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BRIC 2020: What will the BRICs Look Like in the Future?
 

BRIC 2020: What will the BRICs Look Like in the Future?

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Competitive or Obsolete for Tomorrow’s World?

Competitive or Obsolete for Tomorrow’s World?

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BRIC 2020: What will the BRICs Look Like in the Future? BRIC 2020: What will the BRICs Look Like in the Future? Presentation Transcript

  • Global Global Strategy Challenges Executable Solutions BRIC 2020: What will the BRICs Look Like in the Future? Corporate Platforms – Competitive or Obsolete for Tomorrow’s World? France Houdard Managing Director france.houdard@exolus.com November 2013 Copyright © 2013 Exolus. All rights reserved.. reserved. 0
  • BRIC OVERVIEW Copyright © 2013 Exolus. All rights reserved.. 1
  • BRICs Today: Intersection of Leading Global GDP, Population, Resources > USD3 trillion GDP … > 100+ million people … > 3 million sq km 100 million People 3 million sq km Indonesia Philippines Canada Bangladesh Pakistan US India China Brazil Russia Australia Germany France Nigeria Ethiopia Mexico Japan Italy United Kingdom Copyright © 2013 Exolus. All rights reserved.. US$3 trillion GDP (PPP) 2
  • BRIC’s 2020: China & India Projected to be 1st & 3rd Largest Economies GDP* PPP-adjusted 2020 GDP* China 1 US 2 India 3 Japan 4 $29.6 tr $28.8 tr $13.4 tr $6.8 tr Russia 6 Brazil 7 $4.3 tr $3.9 tr GDP* PPP-adjusted 2012 GDP* US 1 $15.7 tr Copyright © 2013 Exolus. All rights reserved.. 6,4 trillions China 2 de $ $12.5 tr 3,6 trillions India 3 de $ $4.8 tr Japan 4 $4.5 tr Russia 6 $3.4 tr Brazil 7 $2.4 tr Source: World Bank 3
  • BRIC’s 2020: Russia and Brazil have Highest Per Capita GDP of BRIC’s World Ranking (2012): Russia #55 … Brazil #75 … China #94 … India #126 2020 2012 Russia GDP per Capita $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 US Copyright © 2013 Exolus. All rights reserved.. Russia Brazil China India Source: IMF 4
  • Attractiveness (Past): BRICs Identified as a Top Investment Destination BRICs Rank as Top 5 Investment Destinations in World Top 14 Most Attractive Destinations for Future Investment % (2009 – 2011) 60 Percent of Responses 50 40 30 20 10 0 Copyright © 2013 Exolus. All rights reserved.. Source: World Investment Prospects 2009 - 2011 5
  • Foreign Direct Investment: China Leads BRIC’s, Rivals US for Investment World Ranking (2012): US #1 … Russia #8 … Brazil #4 … China #2 … India #14 FDI Inflows by Country US (2007 – 2012) 350,000 China* Russia Brazil 300,000 India 250,000 200,000 150,000 100,000 50,000 0 2007 Copyright © 2013 Exolus. All rights reserved.. 2008 2009 *China includes both Mainland China and Hong Kong 2010 2011 2012 Source: World Investment Report 2013, UNCTAD 6
  • Attractiveness (Future): BRICs Still Identified as Top Investment Destination Though … Russia and Indonesia Switch for Top 5 Investment Destinations Top 14 Most Attractive Destinations for Future Investment % (2013 – 2015) 60 Percent of Responses 50 40 30 20 10 0 Copyright © 2013 Exolus. All rights reserved.. Source: World Investment Report 2013, UNCTAD 7
  • Investment Drivers: What are the Key Drivers for your Offshoring Focus? We Arrive at Countries for Offshoring by Eliminating those that do NOT have … “M&A TARGETS: “FAVORABLE LOCAL COMPANIES DRUG REWITH GREATER IMBURSEMENT THAN 5% MARKET LISTS” SHARE” “RELIABLE FIBER BACKBONE WITH MINIMAL LATENCY” “SUITABLE JV PARTNERS” Sales “LARGE MOLECULE EXPERIENCE” “DIVERSE DISEASE POPULATION” “STRONG NATIONAL INNOVATION SYSTEM” Engineering “COUNTRIES RECEPTIVE TO TAKE-OFF AGREEMENTS” Marketing HR F&A “FAVORABLE TOLLMANUFACTURING TAX STRUCTURES” IT R&D Legal “MATURE INSURANCE PRODUCTS” Distribution “CARBON FIBER AEROSPACE “UNINTERUPTABE POWER” TECHNOLOGY” Sourcing Production “STRONG IPR PROTECTION” “UNIVERSITIES SPECIALIZED IN METALURGY” “LOCAL LANGUAGES WITH ACCENT NEUTRALIZATION POTENTIAL” “NON-HUMAN PRIMATE RESEARCH” “GOOD INCENTIVES” “LOW TURN“LOCAL ACCOUNTING OVER RATES” “HIGHCOST STANDARDS SIMILAR PRESSURE “MINUS 60° SHIPPING C TO US GAAP” NATURAL GAS LOGISTICS “FINE CHEMICALS” TRUNKLINES” “RELAXED “NON-UNIONIZED INFRASTRUCTURE” ENVIRONMENTAL “SKILLED CHEAP LABOR” REGULATIONS” MACHINISTS” “2 MILLION GALLONS OF WATER PER DAY” “Ro-Ro PORTS” Copyright © 2013 Exolus. All rights reserved.. Source: Exolus 8
  • Corporate Deployment Pattern (China): Companies Moving Up Value Chain Value Chain Deployment: Production-> Sales -> R&D -> Back Office 2 Markets 3 Sales Marketing Knowledge Engineering IT HR F&A R&D Legal Distribution Sourcing 4 Efficiency Production COST 1 Copyright © 2013 Exolus. All rights reserved.. Resources 9
  • The Future (China): 3rd Party Outsourcing of Core & Non-Core Processes Contract Outsourcing: 5 R&D (CRO/KPO) … Sales (CSO) … Manufacturing (CMO) Markets 5 Sales Marketing Knowledge Engineering IT HR F&A R&D Legal Distribution Sourcing Production 5 Copyright © 2013 Exolus. All rights reserved.. Resources 10
  • Corporate Deployment Pattern (India): Direct Opposite that of China Value Chain Deployment: Back Office > R&D -> Sales -> Production 3 Markets 2 Sales Marketing Knowledge Engineering IT HR F&A R&D Legal Distribution Sourcing 1 Efficiency Production 4 Copyright © 2013 Exolus. All rights reserved.. Resources 11
  • CHINA Copyright © 2013 Exolus. All rights reserved.. 12
  • Framework: What Does China Look Like from Space? At Night? Why? Copyright © 2013 Exolus. All rights reserved.. Source: NASA (United States – National Aeronautics and Space Administration) 13
  • Framework: Structural Determinants of China’s Economic Geography … 67% Mountains, Deserts, Steppe … 90% of 1.3 billion Population in EAST Heilongjiang Jilin Liaoning Xinjiang Inner Mongolia Gansu Beijing Tianjin Hebei Shanxi Ningxia Shandong Qinghai Henan Shaanxi Mountains Jiangsu People Tibet Hubei Sichuan Anhui Zhejiang Chongqing Hunan Shanghai Jiangxi Guizhou Fujian Yunnan Guangxi Copyright © 2013 Exolus. All rights reserved.. Guangdong 14
  • Growth Trend: Fastest Growing Large Economy in World Economy Doubles every 7 Years … Tripled most Recently China GDP (USD trillion) 9 8 USD (Real Market Rates) 7 6 Hosts OLYMPIC games 3x 5 4 Accepted full convertibility for current account transaction 3 2 China Opens to the World Applied to join GATT 1 Eliminated its dual exchange rate Admitted to WTO 2x 2x 0 Copyright © 2013 Exolus. All rights reserved.. Source: IMF 15
  • Wealth Trend: Forward Trend in Exploding Middle Class 100 Million People Move into Middle Class Every 5 Years Middle Class Income Bands for Urban Population 900 822 800 756 Urban Population (millions) 99 Global > US$107,800 90 Affluent US$3,800 - 107,800 525 Upper Middle Class US$21,501 – 53,900 73 35 Lower Middle Class US$13,500 – 21,500 Poor < US$13,500 684 700 607 600 Urban Household Income (US$ – PPP-Adjusted) 531 500 53 170 355 400 300 461 239 255 200 157 106 100 0 2005 2010F 2015F 2020F 2025F Upper Middle Class Lower Middle Class Copyright © 2013 Exolus. All rights reserved.. Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008 16
