In every era, promising pockets of the industrial landscape emerge to transform the economy. These burgeoning “arenas of competition”—“arenas,” for short—are industries with the fastest growth and the most competitive dynamism.
Our 2024 research, which identified arenas’ core characteristics of high growth and dynamism, found 12 such industries—a group that included cloud services, e-commerce, biopharmaceuticals, and electric vehicles (EVs). This dynamic dozen more than doubled their revenue share between 2005 and 2023 and grew their market capitalization by 14 percent per year, compared with 5 percent for the 45 other (non-arena) industries analyzed. The 12 arenas saw more new entrants, much higher R&D investment, and greater economic profits, too. At the root of their growing success, we found an “arena-creation potion” with three main ingredients: a technology or business model breakthrough, an escalatory race with ever-larger investments, and an addressable market that enables global scale and is large, growing, or both. In short, arenas are characterized by a particularly intense race to win, with outsize rewards but also a high risk of displacement.
Why does this matter? We see that the arena-creation potion is already at work, transforming 18 additional industries that may evolve into the next big arenas of competition over the next 15 years—from semiconductors, AI software and services, and cybersecurity, to more physical realms like space, robotics, and modular construction. If the past is any guide, these 18 arenas will be tomorrow’s centers of competition, innovation, and value creation. For companies, tracking current and emerging arenas may show where next to compete, how to transform operations, and where downstream demand might grow quickly. Tracking arenas also makes sense for investors aiming to maximize their returns, job seekers searching for productive careers, and policymakers looking to play a role in how and where these industries develop.
This article spotlights the flagship McKinsey Global Institute report, first published in October 2024, in ten condensed segments, with a conclusion that reflects new company-level applications based on insights gleaned from a year’s experience helping companies prepare to compete in these next big arenas.
7. Three ingredients make up the arena-creation potion
To spot future potential arenas, we have identified three elements that, when present and combined, result in high growth and high dynamism, allowing for an arena to emerge. These three elements are referred to as the “arena-creation potion” and include the following:
- Business model or technology step changes
- Escalation mechanism for investments
- A large or growing addressable market
The first element is a significant step change in technology or business models that disrupts how products and services are developed or delivered. These shifts often follow an S-curve pattern, where performance or adoption starts slowly, accelerates rapidly after reaching an inflection point, and eventually levels off as maturity is reached. Real-world patterns may deviate from this idealized curve, but the framework remains useful for understanding transformation dynamics.
Business model step changes, often enabled by technology and innovation, can shift commercial models and disrupt market structures. For example, physical retail shifted to e-commerce, and video rentals to subscription-based streaming. Similarly, the semiconductor industry created a fabless business model over the past two decades, with some companies outsourcing the fabrication of physical microchips in order to focus on design and sales. Design-focused firms like Nvidia and Qualcomm emerged alongside manufacturing specialists like TSMC and equipment makers like ASML.1
The third element—a large and often rapidly growing addressable market—may already exist or may be created by offering new products or service categories that displace existing markets.
In our analysis, biopharmaceuticals, industrial electronics, and software—which saw compound annual revenue growth rates of 6 to 13 percent from 2005 to 2023—generally addressed existing (and growing) markets. Over the same period, cloud services and e-commerce achieved 30 and 27 percent CAGR, respectively, with new offerings. Opening new markets often accelerates growth. For example, companies in the emerging EV arena grew market cap by about 50 percent CAGR from 2005 to 2023 while traditional automotive companies saw single-digit growth over the same period.
Our analyses of present and future arenas reveal three key swing factors that could be fundamental to the evolution of the arenas of tomorrow in technology, investment patterns, and sources of demand. These swing factors are 1) geopolitical developments affecting the regulation of innovation and technological regionalization; 2) AI advances and adoption in a range of industries; and 3) the green transition, which aims to alter the course of climate change and could drive demand in various parts of the market.
Learn more about the 18 future arenas of competition
This article provides a condensed view of where to expect the most growth and dynamism—and how to update that view as the future takes shape. In the full report, a compendium sketches the quantitative possibilities for the range of growth and dynamism prospects of each of the 18 potential arenas of tomorrow. Two additional articles, on future growth and dynamism in New York and India, explore how these globally transformative industries matter to cities and regions at different levels of economic development.
Looking ahead, the 18 arenas of tomorrow could be even more materially transformative than the 12 arenas of the past couple of decades, shaping how we consume and process data, approach health and wellness, and interact and communicate with one another. They could introduce new options for our lives and raise further questions about our social progress, from the moral and ethical questions surrounding data and privacy to imperatives for businesses to be inclusive and sustainable. Recognizing how and when arenas originate, understanding how they evolve, and anticipating the ways in which they could change society can offer valuable foresight. Arenas of today and tomorrow are closer and more consequential than many believe. With a better understanding of arenas, leaders can anticipate—and act on—the accelerating pace of change.
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