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Globalisation & emerging markets

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Globalisation & emerging markets

  1. 1. Agenda• Globalisation• Evolution of Globalisation• Global Economic Status• Emerging Markets
  2. 2. Globalisation
  3. 3. Globalisation• At political and economic level, globalization isthe process of denationalization of markets,politics and legal systems, i.e. the rise of GlobalEconomy.• At business level, Globalisation is whencompanies decide to take part in global economyand establish themselves in foreign markets, bymost cost effective way of production and sellingin a profitable manner in a world without barriers.
  4. 4. Evolution of Globalisation
  5. 5. Evolution of Globalisation
  6. 6. Globalisation Challenge• Creating a strategy to address the entirespectrum of product, process, and resourcechallenges faced by the organizations as theyintroduce their products or services into globalmarkets.• Review the domestic strategy to retain andimprove the competitive position
  7. 7. Globalisation Strategic Challenges1. Look at the world as one market.2. Make Global-minded decisions on strategic issues such as technology, product and capital resources.3. Make Local-minded market decisions in packaging, advertising, distribution and management.4. Give local management freedom for marketing and human resources.5. Develop multi-cultural skills across the organisation.6. Establish co-operative business dealings with supply chain partners.
  8. 8. Global Strategy Alternatives • Exporting – direct and indirect • Counter Trade • Turnkey projects • Licensing • Franchising • Joint Ventures • Direct Foreign Investment
  9. 9. The New Competitive Strategy of Global Alliances and Manufacturing Outsourcing• Larger firms acquiring small competitors to form a global operating network that delivers: • Economies of scale • Outsourcing manufacturing process • Global distribution • Technology pooling including managerial talent • Global sourcing• Flex, not fixed, manufacturing• Outsourcing to free-lance manufacturing companies• Joint ventures to utilise excess idle capacity• Co-marketing
  10. 10. Geo-political and Geo-economic Strategy• Global trade integration: a process in which nations economically and politically interdependent reciprocate on trade policy.• Regional FTAs pull nations together to economically and politically to form a “virtual” nation.• Weak manufacturers are exposed and become prey for takeovers and mergers.• Global Rationalisation• Invention and Innovation – foundations for global growth
  11. 11. Global Industry Structure• High tech nations – Japan, USA, Western Europe – must excel at invention, innovation and marketing• Low tech (labour intensive) nations – China, India, Indonesia, Mexico – offer a large affordable labour supply, strong work ethic and raising consumerism• Economies of scale manufacturing (capital intensive) – Germany, Korea, Japan – Large size corporations• Outsourced (flex) manufacturing – USA, Western Europe – Lead the world in FDI
  12. 12. Examples of recent International Mergers and Joint Ventures• LaFarge (French building materials & cement supplier) bought Blue Circle Industries (UK’s largest cement firm) to form the world’s largest cement company• Time Warner (USA) bought EMI (Britain) to become the world’s record company• Toyota + GM JV to produce GM’s Onstar in-car communications system
  13. 13. Examples of recent International Mergers and Joint Ventures• Glaxo Wellcome bought SmithKline Beecham (USA co. that now form the world’s largest drug company)• Pfizer bought Warner-Lambert and American Home Products (all USA) to form the world’s second largest drug company• Sears (USA) + Carrefour (France) JV to form the GlobalNetXchange, an internet system to link retailers and suppliers
  14. 14. Global Economic Data
  15. 15. Global Economic Activity – 2005Country GDP $billionUS 12410China 8182Japan 3914India 3699Germany 2454UK 1869France 1822Italy 1651Brazil 1568Russia 1539Mexico 1068 GDP adjusted for PPP