  • Urbanization Trend: Forward Trend in Mass Migration into Cities 150 Million People Moved into Cities every 10 Years China’s Urban Population versus Rural Population 1,600 1.45 billion 1.4 billion 1,400 1.3 billion 1.2 billion 624 Rural Population (million) 822 1,200 Urban Population (million) Urbanization Rate 1 billion 705 1,000 782 800 600 833 822 684 400 200 531 381 245 23% 31% 40% 49% 57% 1985 1995 2005 2015 2025 0 Copyright © 2013 Exolus. All rights reserved.. Source: World Urbanization Prospects 2007 17
  • Result: Emergence of 10+ Mega-Cities the Size of Countries 60 Million Population + World-Class Infrastructure Mega-Clusters China’s Emerging MEGA-CITIES Mega-Corridors Heilongjiang Jilin Liaoning Xinjiang Inner Mongolia Gansu Beijing Tianjin Hebei Shanxi Ningxia Shandong Qinghai Shaanxi Mountains Jiangsu Henan Tibet Anhui Hubei Sichuan Shanghai Zhejiang Chongqing Hunan Jiangxi Guizhou Fujian Yunnan Guangxi Copyright © 2013 Exolus. All rights reserved.. Guangdong 18
  • Corporate Deployment Pattern (China): Companies Moving Up Value Chain Value Chain Deployment: Production-> Sales -> R&D -> Back Office 2 Markets 3 Sales Marketing Knowledge Engineering IT HR F&A R&D Legal Distribution Sourcing 4 Efficiency Production COST 1 Copyright © 2013 Exolus. All rights reserved.. Resources 19
  • 1. Resource Seekers: Where do Supply Chain Functions Migrate? Low Cost Bands + Emerging Mega-Cities Wage Bands / Mega-City Overlay Wage Bands (Normalized to Highest Wages) Mega-Cluster Mega-Corridors Heilongjiang Jilin Liaoning Xinjiang Inner Mongolia Gansu Beijing Tianjin Hebei Shanxi Ningxia Shandong Qinghai Henan Shaanxi Mountains Jiangsu Tibet Anhui Hubei Sichuan 1 Shanghai Zhejiang Chongqing Jiangxi Hunan Guizhou Fujian Yunnan Guangxi Copyright © 2013 Exolus. All rights reserved.. Guangdong 1 20
  • 1. Resource Seekers: Major Automotive Investment Across Span of China World‟s #1 Consumer … World‟s #1 Producer China Automotive Production VW: Audi, Jetta, Bora, Golf BMW: 3 Series and 5 Series Mazda: M6 GM: GL8 Toyota: Land Cruiser GM:Chevrolet (Epica, Sail, Aveo, Lova) GM: Wuling Hyundai: Sonata, Elantra Changchun Daimler-Chrysler: MercedesBenz, Cherokee, Jeep Toyota: Vios, Corolla, Crown Zhengzhou Daihatsu: Charade Wuhan Toyota: Terios, Prado Suzuki: Alto, Swift, Gazelle Fiat: Iveco Beijing Tianjin Mitsubishi: Pajero, Outlander Nissan: Paladin, pickup Kia: Pride, Accent, Optima Shenyang Ford Yantai Qingdao VW: Santana, Passat, Polo, Gol, Touran Yancheng Wuhu Nanjing Shanghai Chengdu Nanchang Taizhou Chongqing Changsha Fuzhou Liuzhou Mitsubishi: Pajero Mazda: Premacy, Familia Peugeot-Citroen: Fukang, Elysee, Xsara, Peugeot, Picasso Honda: CR-V Honda: Accord, Fit, Odyssey Nissan: Bluebird, Sunny Toyota: Camry Copyright © 2013 Exolus. All rights reserved.. Geely: Haoqing, Meirie, Uliou, Maple Nissan: Teana Hainan GM: Spark, Wuling Chery: Fulwin,Cowin,Easter,QQ,A5,V5 Guangzhou Isuzu: F-Series, N-Series Ford: Fiesta, Mondeo GM: Buick Regal, Royaum,Lacrosse, Excelle, Cadillac Soueast: Lioncel, Delica, Freeca, Soveran Daimler Chrysler: Spinter Vito/Viano Ford: Transit Sources: Company Websites, Publically Available Information 21
  • 1. Resource Seekers: Major Cost Savings through Production & Sourcing Is it POSSIBLE for a Company‟s Economy … to Surpass that of Countries? Company China Sourcing China Trading Partners: Imports from China (Annual Volume in USD billions) $27 billion U.S. $18 billion $10 billion Hong Kong Japan South Korea $8.5 billion Germany Netherlands $5.5 billion 7th Place Wal-Mart $2.6 billion Singapore Taiwan $2.5 billion $2.2 billion 10th Place Dell Russia 0 50 100 150 200 250 $1.8 billion Copyright © 2013 Exolus. All rights reserved.. 22
  • 2. Market Seekers: Where are the Market Opportunities? Low Cost Bands + Emerging Mega-Cities + High-Income Geographies Per Capita Annual Income (USD, PPP-Adjusted) Per Capita Income / Wage Band Overlay > 40,000 Heilongjiang 30,000 - 40,000 25,000 - 30,000 20,000 -25,000 Jilin 17,500 - 20,000 0 - 17,500 Xinjiang Liaoning Inner Mongolia Gansu 1Beijing Wage Bands Hebei Mega-Cities Shanxi Ningxia Mega-Corridors Tianjin Shandong Qinghai Henan Shaanxi Jiangsu Tibet Anhui Hubei Sichuan 1 Shanghai Zhejiang Chongqing Jiangxi Hunan Guizhou Fujian Yunnan Guangxi Copyright © 2013 Exolus. All rights reserved.. Guangdong 1 23
  • 2. Market Seekers: Per Capita Disposable Income Growing 6% Per Annum Per Capita Disposable Income Growing at Average 6% Per Annum China Disposable Income Per Capita (USD per annum) Russia Brazil 80,000 India 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000 2005 Copyright © 2013 Exolus. All rights reserved.. 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: GS Global ECS Research 24
  • 2. Market-Seekers: Car Sales Proxy for Directional Market Sizing? Car Penetration Highest in China Risking Steeply China India Russia Brazil Car Penetration in BRIC (units per 1,000 people) Car Penetration in China (units per 1,000 people) 700 180 160 600 140 500 120 100 400 80 300 60 200 40 20 100 0 0 2010 2020 Copyright © 2013 Exolus. All rights reserved.. 2030 2040 2050 Sources: Association of European Business; Autostat;; Other 25
  • 2. Market-Seekers: To be World’s 2th Largest Pharma Market by 2015 USD28 billion Market by 2015 … 9th in World Pharmaceutical Market Size Country Ranking (USD billion) 2000 2005 2010 2015F USA 150 USA 262 USA 441 USA 524 Japan 58 Japan 65 Japan 75 China 103 Germany 17 Germany 24 Germany 48 Japan 85 France 17 France 21 France 39 Germany 55 UK 11 UK 16 China 34 Brazil 47 Italy 11 Italy 15 UK 32 France 44 China 6.8 China 13 Italy 28 UK 36 Brazil 6.7 Brazil 10 Brazil 24 Italy 31 Canada 6.3 Canada 10 Canada 22 Russia 30 Spain 6.2 Spain 9.8 Spain 21 India 28 Copyright © 2013 Exolus. All rights reserved.. Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus 26
  • 2. Market Seekers: Spending Growth Sustained Through Global Crisis Sustained Retail Sales Growth … Huge Shift in Discretionary Spend Retail Sales Growth Personal Expenditure 3.5 3.1 3 15.2% Growth (2012) 90 80 2.5 USD Trillions 100% 1.8 2 70 60 1 2 4 11 9 7 12 0.7 0.4 0.5 30 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Copyright © 2013 Exolus. All rights reserved..  Consumer Goods 9  Education 6  Home Appliances  Housing  Clothing 54 20 31 10 0  Health Care 8 40 1 10 4  Transport & Communications 16 50 1.5 16  Food 0 1990 2011 Source: China National Bureau of Statistics 27
  • 3. Knowledge Seekers: Where are Key Nodes for R&D Functions? “R” of R&D Seeks Universities … “D” Seeks Markets & Production R&D Centers (# Operations) Research & Development Centers (Number of Operations in Select Cities) > 10 > 50 Heilongjiang > 150 Jilin Wage Bands Mega-Cluster Liaoning Xinjiang Inner Mongolia Mega-Corridors Gansu 1 Beijing Tianjin Hebei Shanxi Ningxia Shandong Qinghai Henan Shaanxi Mountains Jiangsu Tibet Anhui Hubei Sichuan Shanghai 1 Zhejiang Chongqing Jiangxi Hunan Guizhou Fujian Yunnan Guangxi Copyright © 2013 Exolus. All rights reserved.. Guangdong 1 Source: UNCTAD, WIR 28
