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Developing a fine-grained look at how digital consumers behave

Consumers are changing the ways they use digital platforms at lightning speed. To benefit, companies must take a refined look below the surface to understand who is doing what.

It’s hardly news that consumer behavior is changing fast—digital activities are growing rapidly in every sphere. Almost half of all video viewing in the United States, for example, takes place in ways that barely existed a generation ago—either time shifted (using digital video recorders or video on demand) or device shifted (onto laptop, tablet, or mobile-phone screens). Music is even more digital: upward of two-thirds of usage involves streaming services, MP3 files, or satellite radio. And mobile-phone usage has overtaken landline voice among every age group.

To benefit from changing consumer behavior, companies cannot rely only on headline numbers and the trends they suggest. Today, the dramatic reversals suffered at the hands of digital media—think of falling newspaper-ad revenues and the sales swoon of compact discs—may seem obvious or easily foreseeable. In reality, understanding and acting on the probable contours of change requires reflection and a deep knowledge of customer behavior, industry dynamics, and feedback loops. These insights can help players reshape their business models to exploit structural changes and cushion potential shocks.

Our experience is that within broad consumer movements, small groups of users (often overlooked in cursory analyses) actually drive the economics. Achieving a more refined understanding of who is doing what requires a thoughtful segmentation—incorporating data about consumers’ demographics, household characteristics, usage patterns, spending, attitudes, and needs—supported by “big data” analytics.

For example, in our iConsumer research, we identified four kinds of European mobile-phone users and their usage patterns. Our analysis illuminated that market’s underlying value-creation potential. We called consumers who largely use voice, even with their smartphones, traditionalists in our study. Data practicals use very little voice but lots of data. Data entertainers also use little voice but are heavy users of video, music, and games. Mobile omnivores are superusers of both voice and data services (Exhibit 1). While the omnivores and entertainers collectively represent just 23 percent of the population, they consume more than 85 percent of all data traffic—and pay roughly the same monthly service fees that the other two groups do.

Exhibit 1

Different mobile-phone user segments behave quite differently.

In work for a digital-publishing client, we found that very occasional visitors to the company’s Web site made up about 80 percent of the audience by the numbers, but less than 10 percent of the total page views for advertisers. Understanding the behavior of the high-intensity 20 percent—for example, their use of competing services—helped the client to introduce a successful tiered-access subscription model while retaining the larger advertising audience (Exhibit 2). The lesson is that to extract value in a rapidly changing space, companies must not only focus on the fraction of users who drive the economics but also simultaneously build a diversity of business models to address the broader audience.

Exhibit 2

Success may require a diversity of business models, one for high-intensity users and others to address the broader audience.

Success may require a diversity of business models, one for high-intensity users and others to address the broader audience.

As for the broader digital consumer, our research examined six shifts. Some are well-known, others less so:

Devices: From PCs to mobile and touch devices. About 60 percent of US households have smartphones, and more than 30 percent of US Internet-equipped households have a tablet as well. The rest of the developed world is not far behind. In personal computing time, the share of mobile phones and tablets has almost doubled since 2008, to 44 percent.

Communications: From voice to data and video. Five years ago, more than 60 percent of phone use was for talking; now that is down to about 20 percent. Today, streaming music, browsing Web sites, playing games, and other data-driven activities account for a majority of smartphone use. The upshot: mobile carriers face challenges in reorienting their business models to focus on data rather than voice.

Content: From bundled to fragmented. Thanks to powerful search tools, content of all kinds (and degrees of obscurity) is widely accessible. Thus, some of the value in traditional “bundles”—such as newspapers, network-TV stations, or big-box retailers—has eroded. Mobile-phone trends illustrate this point well. The average number of apps installed on them has doubled since 2008, to more than 30, but spending is fragmented and growth uncertain.

Social media: From growth to monetization. After a remarkably fast climb to maturity, social networking in developed economies is beginning to see small declines in both its total audience and levels of engagement. At the same time, businesses are trying to use social media as part of their marketing efforts. Achieving measurable returns on them is a continuing challenge.

Video: From programmed to user driven. Traditional “linear” TV represents just 65 percent of all video viewing by US consumers on their television screens and 52 percent across all screens. The increase in the number of video options will pressure traditional advertising-supported business models for distributors, advertisers, and content owners.

