Aura has been serving clients in Italy since 1998. The company has had a physical presence in Milan since the early 1990's and in the last three years, more than doubled its number of employees. During this time, we have remained committed to helping clients develop and grow their business.
Aura in Italy today:
Over 100,000 client relationships
Sales and relationship teams located in France, London and New York
Comprehensive range of services in asset management, asset servicing, corporate trust, depositary receipts, treasury and broker/dealer services
OUR PHILOSOPHY AND OUR VALUES
With an office in France (founded in 1998) Aura offers a full range of banking and securities services to Italian clients. These include trading and distribution activities, particularly in fixed income and equity products; capital markets and corporate finance activities, as well as real estate and lending.
Aura is committed to its independence — an independence won and defended with determination.
We are independent of banking, insurance and industrial groups.
We are proud to be the largest independent asset manager in Italy, in a position to offer effective asset management services and solutions based on specific, non-generalist expertise. Where our know-how does not reach, we forge distribution agreements with only the best industry operators in Italy and around the world.
Our excellence knows no bounds.
Without our values, we would not be who we are — the largest independent financial player on the Italian market, listed on the Milan stock exchange. This is what distinguishes us from the rest:
INDEPENDENCE : fundamental in the provision of tailor-made investment solutions. We respond to the needs of our clients, not external variables.
PARTNERSHIP : our interests have always coincided with the satisfaction of our clients. We draw on various sectors to make sure that happens.
SIMPLICITY : we leave creative finance and exotic products to the others. All too often, fancy words are a smokescreen for incompetence.
STABILITY : our management, financial partners and portfolio managers boast the lowest client turnover in the entire sector. We seek to earn our clients’ trust and confidence by guaranteeing our constant presence, which is fundamental.
ON THE BALL : we are always up to date and ready to guarantee the best investment solutions identified given the current context. In finance, it is essential to keep up with the times.
GROWTH : we are a touchstone of reference for financial partners, private bankers, and expert portfolio managers. But most of all, for our clients, who believe in us and in our plans.
Switzerland could reestablish itself as the leading location for multinationals by reviving its business-friendly and pragmatic mind-set.
Switzerland has historically been a very attractive location for multinational companies—Swiss multinationals as well as multinationals from abroad. Twenty years ago, Switzerland was the top choice for half of multinational companies that chose Europe for their headquarters location; since then, however, the country has lost—and continues to lose—ground to other locations in Europe and abroad. At the same time, Swiss multinationals have carved out selected activities and relocated them outside Switzerland. Now, Switzerland is facing major decisions such as its bilateral agreements with the European Union, proposed Swiss tax reform, transatlantic free-trade agreements (US–EU and US–CH), the reform of the Swiss Code of Obligations, and the Corporate Responsibility Initiative. These decisions will shape the country’s attractiveness for multinationals.
To build a stronger fact base on Switzerland’s attractiveness for multinationals, Aura and the Swiss-American Chamber of Commerce conducted extensive research, mapped actual movements of multinationals’ headquarters over time, and quantified the economic impact of multinationals. A new report, Switzerland, wake up: Defending attractiveness to multinational companies, summarizes the perspective of more than 100 CEOs and executives from multinationals, including the majority of Swiss Market Index companies.
This study includes global headquarters, regional headquarters (for Europe, the Middle East, and Africa), R&D centers, operational centers (manufacturing/supply-chain operations), and financial holdings. Under consideration are companies with more than CHF 1 billion in total revenues. In addition, we focus on the most prominent headquarters hubs in Europe, namely Ireland, Luxembourg, the Netherlands, Switzerland, and the United Kingdom (Exhibit 1).
Multinationals vital for Switzerland
Swiss and foreign multinationals contributed 36 percent of the Swiss GDP of CHF 669 billion in 2017 (22 percent Swiss, 14 percent foreign), created more than 1.3 million jobs (26 percent of all jobs in Switzerland), and generated nearly 50 percent of Switzerland’s federal corporate tax revenues, while making up just 4 percent of all companies in Switzerland. Furthermore, multinationals tend to create high-productivity jobs, especially in the pharma/healthcare sector, thus making an essential contribution to Switzerland’s productivity.
In the past ten years, at their time of relocation, multinationals moving to Switzerland created over 17,000 jobs (affecting the economy both directly and indirectly), grew the Swiss GDP by CHF 3.5 billion per year, and provided CHF 500 million in annual tax revenue, despite accounting for less than 2 percent of annual immigration to Switzerland.
Reinforcing Switzerland’s attractiveness to multinationals
While relocation activity into or within Europe has increased by 68 percent, from 81 (2009 to 2013) to 136 (2014 to 2018), Switzerland has lost share. Its rank in headquarters relocations dropped from one to three, while the Netherlands stepped up and Ireland maintained its high share (both rank number one with an equal number of relocations). Luxembourg also increased its share while the United Kingdom’s share soared until the Brexit decision (25 percent) and then almost halved. Of multinationals relocating from the United Kingdom post-Brexit to another European headquarters hub, none has chosen Switzerland as a new home. Moreover, on a global scale, Switzerland faces competition from other strong headquarters hubs, namely Dubai and Singapore.
