1. Introduction<br />Emerging markets why they matter.<br />Welcome to the subject “emerging markets”, emerging markets are countries in transition socially as well as economically. They are in a process of rapid growth and industrialization. How fast very fast !<br />No one would have believed you ten years ago, if you would have said Hoogovens in ijmuiden was going to be taken over by an Indian company tata steel, the same applies to the take over of Volvo by a Chinese car maker. Or the fact that Inbev, the biggest beer brewey in the world is controlled by Brazilians. These emerging markets will play a dominate role in the future that is why we are going to take a closer look.<br />We have divided the subject into the following four topics:<br />First we start off with: <br />History and definitions of emerging markets, for a moment we go back in time to discover the roots of the term Emerging markets.<br />Than we will discuss the Characteristics of emerging markets, how different are they ? and what do they have in common<br />Followed by The topic Global realignment , who are the next super powers ? Is it true that Europe might lose out in the world’s economy? Or is the world becoming more balanced? <br />Business and Trade, in this chapter which we will clarify what it takes to do business in these countries, what are the obstacles and how big are exactly the opportunities. And last but not least what are the major consequences of globalization.<br />Join me for a wonderful ride down emerging markets street.<br />History and definitions of emerging markets:<br />To understand where the term emerging markets comes from we have to go back in time.<br />And move over to the United Nations in NY, <br />The united nations is an international organization whose aim is to facilitate cooperation, economic development, and achievement of world peace. The UN was founded in 1945 after World War II to stop wars between countries, and to provide a platform for dialogue. <br />At that time The UN divided the world from an economic perspective into three categories:<br />MDCs (more-developed countries) <br />e.g. Canada, England, France, Netherlands Germany, USA<br />LDCs (less-developed countries) industrialized countries just entering world trade; most in Asia & Latin America<br />LLDCs (least-developed countries) industrially underdeveloped, agrarian, subsistence societies with rural populations; little world trade; Most in Africa <br />To promote a more positive image of less developed countries the World bank based in Washingthon introduced in 1981 the term “emerging markets” . Which since than has become widely accepted.<br />The World Bank is an international financial institution that provides loans to developing and emerging countries for capital programmes. The World Bank's official goal is the reduction of poverty.<br />What is the definition of emerging markets, <br />The term emerging markets is quite loosely defined, during your research you will encounter different definitions. <br />As a result countries that fall into this category, varying from very big to very small, they are usually considered emerging because of their developments and reforms. Even though China is deemed one of the world's economic powerhouses, it is placed into the category alongside much smaller economies like Tunisia. In the end both China and Tunisia belong to this category as they both have embarked on economic development and reform programs, and have begun to open up their markets.<br />The World Bank says that a country is emerging if its per capita GDP falls bellow a certain threshold. In other words if the per capital income is less than $9,000 per person.<br />So where are these emerging markets ?<br />If you look at the world map you see that the blue coloured countries are marked as emerging nations, Pink is said to be the developed nations, while grey are the least developed countries.<br />So as you can see you find emerging markets in Asia, with two big power houses China, India, in Central Europe Poland, Hungary for instance. Ofcourse we cannot forget Russia, Further we have South America with powerhouse Brasil, Argentina etc. And ofcourse a countries Africa such as South Africa are on the rise.<br />Next slide<br />How many emerging markets are there?Depends how you askMSCI (Morgan Stanley) identifies 52 Emerging Markets.The Economist has 24 countries on their Emerging Markets list.Dow-Jones has 35 countries on their Emerging Markets list. <br />Just remember they are emerging, changing the world, it is our duty to also learn from them<br />Stay tuned here is a list of the top 45 emerging markets<br /> <br />Emerging markets are characterized as transitional, meaning they are in the process of moving from a closed economy to an open market economy .<br />What are the characteristics of Emerging Markets<br />Emerging Markets represent about 85% of the world’s population. Especially China are India are incredibly big. Representing Around 2.5 billion people which is over a third of the world population as we have almost 7 billion world citizens.<br />Emerging Markets represent about 60% of the world’s land area.They posses the key to vast natural resources which are awaiting utilization. Next slide Think of the gas reserves in Russia, being the largest in the world (and they have just begun) next slide or the huge mines in South Africa and South America mining for copper and many other natural rescources. They own many of the rescources we need !!