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GLOBAL SLOWDOWN AND EMERGING MARKETS

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					     GLOBAL
 SLOWDOWN AND
EMERGING MARKETS
   New relations on
  the global markets


        Aleš Cantarutti
          Marec 2010
        Global slowdown and emerging markets

FACT: The collapse in global demand in 2009 brought on
      by the biggest economic downturn in decades -
      the biggest contraction of world trade in volume
      terms since the Second World War

          “For the last 30 years trade
          has been an ever increasing
          part of economic activity, with
          trade growth often outpacing
          gains in output. Production for
many products is sourced around the
world so there is a multiplier effect — as
demand falls sharply overall, trade will
fall even further. The depleted pool of
funds available for trade finance has
contributed to the significant decline in
trade flows, in particular in developing     Source: OECD National Accounts.
countries”
Pascal Lamy Director-General of WTO
     Global slowdown and emerging markets
Reasons for trade contarctions

• Fall-off in demand is more widespread than in the
  past; all regions of the world economy are slowing at
  once
• Increasing presence of global supply chains in total
  trade; goods cross many frontiers during the
  production process and components in the final
  product are counted every time they cross a
  frontier
• Shortage of trade finance; ensuring the availability
  and affordability of trade finance
• Protection; any rises in protection threatens the
  prospects for recovery and prolong the downturn
Merchandise trade: leading exporters and importers, 2008 ($bn and %)
                                              Annual %                                                   Annual %
Rank   Exporters              Value   Share     change   Rank   Importers            Value   Share         change


   1   Germany                 1465     9.1         11      1   United States         2166    13.2                 7
   2   China                   1428     8.9         17      2   Germany               1206     7.3             14
   3   United States           1301     8.1         12      3   China                 1133     6.9             19
   4   Japan                    782     4.9         10      4   Japan                  762     4.6             22
   5   Netherlands              634     3.9         15      5   France                 708     4.3             14
   6   France                   609     3.8         10      6   United Kingdom         632     3.8                 1
   7   Italy                    540     3.3         10      7   Netherlands            574     3.5             16
   8   Belgium                  477     3.0         10      8   Italy                  556     3.4             10
   9   Russian Federation       472     2.9         33      9   Belgium                470     2.9             14
  10   United Kingdom           458     2.8          4     10   Republic of Korea      435     2.7             22


  11   Canada                   456     2.8          8     11   Canada                 418     2.5                 7
  12   Republic of Korea        422     2.6         14     12   Spain                  402     2.5                 3
  13   Hong Kong, China         370     2.3          6     13   Hong Kong, China       393     2.4                 6
  14   Singapore                338     2.1         13     14   Mexico                 323     2.0                 9

  15   Saudi Arabia             329     2.0         40     15   Singapore              320     1.9             22
  16   Mexico                   292     1.8          7     16   Russian Federation     292     1.8             31
  17   Spain                    268     1.7          6     17   India                  292     1.8             35
  18   Taipei, Chinese          256     1.6          4     18   Taipei, Chinese        240     1.5             10
  19   United Arab Emirates     232     1.4         28     19   Poland                 204     1.2             23
  20   Switzerland              200     1.2         16     20   Turkey                 202     1.2             19

                                                                                                     Source: WTO
Growth in the volume of world merchandise trade and GDP, 1998-2008
                                                   Annual % change




                                                         Source: WTO




 Prices of selected primary products, January 1998 — January 2009
Index, January 2002=100




                                                           Source: IMF
          New relations on the global markets

FACT: Not only is the worldwide slowdown hurting
      developed economies more than emerging
      economies, but it’s affecting the latter
      differently and substantively - altering their
      role in the global economy.

       Great crisis is forcing change at three levels

LEVEL 1
Developing countries are becoming relatively bigger markets;

  “Emerging markets will account for a larger share of the world’s output
 when the recession ends than when it began. That will make them even
                            more attractive.”
Antoine van Agtmael, Investment firm Emerging Markets Management
          New relations on the global markets
LEVEL 2
Governments are reshaping the contours of economic development even
as they stoke growth through monetary and fiscal policy measures;
China used the $586 billion stimulus package to influence demand and supply
in 10 industries that together account for 50% of the country’s GDP.

