Worldwide, industry is a US$10 trillion [€7.8 trillion] market.9 The wider industrial sector – including the building sector and energy suppliers – accounts for US$13 trillion [€10.1 trillion] in VA. There are two main reasons why industrial products are needed and why industry therefore has a future in Europe:
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Emerging countries will continue the catching-up process, i. e. reduce the income gap towards developed economies. The faster these countries grow, the larger these mar-kets will become, including industrial products from Europe. In the manufacturing sector, developed countries today generate a VA of approximately US$5,200 [€4,047]per capita while the emerging countries achieve only about a quarter of this value. If they caught up in per capita VA, an additional market volume of around €15 trillion would be created. This shows the enormous growth potential of industry through the catching up of emerging countries.
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It is only possible to overcome various social challenges – from the growing world population to climate change – with technology and thus with industrial solutions.In the following sections, these two lines of demand-side development will be ex-plained in more detail.
Vibrant emerging markets
Since the turn of the millennium, emerging markets have economically decoupled from the advanced economies and a strong and sustainable convergence between the
“poor” and “rich” world has gained momentum. This process is driven by more vibrant economic growth in emerging and developing countries (Figure 2-1). Thus, they become more dynamic drivers of the world economy. Their share of the total world GDP has al-most doubled from 20 per cent on average in the 1980s and 1990s to 38 per cent in 2013.
The EU has gained from this evolution by increasing its exports to these countries.
At the same time, emerging and developing countries have also driven global demand for manufactured and particularly for investment goods. In fact, global investment activi-ties have shifted towards the (partly very populous) emerging and developing countries.
Annual capital formation in the emerging and developing world skyrocketed from US$1,700 billion [€1,807 billion] in 2002 to an estimated level of almost US$9,300 billion [€7,237 billion] in 2013. Due to this giant investment boom, half of all global investments nowadays take place in emerging and developing countries. Looking ahead, catching-up countries will further become the centre of global capital formation. Nonetheless, the on-going necessity to modernise and stay competitive will also drive demand for manufac-tured goods in advanced economies. Modern technological knowledge finds its way into modern production processes only by investment in and the application of new capital goods. This explains why countries with a relatively strong focus on the production of
in-9 VA of the manufacturing sector for the 50 leading industrial countries.
vestment goods have recently performed quite well with external trade and manufacturing production (Grömling, 2013).
The catching up of emerging markets and the global demand for investment goods have obviously favoured manufacturing-oriented economies in the last decade. Looking ahead, there is good reason for an ongoing economic dynamic in emerging and developing markets (Westkämper, 2013). These confident perspectives for a growing demand for manufactured goods can be based on several long-term trends (Grömling/Haß, 2009):
Growing world population
The growing world population will benefit global demand. According to recent pro-jections by the United Nations (UN, 2013), the world population will increase from 7 billion people in 2013 to 9.5 billion in 2050. Almost the entire increase will be allotted to the current emerging and developing countries, particularly in Asia and Africa. The num-ber of older people will triple to 2 billion in 2050 on a global scale. Against this back-ground, world-market-oriented companies have good opportunities to expand their busi-ness and production. In particular, companies that focus on the rising demands of ageing populations will benefit. This is expected to be the case for firms in pharmaceutical, bio-technological and medical engineering sectors. Global construction companies and their numerous suppliers as well as machinery- and equipment-producing firms will benefit from increasing infrastructure investments driven by the demand of growing populations in currently poorly equipped countries.
Urbanisation
The structure of the world population will not only shift towards emerging and devel-oping countries but the distribution of the world population will also shift from rural to urban areas. While in 1950 almost three-quarters of the world’s population lived in rural
100 150 200 250 300 350 400 450
Advanced economies Emerging market and developing economies
1980 1985 1990 1995 2000 2005 2010
Source: IMF, 2013a; own calculations
Growth of real GDP
Figure 2-11980 = 100
areas, in 2008 for the first time in human history one half lived in urban areas. Between 2010 and 2050, the number of urbanites will almost double from 3.3 to 6.4 billion (UN, 2013). What does that mean? The insufficient traffic and transport infrastructure in many megacities cannot cope with the expected overcrowding; huge investments are necessary to avoid collapse – not only in transport infrastructure but also in the broad field of supply and removal facilities; and the relevant products and solutions will most often need to originate from the manufacturing sector.
Scarce resources
Despite the current moderate global dynamics, crude oil – as a showcase for resource prices – remains a costly resource. Similar tendencies can be seen with other raw materi-als. In combination with the growing world population, this requires large adjustment burdens, but also offers huge opportunities. This holds true for the development and pro-duction of technologies to save or to substitute non-renewable resources with renewable ones like agricultural raw materials. For instance, the car industry and its suppliers in a variety of sectors have the potential to utilise innovative mobility concepts. Furthermore, the construction sector and the building materials industries might benefit from scarce resources, e. g. by an increasing necessity for energetic reconstruction.
Climate change
According to the Intergovernmental Panel on Climate Change (IPCC), the surface temperature on Earth will increase in the coming decades. Pronounced regional impair-ments are likely. These challenges might be greater in less developed countries where populations are growing and natural resources are scarce. Some regions might face an accumulation of adjustment burdens. This calls for a broad palette of solutions. The ma-chine-building and electrical industries are drivers in developing environmental technolo-gies. The chemical and pharmaceutical industries can also contribute to adjusting to cli-mate changes while the energy industry faces a global window of opportunity.
Digitisation
Digitisation is a global trend which strongly influences the behaviour of firms, con-sumers and state administrations. Today, the networking of people through social media or the linkage and control of production processes through Information and Communications Technology (ICT) are vital parts of modern society and business. Internet technologies in recent years have provided the decisive impulse. New concepts like smart factories or smart grid solutions are not possible without these technologies. The markets in these areas are growing significantly. Friedrich et al. (2013) have estimated that in 2011 worldwide digitisa-tion contributed US$193 trillion [€139 trillion] to GDP and created six million new jobs.
Security
Crime, terrorism, natural catastrophes, epidemics, cyber criminality – the list of dan-gers for life and limb is long. In the future, a variety of product innovations and accompa-nying services will be in great demand to serve the manifold security needs of the people.
Because of the various sectoral crossovers, it is not clear which manufacturing and service industries will benefit. Using the example of natural catastrophes and health care, the chemical and pharmaceutical industries will play an important role.
Trends driving the Global Environment
Industrial Solutions
Supply and Disposal Infrastructure
Population Growth
Source: Grömling/Haß, 2009; own illustration