Retail: From channel to experience. Despite the tremendous growth of e-commerce, it still accounts for only about 5 percent of all retail sales. As connected mobile devices proliferate, they could transform the shopping experience. Already, about half of all smartphone owners use their devices to conduct retail research. We expect that more consumers will use their smartphones and tablets to complete these transactions as well. The combination of mobile retailing and true multichannel integration will transform the buying experience and begin the era of Retail 3.0.

Click here to download the full report from McKinsey & Company

Growth and renewal in the Swedish economy

Sweden’s economy is faring better than that of many of its peers: the nation has low public debt and a current-account surplus, and since the early 1990s its growth rate has outpaced that of other members of the EU-15 and the United States.

But the 2012 McKinsey Global Institute report Growth and renewal in the Swedish economy shows that the nation can’t afford to coast on its achievements. Sweden’s economic growth mainly reflects productivity gains in the areas most exposed to international competition: manufacturing and business and financial services, which together account for only about one-third of the nation’s economy. In its two other main components—the public sector and local services—economic growth has been much slower, at a pace comparable to that of the rest of the EU-15.


Growth and renewal in the Swedish economy - Exhibit

Further complicating the economic outlook, Sweden’s population is aging, the quality of its education system is declining, and international competition, particularly from developing economies, is accelerating.

Many countries must focus on addressing their acute short-term financial problems. Sweden, however, can think over the long term about how to maintain or even exceed its strong historical growth rate. Our research suggests that the nation should focus on five issues that collectively address both productivity and competitiveness:

1. Increase productivity in the public sector. With an ambitious approach, its productivity could increase by 25 to 30 percent over the next ten years, while maintaining the same level of quality. Key elements include more ambitious targets, more transparent results, consolidation of the structure of Sweden’s public administration, and a national center of excellence for public procurement.

2. Improve growth in the local-services sector through deregulation and regulatory reform.Sweden used these tools successfully in the 1980s and ’90s, but many areas remain to be addressed. The nation should consider systematically eliminating growth-inhibiting regulations, industry by industry, through a joint effort by politicians, employers, and trade unions.

3. Sustain high growth in the international sector through increased innovation productivity. Competition from companies in emerging markets is increasing rapidly. So is the pace of innovation: the number of engineers in the world, for instance, more than doubled from 1998 to 2008 and increased by a factor of four in China during that period. To maximize returns on R&D investments, Sweden should strive to become a leader in innovation productivity—innovation achieved per unit of investment in innovation—much as it has, in many industries, become a leader in production efficiency.

4. Make Sweden a world leader in education. Previous research has shown that to reverse the trend of failing schools, the skills of teachers and school leaders must improve significantly. Sweden should consider establishing teacher-coaching programs and explore ways to make the profession more attractive to highly skilled talent.

5. Increase the share of the population that’s employed. Sweden must address the high rate of unemployment among the young and the foreign born—for instance, by exploring an apprenticeship model. To adjust to a world in which people live longer, the country might also consider following the Danish practice of linking retirement age to life expectancy.

Download the full report from McKinsey Global Institute


Due diligence in China: Art, science, and self-defense

Widespread delisting of Chinese companies has investors rethinking due diligence and looking harder for subtle clues that something is amiss.

It’s not often that the credibility of an entire class of companies is called into question at once. The aggregate market capitalization of US-listed Chinese companies fell in 2011 and 2012 by 72 percent—and around one in five was delisted —even as the Nasdaq rose by 12 percent (exhibit). Nor is delisting of Chinese companies purely a US phenomenon: since 2008, around one in ten Chinese companies listed in Singapore has also been delisted or suspended.


In recent years, the aggregate market capitalization of US-listed Chinese companies has fallen dramatically.

The extent of the damage to investor confidence is hard to gauge. The broad decline in market capitalization suggests investors may be tarring even the most transparent and upstanding Chinese companies with the same brush. Now-familiar cases like Longtop Financial Technologies, the China-based software company charged with fraud in 2011, or Sino-Forest, the erstwhile forest-plantation operator that announced plans to liquidate itself last year after allegations of fraud, have left investors with fundamental concerns. These companies had, after all, followed required listing procedures, yet they somehow slipped through the regulatory requirements of the IPO and statutory-reporting processes that might have identified deficiencies. In many cases, the problem was fraud, and often involved false or misleading documentation that would not have been discovered by a regular audit—since such audits primarily rely on documentation supplied by the company itself. Indeed, almost all the companies involved were audited by Big Four firms; most were brought to the market through IPO or reverse takeover by major US investment banks. Even investigative diligence, which can be extremely costly and time-consuming, has been far from foolproof; past examples have shown that private-equity and strategic investors can miss accounting fraud despite conducting a detailed, professional diligence.