  16. 16. Global Economic Activity – 2005Country GDP Agriculture Industry Service $billion % % %US 12410 1.0 20.7 78.3China 8182 14.4 53.1 32.5Japan 3914 1.3 25.3 73.4India 3699 20.6 28.1 51.4Germany 2454 1.1 28.6 70.3UK 1869 1.1 26.0 72.9France 1822 2.5 21.4 76.1Italy 1651 2.1 28.8 69.1Brazil 1568 10.0 39.4 50.6Russia 1539 5.0 65.0 60.0Mexico 1068 4.0 26.5 69.5 GDP adjusted for PPP
  17. 17. Global Economic Activity – 2005Country GDP POP $billion MillionUS 12410 298China 8182 1314Japan 3914 127India 3699 1095Germany 2454 82UK 1869 61France 1822 61Italy 1651 58Brazil 1568 188Russia 1539 143Mexico 1068 107GDP adjusted for PPP
  18. 18. Global Economic Activity – 2005Country GDP POP GDP per $billion Million capita $US 12410 298 41644China 8182 1314 6227Japan 3914 127 30784India 3699 1095 3378Germany 2454 82 29782UK 1869 61 30639France 1822 61 29869Italy 1651 58 28466Brazil 1568 188 8340Russia 1539 143 10762Mexico 1068 107 9981 GDP adjusted for PPP
  19. 19. Global Economic Activity – 2005Country GDP POP GDP per Export %Exp $billion Million capita $ $billion to GDPUS 12410 298 41644 928 7.48China 8182 1314 6227 752 9.19Japan 3914 127 30784 551 14.08India 3699 1095 3378 100 2.70Germany 2454 82 29782 1016 41.40UK 1869 61 30639 694 37.13France 1822 61 29869 443 24.31Italy 1651 58 28466 372 22.53Brazil 1568 188 8340 115 7.33Russia 1539 143 10762 245 15.92Mexico 1068 107 9981 214 20.04 GDP adjusted for PPP
  20. 20. World Trade Merchandise - 2004 $billions E xp o rts Im p o rts V a lu e V a lu eWorld 8907 9250N o rth A m e ric a 13 2 4 2 0 13La tin A m e ric a 276 237We s te rn E u ro p e 4031 4 14 0C ./ E . E u ro p e / B a ltic S ta te s / C IS 449 268A fric a 232 2 12M id d le E a s t 390 252A s ia 2388 2224
  21. 21. Merchandise Trade 2004Country Export $ billion Import $ billionUnited States 819 1536UK 347 464Germany 912 717France 449 466Japan 566 455Italy 349 351China 593 561India 76 97Russia 184 96Mexico 189 206Brazil 97 66
  22. 22. World Trade Services - 2004 $billions E xp o rts Im p o rts V a lu e V a lu eWorld 2125 2095N o rth A m e ric a 379 335La tin A m e ric a 56 58E u ro p e 112 6 10 2 5A fric a 48 55M id d le E a s t 36 41A s ia 450 5 12Ref: WTO
  23. 23. Services Trade 2004Country Export $ billion Import $ billionUnited States 318 260UK 172 136Germany 134 193France 110 96Japan 95 134Italy 82 81China 62 72India 40 41Russia 20 33Mexico 14 19Brazil 12 16
  24. 24. Regional Trade - 2005Region Trade in Population Trade per $billions millions capita in $APEC 2200 2500 840EU 1600 600 2667NAFTA 700 450 1520ASEAN 120 290 385SAARC 5 1380 3.50
  25. 25. India – 04-05 Merchandise $billions Category World India %Agricultural 783 8.00 1.02Mining 1281 11.00 0.86Iron & steel 266 1.62 0.61Chemicals 976 8.65 0.89Engineering 3474 10.28 0.30Textiles 195 10.64 5.46Others 1932 25.81 1.34Total 8907 76.00 0.85
  26. 26. India – Trade 04-05 by Region $billions Region Exports Imports TradeAmericas 16.18 8.95 25.13Europe & Russia 20.14 56.51 76.65Asia& Oceania 37.57 37.90 75.47Africa 5.36 3.67 9.03Total 79.25 107.10 186.35
  27. 27. India – Trade 04-05 Merchandise Category Exports ImportsAgri/Com m oditie s 6.65 8.00M ining 11.00 36.30Iron & s te e l 3.63 2.60Che m icals 12.68 8.50Engine e ring 14.59 23.60Te xtile s 12.02 1.00Ge m s & Je w e lle ry 13.70 9.42Othe rs 5.03 17.65Total 79.25 107.07
  28. 28. Emerging Markets
  29. 29. Emerging Markets Growth FactorsPolitical StabilityEconomic, Political, and Legal ReformsEntrepreneurshipCentral Planning with Outward OrientationFactors of ProductionIndustries Targeted for GrowthFinancial IncentivesPrivatized State-Owned EnterprisesLarge, Accessible MarketsLow Tariffs
  30. 30. Common Traits of Emerging Markets Are physically large. Have significant populations. Represent considerable markets for a wide range of products. Have strong rates or the potential for significant growth. Have undertaken significant programs or economic reform. Are of major political importance within their regions. Are "Regional Economic Drivers". Will engender further expansion in neighboring markets as they grow.
