Entering emerging markets 1 st lesson EMERGING MARKETS

Entering emerging markets 1 st lesson

EMERGING MARKETS who are they? BRICS; Brazil, Russia, India , China, South Africa BRICI; BRIC + Indonesia STIM; South-Africa, Turkey, Indonesia, Mexico N 11; Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam • TICKS ; China, India , Taiwan , Korea • •

BRIC (Russia , Brazil , India , China • In 2004 China was representing 13% of the world growth and the rest of BRIC 9%, with a quite similar growth rate. • In 2013 China was representing 29% of the world growth and the rest of BRIC 7%

Emerging markets actual problems

Emerging markets actual problems • Less growth than in the past • Big Debt , generally in dollars, with a strong dependance from the raw material at least for many countries ( Iran , Arabian Gulf , Russia, Venezuela , Brazil , Nigeria , Kazhakhistan , Angola. . . )

Characteristics and elements to be taken in consideration

CHARACTERISTICS • The total population is 60% of the global one and steady growing • The population is younger than in developed markets >Technology impact • In general fast urbanization • The “trigger point” of consumption is around 2000 - 3000 dollars • In China, India, Indonesia, Malaysia, Thailand the people with an income over 3000 dollars have grown by more 40% between 2010 -2015

THE BIGGEST GROWTH OPPORTUNITY BY 2025 The annual consumption will be $ 30 trillions In 2010 has been 12 ! Developed countries will be $ 34 trillions, 26 in 2010

Analysis of the main indicators • PIL, PIL by inhabitants and their growth • Social demographic split (by age, by income) • Geographic repartition of the population by area , the split between urban and rural (China vs. India) • Dimension and growth of the medium class • Different cultures • Duties and laws on the different products • Political stability • Attitude of the government on the international companies. • Protection on the intellectual property

ANALYSIS OF THE MAIN INDICATORS • Dimension of the market and is potential. • Import duties and the regulations between the countries • Infrastructures • Distribution (traditional or modern ) • Logistic • Advertising costs (taste imprinting ) • Availability of distributors and suppliers • Availability of skilled resources and their costs

IN WHICH COUNTRY • The biggest countries like China , India, Russia, Brazil…are in fact countries with different cultures, level of income in the same country and each area can be considered different • In China the consumers in the three tiers cities are , at least for the moment, more willing to buy local brands than global brands

CHINA • • Dimensions: 9. 596. 961 Km Population: 1. 367. 485. 000 inhabitants (2014) Density: 142, 5 hab/km Climate: extremely divers, tropical in South and sub arctic in North 56 Ethnics, Han 92% of the population $ 19, 51 trillions (2015 est. ) n. 1 in the world in term of PPP ( Purchase power parity) Pro capita income 14. 300 $ ( 2015. est) First exporter in the world

CHINA • • Strong Growth also in term of income pro capita Strong urban population, actually 55, 6%, in 2040 70% Political stability Good infrastructures (at least for the moment , problems with the growth of the cities ) Consumer confidence high but decreasing in 2016 Large number of skilled human resources Modern trade predominant 62% City clusters

AFRICA • 1, 070 Billions people ( Asia 4, 250 Billions people) • 2000 dialects • 30, 415 millions Km ( Asia 43, 810 Km ) • 35 inhabitants/Km (97 inhabitants /km ) • Very rich in natural resources (10 % of the world wide oil, 40% of the Gold , 80 -90% of Chrome and platinum )

AFRICA ( CONT) • Rural 60%, Urban 40 % within 2025 50% urban • Countries are very different • Strong Growth of revenue’s ($ 800 billion’s by 2020) mainly coming from the Distribution to the consumer, Telecommunications, Bank and Business link to the infrastructures, Agricultural and natural resources. • The working population is growing by 2, 7% per year ( 1, 3% Latin America, 1, 2% SE Asia)

AFRICA (CONT) • Very young population, 50% under 20 years old • Optimistic about the future 84 % thinks that it will be better , with the exception of the North Africans • By 2020 the African households which will have discretionary income will rise from 85 million up to 130 million • The big increase will come from the households who have more than $20, 000 • Urban spending is increasing twice as fast as rural spending • The mobile phone penetration has reached 89%

Africa Challenges • Political Instability ; on 54 nations only 10 cinsidered totaly free , 22 only partially. • Infastuctures totally inacceptable, high costs of transport ( 7 times higher than Brazil and Vietnam). • Modern distribution very low ( less than 10% of the total ) • Consumption different in the different countries and different approach to the brands. • Informations reliable not realy existing • Good local companies with good market shares

Successes • At least 400 companies have a turnover 1 billion in Africa • Coca Cola , P&G , Unilever have very good market shares in many product categories • Need to look in depth and be very selective about the markets to choose • Focus in some cities or cities clusters • Within 2025, 60% of the consumption will be generated by only 20 cities

Success • Adapting the products? ( Ariel case or Sab Miller…) • To create a very good route to market which can be different by country. • Right timing • Right persons able to work in an informal business environment. Training of the local people is important.

