New McKinsey research reveals the “wizardry” behind 18 hyper-growth industries

December 3, 2024 Our newest McKinsey Global Institute (MGI) report, The next big arenas of competition, tells the story of "wizard" industries that grow at fantastic rates, spawn giants, and even shape-shift. We call them "arenas of competition," and in the past 20 years, they have come to permeate the global economy.

"If I wind back the clock to 2005, the top ten titans of industry were oil companies, retailers, pharmaceuticals…and one software company, Microsoft. The average market cap was $250 billion," recalls Chris Bradley, a McKinsey senior partner and MGI director. "Today, nine out of the top ten have been replaced by companies that are giant-eight times bigger in value-at 1.9 trillion, and almost all are driven by new technologies and business models. Under our noses, there's been this radical shift in the industrial landscape, and we wanted to understand why and what it looked like."

The report identifies 12 thriving arenas that began in 2005 and previews 18 that we think could shape the future. Here, four authors, Chris; Kweilin Ellingrud, a McKinsey senior partner and MGI director; Kevin Russell, an MGI senior fellow; and Suhayl Chettih, an engagement manager, share insights from the research.

Q. In this report, there are potions, wizards, and giants. Why such fantastic language?

Chris: The arenas are growing at such an extraordinary rate that colloquially I say they're as different in the Harry Potter world as wizards are from muggles. They inhabit different characteristics and play by different rules. We identified three common elements we call a "potion." An arena starts with a significant breakthrough in technology or business model that fundamentally changes how a product is developed or delivered. They have an ever-escalating rate of investment so they can expand at breakneck speed, improving in quality and scaling in size; and they have a large or growing addressable market.

Q. What should readers take away from this research?

Kweilin: The next big arenas really, really matter because a third of global growth and much of the action in the business world is probably going to be in these industries. They range from AI and cloud technologies to cybersecurity, robotics, space, and nuclear fission.

If you are a student, you want to think about what knowledge and skills to build; investors, entrepreneurs, and executives should understand how these giants will soon be influencing their own businesses. Public sector leaders may want to consider how to attract these dynamic industries to their communities: what infrastructure, incentives, and regulations need to be in place?

Q. The research describes 12 current arenas and 18 potential ones, with some overlap. How else are the two groups related?

Kevin: Looking back over the last 20 years, a lot of the arenas were driven by digitalization. For example, the consumer internet turned retail into a digital process, with e-commerce and cloud technology enabling the processing of massive amounts of data.

Looking forward, a lot of these arenas have a very physical nature affecting how we live and what we experience: Robots can be humanoids that perform tasks. Drones, electric vehicles, and shared autonomous vehicles transport things and people. Modular construction is accelerating building in cities and elsewhere. The physical achievements of the space industry are almost a daily inspiration.

Many of these are possible because of breakthroughs in AI and battery technologies. It is finally possible to bring these components together-the drone or robot combined with AI intelligence and energy provided by batteries-as seen in a number of incredibly useful innovations in the future arenas.

Of course, that's not the whole story, but many have this nature.

Q. The growth of future arenas is based on what we know today. What factors could change this?

Suhayl: We see three major swing factors. First, the way geopolitical developments will unfold: for example, markets going from global to more regional could change the trajectory and shape of growth.

Second, the advancement of AI and how industries are developing, maturing, and scaling new AI use cases will strongly influence the evolution of all future arenas.

Third, the pace of the green transition will impact EVs, nuclear fission plants, battery technology, and industrial and consumer biotechnology. These arenas will be influenced by any number of decisions along the decarbonization pathway: the level of government support by country, consumer commitment to sustainability, and availability of raw materials.

Q. Which arenas are you most optimistic about?

Chris: I put the most hope in modular construction. A major issue of our time is that we've developed innovations to make life radically better, cheaper, and safer for everybody. But the most important asset that anyone will buy in life is their home, and the construction industry still has stubbornly low productivity and is using roughly the same methods as in the 1950s.

If the innovation within the manufacturing economy can be applied to the construction industry so that the cost of housing can be reduced, that would change people's ability to afford a home-and the kind of lives they can live.

Suhayl: I'm always interested in how technology can change transportation. If we can build shuttles and modes of transport for moving people and things in a much more scalable, sustainable, and affordable way, it could alleviate the gridlock from outdated infrastructure. I'm thinking of shared autonomous shuttles and passenger eVTOLs (air taxis).

Transportation is a key factor impacting productivity and growth in cities, so eVTOLs could not only improve daily life but strengthen economies and communities around the world.

Q. How does our never just tech thinking relate to these tech-driven arenas of competition?

Kweilin: Technology is a critical backbone of so many of these arenas. Without the business model change, the right skills, without the technology advancement, frankly there is no market.

You see that in space, in cloud, in semiconductors. But, to your point, it's never just tech. So much of this advancement depends on adoption, cultural changes, skills development, acceptance, and growing the customer base-that is, the addressable market and comfort with new things like space exploration and autonomous vehicles. So, it will be tech dependent but certainly never just tech alone; otherwise, the market size will be far shy of what the potential is.

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