What Asia Needs Now to Stay Competitive

Uncertainty? Check. Risk of economic weakness ahead? Also check. Amid ramped up geopolitical tensions and seemingly hasty market-moving policies, competitiveness—and thus productivity—takes greater importance during this second half of a tumultuous year. How might Asia’s multinational companies rise to the occasion now?

New research from McKinsey Global Institute uncovers fresh evidence that the biggest productivity gains of the recent past have been powered by just a few “standout” firms. These standouts are the heroes of productivity, as their bold moves have resulted in oversized output gains that are meaningful enough to move the needle on a national level.

The research analyzes 8,300 large multinational firms operating in four sectors in Germany, the United Kingdom, and the United States—three major economies for which detailed company-level data for multinationals was available. The findings reveal that fewer than 100 productivity standouts accounted for an eye-opening two-thirds of productivity gains on a national sample level. That flies in the face of the old conventional wisdom that productivity comes from gradual, incremental gains over time. Instead of many firms moving an inch, we see a few leaping ahead by a mile.

And, based on a high-level analysis, we see similar patterns in Asia. For instance, three of Japan’s five largest firms (by market capitalization) added more than a full basis point each to Japan’s productivity growth from 2019 to 2023. One of them added nearly 11 basis points. Just 14 more such firms would suffice to bridge the productivity growth gap that today exists between Japan and the United States.

To track productivity moves up close, we created a “lab economy” focused on four sectors: retail, automotive and aerospace, travel and logistics, and computers and electronics. We covered 2011 to 2019, a relatively stable period before the COVID-19 pandemic, with additional data from 2019 to 2023 validating our main findings. Firm-level productivity could then be traced as companies advanced or regressed, grew or shrank over the years. Our results showed consistent patterns, whichever way it was segmented (by country, sector, subsector, or across time periods), with just a few standouts powering the biggest productivity gains.

What do the heroes of productivity have in common? What are their secrets? The short answer: bold moves. We see productivity peak when exemplary companies seed growth via innovative, idiosyncratically strategic moves, new business models, or inspired value creation to which competitors respond. An action-and-response dynamic then generates bursts of productivity, which can be observed at all levels of economic activity.

For example, in the auto sector, we saw that Nissan Motor Manufacturing bolstered UK productivity growth within our sample by becoming a forerunner in the electric vehicle (EV) market, outpacing competitors. Despite facing challenges in recent times, Nissan’s mass market LEAF EV was the top-selling EV in Europe, driven by the rapid growth of the overall market for these highly valued, yet cost-efficient cars. Notably, Nissan UK achieved standout status in our research by achieving a 9% annual increase in real “gross value added” per worker, while maintaining a modest 2% annual employment growth over the period analyzed.

The top 100 standouts in our sample form a diverse group. Most are middle-aged, established firms, such as the UK supermarket chain Tesco and German retailer REWE. About 20% were technology superstars adding scale, like the US tech giant Amazon, while around 10%were rapidly growing disruptors, like German fashion e-tailer Zalando.

Among this diverse group, we find five common paths to productivity. Only one of them is focused on efficiency and cost. The other four are about creating (and scaling) superior value propositions and business models. They are:

• Scaling more productive business models or technologies, such as those enabled by emerging technologies. Companies like Zalando successfully scaled e-commerce in apparel and the UK’s EasyJet succeeded in the low-cost carrier trend.
• Shifting regional and product portfolios toward the most productive businesses, such as Amazon’s foray into cloud computing through Amazon Web Services and Nissan’s early expansion of EV offerings back in the 2010s.
• Reshaping customer value propositions in both mass and niche markets. Nvidia in the US built a winning value proposition for graphics processing units and scaled it globally, while Germany’s Zeiss developed cutting-edge technology in extreme ultraviolet lithography.
• Building scale and network effects. US airlines optimized route networks and aircraft capacity utilization, including through strategic mergers.
• Raising operational efficiency and reducing procurement costs, often in response to competitive pressures or in turnarounds. The UK’s Tesco streamlined costs while competing on both quality and price, and EasyJet modernized its fleet to reduce operational costs.

For business executives, the main takeaway is that doing things differently is more important than doing things efficiently. With that in mind, here are five things business leaders can do to help push the productivity imperative:

1. Put productivity on the scoreboard. Firms should track and report their productivity contributions just as they do profits and revenue. Productivity isn’t just an economic statistic; it’s the clearest signal of long-term stakeholder impact—and a way to lift the economy you call home.
2. Remember that productivity growth can be found in creating new value, including in AI. If you think about productivity solely in terms of efficiency, you are likely to be missing the bigger opportunities. Especially with AI agents on the rise, look for them to be engines of new topline value instead of mere cost-cutters.
3. Reallocate resources decisively to more productivity-enhancing strategies. Ask: Which part of your company is driving momentum right now? Could it become the core of your next reinvention?
4. Empower innovators to make bold moves. Are you identifying and empowering the talent you need to become more productive? Give them the space, backing, and resources needed to execute bold moves.
5. Scale new value propositions and business models once you discover them. After a firm has found a way to increase productivity growth, it needs to sustain its bursts forward to build momentum. This will often include M&A.

Beyond individual firms, what does this mean for policymakers? Many emerging Asian economies have been on the fast lane of convergence over the past 25 years, as separate McKinsey Global Institute research has shown, growing much faster than would be expected at their respective income levels – including China, India, Vietnam, Bangladesh, and Cambodia. Yet both advanced and emerging Asian economies experienced a marked productivity slow-down after the great financial crisis, and yet again with the pandemic.

Our research suggests productivity can be boosted at a national level by attracting, nurturing, and encouraging standouts to grow dynamically. It also suggests that allowing workers to move freely from bad jobs to good jobs, and from poorly performing companies to productivity powerhouses has the potential to broadly boost prosperity. The United States has done this well: about half of its sample-leading productivity growth came from the reallocation of labor into higher productivity firms.

As some state support appears more common in certain parts of Asia, our research suggests this support could be most effective when directed on enabling local standouts rather than solely assisting those struggling to keep pace. At the same time, as some Asian economies are home to so many great companies, how can they be encouraged to dynamically grow and reinvent themselves?

Chris Bradley is director of the McKinsey Global Institute and senior partner at McKinsey, based in Sydney. Gautam Kumra is chairman of McKinsey’s offices in Asia, based in Singapore. Jan Mischke is partner at McKinsey Global Institute, based in Zurich.