Dissecting global trends: An example from Italy

Research in Brief
Dissecting global trends: An example from Italy
Executives should examine the impact of trends on sub industries, segments, categories, and micro markets before placing their bets.

Stefano Proverbio, Sven Smit, and S. Patrick Viguerie, March 2008

Executives know they must incorporate social and environmental trends into their strategies, but few act on trends in ways that would allow them to ride the waves successfully. Our experience, backed by recent research, suggests that companies should navigate important trends by first studying their impact on sub industries, segments, categories, and micro markets. That kind of analysis breaks down megatrends into micro trends that companies can invest in with confidence. When they do, they are applying an approach similar to the one they should use when targeting growth opportunities in any market.

Indeed, we find that the importance of taking a granular view of where to compete can hardly be overestimated. We compared the global growth rates of industries with those of an international sample of 416 large companies, from 1999 to 2005. We found that we could explain why some companies grew faster than others only by measuring their exposure to sub industries and product categories.

To show what that approach looks like in practice, we analyzed the market impact that an important trend-aging populations in developed economies-will have in Italy, which has one of the world's most rapidly aging populations, because of low birth rates and a high life expectancy. The starting point for a granular growth and trend analysis is to break down market information into increasingly fine-grained levels (Exhibit 1)-from the world market (which we call G0); to 24 broad industry groups, such as health care equipment and services (G1); to 151 individual industries (G2). These, in turn, can be divided

• G0. At the world-market level, we estimate that aging populations will reduce global GDP by 0.1 percent a year until 2020. In Italy, the impact will be virtually neutral-lowering GDP by just 0.03 percent a year. This gap offers no useful information for an executive considering whether to ride Italy's trend to aging.
• G1 and G2. At the level of industry groups and individual industries, the impact of aging clearly varies across the Italian economy (Exhibit 2). We estimate that changes in the age mix will increase demand for health care, housing, energy, and food and beverages by 0.15 percent (food and beverages) to 0.30 percent (health care) between now and 2020. Conversely, industries such as apparel, furniture, and automobiles are all likely to suffer a drop in demand of around 0.15 percent a year over that period. Games, toys, and sports will likely be hardest hit, with an annual decline of 0.4 percent. Aging will therefore have a positive impact on some Italian industries and a negative one on others. But industry averages don't tell executives enough to make specific decisions about where to compete.