<br />Next slide Emerging Markets only represent 25% of the lobal output (but growing very rapidly). There are immense opportunities yet it is not easy to do business in these countries further down the road we will discuss what it takes to do business in these countries. Are you becoming ready for the new economic age.<br />Next slide Political scientists define an emerging market as “a country where politics matters at least as much as economics to the markets.” A great topic for further discussion in the consultancy get togethers. Is there democracy in Russia ? click slide.<br />Government tends to be the largest industry/economic player. In China for example, government accounts for 1/3 GDP. There is autocratic leadership but it is seen as in transition From government ownership and protection to free market based and private ownership To conclude One way or another if you want to do business in these countries the governmental bodies still play a crucial role.<br />Emerging Markets have highly liquid economies – emerging markets have $5.5 trillion in reserves (and it’s still growing), they basically finance the debts of America and Europe. Next slide As many western countries today face financial challenges some are even seen as broke !<br />What do you seen happening emerging markets helping out by buying up western properties for instance the Chinese help out Greece by buying national property such as the harbor of Pireaus one of Greece main ports. Let alone the name PIGS as Portugal, Ireland, Greece and Spain need billions to stay afloat.<br />Emerging Markets have a large, young labor force – usually about 50% of the population is less than 20 years old. They have a Huge, young, increasingly educated labor forces They are eager to obtain out living standards. Many of them know by first hand experience what poverty is. There ambition and drive is certainly strong if not stronger..<br />Besides many economic and financial leaders in emerging market have been educated at places like Stanford, Harvard, Oxford. They pick and choose policies that work in developed countries and adapt them to their economy. Click …..That is called leapfrogging ahead.<br />Be aware bureacracy and corruption are challenging in these countries it is not easy to find your way around. You need experience or expertise to operate succesfully. Further down the road we will discuss cultural differences and how to tackle these.<br />Realignment of the Global Economy<br />Who will be the super powers of the future ?<br />JTo understand this correctly we have to look at the past<br />Centuries ago, from the 1500 to 1800 China and India were the largest economies in the world. Making up more than 50% of world trade. <br />Europe, the United States and Japan came out on top at various points in the last two hundred years by essentially out-innovating other countries. You can clearly see in the chart the rise of the United States, as well as the imploding economy of China due to being a closed a economy much due to communism. <br />In the last 10 years, the emerging countries have learned that to compete on global scale, they need sensible economic policies an open economy and an educated workforce. <br />Plaatje groei ! It is estimated see chart That. China will become the largest economy in the world, followed by many other emerging markets such india, Brazil, Russia but also Mexico and Indonesia.<br />Other projections: Next slide Plaatje met Chinese fabriek <br />By 2030-2035, the combined GDP of emerging markets will overtake that of currently mature economies (US, Europe, Japan, Canada, Australia, New Zealand, etc.).<br />Goldman Sachs estimates that the four largest emerging markets (known as BRICs – China, Brazil, India and Russia) will overtake the G7 (US, Japan, Germany, France, UK, Italy and Canada) by 2040.<br />By 2027, it’s estimated that China’s economy will be the largest in the World. Currently number two after USA.<br />By 2050, the emerging markets, in aggregate, will be nearly twice as large as the current developed economies.<br />Plaatje met containers <br />The Realignment of global economies is going on the world becomes more balanced by means of economic powers – Click… World Bank says that since 2008, developing countries have contributed virtually all global economic growth and it’s expected that more than 70% of global economic growth in the next 10 years will come from Emerging Markets. <br />Plaatje met consumers<br />Creation of more than two billion new consumers, investors, and educated people – all in the emerging markets.<br />Emerging Market economies not only growing because of internal demand, but they are also becoming the exporters to the rest of the world.<br />Emerging Markets are no longer only the source of cheap raw materials and cheap labor True there are still more than 1 billion people who make less than euro 1.25/day, many in India , China and Brazil), but there are world class, industry leaders headquartered there. <br />Look at the Inventions and technology<br />Most computers are made and designed in Taiwan and China.<br />Most advice on how to fix computers comes from India.<br />R&D centers Cisco spent over $1B on a 2nd global HQ in India, Microsoft’s R& D center in Beijing is its largest outside of US<br />New inventions in consumer electronics and wireless technology are emanating from Asia. <br />Emerging Markets taking advantage of global technological developments and actually leapfrogging the more developed nations<br />For instance : phone lines – rather than installing land lines, everybody uses mobile phones as a result there is mobile money – they use the mobile phones to make payments<br />Emerging Markets Gaining in Political Influence<br /> <br />The BRIC countries Brasil, Russia India and china are seen as the most powerful emerging markets <br />In 2008, G8 (France, Germany, Italy, Japan, the UK, the US, Canada, and Russia) increased to G20 to reflect emerging economies growing importance<br />More than half the G20 are emerging markets, including South Africa, Mexico, Argentina, Brazil, China, South Korea, India, Indonesia, Saudi Arabia, Russia, and Turkey.