The problem is surely not limited to just Chinese companies, though they are at the center of investor concerns today given the importance of that country’s growth and stability to the world economy. Overcoming investor concerns—in China, as anywhere transparency is lacking—may mean going back to some investing basics. Diligence is, after all, as much about developing a sense of trust in a company as it is an exercise in finding and checking facts. Financial, portfolio, and corporate investors alike need to revive the habit of looking beyond the usual statutory and regulatory disclosures for less direct indicators of trouble in areas such as the ones we discuss in this article: governance, management, financing, market context, and partnerships. Such indicators are not conclusive in themselves. Nor are they a replacement for the other aspects of diligence. But they can be valuable clues that something unpleasant is hiding under the surface, even when everything looks healthy on paper.


Corporate governance merits serious attention for a variety of reasons. To start, when it’s weak, the floodgates open for unscrupulous management teams. Blatant misappropriation of company resources may be less common than it once was, but it was a factor in some of the companies delisted in the United States recently: in one case, for example, the board chairman transferred ownership of company assets to himself just prior to raising funds from US investors and conspired with the CEO to avoid disclosure.

Governance arrangements also reveal how the top team thinks about its rights and responsibilities. Senior management demonstrates its understanding of them in myriad small and large ways that sometimes serve as early-warning signs. Consider, for example, the many private Chinese companies where a single minority shareholder plays a de facto controlling role. This is not necessarily a problem, but it pays to look closely at how such shareholders view their relationship with the company. Minor things, such as small transactions between the company and the controlling shareholder, can reveal much about shareholders’ attitudes toward the company. Do they see it as something to which they have a duty of trust or as an extension of their personal property? Do they understand and respect basic boundaries between company and personal business? Have they gone out of their way to treat minority shareholders fairly during corporate restructurings—something that is easy to avoid doing?

When Chinese companies list their shares on foreign exchanges, particularly in the United States, they need to make sure their corporate-governance infrastructure complies with exchange regulations. The choices made in this process say a lot about management’s motivation and about whether there is real intent to improve the company’s governance. Have managers made a serious attempt to upgrade their controls and decision-making process? Have there been concrete changes in how top management works and in how it is overseen by the board, or have managers simply made token changes to comply with regulations? Halfhearted governance-compliance efforts may be a leading indicator of deeper problems—even outlandish ones, such as questions that arose about the very existence of an oil and gas exploration company’s operations after it was listed.


A number of delistings of Chinese companies in the United States involved accusations of falsified transaction documents provided for audits. In some cases, the fraud was happening well below top management and even without its direct knowledge, as was alleged at one energy company. Investors therefore need to keep a lookout for warning signs about management that extend beyond the top team and its compliance with governance standards.

How can that be done? A first step for many investors should be examining the bench strength of a company’s professional management. It is relatively easy to assemble a senior team that will leave a good impression in a roadshow. As part of their IPO process, in fact, a number of Chinese midcap companies have fielded compelling leadership teams that included several figureheads brought in recently to add credibility. It’s much harder, especially in a market like China where talent is expensive, for executives to build a strong pipeline of competent operational managers with long tenure in the company: that can often take years to develop. Depth of management talent is an indicator of a company that’s being built to last—and its absence could signal that a company may have deeper problems.

A mismatch between a company’s management capabilities and its growth plans is another potential red flag. If the CFO plans to upgrade the company’s financial planning, investors should confirm that the finance team has the size and experience to follow through. If the company plans to expand manufacturing capacity, does it have enough plant managers to run existing facilities as it ramps up new ones? If the company plans to locate manufacturing overseas, does it have general managers who can work in a foreign-language environment? These questions may seem obvious, but too often they go unasked.