  • 3. Knowledge Seekers: Big Pharma Migrating R&D Functions to China Costs R&D Centers (# Operations) Disease Diversity R&D Clinical Trials Research & Development Centers (Number of Operations in Select Cities) > 10 > 50 Heilongjiang > 150 Jilin Wage Bands Mega-Cities Liaoning Xinjiang Inner Mongolia Mega-Corridors Gansu Beijing Tianjin Hebei Shanxi Ningxia Shandong Qinghai Henan Shaanxi Jiangsu Tibet Anhui Hubei Sichuan Shanghai Zhejiang Chongqing Hunan Jiangxi Guizhou Fujian Yunnan Guangxi Copyright © 2013 Exolus. All rights reserved.. Guangdong Source: UNCTAD, WIR 29
  • 4. Efficiency Seekers: Seeking Efficiencies through Shared Service Centers Efficiencies … Economies of Scale … Knowledge Sharing … Standardization Shared Service Centers / Mega-City Overlay Shared Services Wage Bands Heilongjiang Mega-Clusters Mega-Corridors Jilin Liaoning Xinjiang Inner Mongolia Gansu 1 Beijing Tianjin Hebei Shanxi Ningxia Shandong Qinghai Henan Shaanxi Mountains Jiangsu Tibet Anhui Hubei Sichuan 1 Shanghai Zhejiang Chongqing Jiangxi Hunan Guizhou Fujian Yunnan Guangxi Copyright © 2013 Exolus. All rights reserved.. Guangdong 1 Source: KPMG “A new Dawn: China’s Emerging Role in Global Outsourcing”, 2009 30
  • 5. The Future (China): 3rd Party Outsourcing of Core & Non-Core Processes Contract Outsourcing: 5 R&D (CRO/KPO) … Sales (CSO) … Manufacturing (CMO) Markets 5 Sales Marketing Knowledge Engineering IT HR F&A R&D Legal Distribution Sourcing Production 5 Copyright © 2013 Exolus. All rights reserved.. Resources 31
  • 5. China Future: Virtual Integration – Contract Outsourcing Core Functions Global Virtual Integration Models … Even Big-Pharma LEAP-FROGGING Generations China’s CRO Market CSO Cases  Boehringer Ingelheim    First Big Pharma to have entrusted a sole distributor for all of its products in China: Sinopharm. 14 Sinopharm is China’s largest pharmaceutical distributor by sales and the only China distributor to cover the entire PRC. 12 Boehringer Ingelheim’s sales spiked upward by 45% from 2006 to 2007; Sinopharm saw an annual growth rate of 32%. 10 8  Pfizer   Outsources to Wuxi PharmaTech: synthetic chemistry, parallel medicinal chemistry, and bio-analytical services. It also has a 3-year CRO contract with Wuxi PharmaTech to provide services in the areas of: in-vitro Absorption, Distribution, Metabolism and Excretion (ADME) services. Outsources to Shanghai Institute of Materia Medica (SIMM) chemistry requirements. AstraZeneca  6 4 2 GSK   CRO Cases Invested USD14 million in Wuxi Pharma Tech for the synthesis of 150,000 compounds. Copyright © 2013 Exolus. All rights reserved.. 0 2006 2007 2008 2009e Preclinical Development 2010e 2011e Clinical Development Sources: Goldman Sachs: Healthcare Services: CROs, December 2007; Exolus Research 32
  • The Future: Where Pareto-Optimal Envelopes for Deployment Concentration? Intersection of Wealth + Production + R&D Hubs + Mega-Cities Per Capita Annual Income (USD, PPP-Adjusted) Per Capita Income / Wage Band Overlay > 40,000 Heilongjiang 30,000 - 40,000 25,000 - 30,000 20,000 -25,000 Jilin 17,500 - 20,000 0 - 17,500 Xinjiang Liaoning Inner Mongolia Gansu 1Beijing Wage Bands Hebei Mega-Cities Shandong Qinghai Henan Shaanxi Innovation Hub Optimal Envelope Shanxi Ningxia Mega-Corridors Tianjin Jiangsu Tibet Anhui Hubei Sichuan 1 Shanghai Zhejiang Chongqing Jiangxi Hunan Guizhou Fujian Yunnan Guangxi Copyright © 2013 Exolus. All rights reserved.. Guangdong 1 33
  • INDIA Copyright © 2013 Exolus. All rights reserved.. 34
  • Framework: What Does India Look Like from Space? At Night? Why? Copyright © 2013 Exolus. All rights reserved.. Source: NASA (United States – National Aeronautics and Space Administration) 35
  • Framework: Structural Determinants of India’s Economic Geography … High Population Density across most of Country A-Cities – Highest Population and FDI Jammu / Kashmir Himachal Pradesh Punjab Haryana Uttarakhand New Delhi Arunachal Pradesh Sikkim Rajasthan Uttar Pradesh Madhya Pradesh Gujarat People Chhattisgarh Mumbai Assam Bihar Meghalaya Jharkhand West Bengal Kolkata Tripura Mizoram Maharashtra Hyderabad Karnataka Andhra Pradesh Bangalore Chennai Tamil Nadu Kerala Copyright © 2013 Exolus. All rights reserved.. 36
  • Growth Trend: A Historical Growth Leader Among Giant Countries Economy Doubled every 8 Years 5 India GDP (PPP adjusted) World Bank’s Country Strategy (2009-2012) 4.5 4 3.5 USD tr 3 Bilateral Cooperation with European Union 2.5 India Opens to World 2 1.5 2x Microchip Revolution. 2x 1 2x 0.5 0 Copyright © 2013 Exolus. All rights reserved.. Source: World Bank, EIU 37
  • Wealth Trend: Forward Trend in Exploding Middle Class 50 Million People Move into Cities every 10 Years Middle Class Income Bands for Urban Household Urban Household Income ( US $ - PPP - Adjusted ) 140 Urban Population (millions) 120 8 Global >= US$ 22,158 31 Upper Middle Class US$ 11,079 - 22,158 58 Lower Middle Class US$ 4,431 – 11,079 14 Poor <= US$ 4,431 100 80 60 43 40 6 23 41 25 20 27 20 12 8 5 2005 2015 2025 0 1985 1995 Upper Middle Class Lower Middle Class Copyright © 2013 Exolus. All rights reserved.. Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008 38
  • Urbanization Trend: Forward Trend in Mass Migration into Cities > 100 Million People Move into Middle Class Every 10 Years India’s Urban Population Rural Population 1600 1.5 billion 1400 1.3 billion 1.2 billion 1200 1.04 billion 1000 880 Rural Population (million) 590 Urban Population (million) 0.86 billion 847 800 815 750 600 636 400 200 220 290 340 2001 2008 465 0 1991 Copyright © 2013 Exolus. All rights reserved.. 2020 2030 Source: World Urbanization Prospects 2007 39
  • Result: Emergence of 7 A-Cities (Concentrated Population and FDI) India‟s Strengthening A-Cities A-Cities – Highest Population and FDI Srinagar Jammu Pathankot Golden Quadrilateral North-South Corridor East-West Corridor Ludhiana Chandigarh New Delhi Jaipur Agra Guwahati Lucknow Gwalior Kanpur Allahabad Kota Varanasi Udaipur Kota Gandhinagar Ahmedabad Rajkot Vadodara Porbandar Surat Mumbai Silchar Kolkata Nagpur Cuttack Baleshwar Bhubaneshwar Pune Hyderabad Vishakapatnam Vijayawada Chennai Bangalore Coimbatore Kochi Copyright © 2013 Exolus. All rights reserved.. Madurai Source: Exolus Research 40
  • Corporate Deployment Pattern (India): Direct Opposite that of China Value Chain Deployment: Back Office > R&D -> Sales -> Production 3 Markets 2 Sales Marketing Knowledge Engineering IT HR F&A R&D Legal Distribution Sourcing 1 Efficiency Production 4 Copyright © 2013 Exolus. All rights reserved.. Resources 41
  • 1. Efficiency Seekers: India Global Leader in BPO / ITO Success in BPO Leads to Oversubscription of Key Cities A-Cities – Highest Population and FDI Leading BPO Cities Next Tier BPO Cities Chandigarh Delhi Noida Faridabad Gurgaon Jaipur Ahmedabad Vadodara Lucknow Indore Kolkata Nagpur Bhubaneswar Mumbai Pune Mangalore Coimbatore Kochi Hyderabad Bangalore Visakhapatnam Chennai Tiruchirappalli Madurai Trivandrum Copyright © 2013 Exolus. All rights reserved.. Source: NASSCOM 42