  31. 31. CHINA
  32. 32. CHINA
  33. 33. China Oldest continuous civilization Chinese society is founded on Confucianism ideology:  Honesty  Reciprocal honesty  Trust in others Between the two world wars and China came under the influence of Japan After WW II, followed socialistic & communist principles After 1980, opened up the barrier and encouraged globalisaton
  34. 34. Religion in China
  35. 35. India & ChinaCompeting giants India ChinaPopulation in billion 1.09 1.31Population growth rate 1.38% 0.59%GDP growth rate 1993-2004 8.4% 8.4%FDI $ billion 4.3 53.5Foreign exchange reserve 160 795$bFixed & mobile phones /1000 150 645
  36. 36. India & China India ChinaLiberalisation began 1990 1980Per capita GDP $ PPP 1991 1090 1138 3400 63002005Trade $ billion 2004 190 1383Trade relative to GDP 3.78% 11.95%Hiring & Firing:Difficulty of Hiring Index 33 11Difficulty of Firing Index 90 40
  37. 37. FDI AttractivenessDescription India ChinaEducated workforce 78% 22%Rule of law 73% 27%Cultural barriers 66% 34%Economic reform 40% 60%Political & social stability 41% 59%Production & labour costs 35% 65%Market size 6% 94%
  38. 38. China’s Reform AgendaRestructure state enterprises. SOEs account for abouttwo-fifths of the industrial output but soak up four-fifths ofinvestment.Sell state assets. Sell off all but 1,000 of China’s 305,000state enterprises and allow some to go bankrupt.Build social services. Create housing, pension programs,and other services to relieve burdens on SOEs and to carefor millions who may lose jobs.Slash tariffs. Reduce average tariffs to 17 percent in 1997and to 15 percent by 2000 as part of China’s bid to join theWorld Trade Organization.
  39. 39. RUSSIA
  40. 40. Russia
  41. 41. Russia Russia represents a complex and mysterious environment During 17th & 18th century Czars encouraged Western European influence including orthodox religion and culture, but resisted market forces and modernisation After Bolshevik Revolution and WW I, in 1917, Czars lost control and power rested with Communist party Lenin strengthened economy by concentrating on oil, steel and textile industries
  42. 42. RUSSIA - Rebuilding of a Super Power• High price recovery for Russian oil, gas andcommodities• Import substitution efforts after 1998 devaluation• Market oriented restructuring• Decline in real wages resulting in cost reduction• Sound fiscal and monetary policies• 1999-2002 GDP growth rate was 6.4, 10, 5 and 4.3 %• Ruble has remained stable since 2001 (29.2-31.45/$)• Real disposable income has risen by 9% every year since 1999
  43. 43. RUSSIA - Rebuilding of a Super Power• High price recovery for Russian oil, gas andcommodities• Import substitution efforts after 1998 devaluation• Market oriented restructuring• Decline in real wages resulting in cost reduction• Sound fiscal and monetary policies• 1999-2002 GDP growth rate was 6.4, 10, 5 and 4.3 %• Ruble has remained stable since 2001 (29.2-31.45/$)• Real disposable income has risen by 9% every year since 1999
  44. 44. BRAZIL