The quality of operational management is another area where on-the-ground scrutiny is worthwhile. Good plant discipline is hard to develop and harder to fake, and its absence is typically visible to the trained eye on a single site visit. Even a one-hour walk-through, if used carefully, can provide validation of staffing levels, inventory levels and age, and plant utilization. If a company resists a walk-through, that should sound alarm bells. How good are the company’s manufacturing or service operations? Are there good visual-management systems? Is there evidence of strong health, safety, environmental, and quality systems? Are testing labs in constant use, or does a layer of dust cover work desks? Affirmative answers to questions like these don’t necessarily mean a company is trustworthy, but negative ones should be cause for concern.


Financial management is, in China at least, one of the greatest risk factors. Although proper evaluation is only possible in the context of a full diligence, a company’s commercial-banking relationships can offer some indications of whether the conditions exist to facilitate fraud—and these indicators can be assessed quickly and easily through frank discussion with managers. Among the companies delisted in the United States were several that colluded with banks to falsify audit documents, others that took on excessive leverage through sweetheart loans that circumvented banking regulations, and still others that borrowed unnecessarily and then moved the cash out of the company. Investors should ask several questions. Does the company have relationships with multiple banks, or is it reliant on a single one? Are its critical financial relationships with major, well-regarded national banks or smaller, less well-known provincial or municipal ones? How important is the company’s business to the bank branch or branches that it works with? None of these factors would prove the existence of financial malfeasance, but they would make malfeasance a lot easier.

Similarly, much can be inferred from the way a company structures and times its loans. Investors should examine whether a company has structured loan facilities and projects to get around restrictions (for instance, breaking a project into sections that are within a loan officer’s approval limit). Has historic capital raising occurred when there were no clear needs—for example, has the company borrowed money when it had ample reported cash on its balance sheet and no major investments under way? Do current patterns of capital raising clearly match its investment plans?

Discovering fraud in these areas through regular audits can be a long process. Well-run Chinese companies are usually keen to provide transparency to investors; reticence is in itself a warning sign. In either case, closer observation of transactional banking relationships and capital raising can give an early indication that something is wrong, without definitively showing what.

Market context

Several of the companies delisted in the United States operated in opaque and protected markets, such as reselling advertising, importing specific fuel or agricultural products into concentrated and highly regulated markets, or operating logistics infrastructure in specific geographies. From an investor’s perspective, these episodes reinforce something more fundamental: companies that have competed effectively in open markets are intrinsically more credible than those that function in closed ecosystems.

Of course, many companies operating in protected sectors are reliable and trustworthy and deserving of capital. It can be challenging for investors to reassure themselves of that, though. Further complicating matters is the role that low-cost financing from Chinese banks is alleged to play in some sectors; companies that on the surface seem to be competing vigorously actually may be floating on artificially cheap capital.

For skeptical investors, the other indicators covered in this article can help. Moreover, many Chinese companies are already making the transition to more open competition: consider the country’s telecommunications-equipment providers, which have moved from dominating the domestic market to succeeding in international markets, where they must stand on their own without government support. Others, including both private and state-owned enterprises, still face limited natural competition in their domestic market. This is often due to regulation aimed at creating a stable industry structure that government can more easily manage. When policy support is a factor in a company’s performance (as was the case in solar-panel manufacturing, where it led to overcapacity), it is usually obvious—and rarely sustainable.


A final reliable sign of corporate trustworthiness is a company’s track record with partners. It’s reasonable for investors to conclude that a company involved in multiple joint ventures with the same leading multinational partner has survived several rounds of close-up diligence from an experienced operator. It may still have issues, but it was reliable enough to motivate the multinational company to form additional joint ventures rather than turn to other potential partners.

This is not foolproof logic, however. In China, investment restrictions force multinational companies in many industries to work with local joint-venture partners—and some multinationals have clearly gotten partnership decisions wrong. In the infamous high-speed-rail cases, for example, partnerships that multinational companies hoped would help them address the local market turned into disputes over local partners’ development of their own technology platforms.

The spate of delistings in the past two years may, in retrospect, have had some beneficial effects. It has forced many corporate and private-equity investors to increase the depth and detail of their formal due diligences. It has spurred the growth of what could be termed forensic equity research—analysts that specialize in looking for potential fraud in listed companies. Although often disliked by their targets, this group provides a valuable balance to traditional equity research. It is also forcing the US Securities and Exchange Commission to look hard at the reliability and acceptability of certain audits, which will most likely result in better standards of practice. Finally, we hope that it will leave investors more cautious about the information on which they rely and more thoughtful and circumspect about how they interpret it.