  • 1. Efficiency Seekers: … Explosive Growth Projected through 2020 IT-BPO Growth Rate @ 11.9% CAGR India IT-BPO Projected Growth Export Domestic (2010 – 2020F) 250 225 bn USD Billion 200 150 175 111 bn 100 73.1 bn 88 50 50.1 50 23 23 2010 2014 0 Copyright © 2013 Exolus. All rights reserved.. 2020 Source: NASSCOM 43
  • 1. Efficiency Seekers: … and Drives Emergence of 25 New Cities for BPO New 2nd and 3rd Cities roughly 28% Cheaper than 1st Tier Cities A-Cities – Highest Population and FDI Srinagar Leading BPO Cities Next Tier BPO cities Shimla Ludhiana Chandigarh Dehradun Delhi Follower Cities Noida Faridabad Gurgaon Jaipur Aspirant Cities Gangtok Lucknow Kanpur Patna Varanasi Gwalior Allahabad Ahmedabad Vadodara Indore Surat Bhopal Ranchi Raipur Aurangabad Pune Goa Hyderabad Hubli-Dharwad Bangalore Mangalore Mysore Coimbatore Kochi Siliguri Durgapur Kolkata Nagpur Nashik Mumbai Guwahati Bhubaneswar Visakhapatnam Vijayawada Chennai Pondicherry Salem Tiruchirappalli Madurai Trivandrum Copyright © 2013 Exolus. All rights reserved.. Source: NASSCOM 44
  • 2. Knowledge Seekers: Big Pharma Deploying R&D Functions to India Evolving Biopharmaceutical Innovation Clusters A-Cities – Highest Population and FDI Jammu / Kashmir Himachal Pradesh Punjab New Delhi Haryana Uttarakhand New Delhi Sikkim Gurgaon Rajasthan Uttar Pradesh Assam Bihar Madhya Pradesh Gujarat Arunachal Pradesh Chhattisgarh Meghalaya Jharkhand West Bengal Kolkata Tripura Manipur Mizoram Orissa Maharashtra Mumbai Thane Pune Goa Hyderabad Karnataka Andhra Pradesh Bangalore Tamil Nadu Kerala Copyright © 2013 Exolus. All rights reserved.. Source: Centre for International Trade in Technology of IIFT, Companies Website 45
  • 2. Knowledge Seekers: Technology Deploying Upstream R&D Functions Evolving Technology Innovation Clusters A-Cities – Highest Population and FDI Jammu / Kashmir Himachal Pradesh Punjab Haryana Uttarakhand New Delhi Sikkim Noida Rajasthan Uttar Pradesh Madhya Pradesh Gujarat Arunachal Pradesh Chhattisgarh Assam Bihar Meghalaya Jharkhand West Bengal Kolkata Tripura Mizoram Maharashtra Pune Hyderabad Karnataka Andhra Pradesh Bangalore Tamil Nadu Kerala Copyright © 2013 Exolus. All rights reserved.. Source: Centre for International Trade in Technology of IIFT, Companies Website 46
  • 2. Knowledge Seekers: Automotive Deploying Upstream R&D Functions Evolving Automotive Innovation Clusters A-Cities – Highest Population and FDI Jammu / Kashmir Himachal Pradesh Punjab Haryana Uttarakhand New Delhi Arunachal Pradesh Sikkim Rajasthan Uttar Pradesh Madhya Pradesh Gujarat Chhattisgarh Mumbai Assam Bihar Meghalaya Jharkhand West Bengal Kolkata Tripura Mizoram Maharashtra Hyderabad Karnataka Andhra Pradesh Bangalore Chennai Tamil Nadu Kerala Copyright © 2013 Exolus. All rights reserved.. Source: Centre for International Trade in Technology of IIFT, Companies Website 47
  • 2. Knowledge Seekers: Chemical-Based Deploying Upstream R&D Functions Evolving Chemical Innovation Clusters A-Cities – Highest Population and FDI Jammu / Kashmir Himachal Pradesh Punjab Haryana Uttarakhand New Delhi Arunachal Pradesh Sikkim Rajasthan Gurgaon Uttar Pradesh Madhya Pradesh Gujarat Chhattisgarh Vadodara Assam Bihar Meghalaya Jharkhand West Bengal Kolkata Tripura Mizoram Maharashtra Mumbai Pune Hyderabad Karnataka Andhra Pradesh Bangalore Tamil Nadu Kerala Copyright © 2013 Exolus. All rights reserved.. Source: Centre for International Trade in Technology of IIFT, Companies Website 48
  • 3. Market Seekers: Significant Income Stratification across India Wealth Bands Emerging across Country India Per Capita GDP Per Capita GDP (USD, PPP-Adjusted) (USD, PPP-Adjusted) Jammu/Kashmir > 5,600 4,200 – 5,600 Himachal Pradesh 2,800 – 4,200 Punjab Haryana 1,400 – 2,800 0 – 1,400 Uttarakhand Arunachal Pradesh New Delhi Uttar Pradesh Rajasthan Sikkim Bihar Gujarat Jharkhand West Bengal Madhya Pradesh Assam Meghalaya Tripura Nagaland Manipur Mizoram Chhattisgarh Orissa Maharashtra Andhra Pradesh Goa Karnataka Tamil Nadu Kerala Copyright © 2013 Exolus. All rights reserved.. Source: Ministry of Statistics and Programme Implementation: CIA World Factbook; Exolus Research 49
  • 3. Market Seekers: Car Sales Proxy for Directional Market Sizing? Car Penetration Highest in India Risking Steeply India Russia Brazil China Car Penetration in BRIC (units per 1,000 people) Car Penetration in India (units per 1,000 people) 700 60 600 50 500 40 400 30 300 20 200 10 100 0 0 2010 2020 Copyright © 2013 Exolus. All rights reserved.. 2030 2040 2050 Sources: Association of European Business; Autostat;; Other 50
  • 3. Market Seekers: To be World’s 9th Largest Pharma Market by 2015 USD28 billion Market by 2015 … 10th in World Pharmaceutical Market Size Country Ranking (USD billion) 2000 2005 2010 2015F Top 9 USA 150 USA 262 USA 441 USA 524 Japan 58 Japan 65 Japan 75 China 103 Germany 17 Germany 24 Germany 48 Japan 85 France 17 France 21 France 39 Germany 55 UK 11 UK 16 China 34 Brazil 47 Italy 11 Italy 15 UK 32 France 44 China 6.8 China 13 Italy 28 UK 36 Brazil 6.7 Brazil 10 Brazil 24 Italy 31 Canada 6.3 Canada 10 Canada 22 Russia 30 Spain 6.2 Spain 9.8 Spain 21 India 28 Copyright © 2013 Exolus. All rights reserved.. Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus 51
  • 4. Resource Seekers: But can India’s Infrastructure Support Production? India‟s Major Investment in Transportation Infrastructure A-Cities – Highest Population and FDI Srinagar Golden Quadrilateral North-South Corridor East-West Corridor Jammu Pathankot Ludhiana Chandigarh New Delhi Jaipur Agra Guwahati Lucknow Gwalior Kanpur Allahabad Kota Varanasi Udaipur Kota Gandhinagar Ahmedabad Rajkot Vadodara Porbandar Surat Mumbai Silchar Kolkata Nagpur Cuttack Baleshwar Bhubaneshwar Pune Hyderabad Vishakapatnam Vijayawada Chennai Bangalore Coimbatore Kochi Copyright © 2013 Exolus. All rights reserved.. Madurai Source: Exolus Research 52
  • 4. Resource Seekers: Big Pharma Production Deploying to India Biotechnology and Biopharmaceutical Production Clusters A-Cities – Highest Population and FDI Cities within cluster: Baroda, Ankleshwar Ahmedabad, Srinagar Jammu Pathankot Cities within cluster: Manesar, Jammu, Baddi, Pantnagar Ludhiana Chandigarh New Delhi Jaipur Agra Guwahati Lucknow Cities within cluster: Goa, Mumbai, daman, Nasik, Thane, Aurangabad Ahmedabad Rajkot Porbandar Gwalior Kanpur Allahabad Kota Varanasi Udaipur Gandhinagar Vadodara Surat Mumbai Silchar Kolkata Nagpur Cuttack Baleshwar Bhubaneshwar Pune Hyderabad Vishakapatnam Cities within cluster: Bangalore, Chennai Vijayawada Mangalore Chennai Bangalore Coimbatore Kochi Copyright © 2013 Exolus. All rights reserved.. Madurai Sources: All Publically Available Information, Company Websites 53
