Norwegian Oliver Tonby says aside from political stability, access to people, technologies, academia and research institutes, it helps that innovation in the Republic has active government support.
This article is written by Ravi Velloor, Associated Editor of the Strait Times. He sat down with the Norwegian McKinsey chair, Oliver Tonby. Thanks to Strait Times for letting us publish the article in full. Get access to more award-winning journalism on Singapore and the world. Subscribe to The Straits Times at only $9.90/month. Find out more.
So, Davos week has just ended and appropriately enough, the World Economic Forum (WEF) themed this year’s discussions around the Great Reset. As always, the Geneva-based forum got its timing right. What better time to be discussing Asia than when it has moved front and centre to the world of geopolitics, economics and the big issue of our time – climate change.
According to WEF’s projection, Asia now accounts for fully half of global gross domestic product, when adjusted for purchasing power parity.
Few people are better placed to discuss this phenomenon than Mr Oliver Tonby, the Singapore-based Asia chair for McKinsey & Co, whose job it is to advise companies, countries and other entities on the multidimensional tectonic shifts taking place across so many dimensions and how best to cope with them.
Indeed, when he emerged with an engineering degree from Norway in 1992 to start his career with Norsk Hydro, then on to Shell, or even when he first arrived in Malaysia 18 years ago to advise on oil and gas for McKinsey, he could not have imagined that within just more than a decade he would end up spending so much time advising on renewable energy.
Last year was the hottest on record, making routes to renewables a global imperative. Many of the worst natural disasters in the past decade, triggered in part by the climate crisis, were in Asia.
Meanwhile, even consulting itself has changed so much.
“What we do today is about half of what we did a decade ago,” says Mr Tonby, 51. “(The new capabilities are in) digital, analytics, design, the consumer journey, and in and around implementation. Some 80 per cent of our hires used to be MBAs. Today, it is much less than 50 per cent.”
McKinsey consultants used to style themselves as insight partners who could then help translate those insights into strategy. Within the trade, the opposition called them “vainies” – prone to hectoring on The McKinsey Way – while rivals at Boston Consulting Group were labelled “brainies” for a purported penchant to spout theory.
Today, in addition to being insight partners, McKinsey likes to think of itself as an “impact partner” which brings in integrated transformation programmes. That can include digitalisation experts who work with sector experts. A typical McKinsey hire these days can include people who ran an oil refinery, those who held senior positions in banking, or data scientists.
“It also allows us to think differently about our arrangements with clients,” says Mr Tonby. “It puts us on the same side of the table (with them). No cure, no pay – it was unthinkable 20 years ago.”
The big consulting firms are not only founts of knowledge but also knowledge repositories. To their credit, they have lately been willing to share more of what they know with the public.
In 2019, McKinsey launched The Future of Asia research initiative that shares forward-looking perspectives from thought leaders on the role of Asia on the world stage. Since then, it has released reports on a variety of subjects including recently, technology transformation in Asia and climate risk in the region.
I asked Mr Tonby, who sits on Singapore’s Future Economy Council, if we were truly looking at the Century of Asia or merely a Chinese one.
China is undoubtedly extremely important, he says, but far from being the only story in Asia. Pre-Covid-19, China and India had been clocking 6 per cent annual growth both, and Japan had begun to take on a different feel as it set itself on a modernisation path under then prime minister Shinzo Abe.
“Asean itself has been one of the highest growth regions with the least volatility,” says Mr Tonby. “It was growing at 5 per cent on average. These are already sizeable economies. (All are) absolutely noteworthy in the global context.”
This collective surge is set to continue; nearly half of international students today are Asian and two-thirds of global patents over the past decade were registered in Asia, a share that will only grow given what is seen around the region.
Meanwhile, intra-regional trade is growing. Some 64 per cent of trade is intra-regional, a proportion matched only by the European Union, even as it is a different entity from what Asean is meant to be.
Still, not everything Asian is hunky dory. Where value creation is concerned, there are some clear worry lines. Whereas in 2007, it took 80 cents of investment to create a dollar’s revenue, a decade later that had climbed to $1.10.
“In that timeframe, 80 per cent of the US$10 trillion (investments) in China were value destroying – sectors that do not cover the cost of capital. Other regions are not as bad.”
McKinsey, he says, believes that if you could get a majority of those companies to be even average performers, there could be hundreds of billions of dollars of gains.