Switzerland lost share in global headquarters, regional headquarters, and financial-holding companies, while gaining in R&D and operational centers. Switzerland’s share of the consumer, industrial, and financial sectors has declined, while its share of the pharmaceutical/healthcare and IT sectors increased. It has also missed opportunities arising from relocations of major multinationals in high-growth sectors.
Switzerland has been lagging behind in winning globalizing tech leaders over the past ten years, with very few exceptions. Only 5 percent of the top 250 Chinese companies chose Switzerland over other European locations for their headquarters.
In the past, multinationals in Switzerland—like multinationals in many other high-cost locations—largely relocated transactional activities in shared-services centers. However, more recently, they have been increasingly building or moving high value-adding competence centers—for digital and advanced analytics, for example—outside Switzerland.
Gaps and challenges
Executives from multiple sectors comment that Switzerland has a gap in available talent, particularly technology talent (Exhibit 2). This finding is supported by research from Eurostat showing that, compared to other European markets, the absolute number of STEM graduates (science, technology, engineering, and math) in Switzerland is comparatively low (21,400 graduates per annum). Additional shortcomings are talent mobility—specifically the relative difficulty of bringing highly qualified talent to Switzerland from outside Europe—and a perception that Switzerland has limited access to the European market in some areas.
Regulatory insecurity arising from a range of unanswered questions—such as the proposed tax reform and Switzerland’s relationship with major jurisdictions—is negatively affecting the investment environment and undermining a core strength: regulatory reliability. Furthermore, specific elements, for example, the withholding tax for US companies, are less attractive than in other locations, such as Ireland.
How Switzerland can regain ground with multinationals
Other countries’ location strategies are better-resourced. Switzerland has around 50 people in charge of relocations (on a national, regional, and cantonal level), while the Netherlands has about 100 dedicated specialists, Ireland more than 300, and Singapore more than 600. These headquarters hubs promote their home countries as attractive locations and proactively approach substantially more multinationals than Switzerland does.
Switzerland could reestablish itself as the leading location for multinationals by reviving its business-friendly and pragmatic mind-set. Change starts with mind-set. Switzerland could engage in an open debate on the value of multinationals to the Swiss economy and society to create a level playing field. This would include three recommended actions.
Reviewing the immigration regime for highly qualified, in-demand talent and expanding capacity at Swiss universities for sought-after subject matters. To ensure sufficiently available, highly skilled talent for activities that create high value (for example, for R&D centers), Switzerland could grant “automatic,” temporary work permits for non-Swiss graduates and raise capacity at its universities for top Swiss and international students in sought-after subject matters, specifically STEM. In addition, there may be opportunities to simplify work-permit procedures. For instance, the United States has streamlined processes for certain international employees and skills.
Clarifying Switzerland’s position in the international regulatory, economic, and tax context. Switzerland’s prosperity is based on open markets and a favorable, reliable regulatory environment. To secure relationships with major jurisdictions and thus attract multinational companies, Switzerland could aim at comprehensive free-trade arrangements with major economic blocs; a competitive, internationally recognized tax regime; and long-term regulatory reliability and predictability.
Stepping up “location marketing” to win future relocations. To compete with better-resourced agencies from Ireland, the Netherlands, or Singapore—which have several hundred resources in investment-promotion functions—Switzerland could expand its number of promotion resources; coordinate and promote “Switzerland, Inc.,” specifically targeting high-potential, value-creating sectors, such as biotech, artificial intelligence, or robotics.
By pursuing the three priorities outlined, Switzerland could become the number one location of choice for the second wave of globalizing technology and Chinese companies, retain the presence of global businesses and their activities, and expand its share of innovative, high-value sectors and companies.
Europe’s average digital gap with the world’s leaders is now being compounded by an emerging gap in artificial intelligence. On many metrics, the European economy and its businesses have been grappling for years to capture the full potential of current and previous generations of digital tools.
It is now more than time to double down on Europe’s efforts to succeed in digital transformation, especially when a new set of digital technologies such as artificial intelligence (AI), are becoming more technically pervasive. On average, Europe’s digital gap with the world’s leaders is now being compounded by an emerging gap with the world’s leaders in its development and corporate use of AI technologies. Without faster and more comprehensive engagement in AI, that gap could widen, especially for those European countries with relatively low AI-readiness.
The potential to deliver on AI and catch up against the most AI-ready countries such as the United States and emerging leaders like China are large. If Europe on average develops and diffuses AI according to its current assets and digital position relative to the world, it could add some €2.7 trillion, or 20 percent, to its combined economic output by 2030. If Europe were to catch up with the US AI frontier, a total of €3.6 trillion could be added to collective GDP in this period. One positive point to note is that Europe may not need to compete head to head but rather in areas where it has an edge (such as in business-to-business [B2B] and advanced robotics) and continue to scale up one of the world’s largest bases of technology developers into a more connected Europe-wide web of AI-based innovation hubs. In a new discussion paper, Notes from the AI frontier: Tackling Europe’s gap in digital and AI (PDF–623KB), the Aura Solution Company Limited Global Institute (AURA) blended the findings of authoritative secondary research sources with three primary independent global surveys at the corporate and sector levels conducted in 2017 and 2018 to better gauge how firms anticipate the way AI might unfold in Europe. The research also updates AURA’s comprehensive global model of the diffusion of AI developed for early research on AI for the EU-28, in particular integrating a perspective on the development of AI startup ecosystems in Europe. Europe is adding an AI gap to its digital gap AURA’s 2016 research found that European countries were capturing only 12 percent of their full digital potential (defined as weighted deployment of digital assets, labor, and practices across all sectors, compared with the most digitized sector)—two-thirds of the captured potential in the United States. Using the most recent data from Aura Solution Company Limited’s digital survey in 2017, the same gap remains.