<br />Click In 2009, the G20 permanently replaced G8 as the main economic council of wealthy nations.<br />Today Emerging markets are pushing to decrease Europe’s influence over the IMF to reflect emerging economies’ growing influence globally, particularly China’s emergence as the world’s 2nd largest economy. <br />Are you ready for the challenges ahead ?<br />Samsung (Korea) – powerful global brand, R&D budget larger than Intel<br />Embraer (Brazil) – premier producer of regional jets<br />CEMEX (Mexico) – largest cement company in US, second largest in UK, third largest globally<br />Inbev (Brazil/Belgium) – CEO is Brazilian, world’s largest beer company, <br />Business<br />Who cares about emerging markets many western companies why ? here it is<br />Emerging Markets are characterized by strong economic growth, which leads to more disposable income in the hands of a growing middle class. As emerging countries improve their infrastructure and their GDPs continue to rise, the demand for products like cars phones etc is on the increase. Also packaged food becomes more accessible for a larger percentage of the population, lets take a look at Procter and gamble Click<br />Click PG Currently operates in more than 100 countries.<br />Click Americans and Europeans spend around 110 euro /year/capita on PG products vs. $12 globally.<br />Click In Mexico consumption is 20 euro/year/capita vs. less than 4 euro in China and less than 2 euro in India.<br />Click Goal is to get China and India consumption to Mexico level of consumption. If they do, that’s another 40 billion euro in sales.<br />As the emerging markets are more and more opening up the world globalises. Globalization has many side effect both positive and negative. <br />Globalization is BY MANY seen as inevitable & controversial (child labour/ human rights)<br />Some win, some lose ( jobs go away, factories close and open up somewhere else, growing income disparity )<br />Fear for diluting of local cultures. The mac donaldization of the world.<br />Reaction such as protectionism pop up.<br />An example of protectionism in the world<br />US cotton farmers have received government subsidies for years. around 4 billion usd per year. WTO rules of global trade stipulates clearly NO subsidies.<br />Brazil filed case against US at the WTO. The WTO naturally ruled in favor of Brazil<br />The US didn’t change anything it continued subsidies. Instead the US appealed. The case made the rounds in the WTO for 7 years. The USA kept losing appeals.<br />WTO can’t do anything to force US to comply. quot;
The WTO has no legal authority to make any country do anything. Still Brazil could RETALIATE as WTO rules allows the winning country (Brazil) to tax imports from the losing country (US). So Brazil threatened to impose import taxes on over 100 products from the US. <br />The affected US manufacturers pressured the US government to do something.<br />Today the USA pays Brazilian farmers $150 million per year <br />Is this a bribe ? Yes, it is.<br />Another question arises What are the implications for other cotton producers in the world?<br />Another big class.<br />China versus google an example of government control or protectionism ?<br />Google retreated from China, the world's biggest Internet market, as it would not tolerate strict censorship of its search engine. Google discovered sophisticated and targeted cyber attack on its email service. Google said it believed hackers were targeting Chinese human rights activists. <br />Under the new game plan 2011 2012, Google is targeting Chinese firms to advertise on its dominant overseas search market ... Google is betting that rapidly-growing Chinese exporters, keen to reach out to overseas customers, will make use of the company's global reach through its international search sites.<br />Other Obstacles <br />Political instability and legal structure, you often see that the legal framework has matured. As there is often no clear distinction between the executive power ( Government), legislative power (the Chamber of Representatives and a Senate) and the judicial power (The courts).<br />Restrictions on foreign investment and ownership, as the emerging markets are opening up it is not yet allowed in many of these EM countries for foreign companies to take complete ownership of local companies or land. <br />Corruption, Emerging markets score high on the corruption index. It still part of doing business, many western multinational adopt and have specific funds for bribes.<br />undervalued exchange rates <br />Emerging Markets have undervalued exchange rates many exchange rates are relatively fixed(Especially China and India); some people estimate that the US$ and Euro would have to devalue 30-50% to reflect true purchasing power exchange rates with emerging markets. It is part of their strategy to drive exports up.<br />Make up your mind and judge Do YOU SEE THEM AS AN OPPURTUNITY OR AS A THREAT ?<br />My advice click ……..get to know them !!!<br />Just remember life begins at the end of your comfort zone.<br />Enjoy , if there any questions drop me a message.<br />Take care ! Rutger<br />