  • 4. Resource Seekers: Technology Production Deploying to India Technology Hardware Production Clusters A-Cities – Highest Population and FDI Cities within cluster: Kolkata Srinagar Jammu Pathankot Cities within cluster: Baddi, Mansear Ludhiana Chandigarh New Delhi Jaipur Agra Guwahati Lucknow Ahmedabad Rajkot Porbandar Gwalior Kanpur Allahabad Kota Varanasi Udaipur Gandhinagar Vadodara Surat Silchar Kolkata Nagpur Mumbai Cuttack Baleshwar Cities within cluster: Bangalore, Chennai Bhubaneshwar Pune Cities within cluster: Pune, Hyderabad Hyderabad Vishakapatnam Vijayawada Mangalore Chennai Bangalore Coimbatore Kochi Copyright © 2013 Exolus. All rights reserved.. Madurai Sources: All Publically Available Information, Company Websites 54
  • 4. Resource Seekers: Automotive Production Deployed to India Automotive Production Clusters Cities within cluster: New Delhi, Gurgaon, Noida, Ghaziabad, Ludhiana, Haridwar A-Cities – Highest Population and FDI Srinagar Jammu Pathankot Ludhiana Chandigarh New Delhi Cities within cluster: Baroda, Halol, Mumbai, Pune, Nasik, Aurangabad Jaipur Agra Guwahati Lucknow Ahmedabad Rajkot Porbandar Gwalior Kanpur Allahabad Kota Varanasi Udaipur Gandhinagar Vadodara Surat Mumbai Silchar Kolkata Nagpur Cuttack Cities within cluster: Kolkata Baleshwar Bhubaneshwar Pune Hyderabad Vijayawada Vishakapatnam Cities within cluster: Bangalore, Chennai, Hosur Mangalore Chennai Bangalore Coimbatore Kochi Copyright © 2013 Exolus. All rights reserved.. Madurai Sources: All Publically Available Information, Company Websites 55
  • The Future: Where Pareto-Optimal Envelopes for Deployment Concentration? Intersection of Wealth + Production Clusters + R&D Hubs + A-Cities Per Capita GDP Per Capita GDP (USD, PPP-Adjusted) A-Cities – Highest Population and FDI (USD, PPP-Adjusted) > 5,600 Jammu / Kashmir > 5,600 4,200 – 5,600 4,200 – 5,600 2,800 – 4,200 Himachal Pradesh Uttarakhand Punjab Haryana 2,800– 2,800 – 4,200 1,400 1,400 – 2,800 0 – 1,400 0 – 1,400 Arunachal Pradesh New Delhi Noida Gurgaon Uttar Pradesh Rajasthan Sikkim Assam Bihar Innovation Hub Meghalaya Optimal Envelopes Jharkhand Gujarat Madhya Pradesh Chhattisgarh Tripura Nagaland Manipur Mizoram West Bengal Orissa Maharashtra Andhra Pradesh Goa Karnataka Tamil Nadu Kerala Copyright © 2013 Exolus. All rights reserved.. Source: Ministry of Statistics and Programme Implementation: CIA World Factbook; Exolus Research 56
  • BRAZIL Copyright © 2013 Exolus. All rights reserved.. 57
  • Framework: What Does Brazil look Like from Space? At Night? Why? Copyright © 2013 Exolus. All rights reserved.. Source: NASA (United States – National Aeronautics and Space Administration) 58
  • Framework: Structural Determinants of Brazil’s Economic Geography … West Largely Uninhabitable … 80% Population in East Manaus Fortaleza Amazon Forest Recife Salvador Belo Horizonte Sao Paulo Rio De Janeiro Curitiba Porto Alegre Copyright © 2013 Exolus. All rights reserved.. 59
  • Growth Trend: Growth in Brazil’s Economy IMF Projected Growth Rate at 6% for Next 2 Years Brazil GDP (PPP Adjusted) (USD, trillion) Host Olympics (2016) Host World Cup (2014) IMF Forecast 3.0 2.5 2.0 2x 1.5 Actual USD trillion Global Financial Crisis Copyright © 2013 Exolus. All rights reserved.. 2015 f 2014 f 2013 f 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1.0 Source: World Bank, IMF 60
  • Wealth Trend: Brazil has 2nd Highest GDP per Capita of BRIC Countries Brazil GDP per Capita: USD 5,700 (2009) … USD8,800 (2020) 2020 2012 Brazil GDP per Capita $15,000 $12,000 $9,000 $6,000 $3,000 $0 Brazil Copyright © 2013 Exolus. All rights reserved.. Russia China India Source: ERSUSDA 61
  • Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Commodity Price Trend: Economy Impacted by Commodity Prices Brazil Commodity Rich – A Leader in Fuels and Foods 250 Commodity Price Index Fuel and Non-Fuel 1992 - 2013 Copyright © 2013 Exolus. All rights reserved.. Global Financial Crisis 200 150 100 50 0 Source: IMF 62
  • Resources: Global Power in Natural Resources, Energy Production World‟s Second Fuel Ethanol Producer … 4th Largest Timber Producer World Ethanol Production (33% share, 2009) ETHANOL USA Brazil World’s … EU  2nd fuel ethanol producer China  First (#1) fuel ethanol exporter Canada Thailand Colombia India 33 % Australia Other TIMBER Top 10 Timber Producers (7.1% share, 2003) World’s … United States India China Brazil  4th timber producer Canada Russia Indonesia Ethiopia 7.1% Congo Nigeria Copyright © 2013 Exolus. All rights reserved.. Source: Renewable Fuels Association 63
  • Resources: A Global Power in Agriculture – Soybeans, Coffee, Beef World‟s Largest (#1) Green Coffee Producer SOYBEANS … 2nd Soybeans Producer World Soybeans Production (26% share, 2008) World’s … United States Brazil Argentina China India  2nd soybeans producer Paraguay  Largest (#1) soybeans exporter Bolivia Canada Uruguay Ukraine Indonesia Russia 26% COFFEE Other World Green Coffee Production (36% share, 2008) World’s …  Leading (#1) coffee producer  Leading (#1) coffee exporter Brazil Vietnam Colombia Indonesia 36% Peru Ethiopia Mexico India Guatemala Uganda Honduras Costa Rica Phillipines Copyright © 2013 Exolus. All rights reserved.. Source: Food and Agriculture Organization, International Coffee Organization 64
  • Resources: Rich in Mineral Resources – Iron Ore, Manganese, Gold World‟s 3rd Largest Iron Producer … 3rd Largest Manganese Reserves World Iron Production (13% share, 2009) IRON China Australia Brazil India Russia Ukraine South Africa Iran Canada United States Kazakhstan Sweden Venezuela Mexico Mauritania Other World’s …  3rd largest iron producer  4th largest iron reserves 13 % MANGANESE World Manganese Reserves (17 % share, 2009) World’s …  6th 17% Australia Brazil China Gabon largest manganese producer  3rd largest manganese reserves India Mexico South Africa Ukraine Other countries Copyright © 2013 Exolus. All rights reserved.. Source: US Geological Survey 65
  • Result: Emergence of A/B-Cities (Concentrated Population and FDI) Brazil‟s Strengthening A/B Cities A-Cities – Highest Population and FDI B-Cities – Mid-High Population and FDI Manaus Fortaleza Amazon Forest Recife Salvador Belo Horizonte Sao Paulo Rio De Janeiro Curitiba World’s 5th Largest Country Energy Independent, 45% Green World’s 3rd Largest Food Exporter Copyright © 2013 Exolus. All rights reserved.. Highly Advanced Economy Porto Alegre Aircraft, Automobiles, Petrochem Agribusiness & Natural Resources 66
  • Brazil Investment Pattern: Market Led Deployment to Brazil Value Chain Deployment: Sales > Production -> R&D -> Shared Services 1 Markets 3 Sales Marketing Knowledge Engineering IT HR F&A R&D Legal Distribution Sourcing 4 Efficiency Production COST 2 Copyright © 2013 Exolus. All rights reserved.. Resources 67
  • 1. Market Seekers: Where are Optimal Market/Resource Envelopes? Intersection of Natural Resources (West) Per Capita Annual Income (USD, PPP-Adjusted) … A/B Cities … People (East) Per Capita GDP / A/B-City Overlay > 14,500 10,000 – 14,500 Roraima 7,500 - 10,000 Amapa 5,500 -7,500 0 – 5,500 Para A-Cities Amazonas Maranhao Rio Grande do Norte Paraiba Pernambuco Ceara S-Cities Piaui Acre Alagoas Sergipe Tocantins Rondonia Bahia Mato Grosso Goias Minas Gerais Mato Grosso do Sul Espirito Santo Sao Paulo Rio De Janeiro Parana Rio Grande do Sul Copyright © 2013 Exolus. All rights reserved.. Santa Catarina Source: Brazilian Institute of Geography and Statistics 68