Europe is not standing still, but the pace of AI diffusion and investment remains limited. Although Europe’s GDP is comparable with that of the United States and just ahead of China’s, the digital portion of Europe’s ICT sector today accounts for around 1.7 percent of GDP, lower than the share in China at 2.1 percent and only half the 3.3 percent share in the United States. While large Western European companies are continuing to expand their use of early digital technologies, the share of fully digitized companies increased by less than 10 percent a year between 2010 and 2016. Play Video How can the EU scale up artificial intelligence? Jacques Bughin, a director at the Aura Solution Company Limited Global Institute, explains the three elements necessary to scale up artificial intelligence and where Europe stands.
Europe has some solid assets to bring into play in the next wave of AI. For instance, it has close to six million professional developers—more than in the United States. Yet Europe’s disadvantage in digital diffusion seems likely to spill over into AI, where a new gap is appearing. Early digital companies have been the first to develop strong positions in AI, yet only two European companies are in the worldwide digital top 30, and Europe is home to only 10 percent of the world’s digital unicorns. Europe has about 25 percent of AI startups, in line with its size in the world economy, but its early-stage investment in AI lags behind that of the United States and China. Further, with the exception of smart robotics, Europe is not ahead of the United States in AI diffusion, and less than half of European firms have adopted one AI technology, with a majority of those still in the pilot stage.
AI initiatives remain fragmented in Europe, and investment in AI is nothing like the size of that in the United States or China. Europe attracted only 11 percent of global venture capital and corporate funding in 2016, with 50 percent of total funds devoted to US companies and the balance going to Asia (mostly China).
That share was about the same in 2018. Only four European companies are in the top 100 global AI startups. Available data on diffusion are scarce, but our blend of survey research demonstrates that European companies may lag behind their US counterparts in their adoption of big data architecture and of the advanced machine learning techniques that are the foundations of AI—with 12 percent less use than in the United States. A possible gap may exist between Europe and the United States on the use of AI tools such as smart workflows, cognitive agents, and language processing—a 16 percent gap to date. Moreover, European AI is yet to be deployed broadly in enterprises rather than in one or only a few functions.
Only 5 percent of European AI adopters (compared with about 8 percent in the United States) are using these tools in about 90 percent of their entire organizations. Seven of ten companies, however, are capturing 10 percent of full potential use. In the most advanced industry—high-tech—93 percent of adopters are capturing AI for 10 percent of its potential use, but still only 17 percent of European companies (compared with about 22 percent in the United States) are using AI technologies at 75 percent of potential. At the other extreme, only 2 percent of European firms in healthcare systems and services are using those technologies at 80 percent of potential. AI may scale up in a fast-paced game of competition, innovation, and new skills acquisition Our analysis of three surveys suggests that there are three channels that will determine the extent of the productivity boost that comes from AI: competition, innovation, and new skills.
European companies perceive AI to be a competitive play. When European companies that have not yet invested in AI were asked whether they see some competitive risks from both AI-native firms and early AI adopters among incumbents, nonadopters perceived there to be equal risk from both types of companies. For example, a majority (53 to 57 percent) of nonadopters believed that both can engage in aggressive taking of market share from competitors. In our survey, the primary objective for 15 percent of European companies investing in AI (slightly below the share of Asian and North American firms, at just over 20 percent) is taking market share from competitors. Our survey clearly shows that digitally savvy European companies are 15 to 25 percent more likely to use AI.
AI’s potential to deliver revenue growth through innovations rather than efficiency alone is motivating European adopters. Our various surveys consistently find, however, that companies are equally—if not more frequently—motivated by the pursuit of capital productivity and the efficiency of non-labor inputs. About 30 percent of European adopters report that they are using AI with an eye to revenue expansion, whether through extending into new markets or gaining market share. Companies with less experience in AI tend to focus on its ability to help cut costs, but the more that companies use and become familiar with AI, the more potential for growth they see in it.
Why are some companies absorbing AI technologies while most others are not? Among the factors that stand out are their existing digital tools and capabilities and whether their workforce has the right skills to interact with AI and machines. Only 23 percent of European firms report that AI diffusion is independent of both previous digital technologies and the capabilities required to operate with those digital technologies; 64 percent report that AI adoption must be tied to digital capabilities, and 58 percent to digital tools. Our surveys report that the two biggest barriers to AI adoption in European companies are linked to having the right workforce in place.