   “The government calls it a stimulus, but it’s really redesigning industries.
   That’s why 9% GDP growth in China tomorrow won’t be yesterday’s 9%
 growth,” David Michael, Greater China head of the consulting firm BCG


LEVEL 3
Competition in developing countries has become more intense;
With exports shrinking, companies in those countries are concentrating
more on growing their sales at home.
The rivalry is particularly heated in markets for commodities, such as steel,
cement, and aluminum, and for upmarket and middle-market consumer
segments.
         New relations on the global markets

FACT: Companies in emerging markets have started
      responding to the challenges these changes pose
      and many of them saw the downturn coming and
      modified their strategies quickly.

  They have an edge because they’re the world’s cheapest manufacturers
and don’t need to develop low-cost business models

  Before the downturn, rising resource costs and appreciating currencies
had eaten away at their profit margins - the recession as a pretext to do
some spring cleaning and reduce costs


  “Between 1995 and 2008, Indian companies grew so quickly that many bad
 habits crept into their operations. They’re trying to eliminate them. After more
      than a decade of growth, they are taking a breather to restrategize,”
                 Nirmalya Kumar, London Business School.
    Emerging Strategies to Beat the Slowdown
What are many emerging giants doing?
   Restructuring portfolios, halting iffy diversification plans, and
consolidating operations
   Introducing quality systems so that they can manufacture better products
at a lower cost
   Companies are taking a hard look at talent and firing (or not hiring) and
halting bonuses and raises to freeze salary bills at last year’s levels
   Using the cash they’ve freed up to develop value-for-money products and
services

 CHINA                                  INDIA
 Manufacturers are using                Tata Motors
 the slackening of demand               low-cost
 as an opportunity to develop           inovations
 advanced products of their own,
 so that they won’t always have
 to serve as subcontractors.

    “Some costs, like talent costs, are lower today, so it’s a good time for
      companies to invest in developing innovation capabilities,” Peter
     Williamson, University of Cambridge’s Judge Business School
       New relations on the global markets

FACT: Most Western companies are preocupied with the
      crisis in their home markets but they need to start
      focusing on the next phase of global growth.


       THEY MUST TRACK FIVE TECTONIC SHIFTS THAT
       ARE EMANATING FROM THE DEVELOPING WORLD

                       A GROWING DIVIDE
              THE RETURN OF FAMILY-STYLE LEADERS
                      A REVERSAL IN M&A
                HIGHER STAKES IN SUSTAINABILITY
                      THE CALL OF AFRICA
          New relations on the global markets
SHIFT 1
A GROWING DIVIDE

   Developing countries are trying to reduce their economies’dependence on
international trade – concetration on boosting domestic demand
  The developing nations have dicovered one another – trade between
emerging markets accounted for 40% of their export and import in 2007
(double the level two decades ago)
  American-style capitalism VS European-style welfare states – policy
makers in the developing world are likely to slow down the pace of
deregulation


The response: stay focused on emerging markets
Western companies must keep investing – advantages in new market
segments (rural segment which is tough to break into)
          New relations on the global markets
SHIFT 2
THE RETURN OF FAMILY-STYLE LEADERS

   Crisis as opportunity for new leadership paradigms – in developing
countries the new paradigm will come from family businesses (Brazil,
India, Mexico, Turkey) and state-owned enterprises (China)
  Focus on long-turn pespective, driven by personal pride or national
interest
   Asia and South Africa; the heads of family-owned businesses have a
great deal of power, which enables them to make decisions and modify
strategies quickly
  China; the leaders of government-run enterprises are powerful
(Chinese oil companies and government aid to African nations)

The response: Change your leadership criteria
Invest in entrepreneurial local managers

    “For breakthrough performance in developing countries, you need
       breakthrough leadership” Accenture research report 2009
          New relations on the global markets
SHIFT 3
A REVERSAL IN M&A

