In a new report at the McKinsey Quarterly , McKinsey analysts Richard Dobbs , Jeremy Oppenheim , and Fraser Thompson point out that we are in the midst of an historic expansion of middle class consumers globally. They estimate the global middle class will reach 5 billion people by 2030, with China and India leading that growth. This has brought on a significant challenge for economies and for global business: resource costs. While the economic growth of the 20th century was aided by "cheaper natural resources," commodity prices have been high for the start of this century, and are likely to remain so. Dobbs, Oppenheim, and Thompson argue that this problem represents an opportunity to companies that are willing and able to lead a "resource revolution," and take measures to adapt. The chart below shows their estimates of how much value companies can find in adjusting strategies to account for rising costs. They call this the "resource prize": The authors write that the key is to "create cost advantages" and "generate new stresses on the management of risk and regulation" by pursuing the following: Pursue growth opportunities. Helping consumers and companies to use or access resources more efficiently should be very good business in the years ahead. For instance, the fastest-selling elevator line in Otis’s 150-year history is the Gen2, which uses up to 75 percent less energy than conventional elevators. Major companies, such as General Electric and Siemens, are building resource productivity businesses by investing heavily in emerging clean-energy and clean-water opportunities ranging from wind turbines to industrial-energy efficiency. And in technology centers such as Silicon Valley, a broad range of clean-tech investors and entrepreneurs seek profits by revolutionizing resource productivity. In fact, venture capitalist Vinod Khosla predicted in a recent paper that positive “Black Swans” will “completely upend assumptions in oil, electricity, materials, storage, agriculture, and the like.” Boost internal efficiency. Companies have large, profitable opportunities to improve the efficiency of their resource use across the value chain. Consumer-packaged-goods manufacturers have cut their energy costs by up to 50 percent by pulling productivity levers that pay back their costs in less than three years. Wal-Mart Stores has implemented a sourcing strategy that aims to reduce supplier packaging from 2008 levels by 5 percent no later than 2013, for estimated direct savings of $3.4 billion.7 Capturing many of these supply chain opportunities will require much closer collaboration between upstream and downstream players. Manage risk. As resource inputs to production processes become increasingly scarce, companies need to develop a more sophisticated understanding of their exposure to different natural resources, including supply chain dependencies and regulatory risks. Steel, for example, is becoming ever more critical in the oil-and-gas sector because of the shift to offshore deepwater drilling. Steel production depends crucially on the supply of iron ore, which in turn relies heavily on the water used to extract it. Almost 40 percent of iron ore mines are in areas with moderate to high water scarcity, and a lot of steel is produced in places where water is relatively scarce. Read Mobilizing for a resource revolution here .
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