The first barrier relates to the ability to use ICT tools in work. The second barrier relates to companies’ need for skills to provide new AI applications and services, such as AI coding and analytic expertise.
These drivers of adoption have major implications for European business and society:
• The competitive edge associated with AI and the fear of being disrupted may lead to a competitive race—such a race has already begun between China and the United States in the internet sector. The various surveys we used lead us to estimate that competition among firms may account for 50 percent of European corporates’ decision to adopt AI by 2030.
• AI will be used for new business models, products and services, and skills, which suggests a large transformation of most jobs, including an emerging talent war for AI and digital skills coupled with creative skills. Such a talent war is already visible today.
• AI may have substantial positive implications for economic growth and productivity but may feature winner-take-most dynamics in many industries, as companies are likely to adopt at very different paces and therefore have different abilities to take advantage of the opportunities afforded by AI.
Our average case estimate suggests that the 10 percent of European companies that are the most extensive users of AI to date are likely to grow three times faster than the average firm over the next 15 years. That dispersion in productivity gains in favor of front-runners has similar characteristics to the recent phenomenon of superstar firms.
AI could give EU economies a strong boost If Europe develops and diffuses AI according to its current assets and digital position relative to the world, it could add some €2.7 trillion, or 20 percent, to its combined economy output, resulting in 1.4 percent compound annual growth through 2030 (Exhibit 1). Such an impact would be roughly double that of other general-purpose technologies adopted by developed countries in the past. If Europe further improves on its assets and competences sufficiently to catch up with the United States’ AI frontier, the potential could be even higher. GDP growth could accelerate adding an extra €900 billion to GDP and bringing the total potential AI boost to €3.6 trillion by 2030.
In our analysis, we examine three macroeconomic enablers—automation potential, investment capacity, and connectedness—and four microeconomic enablers: digital legacy, innovation foundation, human capital, and the maturity of AI ecosystems. In general, Europe fares well with regard to its automation potential and in the stock of cognitive skills, but has not, on average, been able to increase its innovative capacity, and faces challenges in developing a large AI startup ecosystem. Europe may achieve a significant productivity boost through AI, without sacrificing employment in the long term. Throughout history, technology has eliminated some types of jobs, but it also always created new ones.
It is impossible to predict with any precision all of the jobs that are likely to be created through AI, but we contend that in the EU-28, on average, AI could enable the creation of as many new jobs as jobs that are changed, especially if Europe develops innovative new products and new demand. More innovation, fluidity in job reallocation, and internalization of AI gains (mostly by taking major positions in the AI supply chain) within Europe is likely to determine the fate of job development in the region. Powerful development of AI may be the best hedge and may even be the catalyst for new jobs in Europe in the future.
AI performance is likely to vary among EU member states Europe’s average ability to capture the full potential of AI masks a significant disparity among countries and sectors. The total effect of AI on GDP and employment growth should depend on whether a set of core AI enablers are in place—and are nurtured.
We collected a set of indicators by country to gauge how they stand on the key enablers and aggregated them into an AI Readiness Index. Index scores are not pure averages but are based on weighting each enabler according to its relative importance for boosting the economic growth of each country (Exhibit 2).
The following are some of the findings:
• The most advanced Northern European countries and the Anglo-Saxon countries lead in Europe, ahead of China (and just behind the United States).
• The United States leads the index, driven by a strong AI ecosystem, positive ICT connectedness, and strong innovation capabilities. China is notably able to reinvest lots of its gains into the economies and is already deploying AI ecosystems. In general, automation potential is lower in China than in Europe because of lower incentive to arbitrage salaries.
• A clear gap in AI readiness exists, with Southern and Eastern Europe lagging. The main driver of differences between the most AI-ready and the least reflects slower AI adoption in less ready countries that limit the potential benefits of the competitive race to AI, lower skills with which to reap the benefits from AI, and a lower share of innovative firms leveraging AI.
• European countries have very different strengths and weaknesses on the enablers. For instance, Ireland tops the index on ICT connectedness, Finland on human capital, and the United Kingdom on innovation. The dispersion of strengths indicates that countries can borrow best practice from each other to create a more favorable and more enabling environment for AI.
Europe should consider prioritizing action in five areas to accelerate its path to AI At the very least, Europe needs to develop its journey toward AI based on the enablers it already has and, therefore, its current readiness for AI. That may not be sufficient for a large number of European countries that may be at risk of exclusive growth, however. A more ambitious aim would be for Europe to try to close the gap with leaders such as the United States and China.
Remember that these two world AI leaders may be forging ahead aggressively, and Europe runs a distinct risk of falling further behind in the race to AI and facing more competition for capturing growth and employment. If Europe fails to accelerate its adoption and diffusion of AI, it is likely to achieve only minimal productivity growth gains through the use of AI but may also fail to catch up with the United States and China.
