Slides course emerging markets EMERGING MARKETS who are
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Slides course emerging markets
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
What is an emerging market ?
EMERGING MARKETS Emerging markets are countries in which the pro-capita income is low. But it is growing strongly…even the growth from an average of 6, 2% in the past decade, it has been only 4% in 2015. Emerging markets represents 56% of the economic global output on a purchasing power parity( 36% on 80’s)
Emerging markets • Philippines ; +6, 7% • Nigeria; +0, 6% • China ; +6, 7% • India +7, 6% • Chile +4, 5% • Indonesia +5, 3% • Brazil 0, 5%
BRIC (China importance ) • 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%
Why to enter in the emerging markets
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
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) • To learn to compete with the new companies in the emrging markets experimenting also new business models
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. • Labor and natural resources are available at lower costs • 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 20102015
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
THREATS OF THE EMERGING MARKETS • Lower growth than in the past, focusing more on the efficiency than in the past • Big Debt, generaly with a strong dependance from the raw material at least for some countries ( Iran, Arabian Gulf, Russia , Venezuela, Brazil , Nigeria, Angola , Kazhakistan. . )
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)
Emerging markets success rules • The rules of the successes have not changed, they are the classic one’s; • Understanding the consumer. • Build economies of scale. • Design products in line with the price points of the different segments. • Right positioning.
IN WHICH COUNTRY? ; FIVE STEPS • In which countries to focus the analysis • Analysis of the main indicators of the pre-chosen 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-midlle or low segment. • Two kind of approaches; • - the contribution of each country at the global development • - to look at the big block of consumption
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. 373. 541. 278 inhabitants (2016 est) • Density: 142, 5 hab/km • Climate: extremely divers, tropical in South and sub arctic in North • 56 Ethnics, Han 92% of the population • $ 21, 27 trillions (2016 est. ) n. 1 in the world in term of PPP ( Purchase power parity) • Pro capita income 15. 400 $ ( 2016. 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
CHINA EVOLUTION • 18 TH Congress of the Chinese ( 8 Nov. 2012) Communist party fixed the new direction • More Internal consumption and more competition in services (Energies , telecom. health care. . ) in order to push it. • It will be supported by an increase of the productivity in order to support higher wages (between 2004 and 2014 the manufacturing wages almost tripled) • More competition in the financial sector in order to decrease interest rates ( shadow banks)
CHINA EVOLUTION • The traditional bank Loans have accounted more than 90% of the total credit in the last decade , fell to little more than half of new financing in 2013. . • Anticorruption law has impacted the sales of the luxury market end , starting in 2013.
CHINA EVOLUTION • Increase of consumer confidence will push up the consumption , more than the increase of the GDP, due to the reduction of the family saving (estimated from 46% to 36% ) • The development of the services will allow to increase occupation. ( from 51% to 57% ) • The mechanization of the agriculture will push people towards the cities
CHINA EVOLUTION • In the next 10 years the GDP will be equally split between industry and services( 46% ) with agricultural stabilizing around 8% • Strong push in the new energies , less pollution • The bigger push will come from the cities especially the one’s having 1. 5 millions of inhabitants which will represent 40% of the urban development , the one’s between 1. 5 and 5 millions will represent 25% the one’s above 5 millions will represent 35% • The concept of megacities or “clusters” will become very important • Actually 6 Megacities Beijing, Qingdao, Shanghai, Hangzhou, Shenzhen, Chongqing. Within 2025, 3 more including Chengdu
China evolution • A strong increase of the productivity is needed ( actually 15 -30% ) of the most advanced countries in order to push the « virtual circle » • Increase of the R&D expenses between the 2007 and 2015. •
VIRTUAL CIRCLE Population increase Growing demand for goods and services More Confidence Production and productivity increase Increased Income pro capita
China evolution of the situation • Two speed economy ; the traditional ( steel , coal , costructions ) going down. The one based on private consumption , consumer goods , service , e-commerce going up • The 50% of the growth of 2015 came from private consumption very linked to the middle class. and upper midle class.
