentage of revenue) in these industries reached 10%, which is twice as high as that of other industries (5%).
The semiconductor industry is a model for R&D investment: R&D spending in the industry surged from $19 billion in 2005 to $43 billion in 2020. Among them, NVIDIA's R&D investment has increased by 11 times, and finally established its dominance in the GPU market. The biopharmaceutical sector is also staggering, with R&D investment increasing from US$35 billion to US$92 billion, and the proportion of R&D investment increasing from 17% to 25%, with an annual growth rate of 14%, far exceeding the 4% growth rate of the traditional pharmaceutical industry.
Figure: R&D investment expanded
Fertile ground for new entrants
These business arenas are surprisingly inclusive of new entrants. According to 2020 data, 33% of industry market capitalization was created by "outsiders" in 2005 (including start-ups, companies with a market capitalization of less than $3.5 billion at the time, or companies that were not yet physically competing), which is far higher than the 15% level of other industries.
This is particularly typical of the consumer Internet sector, where half of today's industry giants such as Meta (formerly Facebook), Meituan, Shopify, etc., were not yet born in 2005 or were insignificant in scale. This openness has injected continuous vitality into the industry, but it is worth noting that this is not the preserve of young companies, and "evergreens" like Apple and Microsoft, which have been established for nearly half a century, continue to lead the industry innovation.
The cradle of business giants
These areas are more likely to give birth to mega-corporations. According to 2020 data, 74% of the industry market value in the arena comes from companies with a market value of more than $50 billion (only 47% of traditional industries), of which super-giants with a market value of more than $200 billion account for half of the country (only 15% of traditional industries).
In terms of the number of enterprises, 15% of the enterprises in the arena have a market value of more than $50 billion (9% for traditional industries), and 4% for more than $200 billion (only 1% for traditional industries). This Matthew effect of "the stronger the stronger" is particularly prominent in semiconductors, cloud computing and other fields, and the leading enterprises continue to consolidate their market positions through technological advantages and scale effects.
Related:
18 Potential Arenas of the Future That Could Reshape the Global Economy (1)
18 Potential Arenas of the Future That Could Reshape the Global Economy (2)
18 Potential Arenas of the Future That Could Reshape the Global Economy (3)
18 Potential Arenas of the Future That Could Reshape the Global Economy (4)
18 Potential Arenas of the Future That Could Reshape the Global Economy (5)
18 Potential Arenas of the Future That Could Reshape the Global Economy (6)
18 Potential Arenas of the Future That Could Reshape the Global Economy (7)
18 Potential Arenas of the Future That Could Reshape the Global Economy (8)
18 Potential Arenas of the Future That Could Reshape the Global Economy (9)