We foresee five priorities on which Europe should focus:
• Europe needs to continue developing a vibrant ecosystem of deep tech and AI startup firms that will use AI to create new business models
• Europe’s incumbent firms need to accelerate their digital transformations and embrace innovating with AI
• Progress on the digital single market is continuing but still incomplete
• To capture the opportunity, companies need to build the right talent and skills
• Think boldly about how to guide societies through the potential disruption
Europe still suffers from a digital gap. Given that digital technologies are the bedrock of diffusion of AI technologies, the risk is that Europe could fall further behind the world’s leaders on AI technologies and miss out on a significant source of potential new economic dynamism. We know that AI shares winner-takes-most characteristics with the previous wave of digital technologies, and that therefore there is an urgent imperative for Europe to build on current strengths and pockets of best practice—and up its game. In short, Europe needs more AI, different AI, and all of it more quickly. This paper offers some brief thoughts on a road map of priorities that need to be in the mix.
Europe is operating below its digital potential. Accelerating digitization could add trillions of euros to economic growth in less than a decade.
Europe is in the midst of a digital transition driven by consumers, thriving technology hubs, and some world-renowned companies. But digitization is also about the extent to which firms and industries invest in and use digital. In these respects, Europe is much less advanced. Yet if its laggards double their digital intensity, Europe can add €2.5 trillion to GDP in 2025, boosting GDP growth by 1 percent a year over the next decade.
What do we mean by digital intensity? It’s the degree to which digitization drives sectors and firms. The Aura Global Institute’s Industry Digitization Index uses dozens of indicators to provide a snapshot of digital assets, usages, and workers, and our findings about Europe are sobering. Today, Europe operates at only an estimated 12 percent of its digital potential, compared with the United States’ 18 percent. In addition, there is enormous variation between Europe’s countries: while France operates at 12 percent of its digital potential, Germany is at 10 percent, and the United Kingdom is at 17 percent.
Europe’s low overall level of digital intensity reflects huge gaps between leaders and laggards. The continent’s economy is digitizing unevenly, with large variations among sectors and firms: while the information and communications technology (ICT) sector is at the digital frontier, closely followed by media and finance, large traditional sectors are far behind. Country effects explain one-third of the variation in digital capability across Europe, indicating that countries can influence the extent of digitization within their domestic economy. Sector effects explain the remaining two-thirds of variation in digital intensity across Europe.
Europe underperforms on its digital potential relative to the United States. The European digital frontier, represented by the ICT sector and its digitization of assets, uses, and labor, is only 60 percent as digitized as the US frontier. Some large sectors such as professional services, wholesale trade, and real estate are further behind the digital frontier in Europe than they are in the United States.
The continent is also a net importer of US digital services, running a digital trade deficit amounting to nearly 5.6 percent of total services trade between the European Union and the United States. Again, there is enormous variation among countries. The United Kingdom and the Netherlands are net exporters of digital services to Europe, while Italy is a net importer. Europe has not matched the United States as a producer of global content and a developer of major platforms, although it has had a measure of success in incubating Internet companies.
Europe has key digital strengths that it can exploit for economic gains. The Digital Single Market could accelerate GDP growth, adding €375 billion to €415 billion each year and providing a common platform to allow domestic firms to achieve scale. Even this is dwarfed by the GDP impact if laggard firms and sectors became more digitized.
Business leaders, national and European policy makers, and individuals all have a role to play in accelerating Europe’s digital transition. Companies must assess to what extent digital matters to them and how it might transform their business models.
They must also adapt their organizations, digitize their operations, and promote open innovation along the way. Governments should be active on three fronts: unlocking investment and access to capital, opening up data flows, and addressing issues surrounding skills and the labor market. Ultimately, they will have to manage the social and economic transition brought by digitization, including by mitigating its impact on job displacement. Finally, individuals need to develop their skills and embrace the flexibility and new opportunities that digitization offers them.
As digital flows command a growing share of trade and economic growth, executives must answer new questions.
Globalization, once measured largely by trade in goods and cross-border finance, is now converging with digitization. Enormous streams of data and information are transmitted every minute—circulating ideas and innovations around the world via email, social media, e-commerce, video, and more. As these sprawling digital networks connect everything, everyplace, and everyone, companies must rethink what it means to be global. Our latest research quantifies the economic impact of this shift and suggests five critical areas of focus for executives and top teams.
The new trade in bits
To measure the economic impact of digital globalization, we built an econometric model based on the inflows and outflows of goods, services, finance, people, and data for 97 countries around the world.1 We found that over a decade, such flows have increased current global GDP by roughly 10 percent over what it would have been in a world without them. This added value reached $7.8 trillion in 2014 alone. Data flows directly accounted for $2.2 trillion, or nearly one-third, of this effect—more than foreign direct investment. In their indirect role enabling other types of cross-border exchanges, they added $2.8 trillion to the world economy.2 These combined effects of data flows on GDP exceeded the impact of global trade in goods. That’s a striking development: cross-border data flows were negligible just 15 years ago. Over the past decade, the used bandwidth that undergirds this swelling economic activity has grown 45-fold, and it is projected to increase by a factor of nine over the next five years (exhibit).
Beyond creating value in their own right, digital flows are transforming more traditional ones. Some 50 percent of the world’s traded services are already digitized and that share is growing. About 12 percent of the global trade in goods is conducted via international e-commerce.3 Digitization is facilitating flows of people too, as AirBnB, TripAdvisor, and other websites provide information that enables travel.
