This document discusses global economic trends and their implications for international business. It outlines several key global trends, including persistent slow global growth, uncertainty in major economies, and growing dynamism in emerging markets. Emerging markets are fueling much of the global economic growth. China is the largest emerging market and consumer market. The document also discusses the rise of the global middle class, particularly in emerging markets, and how this growing middle class presents opportunities for multinational businesses.

1. Global Economic Trends and
International Business
Prof. Tamer Cavusgil
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2. Agenda
1: Global Economic Trends
2. Implications for Business
3. IT & Communications Sector Trends

3. Key Global Trends
 Global growth persistently slow
 Uncertainty in Eurozone and U.S. fiscal policy
 Dynamism in Emerging Markets
 Growing interdependencies
 Ever changing technology
 Natural resources & energy a premium
 Increasing role of government
 Role of family conglomerates, state-owned
companies & Sovereign Wealth Funds
3

4. Source: “The long road to recovery”. The Economist 2012 in charts, December.

5. Source: “The long road to recovery”. The Economist 2012 in charts, December.

7. = BRICs + Mexico, S. Korea, Turkey & Indonesia
Source: Goldman Sachs, March 2012

8. Developing economies accounted for some 80% of global growth in 2011.
World GDP will grow 3.3% in 2012 and 3.6% next year.

10. What Fuels the Dynamism in EMs?
Market
liberalization, industrialization, mode
rnization, urbanization, privatization
… have led to rapid economic
development and transformation in
EMs…
causing a boom in consumer and
business markets …

11. Fastest-growing economies: Next five years
0 1 2 3 4 5 6 7 8 9
China
India
Nigeria
Vietnam
Indonesia
Colombia
Egypt
Turkey
Brazil BRICs
Russia
South Korea CIVETS
Mexico
South Africa Other EMs
US
Canada G7
Japan
UK
Germany
France Other important economies worth watching:
Italy Saudi Arabia and Peru.
Real GDP, average annual % change, 2012-2016
Source: Economist Intelligence Unit

13. 2011 2012 Change
China 61 73 +12
EM Firms in Fortune Global 500
BRICs 83 96 +13
(2012)
All EMs 114 125 +11
Russia: 7
Hungary: 1 S. Korea: 13
Poland: 1
Turkey: 1 China: 73
Mexico: 3 Taiwan: 6
India: 8 Thailand: 1
Colombia: 1 Venezuela: 1 Malaysia: 1
Brazil: 8

14. Emerging Markets
• China is the world’s largest market for:
cars, personal computers, smartphones
• Middle Class: 18.2% of the population
(households spend $10-$100 / day)
“Chasing China’s Shoppers,” WSJ, June 14, 2012

15. Emerging Markets
• China
– Automobile sales increased 74% from
2011
• Chinese government cut sales tax on
smaller-engine vehicles
– Ex: GM’s sales in China rose 67% from
2010
 Local and global car
manufacturers are targeting
: “people who are just
getting affluent enough to
afford a car”
“China Passes U.S. as World’s Top Car Market”
WSJ, Jan. 12, 2010
“GM Looks to Rev Up Chinese Exports” WSJ,
Feb. 16, 2011

16. Emerging Markets
• China
– 2nd-largest market for luxury brands
• $101 billion sales expected by 2020
– Dolce & Gabbana opening 15 new
stores in China
– Luxottica developing sunglasses in
China made specifically for Chinese
consumers
“China’s “Web Takes on “Dolce & Gabbana Expanding “China’s Luxury Market Shifts
a Luxury Look” WSJ, Dec. 2, 2010 in China” WSJ, March 22, 2011 Upscale” WSJ, Oct. 8, 2012

17. Emerging Markets
• Starbucks
– Plans to increase
presence in China
– Plans to expand from
406 stores to > 1,500 by
2015
“Starbucks Plays to Local Chinese Tastes”
“Starbucks Plans Major China Expansion” WSJ, April 13, 2010 WSJ, Nov. 26, 2012

18. Emerging Markets
• Taco Bell in India
– Young population with improving
standards of living and an enthusiasm for
Western brands
– Yum Brands plan to quadruple Pizza
Hut, KFC and Taco Bell stores in next 5
yrs
• McDonald’s in China
– China is McDonald’s fastest growing
market
– Double presence in China over next few
years
– First McDonald’s Hamburger University
opened in China
“Novelty Proves a Hit for Taco Bell in India,” “McDonald’s to Double Restaurants in China,”
WSJ, March 29, 2010 WSJ, March 29, 2010

19. Emerging Markets
• McDonald’s & KFC delivery in China
• KFC opening 450 new restaurants in China per year
“Asia Delivers for McDonald’s,”
WSJ, Dec. 13, 2011

20. What Makes Emerging
Markets Attractive?
“U.S. Companies Race to Catch Up in Africa,” WSJ, June 6, 2011

21. • Africa
– Opportunities:
• Economy forecast to grow to $2.6 trillion
in 2020 from $1.6 trillion in 2008
• Growth in:
mining, agriculture, development of
ports, roads, and other infrastructure
• From 2000 to 2009, FDI increased sixfold
to $58.56 billion
– Challenges:
• Poverty
• Africa ranks low on World Bank’s Ease of
Doing Business survey
“A Continent of New Consumers Beckons,” WSJ, January 13, 2011