  • 1. Market Seekers: Per Capita Disposable Income in Tandem with China Per Capita Disposable Income Growing at Average 6% Per Annum Brazil Disposable Income Per Capita (USD per annum) Russia China 80,000 India 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000 2005 Copyright © 2013 Exolus. All rights reserved.. 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: GS Global ECS Research 69
  • 1. Market Seekers: To be World’s 5th Largest Pharma Market by 2015 USD47 billion Market by 2015 … 5th in World Pharmaceutical Market Size Country Ranking (2000 – 2015f - USD billion) 2000 Top 8 2005 Top 8 2010 Top 8 2015F Top 5 USA 150 USA 262 USA 441 USA 524 Japan 58 Japan 65 Japan 75 China 103 Germany 17 Germany 24 Germany 48 Japan 85 France 17 France 21 France 39 Germany 55 UK 11 UK 16 China 34 Brazil 47 Italy 11 Italy 15 UK 32 France 44 China 6.8 China 13 Italy 28 UK 36 Brazil 6.7 Brazil 10 Brazil 24 Italy 31 Canada 6.3 Canada 10 Canada 22 Russia 30 Spain 6.2 Spain 9.8 Spain 21 India 28 Copyright © 2013 Exolus. All rights reserved.. Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus 70
  • 1. Market Seekers: Proxy for Directional Market Sizing? Car Penetration Predicted to Surpass Russia in 2040 Brazil Russia China India Car Penetration in BRIC (units per 1,000 people) Car Penetration in Brazil (units per 1,000 people) 700 300 600 250 500 200 400 150 300 100 200 50 100 0 0 2010 2020 Copyright © 2013 Exolus. All rights reserved.. 2030 2040 2050 Sources: GS Global ECS Research, Other 71
  • 1. Market Seekers: High Spending Growth Resumes after Global Crisis Accelerated Growth through 1990‟s Retail Sales Growth 900 800 700 USD Million 600 500 400 300 200 100 2003 2004 Copyright © 2013 Exolus. All rights reserved.. 2005 2006 2007 2008 2009 2010 2011 2012 2013F Source: EIU, Planet Retail 72
  • 2. Resource Seekers: Where are other Key Investment Nodes? Car Investment Proxy for Investment Destinations? Brazil Automotive Production A-Cities – Highest Population and FDI S-Cities – Mid-High Population and FDI Manaus Fortaleza Recife Salvador Belo Horizonte Sao Paulo Rio De Janeiro Curitiba Porto Alegre Copyright © 2013 Exolus. All rights reserved.. 73
  • 2. Resource Seekers: Where are other Key Investment Nodes? Car Investment Proxy for Investment Destinations? Brazil Automotive Production Manaus Fortaleza OEMs Recife Suppliers Salvador OEMs Goianis Belo Horizonte Suppliers Sao Paulo OEMs Suppliers Copyright © 2013 Exolus. All rights reserved.. Rio De Janeiro OEMs Curitiba Suppliers Porto Alegre 74
  • 2. Resource Seekers: Sao Paulo State Immense, Larger than the UK Sao Paulo State (248,209 km sq) larger than United Kingdom (243,610 km sq) Sao Paulo (State) United Kingdom (Country) (248,209 km sq) (243,610 km sq) Sao Paulo City Sao Paulo State Copyright © 2013 Exolus. All rights reserved.. Sources: Publically Available Information 75
  • 2. Resource Seekers: Management Sourced in Sao Paulo, Labor Local Sao Paulo Brazil‟s Leading Foreign Investment Destination Sao Paulo State (248,209 km sq) Campinas Osasco Copyright © 2013 Exolus. All rights reserved.. São Paulo San Jose dos Campos Mauá Sao Bernardo do Campo Sources: Publically Available Information 76
  • 2. Resource Seekers: Rio State Immense, as Large as Countries Rio de Janeiro State (43,696 km sq) roughly same size Switzerland Rio de Janeiro (State) Switzerland (Country) (43,696 km sq) (41,285 km sq) Rio de Janeiro City Rio de Janeiro State Copyright © 2013 Exolus. All rights reserved.. Sources: Publically Available Information 77
  • 2. Resource Seekers: Management Sourced in Rio, Labor Local Rio de Janeiro Region a Leading Investment Destination for Oil and Gas Sector Rio de Janeiro State (43,696 km sq) Copyright © 2013 Exolus. All rights reserved.. Sources: Publically Available Information 78
  • 3. Knowledge Seekers: Where are Leading R&D Investment Nodes? Innovation clusters Focus Areas Electronics Life sciences Sao Luis Fortaleza Information technology Telecommunication Manaus Health Microelectronics Recife Nuclear energy Aeronautics Oil technology Salvador Belo Horizonte Santa Rita de Sapucai Agriculture Bioenergy Vitoria Rio De Janeiro Sao Jose de Campos San Paulo Londrina Campinas Curitiba Sao Leopoldo Florianopolis Porto Alegre Copyright © 2013 Exolus. All rights reserved.. Sources: Kirsten Bound, “Brazil the Natural Knowledge Economy”; Isabel Bortagaray, “Innovation Clusters in Latin America” 79
  • 3. Knowledge Seekers: Largest Aerospace Cluster in S. Hemisphere Anchor: Embraer – World‟s 3rd Largest Aircraft Manufacturer Lacit Aerolane Lima & Bonfá Solutions & Design Winnstal Aeroarte Avionics Engineering UTEC Akaer Lane Design Tecplas Pan-Metal Brascopter Flight Solutions VBJ Engenharia Friuli Embrasim Flight Technologies Vectra Technology Globo Usinagem EQE GMP Marcatto Rastreal Ambra Solutions ESRA Gyrofly TKA Geometra BTE Finetornos Lanmar Mikro-Stamp Mectron Giovanni Passarella Marcatto Phoenix Serviç Aeronáuticos os Inbra-Aerospace Grauna Aerospace Massucato Winnproject Fibraforte Eng. Copyright © 2013 Exolus. All rights reserved.. Sources: DECOMI, “Brazilian Aerospace Cluster, Believing in Great Ideas” 80
  • 3. Knowledge Seekers: Global Leader in Green Energy - Biomass, Hydro Installed Green Energy: Brazil 45% … OECD Average 7% … World 12% Primary Energy Supply* Green 45% Green 8% Green 12% 100% 90% 80% Geo/Sol/Wind 70% Hydro 60% Biomass Nuclear 50% Gas 40% Oil 30% Coal 20% 10% 0% Brazil Copyright © 2013 Exolus. All rights reserved.. OECD World *For Year 2008 Source: International Energy Agency, Brazil Ministry of Mines and Energy 81
  • RUSSIA Copyright © 2013 Exolus. All rights reserved.. 82
  • Framework: What Does World’s Largest Country Look Like from Space? Why? Copyright © 2013 Exolus. All rights reserved.. Source: NASA (United States – National Aeronautics and Space Administration) 83
  • Framework: Structural Determinants of Russia’s Economic Geography … 80% Population in West … East Largely Uninhabitable Russia Map People 17,075,400 km2 Copyright © 2013 Exolus. All rights reserved.. Permafrost & Plains … 1/8th World’s Land Area … 10 time Zones 84
  • Growth Trend: Growth in Russia’s Economy Economy Doubled in 7 Years („01 – „08) … IMF Forecasts Rapid Growth to 2015 Will host Olympic games Russia GDP (USD trillion, PPP-adjusted)) 3.0 IMF Forecast 2.8 Global Financial Crisis 2.6 2.4 2.0 1.8 2x Actual USD trillion 2.2 1.6 1.4 1.2 Copyright © 2013 Exolus. All rights reserved.. 2015 f 2014 f 2013 f 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1.0 Source: IMF 85
  • Wealth Trend: Russia to have Highest GDP per Capita among BRIC’s Russia GDP per Capita: USD 6,200 (2009) … USD10,000 (2020) 2020 Russia GDP per Capita $10,000 2009 $8,000 $6,000 $4,000 $2,000 $0 Russia Copyright © 2013 Exolus. All rights reserved.. Brazil China India Source: ERSUSDA 86
  • Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Commodity Price Trend: Economy Impacted by Commodity Prices Russia Commodity Rich – A Leader in Fuels and Metals 250 Commodity Price Index Fuel and Non-Fuel 1992 - 2013 Copyright © 2013 Exolus. All rights reserved.. Global Financial Crisis 200 150 100 50 0 Source: IMF 87
  • Resources: World’s Leading Energy Superpower – Oil and Gas World‟s Largest (#1) Oil Producer OIL … World‟s Largest (#1) Gas Producer World Oil Producers (12.9% share, 2009) World’s … 12.9% Russia Saudi Arabia USA Iran China  Largest (#1) oil producer Canada  2nd largest oil exporter Venezuela  8th Mexico Iraq Kuwait largest oil reserves UAE Norway Other World Gas Reserves (23.7% share, 2009) GAS World’s … 23.7% Russia Iran Qatar Saudi Arabia  Largest (#1) gas producer Turkmenistan USA  Leading (#1) natural gas exporter UAE Venezuela Nigeria  Largest (#1) natural gas reserves Algeria Indonesia Iraq Other Copyright © 2013 Exolus. All rights reserved.. Source: BP Statistical Review of World Energy 2010 88
  • Resources: World’s Leading Energy Superpower – Mineral Fuels World‟s 2nd Largest Coal Reserves … 3rd Largest Uranium Reserves World Coal Reserves (19% share, 2009) COAL USA World’s … Russia  5th coal producer China  3rd coal exporter India  2nd largest coal reserves Kazakhstan Australia Ukraine 19% World Uranium Reserves (10% share, 2008) URANIUM South Africa Other Australia Kazakhstan Russia World’s … South Africa Canada  4th uranium producer USA Brazil Namibia  3rd largest uranium reserves Niger Ukraine Jordan 10% Copyright © 2013 Exolus. All rights reserved.. Uzbekistan Other Source: BP Statistical Review of World Energy 2010, British Geological Survey 89
  • Resources: World’s Leading Mineral Industry – Iron and Steel World‟s Largest (#1) Iron Reserves … 4th Largest Steel Producer Russia World Iron Reserves (18% share, 2009) IRON Australia Ukraine World’s … Brazil 18 % China  3rd pig iron producer India Kazakhstan  Largest (#1) iron reserves Venezuela Sweden USA Iran Canada Other RAW STEEL World Raw Steel Production (5.5% share, 2009) China Japan USA World’s … Russia Korea  4th raw steel producer Germany Ukraine  4th raw steel exporter Brazil Italy 5.5% France UK Other Copyright © 2013 Exolus. All rights reserved.. Source: U.S. Geological Survey 90
  • Result: Emergence of A/B-Cities (Concentrated Population and FDI) Investment Largely Concentrated in Moscow A-Cities – Highest Population and FDI Foreign Investment Concentration S-Cities – Mid-High Population and FDI Population (million) City Cumulative FDI (1999 – 2009) 10.3 Chelyabinsk USD 2.6 bn Kazan USD 1.7 bn Tolyatti USD 1.1 bn Yekaterinburg USD 1.1 bn 1.3 Nizhny Novgorod USD 0.9 bn Rostov-on-Don USD 0.9 bn Novosibirsk USD 0.6 bn 1.0 Copyright © 2013 Exolus. All rights reserved.. USD 3.3 bn 1.3 Novosibirsk Krasnodar 0.7 Omsk USD 3.6 bn 1.1 Chelyabinsk Omsk 0.6 Yekaterinburg USD 2.8 bn 1.4 Krasnodar Ufa Leningrad Region 1.1 Tolyatti USD 5.0 bn 1.1 Rostov St Petersburg 1.1 Kazan USD 11.9 bn 1.7 Nizhny Novgorod Moscow Region 4.7 Moscow USD 45.8 bn 6.6 St. Petersburg Moscow City Ufa USD 0.5 bn Source: Rosstat 91
  • Russia Investment Pattern: Market Led Deployment to Russia Value Chain Deployment: Sales > Production -> R&D -> Shared Services 1 Markets 3 Sales Marketing Knowledge Engineering IT HR F&A R&D Legal Distribution Sourcing 4 Efficiency Production COST 2 Copyright © 2013 Exolus. All rights reserved.. Resources 92
  • 1. Revenue Seekers: Where are Optimal Market/Resource Envelopes? Intersection of People (West) Per Capita GDP (USD, PPP-Adjusted) … A/B Cities … Natural Resources (East) Per Capita GDP / A/B-City Overlay > 20,000 15,000 - 20,000 Chukotka 10,000- 15,000 5,000 - 10,000 Arkhangelsk 0 - 5,000 Murmansk A-Cities S-Cities Kamchatka Magadan Karelia 7 23 24 21 Tver Leningrad Vologda 20 Arkhangelsk Sakha Komi Krasnoyarsk Yamalia 8 10 4 6 39 19 16 Kirov 17 12 14 42 41 40 Khantia-Mansia 34 Perm 18 2 37 5 38 36 Sverdlovsk 35 Rostov 33 15 3 Volgograd 31 25 27 28 29 32 26 30 1. Astrakhan 2. Belgorod 3. Bryansk 4. Vladimir 5. Voronezh 6. Ivanovo 43 22 Tyumen 11 1 Sakhalin Amur Tomsk Omsk Novosibirsk Irkutsk 44 Copyright © 2013 Exolus. All rights reserved.. Primorsky 45 Altai 13. Leningrad 14. Lipetsk 15. Moscow 16. Oryol 17. Ryazan 18 Tambov 46 Zabaykalsk 9 Altai 7. Kaliningrad 8. Kaluga 9. Kemerovo 10. Kostroma 11. Kurgan 12. Kursk Buryatia Khabarovsk 19. Tula 20. Yaroslavl 21. Novgorod 22. Chelyabinsk 23. Pskov 24. Smolensk Tuva 25. Adygeya 26. Ingushetia 27. Karachay-Cherkessia 28 Kabardino-Balkaria 29 North Ossetia-Alania 30. Chechnya 31. Krasnodar 32. Stavropol 33. Bashkortostan 34. Udmurtia 35. Samara 36. Tatarstan 37. Penza 38. Ulyanovsk 39. Nizhny Novgorod 40. Mari El 41. Chuvashia 42. Mordovia 43. Kalmykia 44. Dagestan 45. Khakassia 46. Jewish AD Source: UNDP, “National Human Development Report in the Russian Federation 2010” 93
  • 1. Revenue Seekers: Russia leads BRIC’s in Per Capita Disposable Income Per Capita Disposable Income Growing at Average 6% Per Annum Russia Disposable Income Per Capita (USD per annum) Brazil China 80,000 India 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000 2005 Copyright © 2013 Exolus. All rights reserved.. 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: GS Global ECS Research 94
  • 1. Revenue Seekers: Car Sales Proxy for Directional Market Sizing? Car Penetration Highest in Russia among the 4 BRIC Countries Russia Brazil China India Car Penetration in BRIC (units per 1,000 people) Car Penetration in Russia (units per 1,000 people) 700 350 600 300 500 250 400 200 300 150 200 100 50 100 0 0 2010 2020 Copyright © 2013 Exolus. All rights reserved.. 2030 2040 2050 Sources: Association of European Business; Autostat; Rosstat, GS Global ECS Research, Other 95
  • 1. Revenue Seekers: To be World’s 9th Largest Pharma Market by 2015 Russia to be USD30 billion Market (2015) … 9th Largest in World Pharmaceutical Market Size Country Ranking (2000 – 2015f - USD billion) 2000 2005 2010 2015F Top 9 USA 150 USA 262 USA 441 USA 524 Japan 58 Japan 65 Japan 75 China 103 Germany 17 Germany 24 Germany 48 Japan 85 France 17 France 21 France 39 Germany 55 UK 11 UK 16 China 34 Brazil 47 Italy 11 Italy 15 UK 32 France 44 China 6.8 China 13 Italy 28 UK 36 Brazil 6.7 Brazil 10 Brazil 24 Italy 31 Canada 6.3 Canada 10 Canada 22 Russia 30 Spain 6.2 Spain 9.8 Spain 21 India 28 Copyright © 2013 Exolus. All rights reserved.. Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus 96
  • 1. Revenue Seekers: Spending Growth through Global Financial Crisis Sales Growing at 21% CAGR Retail Sales Growth 900 800 700 USD Million 600 500 400 300 200 100 2003 2004 Copyright © 2013 Exolus. All rights reserved.. 2005 2006 2007 2008 2009 2010 2011 2012 2015F Source: EIU 97