   Indian companies set the pace for cross-border deals in 2007 (Tata –
Jaguar and Land Rover, Hidalco – Novelis, Mital), but companies from China
(Lenovo, TCL), Brazil and Russia will take the lead in the future
   Chinese and Latin American companies will use M&A ti internationalize
rather than globalize (Brazil – 25 cross-border deals in 2007, Mexico but
Indian companies are likely to stalk European companie
  Partnerships between emerging giants – China development bank lent
$10 billion to Petrobras and $15 to Rosneft (long-term suply of oil)


The response: Join forces with emerging giants
Western companies need help from local companies to go into China’s
hinterland or Indian’s rural market – partnering with emerging giants and
offering them knowledge and assets (triangulation strategy);
Kawasaki – Bajaj Auto, Telefonica – Huawei Technologies
          New relations on the global markets
SHIFT 4
HIGHER STAKES IN SUSTAINABILITY

  Sustainable solutions are essential to people who don’t have access to
water, electricity, or clean air (nonurban markets of China and India)
  China imposed tougher emission guidelines – they plan more than
100.000 hybrid, electric and fuel-cell vehicles until 2012, Tata Motors is
developing an electric version of the Nano
The response: Go green globally
Unsutable cascading strategy; cooperatinon with local rivals – launch
eco-friendly products all around the world at the same time

ADDITIONAL: China is leading the race for clean energy
   China vaulted past competitors from Denmark, Germani, Spain and US
to become the world No.1 maker of wind turbines and solar panels – fear
from dependence (like oil from the Mideast)
   Renewable energy industries are adding jobs rapidly (1.12 mi. in 2008)
   RE: 8% of its electricity generation capacity by 2020 (now 4%)
   Strategy: to dominate energy-equipment export – government spends
$45 billion in 2009
          New relations on the global markets
SHIFT 5
THE CALL OF AFRICA

  Africa: not integrated with much of the developed world, but it does
have trading relationships with developing countries
   Diferences between African nations – but also common languages,
cultures, and trade routes
   Several Indian and Chinese companies have found it easy to operate in
Africa: Indian immigrants – India-Africa trade $20 billion in 2006
  Investments in Africa: India $2 billion, China $8 billion by 2008
   Africa’s middle class: somewhere betwee 350 and 500 million people –
bigger than India’s

The response: Tap Africa’s potential
It’s time Western multinational companies go on consumer safaris

 “The future of Guinness may lie not in Ireland’s pubs but in Africa’s bars,”
                  Vijay Mahajan, University of Texsas
            New relations on the global markets
  SHIFT 5
  THE CALL OF AFRICA

ADDITIONAL: PORTUGAL AND AFRICA                                    PORTUGAL
                                                                   AREA:
 Fast development in last two decades:                             92,090 sq. km
 services represent 73,6% of BDP                                   POPULATION:
 Export oriented economy:                                          10,7 million
                                                                   CAPITAL: LISBON
 in 2009 export droped for 20%
                                                                   GDP-per capita:
 Export markets in 2009: EU 73,7%                                  16.100 (2009)
 (Spain 26,7%, Germany 13,7%, France 12,7%)                        GDP growth rate:
 Strategy: diversification to emerging                             -3,3% (2009)
 markets and Afican markets                                        INFLATION RATE:
 Africa: turning toward African countries                          - 0,9% (2009)
 whose official language is Portuguese                             UNEMPLOYMENT:
 (also cultural and history links)                                 9,2% (2009)
  In 2009 Angola absorbed 7,5 of                                   Labour
                                                                   productivity:
  Portuguese export (Mozambique)
                                                                   69,5% of EU -27
 “Portugal finds itself between the low prices of China, India and Pakistan on the
    one hand and the design image of Italy and German quality on the other.
  Portuguese products are not recognised.” Antonio Saraiva, President of CPI
   Thank you!
   Questions?
ales.cantarutti@gzs.si

				
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posted:8/17/2011
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