Shared by  McKinsey & Company

China’s rising stature in global finance

The country’s financial markets are deepening, foreign investment keeps pouring in, and capital is flowing outward. What would it take for China to assume a new role as world financier?

China, as the world’s largest saver, has a major role to play in the global financial rebalancing toward emerging markets. Today, these countries represent 38 percent of worldwide GDP but account for just 7 percent of global foreign investment in equities and only 13 percent of global foreign lending. Their role seems poised to grow in the shifting postcrisis financial landscape, since the advanced economies face sluggish growth and sobering demographic trends. As a lead player in that shift, China could become a true global financier and, with some reform, establish the renminbi as a major international currency.

Yet a long-closed economy—even one with more than $3 trillion in foreign reserves—can’t swing open its doors overnight. China’s domestic financial markets will have to deepen and develop further, and returns earned by the government, corporations, and households must rise if the country is to attract and deploy capital more effectively. At the same time, the barriers that prevent individuals and companies from investing more freely outside the borders of China, and foreigners from investing within them, will have to diminish gradually, and the country must build the trust of global investors. Continued reform in China, coupled with its vast domestic savings and outsized role in world trade, could make the country one of the world’s most influential suppliers of capital in the years ahead.

Growth and growing pains in China’s markets

As China’s financial markets have become more robust and deeper, the value of its domestic financial assets—including equities, bonds, and loans—has reached $17.4 trillion, trailing only the United States and Japan (Exhibit 1). That’s a more than tenfold increase in a span of two decades, and it doesn’t include Hong Kong’s role in channeling funds to and from China.


Exhibit 1

A surge in lending has boosted China’s financial assets by $3.8 trillion since 2007, but growth has not kept pace with that of GDP.


In contrast to most advanced economies, where lending has been stagnant amid widespread deleveraging, bank loans in China have grown by $5.8 trillion since 2007, reaching 132 percent of GDP—higher than the advanced-economy average of 123 percent. About 85 percent of that Chinese lending has been to corporations; households account for the rest. This rapid growth has raised the specter of a credit bubble and a future rise in nonperforming loans, though regulators have attempted to slow the pace in overheated areas such as real estate.

China’s corporate-bond market is also developing. Bonds outstanding from nonfinancial companies have grown by 45 percent annually over the past five years, bonds from financial institutions by 23 percent. There is ample room for further growth, since China’s levels of bond-market borrowing are significantly below those of advanced economies. Indeed, bond financing could provide an alternative source of capital for the country’s expanding corporate sector, enabling banks to increase their lending to households and to small and midsize enterprises.

Unlike many major equity markets, China’s stock market has not rebounded since the financial crisis and global recession. Total market capitalization has fallen by 50 percent since 2007, plunging from $7.2 trillion in 2007 to $3.6 trillion in the second quarter of 2012. Investors sent valuations soaring at the market’s peak, but fears of a slowdown and a more realistic view of company valuations dampened their enthusiasm, underscoring the fact that China’s equity markets, like those of other emerging economies, remain subject to sharp swings.

Cross-border investment surges

China has defied global trends in cross-border capital flows, which collapsed in 2008 and remain 60 percent below their precrisis peak. For China, by contrast, foreign direct investment (FDI), cross-border loans and deposits, and foreign portfolio investments in equities and bonds are up 44 percent over 2007 levels (Exhibit 2). Total foreign investment into China reached $477 billion at the end of 2011, exceeding the 2007 peak of $331 billion. Foreign companies, eager to establish a presence in China, account for roughly two-thirds of the inflows.


Exhibit 2

China’s capital flows have been approaching new heights.


Capital from foreign institutional and individual investors could provide another leg to growth as long-standing restrictions on foreign portfolio investment continue to ease. The number of qualified foreign institutional investors (QFII) approved by Chinese regulators has grown from 33 in 2005 to 207 in 2012 and will undoubtedly rise further. Regulators also are giving registered foreign funds more latitude to invest their holdings of offshore renminbi in China’s domestic capital markets. Both moves have further opened the door to foreign participation in those markets.