Covid-19 arrived at a time when regional economies were struggling to cope with disruptive automation, robotisation, artificial intelligence (AI) and quantum computing – trends collectively labelled as Industry 4.0 or the Fourth Industrial Revolution.
I wonder how this confluence of crises has panned out.
Technology has been a huge enabler in managing Covid-19 and vaccine discovery, notes Mr Tonby, while the disease itself has accelerated a few trends already in view. It took the United States a decade to move from 6 per cent penetration in online retail to 16 per cent, but only a few months to get to 26 per cent penetration.
As for the impact on jobs from Industry 4.0, McKinsey undertook a study where thousands of jobs were broken into tasks that were then examined to see if they could, or could not, be automated.
“We found that just shy of 50 per cent jobs in Singapore can be automated. But, will they be? It takes time,” says Mr Tonby. “Globally, we believe technology can create 600 million jobs worldwide but the issue is the transition. It is painful.
“What do you tell the guy who makes a living changing tyres? One of the good things about Singapore is that it is putting real oomph into making the transition smoother.”
Consumers may be proving to be nimble at adaptation but are companies equally agile?
“Covid-19 does present opportunities for companies… to change the value proposition, how you serve customers. Those that are slow are falling behind,” he says. “You will see this differentiation. Meanwhile, investors are introducing ESG criteria – sustainable investing – as a priority. All these trends are converging (to impact industry).”
Meanwhile, Asia is witnessing a burst of innovation, centred around mobility in general, and AI, robotisation, e-commerce and electric vehicles. While a multitude of Chinese cities are in the game, so too are other Asian spots.
“Let’s be clear. South Korea is a huge producer of patents, especially in mobile services, chips and some other areas around technology. Another hot spot is Jakarta. India, which has more (science, technology, engineering, and mathematics) graduates than any other country, has more unicorns than Germany. Singapore has grown to be an interesting place when it comes to innovation. A few years ago, few would have talked of Singapore but today it is on the map worldwide.”
Aside from political stability, access to people, technologies, academia and research institutes, it helps that innovation in Singapore has active government support.
“What Singapore does not have is a large hinterland market and here, Asean helps.”
What about high-tech manufacturing? Hyundai’s decision to base an electronic vehicle factory in Singapore, despite its tiny domestic market, was a global headline grabber.
If newly appointed chief executive of Intel Pat Gelsinger asks McKinsey for advice on where best in Asia to put down a microprocessor plant, would it recommend Singapore?
“Yes, I think Singapore has many of the attributes companies are looking for in terms of stability, logistics, availability of talent and skills,” he says. “Despite the land shortage, even high-tech agriculture is a (potential) future growth area, from a technical point of view.”
Besides, the US-led attempt to decouple China from Western technologies goes quite deep and as parallel systems rise, Singapore is well-positioned to be a place where both sides are comfortable.
What about the mild nativism and complaints about excessive foreign talent that have surfaced in the past few months? Does that affect the ability to source the best talent?
Some time ago, Bain & Co chief executive Manny Maceda griped to me that such instincts have been rising in some countries, including Singapore, sometimes affecting his firm’s ability to send the most suitable consultants to a client.
“There has been a bit of rebalancing and that is fair game,” he says of the island’s labour policy. “Singapore continues to be open to the right type of talent.”
Climate change aside, I ask how the outdoors-loving Mr Tonby, who was born in the frigid climes of the High North, had adjusted to warm and sticky Singapore.
“I love it,” says Mr Tonby, who lives near MacRitchie Reservoir.
“My wife too is Norwegian. For her, the right temperature these days is 28 deg C, plus or minus 2 degrees. When it is below 25 deg C, she puts on a sweatshirt!”
Mr Oliver Tonby, 51, is chairman of McKinsey’s offices in Asia.
A Norwegian national, Mr Tonby is a 24-year McKinsey veteran. He began his career as a management trainee with Norsk Hydro before joining Shell in the United Kingdom as a development engineer.
Mr Tonby has a master’s degree in biochemical engineering from the Norwegian Institute of Science and Technology and an MBA with distinction from Insead. He serves on Singapore’s Future Economy Council and has been awarded the Public Service Medal.
He and his wife have a 20-year-old son and a teenage girl.
McKinsey & Company is a global consulting firm that advises corporations, governments and other organisations. It is believed to have annual revenues exceeding US$10 billion (S$13 billion).
Rated among the top three consulting firms of the world, it has more than 32,000 staff in 130 offices across 65 countries. Of those, 7,000 are in Asia. It was founded in Chicago in the United States in 1926.