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 N11; 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 ( 7times 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 over 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 4.0T 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