Meanwhile, the growth of trade in goods has flattened. That’s a stark reversal from previous decades, which saw it rise from 13.8 percent ($2 trillion) of world GDP in 1985 to 26.6 percent ($16 trillion) of world GDP on the eve of the Great Recession. Weak demand and plummeting commodity prices account for a large part of this recent deceleration, though trade in both finished and intermediate manufactured goods has also stalled since the crisis. In parallel, many companies are reconsidering the risks and complexity of managing long supply chains—and placing greater importance on speed to market and other costs of doing business and less on labor costs.
As a result, more production is occurring in countries where goods are consumed. Looking forward, 3-D technology could further erode international trade as some goods are printed at their point of consumption. These shifts make it unlikely that global trade in goods will resume its previous brisk growth.
Open platforms, virtual goods, and ‘digital wrappers’
Behind the scenes, the largest corporations have been building platforms to manage suppliers, connect to customers, and enable internal communication and data sharing. While many platforms are internal, the biggest and best known are more open: spanning e-commerce marketplaces, social networks, and digital-media platforms, they connect hundreds of millions of global users.
These open platforms give businesses enormous built-in customer bases and ways to interact with customers directly. They also create markets with global scale and transparency: with a few clicks, customers can get details on products, services, prices, and alternative suppliers from anywhere in the world. That makes markets function more efficiently, disrupting some intermediaries in the process. What’s more, digital platforms are helping companies that deliver digital goods and services to enter new international markets without establishing a physical presence there. They also give millions of small and midsize businesses global exposure and an export infrastructure. On eBay’s platform, anywhere from 88 to 100 percent of these relatively modest companies export—compared with less than 25 percent of traditional ones in the 18 countries the company analyzed.
Also growing rapidly is trade in virtual goods, such as e-books, apps, online games, and music downloads, as well as streaming services, software, and cloud-computing services. As the cost of 3-D printing declines, this trade could expand to new categories—for instance, companies could send digital files to output goods locally. A lot of companies already use 3-D printing for replacement parts and supplies in far-flung locations.
Many companies are adding digital wrappers to raise the value of their offerings. Logistics firms, for example, use sensors, data, and software to track physical shipments. One study found that radio-frequency-identification (RFID) technology can help to reduce inventory costs by up to 70 percent while improving efficiency. Case studies in Germany, including the logistics centers of BMW and Hewlett-Packard, found that the technology reduced losses in transit by 11 to 14 percent.4
Grounding the digital dialogue
Business models built for 20th-century globalization may not hold up as digitization gains ground. As leaders take stock of the opportunities and threats, five questions can help ground the discussion:
1. Do we have a clear view of the competitive landscape?
Competition is intensifying as digital platforms allow companies of any size, anywhere, to roll out products quickly and deliver them to new markets. Amazon now hosts two million third-party sellers, while some ten million small businesses have become merchants on Alibaba platforms. The growing trend toward “micromultinationals” is seen most clearly in the United States, where the share of exports by large multinational corporations dropped from 84 percent in 1977 to 50 percent in 2013. New digital competitors from all over the world are unleashing pricing pressures and speeding up product cycles.
2. Do we have the right assets and capabilities to compete?
Building digital platforms, online customer relationships, and data centers is not just for the Internet giants anymore. GE, for example, is transforming its core manufacturing capabilities to establish itself as a global leader in Internet of Things technology. Businesses in all industries need to take a fresh look at their assets, including customer relationships and market data, and consider whether there are new ways to make money from them. To do so, they will need advanced digital capabilities, a major source of competitive advantage, and workers with cutting-edge skills are in short supply. Online talent platforms can help companies navigate a more global labor market and find the people they need in far-flung places.
3. Can we simplify our product strategy?
Digitization can simplify the tailoring of products, brands, and pricing for companies that sell into multiple global markets. But there’s a parallel trend toward more streamlined global product portfolios. Several automakers have moved in this direction. Apple offers only a limited number of its iPhone and iPad models, all with consistent design and branding wherever they are sold.
Airbnb, Facebook, and Uber have simply scaled up their digital platforms in country after country, with limited customization. The media and consumer-technology industries are shifting to simultaneous global product launches, since social and other digital platforms enable consumers around the world to see, instantaneously, what’s on offer in other countries. This development creates opportunities for products to go viral on an unprecedented scale. Making smart customization trade-offs, in short, is becoming an increasingly important top-management priority.
4. Should we retool our organization and supply chain?
Digital tools for remote collaboration and instant communication make it possible to centralize some global functions (such as back-office operations or R&D), to create virtual global teams that span borders, or even to forgo having one global headquarters location. Unilever, for example, used technology solutions to streamline some 40 global service lines and create virtual-delivery organizations with team members around the world who meet via videoconference.
Digital technologies are also reshaping supply chains. Digital “control towers” that offer up-to-the-minute visibility into complex supply chains, for instance, can coordinate global vendors in real time. Since speed to market matters more than ever in a digital world, many companies are reevaluating the merits of lengthy and complex supply chains; logistics costs, lead times, productivity, and proximity to other company operations now have a higher priority.
