FORMATIVE ASSESSMENT $1[100$ MARKS$]$

Read the case study below and answer the questions that follow.

FORCES RESHAPING THE GLOBAL ECONOMY

An ongoing shift in global economic activity from developed to developing economies, accompanied by growth in the

number of consumers in emerging markets, are the global developments that executives around the world view as the most

important for business and the most positive for their own companies' profits over the next five years. Executives also

identify two other critical positive aspects of globalization: technologies that enable a free flow of information worldwide and,

increasingly, global labor markets. These four trends of the ten we asked about, also are the ones that the biggest share of

respondents$$around half$$say their companies have taken active steps to address. In this sixth annual survey asking

executives about the forces shaping the world economy, there is little change in how respondents view the importance of

global trends compared with previous years$$either for business in general or for their own companies' profits. Clearly, the

financial crisis and economic downturn have not shaken these key trends. Continued faith in the positive effects of

globalization combined with a move away from short$-$term planning likely reflects rebounding optimism about global

economic prospects and is consistent with the findings of other McKinsey surveys on the economy.

The result of this survey explores for the first time five interconnected themes that highlight the opportunities and

challenges faced by global economic integration itself and by companies seeking to profit from it: growth in emerging

markets$$ labor productivity and talent management$$ the global flow of goods, information, and capital$$ natural$-$resource

management$$ and the increasing role of governments.

The findings show that the global economy faces significant challenges as it continues to integrate. For example, most

respondents$63$ percent$$expect increased overall volatility to become a permanent feature of the global economy, and

another $23$ percent see sharply higher levels of volatility that will undermine the economy's robustness. In addition, high

levels of public debt are a headache in Europe and North America, where most executives fear the debt will have a negative

impact on GDP growth. There are specific corporate challenges too. Half of the respondents are only somewhat optimistic

they will be able to find the right talent to meet their companies' strategic goals. Likewise, only half of the executives

reported that their companies have taken steps to address the shift in global economic activity from developed to

developing economies$$the force that is reshaping the global economy more than any other.

Low birth rates and graying workforces in most developed economies will make it hard for them to achieve steady growth

unless they continue to make sizable gains in labor productivity. A majority of all respondents, $62$ percent, do expect

moderate gains in the next five to ten years in developed economies, and another $13$ percent expect the gains to be

significant.

Nonetheless, developed and developing economies alike must become more innovative at sourcing talented employees,

whether by tapping global labor markets or making better use of older workers. Just less than $40$ percent of executives are

"very" or "extremely confident," and around half are "somewhat confident," that their companies will have the right kinds of

talent to meet their strategic goals over the next five years. Notably, respondents at companies based in developing

markets largely share the same views as those from developed markets on this point. The greatest projected talent

shortfalls are in three functions$$management$,$ R&D$,$ and strategy$$with significant variations between executives in

different regions as provided for in Exhibit $2.$ Interestingly, executives in China are much more concerned about a shortage

of management talent than they are about R&D specialists. For India, it is the reverse.

Exhibit $2$

When indicating where their companies will find the talent they need, executives most often cite talent from emerging

markets to work there $(44$ percent$),$ new talent entering developed labor markets $(41$ percent$),$ and talent from developed

markets deployed to emerging markets $(35$ percent$).$ North American companies, their executives say, are counting more

than all others on sourcing talent in developed economies, including retrained talent $(30$ percent$)$ and talent from increased

labor pools due to delayed retirement $(25$ percent$).$ This is consistent with the lower number of actions North American

companies are taking to capture emerging$-$market growth.

Capturing the opportunities offered by growth in emerging markets$$the trend executives say is the most important$$will

require retooling existing business models and reconfiguring companies' price$/$value equations. Managing the risks of that