Famously, the People’s Bank of China, the nation’s central bank, has accumulated the world’s largest stock of foreign-currency reserves: $3.3 trillion at the end of 2012. While much of this money is invested in low-risk sovereign debt—for instance, US treasuries, which account for at least $1.2 trillion of China’s reserves—the growth in such investments has slowed considerably. Instead, China is both loosening restrictions on other types of financial outflows and moving to diversify its foreign holdings. That was the impetus behind the 2007 creation of the China Investment Corporation (CIC), one of the world’s largest sovereign-wealth funds, with assets of $482 billion. CIC’s holdings include shares in many of the world’s blue-chip companies; mining, energy, and infrastructure projects; global real estate; and even a stake in London’s Heathrow Airport.

Chinese companies are also stepping up their role in global finance. Foreign direct investment by both state-owned and private-sector Chinese companies grew from just $1 billion in 2000 to $101 billion in 2011. At the end of 2011, Chinese companies accounted for $364 billion of global foreign direct investment, with most of it tied to commodities. About half of these investments went to other emerging markets—a share higher than that for companies in advanced economies.

Much of China’s rapidly increasing global lending is tied to foreign investment deals involving Chinese companies (for instance, financing a mine in Peru, with construction to be undertaken by a Chinese company). Outstanding foreign loans and deposits totaled $838 billion at the end of 2011. To put this sum in perspective, consider the fact that the total level of loans outstanding from the world’s five major multilateral development banks is about $500 billion. Since 2009, Chinese loans to Latin America have exceeded those of both the Inter-American Development Bank and the World Bank (Exhibit 3).

 Exhibit 3

China now provides a higher volume of loans to Latin America than the World Bank and the Inter-American Development Bank.


Africa is another priority. At the 2012 Forum on China–Africa Cooperation, China pledged an additional $20 billion in new lending to that continent over the next three years. In March 2013, President Xi Jinping traveled to Africa for his first overseas trip as head of state, reaffirming this lending pledge and signing an agreement to build a multibillion-dollar port and industrial zone in Tanzania.

So far, the returns on many of China’s investments at home have been below their cost of capital. There is almost an expectation of low returns—in some cases, negative real returns—on corporate invested capital, on domestic bank deposits, and even on returns the government earns on its foreign reserves. The returns that will be earned on many of China’s recent foreign direct investments and foreign loans remain to be seen. The pace and process of the migration to market-level returns will be a challenge for policy makers.

The long road to renminbi convertibility

As China’s economy and financial clout continue to grow, so will use of the renminbi. China has aspirations to make it an international currency, perhaps eventually rivaling the US dollar and the euro for global foreign reserves. But realizing these ambitions will require substantial progress on several fronts. One is developing deep and liquid domestic capital markets for renminbi-denominated financial assets. Despite the progress described above, China’s financial depth (the total value of its financial assets as a share of GDP) remains less than half that of advanced economies. Developing larger bond markets, as well as derivatives markets to hedge currency and other risks, will be essential.

To take on a greater global role, the renminbi must also become an international medium of exchange. In recent years, China has promoted the use of its currency to settle international trade contracts; for instance, it has created swap lines to supply renminbi to 15 foreign central banks, including those of Australia and Singapore. As a result, the use of the renminbi in China’s trade has grown from around just 3 percent several years ago to an estimated 10 percent in 2012. According to a survey by HSBC, Chinese corporations expect one-third of China’s trade to be settled in renminbi by 2015.

However, to become a true international currency, the renminbi will have to be fully convertible—meaning that any individual or company must be able to convert it into foreign currencies for any reason and at any bank or foreign-exchange dealer. China’s central bank has acknowledged that the time has come to move in this direction and accelerate capital-account liberalization, and it recently outlined both short-and long-term road maps for this process. Short-term moves could include reducing controls on investment directly related to trade and encouraging Chinese enterprises to further increase outward foreign direct investment. For the longer term, the bank has outlined actions such as opening credit channels to flow both into and out of China and moving from quantity- to price-based approaches to monetary policy management. And over time, China will need to build trust in its institutions by developing a set of rules, applying them consistently, and sticking with them.

For now, however, the doors remain only partially open. Achieving the institutional development needed to fully liberalize capital accounts and remove currency controls will take time.

To assume the role of financier to the world, China will have to embrace financial globalization and advance reform more fully, and that won’t happen overnight. There is already movement toward greater openness, though, which makes China’s recent once-in-a-decade leadership transition a telling moment: if the new economic team picks up the pace of reform, the world financial system could have a very different look in just a decade’s time.