  45. 45. Brazil Discovered by Portuguese in 1500 and remained in their possession till 1822 when it became an independent monarchy Brazil has been a Republic since 1889 Brazil is distinct in Latin America, in that it draws from Portuguese heritage unlike the other Spanish speaking countries Industrially, it is well advanced Leading producers of coffee, rubber, oranges and lumber Its ethanol for automobiles has reduced the dependence on oil
  46. 46. BRAZIL - Economic Progression• The average tariff has come down from 32% in 1990 to 14%• No quantitative restrictions to imports• Exports has touched $59 billion with trade surplus of $4 billion. 50% Trade with US and EU• GDP contributions - Industry 20%, Agriculture 20% and Services 60%• FDI has grown from $6 billion in 1995 to $30 billion• FDI directed to massive privatisation of state owned enterprises
  47. 47. Useful Data
  48. 48. Infrastructure of Selected Countries Highways* Railways Trucks Electricity (km) (km) and Buses Production Country (000) (000) in Use (000) (million kwh) United States 6,407 228 42,298 3,892,200 Brazil 1,725 29 2,450 387,500 Japan 1,177 24 22,694 1,017,273 Colombia 110 3 4,154 50,430 Germany 232 46 4,145 558,100 Kenya 64 3 110 4,342 Mexico 349 17 3,679 209,200 Spain 666 15 2,959 247,300 India 3,851 63 1,839 556,800 South Africa 362 21 1,597 215,900 China 1,810 71.9 4,927 2,190,000*Includes unpaved and paved.
  49. 49. Living Standards in Selected Countries Percent of Households Households Persons per Piped Flush Electric (000) Household Water Toilers LightingBrazil 38,434 4.05 73% 76% 69%Chile 3,216 4.35 70% 59% 88%China 357,064 3.40 90% NA NAColombia 8,482 4.14 76% 64% 87%Ecuador 2,626 4.36 52% 33% 62%Hong Kong 1,797 3.44 98% 80% 93%India 185,048 5.00 10% 5% 16%Indonesia 43,065 4.50 12% 15% 30%Japan 40,548 3.09 93% 65% 98%Peru 5,057 4.65 49% 43% 48%Philippines 12,750 5.37 NA NA NASingapore 815 3.67 48% 42% 37%South Africa 13,300 3.37 96% 35% 90%United States 100,308 2.62 99% 99% 99%
  50. 50. Consumption Patterns in Selected Countries (percent of household expenditures) U.S. Germany Singapore Mexico Poland Iran Kenya Thailand IndiaFood 10% 12% 19% 35% 29% 37% 38% 30% 52%Clothing 6% 7% 8% 10% 9% 9% 7% 16% 11%Gross rent 18% 18% 11% 8% 6% 23% 12% 7% 10%Medical care 14% 13% 7% 5% 6% 6% 3% 5% 3%Education 8% 6% 12% 5% 7% 5% 10% 5% 4%Transport/ communications 14% 13% 13% 12% 8% 6% 8% 13% 7%Appliances/ other durables 30% 31% 30% 25% 35% 14% 22% 24% 13%
  51. 51. Emerging Market CompaniesCountry Company Industry Embraer AerospaceBrazil CVRD Mining Sadia Food & beverages Petrobras Oil & Gas Techtronics Industries Power ToolsChina Huawei & ZTE Telecom Services Haier & Hisense Electronic Appliances Lenovo Computers CNOOC Oil & Gas China Mobile Telecom Service Shanghai Bao Steell Steel
  52. 52. Emerging Market CompaniesCountry Company Industry SabMiller BeerSouth Africa Orascom Telecom ServicesEgypt America Movil Telecom ServicesMexico Cemex Cement Gazprom Oil & GasRussia Vist Computers Severstal Steel MMC Norilsk Nickel Non-ferrous metals

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