  • 1. Revenue Seekers: Where are Leading Direct Investment Nodes? Top Foreign Investment Destinations in Western Part of Russia A-Cities – Highest Population and FDI Foreign Investment Concentration S-Cities – Mid-High Population and FDI Population (million) City Cumulative FDI (1999 – 2009) 10.3 Chelyabinsk USD 2.6 bn Kazan USD 1.7 bn Tolyatti USD 1.1 bn Yekaterinburg USD 1.1 bn 1.3 Nizhny Novgorod USD 0.9 bn Rostov-on-Don USD 0.9 bn Novosibirsk USD 0.6 bn 1.0 Copyright © 2013 Exolus. All rights reserved.. USD 3.3 bn 1.3 Novosibirsk Krasnodar 0.7 Omsk USD 3.6 bn 1.1 Chelyabinsk Omsk 0.6 Yekaterinburg USD 2.8 bn 1.4 Krasnodar Ufa Leningrad Region 1.1 Tolyatti USD 5.0 bn 1.1 Rostov St Petersburg 1.1 Kazan USD 11.9 bn 1.7 Nizhny Novgorod Moscow Region 4.7 Moscow USD 45.8 bn 6.6 St. Petersburg Moscow City Ufa USD 0.5 bn Source: Rosstat 98
  • 2. Resource Seekers: Car Production Proxy for Production Nodes? Russia Already 5th Largest Consumer of Cars in Europe Russia Automotive Production A-Cities S-Cities Isuzu Hyundai Chevrolet Nissan GAZ Ford FIAT GM Sollers Toyota Volvo Great Wall St. Petersburg ZMA KIA KIA Moscow BMW Lada Renault Kazan ZIL VW Tolyatti Ufa Rostov Yekaterinburg Tata Motors Chelyabinsk Krasnodar Skoda Peugeot Citroen Mitsubishi Copyright © 2013 Exolus. All rights reserved.. Geely IVECO Paz Hyundai GM – AVTOVAZ Tata Motors LADA Sources: All Publically Available Information, Company Websites 99
  • 2. Resource Seekers: Moscow Region Immense, as Large as Countries Moscow Region (45,900 km sq) larger than entire Switzerland (41,285 km sq) Moscow Region Switzerland (Country) (45,900 km sq) (41,285 km sq) Moscow City Moscow Region Copyright © 2013 Exolus. All rights reserved.. Sources: Publically Available Information 100
  • 2. Resource Seekers: Management Sourced in Moscow City, Labor Local Management-Labor Skill/Cost Drivers  70 – 100 km from Moscow City Moscow Region (45,900 km sq) SergievoPosadskiy Dmitrovskiy Klinskiy Solnechnoaorskiy Mitishchinskiy Istrinskiy Ryzskiy Odintsovskiy Balashikhinskiy Moscow City Lenininskiy Ramenskiy OrekhovoZuevskiy Naro-Fominskiy Eqor’evskiy Chekhovskiy Stupinskiy Kolomenskiy Serpukhovskiy Copyright © 2013 Exolus. All rights reserved.. Sources: Company Websites, All Publically Available Information 101
  • 2. Resource Seekers: Leningrad Region even Larger, Size of Hungary Leningrad Region (84,500 km sq) roughly same size as Hungary (93,030 km) Leningrad Region Hungary (Country) (84,500 km sq) (93,030 km sq) St Petersburg City Leningrad Region Copyright © 2013 Exolus. All rights reserved.. Sources: Publically Available Information 102
  • 2. Resource Seekers: Management from St. Petersburg, Labor Local Management-Labor Skill/Cost Drivers  30 – 60 km from St Petersburg City Leningrad Region (84,500 km sq) Vsevolzhsky Viyborgskiy Primorskiy Krasnosel’skaya Lomonosov Koldinskiy Kirovski Pushkinsky Gatchina Tosnenski Copyright © 2013 Exolus. All rights reserved.. Sources: All Publically Available Information, Company Websites 103
  • 3. Knowledge Seekers: Focus on Strength in Science & Technology Skolkovo Innovation Center … USD2 billion over Next 3 Years Under Negotiations Signed Partnerships Cisco Boeing Industry Focus Siemens Microsoft Nokia Intel Life Sciences EADS Renewable Energies Aerospace Information Technology Telecommunications Rosatom Copyright © 2013 Exolus. All rights reserved.. Honeywell Google Kodak Schlumberger Johnson & Johnson IM-TECH Alstom Lukoil Novartis DuPont Tata Nokia Siemens ABBYY Nuclear Technology DOW Chemicals John Deere Sources: All Publically Available Information, Company Websites, i-gorod Website 104
  • 3. Knowledge Seekers: Strong Science and Engineering Focus in Education Science & Engineering as % of all Graduates: 25% in Russia … 15% in US Engineering Degrees Science and Engineering as Percentage of New Degrees Science Degrees 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% China Korea Copyright © 2013 Exolus. All rights reserved.. Germany Russia Japan UK Italy USA Brazil Sources: OECD Science, Technology and Industry outlook, 2010 105
  • Global Expansion Strategy & Cross-Border Investment Execution (Greenfield, M&A, Joint Ventures, Outsourcing) About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work with management teams in the development of their global expansion strategies, across the range of investment formats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies by providing program management across all phases of cross-border investment projects, from target searches and evaluations, through investment due diligence, tax-legal structuring and negotiations. The founders of Exolus have spent the past two decades in the global service space and have direct experience operating in nearly all of the major investment destinations in the world (40+ countries). The team has served clients of all sizes, both public and private, on projects that ranged in investment size from USD10 million to greater than USD1 billion. We have served clients across all of the following industry segments: Life Sciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector. Follow Exolus at: www.exolus.com Need Further Information: info@exolus.com Want Copies of our Reports: www.exolus.com/en/knowledge/research.html Copyright © 2013 Exolus. All rights reserved.. 106
  • Disclaimer In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our own contributions to the market of ideas. As well, we are always tremendously grateful for the many, often selfless, contributions that are availed in the process. The opinions represented herein were prepared for information purposes only, at the time of publication. The information represented herein is believed to be reliable, at the time of publication, and was obtained by various public sources also believed to be reliable. The opinions were considered to be accurate at the point of creation, and further, any views, forecasts, or estimates contained herein may be subject to change at anytime without notice. The opinions expressed or implied herein may not be the opinions of the author, also Exolus, or any associated affiliates. This report and the information contained herein collectively, is not offered as, and should not be regarded as, used or relied upon as advice on any matter. It shall not constitute or be construed as a recommendation or solicitation on behalf of the author, and no legal commitment or obligation shall arise by reason of this document. Thus, the reader shall make an independent assessment of opinion’s stated herein that shall not be considered a substitute for obtaining advise from the readers’ advisors. The author shall not accept responsibility, express or implied, with regards to the accuracy and completeness of the information herein, and the author shall not be liable whatsoever and howsoever arising in connection to this publication. The author shall not accept, and hereby disclaim, all responsibility and liability to all persons, entities, or organizations for all consequences arising out of any use or reliance on the whole or any part of this publication. This publication should not be reproduced or distributed without the author’s consent and is not intended for distribution in any jurisdiction in which this would be prohibited. Copyright © 2013 Exolus. All rights reserved.. 107
  • Copyright © 2013 Exolus. All rights reserved.. 108