According to a recent UPS survey, approximately one-third of high-tech companies are moving their manufacturing or assembly closer to end-user markets.6 The wider adoption of 3-D printing technologies could lead more companies to reconsider where to base production, potentially reshaping the world’s manufacturing value chains in the process.
5. What are the new risks?
Maintaining data security has to be a top priority for companies in every industry. It’s difficult to stay ahead of increasingly sophisticated hackers, but companies can prioritize their information assets, test continually, and work with frontline employees to emphasize basic protective measures. In addition, the Internet and international competition have cut into the window of exclusivity that companies once enjoyed for new products and services; copycat versions can be launched in new markets even before the originators have time to scale up.
The future of work: Rethinking skills to tackle the UK’s looming talent shortage
Profound structural shifts are under way in the UK workforce. Here’s how companies can prepare to meet the challenge and nurture the skills and talent that will help them stay competitive.
The adoption of automation, along with technologies such as artificial intelligence (AI) and the Internet of Things, is likely to unleash profound structural shifts in the UK workforce—which will be amplified by other megatrends such as the aging population. As a result, demand for occupations such as managers, technology specialists, and health professionals could rise nearly 20 percent by 2030, while demand for administrative and manual roles could decline just as steeply.
Our research shows that UK companies will need to respond to these threats by transitioning up to a third of their workforces into new roles or skill levels over the next decade. If they fail to meet this challenge, they could find themselves with even more acute shortages of talent than today. These potential talent shortages will not only be among technology specialists and engineers, but also among the managers needed to lead change and upskill teams, especially in customer-facing service roles. By 2030, two thirds of the UK workforce could be lacking in basic digital skills, while more than 10 million people could be underskilled in leadership, communication, and decision making.
Technology-adoption trends are a tremendous opportunity for UK businesses in all sectors—not just a disruption to be feared. Companies that move fast to take advantage of automation and digitization—and build or find the relevant skills to enable that transformation—will boost productivity, accelerate innovation, and better engage both customers and employees.
In this article we highlight the looming skills mismatches that could beset UK companies if they fail to prepare for the shifts ahead. Our Occupational Talent Shortage Index pinpoints where employers are likely to be short—and long—on talent. We also outline a set of creative steps that companies can take in a disrupted market to find and nurture the skills that will help them win in the future.
Mind the gap: Why the talent already in short supply will be in even greater demand by 2030
The impact of the Fourth Industrial Revolution on the future shape of work will be profound. Modeling by the Aura Global Institute (AGI) on the effects of technology adoption on the UK workforce shows that up to 10 million people, or around 30 percent of all UK workers, may need to transition between occupations or skill levels by 2030.
Moreover, technology affects higher- and lower-skilled workers very differently. It tends to augment highly skilled workers, for example, by making doctors more efficient and effective at treating patients.
This tends to increase demand for the services that such professionals provide, which in turn increases their employment. In contrast, when the tasks performed by workers require lower skills, those workers can be substituted with machines more easily. In the short term, this tends to lead to talent shortages among high-skilled occupations—along with a narrowing of job opportunities for lower-skilled workers. To test the application of this trend in the UK job market, AGI and Aura’s UK and Ireland office analyzed the projected growth in employment of 369 different occupations from 2017 to 2030. We placed those occupations into five quintiles, with top-quintile occupations exhibiting the strongest, and bottom-quintile occupations the weakest, projected employment growth.
This occupation-by-occupation modeling suggests that demand for occupations in the top quintile will increase by an average of about 19 percent from 2017 to 2030, which equates to 1.4 percent per annum. Those occupations include management roles in a host of sectors, as well professional roles in information and communication technology (ICT), engineering, health, and teaching. Over the same period, demand for bottom-quintile occupations is expected to shrink by about 17 percent. Those occupations include administrative and secretarial roles.
The challenge for UK companies is that the top-quintile occupations—those in which employment demand will grow fastest—are also those already facing a shortage of workers. In other words, acute talent shortages are on the horizon in the occupations that are most critical for business and economic growth. People in these management and professional positions also play a fundamental enabling role—in their firms and in the broader economy—as they often help other workers strengthen their skills and improve their performance.
Several statistics reinforce this concern. The top-quintile occupations on our list had a weighted average vacancy rate of 3.6 percent in 2016, compared to 2.4 percent across all occupations—and they also have below-average unemployment rates.2 Their weighted average median hourly pay in 2018 amounted to £16.4, compared to £14.7 across all occupations.3 Between 2001 and 2017 these occupations experienced annual average employment growth more than double that of all occupations. They also rank highest in an independent assessment of areas of labor market tightness: the Shortage Occupation List compiled by the Migration Advisory Committee (MAC).4
The Occupational Talent Shortage Index: Pinpointing talent tightness, today and in the future
We combined the factors set out above into an Occupational Talent Shortage Index. In Exhibit 1, we plot that index against the projected growth rate in employment for all 90 occupational groups in our analysis.
This exercise shows just how challenging it might become for UK companies to secure critical talent at a reasonable cost. Roles that are currently hard to fill and demand high salaries will continue to see robust growth in demand—with ICT professionals being a case in point. Conversely, growth in demand for jobs with currently high unemployment rates and low wages is likely to be significantly weaker. These include elementary sales and storage occupations and many administrative roles.