Shared by McKinsey & Company

Navigating the new era of Asian retail banking

Retail banking in Asia is growing quickly—but to capture the emerging opportunities, banks must understand the region’s complexity and respond in an appropriate way.

Retail banking in Asia is on the cusp of a new era. By 2015, more personal financial assets will reside there than in Europe, making Asia the world’s second-largest wealth-management region, behind only the United States. Retail-banking revenue in Asia, growing at 9 percent a year since 2010, is expected to reach more than $900 billion by 2020.

To help banks tackle the challenges of this evolving region, McKinsey publishedRetail banking in Asia: Actionable insights for new opportunities. The articles, combining insights from McKinsey’s proprietary data with the lessons of our extensive experience supporting clients throughout the region, offer new thinking and practical advice for executives interested in this market.

The new era in Asian banking will bring substantial opportunities, but capturing them will not be easy. Rapidly shifting consumer behavior will force banks to revisit or even completely revamp their business models. New regulatory requirements and high-risk customer segments will add to the cost of doing business, putting downward pressure on returns. Nontraditional competitors will enter the market, vying with established ones for their revenue pools. Attackers from outside the banking industry have already begun encroaching on it, using direct payment as their main entry point.

Retail banking in Asia offers detailed insights about this complex market and outlines specific steps banks can take in response. Among our findings:

  • Despite dramatic revenue growth, banks in emerging Asia should expect to see returns on equity decline by 4 to 5 percentage points in the coming years. In “Dimensions of innovation in Asian retail banking” we discuss three ways for banks to beat this downward pressure.
  • Unlike the early days of digital banking, when consumers valued low prices above all else, today customers want greater control over their finances, fair and transparent pricing, and a single, consistent, engaging experience. Findings presented in “Digital banking in Asia” suggest that banks must make digital banking an integral part of their new operational models, not a stripped-down version of the products and services offered through traditional banking channels.
  • Banks are at last seeing returns on their investment in multiple channels, but physical bank branches are not necessarily a thing of the past. They will continue to play a role in emerging markets—but in a new way. In “Is the branch obsolete in a multichannel world?” we advise bankers to understand the particular economics of their markets before making broad-based decisions about the size of their networks.
  • As in many parts of the world, “customer-centricity” is a much-discussed term in Asia, but many banks haven’t been able to turn this vague concept into something concrete. “Creating the customer-centric retail bank” presents three specific business models that can help make a bank’s efforts much more impact focused.

Retail banking in Asia is evolving quickly; the region’s emerging countries will soon have attracted more revenue in absolute terms than the developed ones. To win in this market, banks must understand their customers, their competitors, their own business models, and their regulatory environments. Getting it right will be essential if banks are to survive the battle that’s already under way.

Download the full compendium of articles, Retail banking in Asia: Actionable insights for new opportunities.

Published with cooperation from McKinsey & Company

Getting to know China’s premium-car market

Perhaps as early as 2016, China will overtake the United States as the world’s largest market for premium cars. Multinationals currently dominate it in China, but they must now adjust to a market where consumers are becoming more sophisticated than previous generations of buyers, who cared primarily about social status. The reason for the change, in part, is that more premium buyers will be driving their own cars rather than being chauffeured.

Our research compared the preferences of consumers in China and Germany because the latter country’s carmakers hold about 80 percent of the Chinese premium-auto market (exhibit). It suggests that in China, advanced power trains are much more important for attracting high-end buyers than they are in Germany. Fuel efficiency also looms larger for affluent consumers hesitant to step up to premium cars. Perhaps less surprisingly, price matters more in China, particularly for people interested in but less able to afford luxury cars, so there may well be a major market for lower-priced premium models. Germans care more about other attributes: handling and technology for the consumers most willing and able to pay for such cars, quality and comfort for less affluent consumers. Automakers in China shouldn’t stint even on these features, however; our research indicates that many Chinese view some of them as a “given” for premium cars.


The preferences of Chinese consumers who are willing and able to buy luxury cars differ from some of their German counterparts’ priorities.

For a more complete discussion of this research, download the full report,Upward Mobility: The Future of China’s Premium Car Market [PDF–900 KB].