Mexico • • • Surface; 1. 964. 000 Km Population; 121. 700. 000 Median age ; 27, 6 Urbanization ; 79, 2% GDP , 2. 22 $ trillion (12) (P. P. P. GDP pro capita $18. 500

Mexico • In the last three decades transition from a commodity and agricultural based economy to one dominated by manufacturing and services • Firmly situated within North- America supplychain. • Strongly involved in the Trans-pacific Partnership ( TPP ) and Pacific alliance.

Mexico • Mexico boasts free-trade agreements with over 40 countries. • Trade to GDP ratio who measure the economic openness is over 60% surpassing US, Brazil and China. • Strong growth of the middle class who are confident about the future ( +43 millions people since 2000, 34, 7% of the total population in 2018) • The consumption of Middle Class will represent 42% of the total by 2018.

Mexico • Reforms are needed in order to mantain a growth of 2 - 2, 5%. > positive confidence about the future. • - labor market • - investments in the energy • - improve the effiicency of the public services • People will spend more for Healthier products • Consumers will buy more in modern trade

CORRUPTION INDEX

INDIA MAIN FACTS • • • Climate ; from tropical monsoon to temperate in North Population 1. 251. 700 ( 2015 July est. ) Median age 27, 3 Average growth since 1997 up to 2012 7% Growth rate 3, 2% ( 2013 est. ) 7, 3% estimation in 2015 Public debt 51, 7% GDP 8. 027 Trillions $ (4) (P. P. P. ) GDP pro capita 6. 300 $ ( 2015 est 158 country) 32. 7%urbanisation

INDIA MAIN FACTS ( CONT. ) • • Deficit ; 5, 7% ( 2013 est. ) Agriculture 16, 1% of GDP , 49% of workers Industry 29, 5% of GDP , 20% workers Services 54, 4% of GDP with 31% of workers 29. 8% poor people Gross national saving 33. 7% of GDP (31) Inflation rate ; 9, 6% ( 2013 est)

REFORMS NEEDED IN INDIA 1) accelerating the jobs creation • 27 millions in manufacturing • 40 millions in services • 50 millions in construction • The farm jobs will represent 37% of the work force in 2022

REFORMS NEEDED IN INDIA • Accelerate critical infrastructure for power and logistics • Reduce the administrative burden on business • Remove tax and markets distortions • Rationalize land market • Take phased steps to make labour markets more flexible

REFORMS NEEDED IN INDIA • Help poor workers build skills with government-funded mechanisms

REFORMS NEEDED IN INDIA ( CONT) 2) Raising farm productivity from 2, 3 T per hectare in 2012 to 4. 0 T 3) Increasing publics spending on basic services ; energy , health-care. infrastucture 4) Making basic services more effective ( from 50% to 75% )

CHARACTERISTICS • There are big differences between the emerging countries (infrastructures, distribution, duties, laws…)each market has is own identity; China and India case • The markets of the emerging countries are, generally, big in term of population but low in term of consumption pro-capita • A complex array of forces drive growth

Why to enter in the emerging markets

WHY TO ENTER IN EMERGING MARKETS • A company need’s to increase turnover yearly ( the productivity is growing by 2 -3% ) and decrease the risks • Growing economies ( in general) • 60% of the global population is partcipating to the growth • The consumption is growing strongly

Why to enter in the emerging markets • To learn to compete with the new companies created in the emerging markets experimenting also new business models. • The rules of success have not changed they are the classic one’s • - understanding the consumers • - build economies of scale • - Offer/design products in line with the price points of the different segments

THREATS OF THE EMERGING MARKETS

THREATS OF THE EMERGING MARKETS • • • Different cultures Protectionism latent Fast changes (of the law , the consumption. . ) Big differences between the markets Specific products in many cases needed Strong local competition Scarcity of the information on the consumer Modern distribution not always present Political instability ( at least for some areas)

IN WHICH COUNTRY? ; FIVE STEPS • In which countries to focus the analysis • Analysis of the main indicators of the prechosen countries • Analysis of the demand • The competition; structure and dynamics • Internal analysis to the company

Analysis of the main indicators • Depends on which categories of products is your business; • - industrial products • - consumer products ; high-mdlle or low end? • Two kind of approaches; • - the contribution of each country at tha global development • - to look at the big block of consumption