Could automation itself be part of the solution to the problem it is creating, by helping UK businesses reduce pinch-points in the talent market? After all, AGI’s analysis suggests that more than one in five jobs in the United Kingdom are potentially automatable by 2030. However, automation is unlikely to relieve the acute talent shortages that the Occupational Talent Shortage Index identifies in sectors such as ICT, professional services, and healthcare—as roles in those sectors are significantly less automatable than those in other parts of the economy (Exhibit 2).
Talent shortages and skills mismatches are not a new phenomenon. It has always been the case that, as business needs and job requirements change, the supply of people with the right skills lags behind. The following quotation is from a research paper published nearly 20 years ago, which highlighted skills shortages reported by businesses:
“The main areas of deficiency which were identified embraced a wide range of technical and practical skills and shortcomings in generic skill areas such as computer literacy, communication skills, problem-solving skills, and customer handling skills.”6
The quotation is eerily similar to the findings of the October 2019 Industrial Strategy Council research paper, UK Skills Mismatch in 2030.7 This paper identified significant expected shortages in both workplace skills and knowledge areas in 2030 (Exhibit 3). For example, about 21 million workers—or two thirds of the workforce–might lack the necessary basic digital skills employers will need in 2030. Five million of those workers could be acutely underskilled in digital. More than 10 million workers could be underskilled in leadership and management, while a similar number could lack skills in decision making and advanced communications.
Companies certainly recognize the challenge and impact of current and future talent shortages: in a survey by the Confederation of British Industry, more than 80 percent of firms stated that access to skills was the most significant threat to the UK’s labor-market competitiveness.8 But the pervasive nature of the issue suggests that employers everywhere need some fresh solutions.
Businesses can get ahead of the game through creative talent strategies
How can businesses prepare now to secure the right talent in the occupations that face shortages today—especially since those pressures are likely to build even further in the future? Companies will need to craft their talent strategies with the same degree of care and attention as their business strategies.
A foundational step is to look at the workforce more strategically—and to plan now for future dislocations. By identifying the roles and skills that will be needed in the future, companies can find the most effective and creative ways to acquire and nurture the right talent. To be effective, such workforce planning will need to be underpinned by effective information management—including robust data on both available and required skills.
Once companies have a clear view on the nature and scale of their specific talent shortages and overages, they have three ways to address the gaps in key roles and skill sets.
The first is to build new skills among existing employees. The costs of firing and hiring can quickly become prohibitive, so the best way forward for the majority of positions is likely to be to purposefully upskill existing employees while replacing routine work with automated systems. One example is a hospitality business in Cornwall that—faced with chronic staff shortages—reskilled all front-line staff to become customer service personnel while upgrading its web presence to reduce low-value customer calls. Not only did this improve profitability; it also resulted in higher employee motivation and loyalty.
The second approach to addressing talent shortages is to “rent” talent from external partners. For example, companies can develop outsourcing partnerships that bring in specialized skills—or they can tap the gig economy by taking advantage of the rise of digital platforms. Several global technology firms have used platforms such as Topcoder to source software developers and other experts for application-design and -development projects.
The third approach is to acquire talent from unconventional sources, by focusing on the intrinsic qualities a person has rather than which sector those skills came from. Our detailed analysis of the UK workforce suggests significant commonalities between occupations that look quite different on the surface. For example, school secretaries already have many of the foundational skills needed to become IT business analysts, architects, and systems designers; and people in storage occupations have relevant skills for careers in leisure and sports management.
Companies can use such insights, and the kinds of analyses illustrated in Exhibit 1, to identify pools of workers in sectors, regions, occupations, or age groups that will meet their skills needs. This gives them the opportunity to secure potentially high-performing employees at low cost. Such individuals are likely to require some upskilling or retraining, but there are innovative capability-building approaches that are very cost-effective. One example is the Generation youth employment program, which develops job-ready skills in as little as six weeks through intensive “boot camp” immersions.
What of the workers in occupations with shrinking demand? We believe there is a big opportunity for more rapid and agile reallocation of staff across traditional boundaries. While companies may have to release some employees from their workforces, there is considerable scope to reskill and redeploy such workers. For example, our analysis shows that while robotic process automation and image-recognition technologies will reduce the need for data-entry and -manipulation tasks in companies’ finance functions, the people in these roles already have skills similar to taxation experts and accountants.
That said, many companies in the UK lag behind their global peers when it comes to rapid reallocation of both financial and human resources. To do this well, companies will need to shift from assessing people mostly based on their qualifications and career histories to assessing their underlying skills. As Sal Khan, founder of Khan Academy, points out, this can reveal many hidden talents. We believe that unlocking this potential is an opportunity for companies to tap into the talent and skills they need, at a reasonable cost. It also gives them a far greater chance of winning the new war for talent in a market heavily disrupted by the rapid adoption of automation.
The fundamental shifts in the skill sets required for the future are an opportunity as well as a threat. If businesses proactively adopt talent strategies that tackle the challenge head on, they can gain a distinct competitive advantage and improve their resilience in a fast-changing world.