Actual situation and new Plan • GDP growth ; 6, 7% in 2016 • New 5 years plan based on 10 points; • - Average yearly growth; 5, 6% avearge • - Service business will be 56% of the total within 2020 ( 50, 5% in 2015 ) • - The defense expense will grow only by 7, 5% in 2016 ( the slowest grow of this last years) • The deficit will be 3%in 2016 from 2, 3% of 2015
China New 5 years Plan • The coal Chinese consumption will be no more of 5, 5 billions tons ( 4, 3 billions in 2015 )> strong push towards new energies • Increase of nuclear energy ; 58 gigawat within 2020. • Fast train from 19. 000 km up to 30. 000 km within 2020 • Increase of the GDP person by at least 6, 5% ( 2015 ; 7, 4% )
China 5 year new plan • Elimination of the « Zombies Public companies » . At risk 6 millions of workers (1, 8 milions in steel and coal ) > creation of 15 billions fund. • Target to 60% of urban population ( actually 55, 6% )
China main consequences of the evolution • The rise of the Upper middle-class and affluent ( above 24. 000 $). 81% of the consumption growth within 2020 ( now 116 milions of households are part of this two consumer categories) • The emergence of a new generation • The growing role of e-commerce ( 42 % of all the consumption growth )
Demography a big threat • During 2016 only 11, 3 milions babies are born against 13 milions in 2012. Born rate 1, 05 against a need of 2, 1 • India 25 milions • Impact on the consumption • Problem on the urban population. 250 milions of urban people are above 50 years.
AFRICA • 1, 070 Billions people ( Asia 4, 250 Billions people) • 2000 dialects • 30, 415 millions Km ( Asia 43, 810 Km ) • 35 inhabitants/Km (97 inhabitants /km ) • Very rich in natural resources (10 % of the world wide oil, 40% of the Gold , 80 -90% of Chrome and platinum )
AFRICA ( CONT) • Rural 60%, Urban 40 % within 2025 50% urban( 24 millions additional people will leave in cities every year ) • Countries are very different • Strong Growth of revenue’s ($ 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) • The B 2 B business will reach $3, 5 Trillions by 2025 Financial servies , construction, utilities, transportation, wholesale and retail trade will be the fastest growing businesses.
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%
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.
Success of local companies • Focus ; their main target is Africa. They must suceed in order to survive and they develop specific products for this countries • Field ; on the ground experience is very important as the experience of this markets • Facts; superior grasp of informations relevant to the local markets • Flexibility ; comfort with informal business environment.
Examples of local successes • MTN ; Telecomunication South African company which succeed very wellin Nigeria • Biopharma Laboratories; cosmetic compan yvery strong in Cameroon and Cote d’Ivoire • Bidco food company with a very strong market share in Kenya • …. .
Focus in order to develop Africa • Mobilize more domestic resources • Agressively diversify domestic resources • Accelerate infrastucture development • Deepen regional integration • Create tomorrow’s talent • Ensure healthy urbanisation
Mexico • Surface; 1. 964. 000 Km • Population; 123. 000 • Median age ; 28, 0 • Urbanization ; 79, 2% • GDP , 2. 30 $ trillion (12) (P. P. P. • GDP pro capita $18. 900 • Agriculture 3, 7 % of the GDP • Industry 33, 1% • Services 63, 2%
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 supply- chain. • 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 efficency of the public services • People will spend more for Healthier products • Consumers will buy more in modern trade
INDIA MAIN FACTS • Climate ; from tropical monsoon to temperate in North • Population 1. 267. 000 ( 2016 July est. ) • Median age 27, 6 • Average growth since 1997 up to 2012 ; 7% • Growth rate 3, 2% ( 2013 est. ) 7, 6% estimation in 2016 • Public debt 51, 7% • GDP 8. 721 Trillions $ (4) (P. P. P. ) est 2016 • GDP pro capita 6. 700 $ ( 2016 est 159 country) • 32. 7%urbanisation
INDIA MAIN FACTS ( CONT. ) • Deficit ; 5, 7% ( 2013 est. ) • Agriculture 16, 5% of GDP , 49% of workers • Industry 29, 8% of GDP , 20% workers • Services 45, 4% of GDP with 31% of workers • 29. 8% poor people • Gross national saving 30. 2% of GDP (31) • Inflation rate ; 5, 6% ( 2016 est) • 200 milions people are connected. In 2018 the estimation will be that 550 milion ( 40% ) of the population will be
REFORMS NEEDED IN INDIA 1) accelerating the jobs creation • 25 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 , healthcare, infrastucture 4) Making basic services more effective ( from 50% to 75% )
Where to find the main indicators • The world fact Book • IMF • UN • World Bank
IN WHICH COUNTRY? ; FIVE STEPS • In which countries to focus the analysis • Analysis of the main indicators of the pre-chosen countries • Analysis of the demand • The competition; structure and dynamics • Internal analysis to the company
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