22. • Coca-Cola in Africa
– Present in all African countries
– Africa’s largest employer
• 65,000 employees
• 160 plants
– New juice plants to capture growing
middle-class demand for
orange, mango, and other tropical
fruit beverages
– Spend $12 billion in Africa during the
next 10 years
“Africa: Coke’s Last Frontier,” BusinessWeek, Oct. 28, 2010

23. • Q: Which country has the largest per capita
consumption of Coca-Cola?
“Coca-Cola Ups Its Bet on Growth in India,” WSJ, June 26, 2012

24. • Q: Which country has the largest per capita
consumption of Coca-Cola?
“Coca-Cola Ups Its Bet on Growth in India,” WSJ, June 26, 2012

25. • YUM Brands Inc. in Africa
– Double KFC outlets in Africa to 1,200
by 2014
 Invest $500 million in
expansion
 Expect to more than
double operating profit
to $120 million by 2014
“KFC Savors Potential in Africa,” WSJ, Dec.
7, 2010

26. • Wal-Mart
Purchased 51% of South
African retailer
Massmart Holdings Ltd.
“Wal-Mart Targets Africa,” WSJ, Sep. 26, 2010

27. “Wal-Mart Sets African Offer,” WSJ, Nov. 30, 2010

28. China - Markets within markets. One province in China is larger
than many national markets; much variation across regions

29. The Euro Area Economies

30. Triggers of the EU Crisis - 1

31. Triggers of the EU Crisis - 2

32. Triggers of the EU Crisis -3

33. Triggers of the EU Crisis - 4
Government Debt as % of GDP, Annual Averages
Source: The Market Oracle 2011, October 10

34. Current Situation in EU - 1
Unemployment in the 17-nation
Eurozone stood at 11.6 % in
September 2012, the highest it
has ever been.
18.5 million people are out of
work in the Eurozone.
Source: Economist 2012, May 10

35. Current Situation in EU - 2
Source: Economist 2012, May 10

36. If Greece, Portugal, Spain & Italy exit the Euro ...
Source: Spiegel 2012, October 19

37. If Greece, Portugal, Spain & Italy exit the Euro
Source: Spiegel 2012, October 19

38. 1: Global Economic Trends
2. Implications for Business
3. IT & Communications Sector Trends

39. Trends of Interest to Business
 EM customer takes center stage
 Learning how to do business in EMs
 The rise of the Middle Class in EMs
 Concentration in Megacities & urban areas
 Talent shortage
 Cost of doing business still high – due to
corruption, excessive regulation, conflicts …
39

40. McKinsey Estimates…
Global Middle Class includes almost
two billion people,
spending a total of $6.9 trillion/year
This figure will rise to $20 trillion
during the next decade—
about twice the current
consumption in the U. S.

42. Emerging Market Consumers
• Have disposal income => consumption
• Enjoy shopping centers and malls
• Use credit and store cards to boost spending
• Luxury markets developing fast
• Convenience gaining importance for time-stripped consumers
• Seek recreation & take vacations
Real Annual Disposable Income in BRIC Countries
Source: Euromonitor International 2012 „Top 10 Consumer Trends of 2012“, March 20

43. Source: Ali, S. and Dadush, U. (2012) “The global middle class is bigger than we thought”, Foreign Policy: May.

44. Source: Ali, S. and Dadush, U. (2012) “The global middle class is bigger than we thought”, Foreign Policy: May.

45. GSU-CIBER
Middle Class Scorecard
Indicators

46. Income Pyramid
of Middle Income HH
2010
* The circles represent the
number of households for
chosen income deciles

47. Expenditure Pyramid of
Middle Income HH
2010
* The circles represent the
number of households for
chosen income deciles

48. Household Annual Disposable Income (US $ per household)
Thousands $
Decile 10 Thousands $
120 CHILE Decile 10
35
INDONESIA Decile 10 Decile 10
Decile 9
100 30 Decile 9
Decile 8
Decile 8
80 Decile 7 25
Decile 7
Decile 9 Decile 6
20 Decile 9 Decile 6
60
Decile 8 Decile 5 Decile 5
Decile 7 4
Decile 15 Decile 8
40 Decile 7 4
Decile
Decile 3
Deciles 10 Decile 3
Deciles
20 6, 5, 4,2
Decile
Decile 4,
6, 5, 2
3, 2, 1 5
Decile 1 Decile 1
3, 2, 1
0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Thousands $ Thousands $
180
SOUTH KOREA 120 VENEZUELA
160
Decile 10 Decile 10
Decile 10 Decile 10
100
140 Decile 9 Decile 9
120 Decile 8 Decile 8
80
Decile 9 Decile 7 Decile 7
100 Decile 9
Decile 6 60 Decile 6
80 Decile 8 Decile 8 5
Decile 5 Decile
60 Decile 7 4
Decile 40 Decile 7 4
Decile
40
Deciles
Decile 3 Deciles
Decile 3
6, 5, 4,
Decile 2 20 6, 5, 4,
20 Decile 2
3, 2, 1 3, 2, 1
Decile 1 Decile 1
0 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
© Cavusgil/Kardes 2012
GSU-CIBER

49. Mass MC Index vs. World Bank’s Doing Business Indicators
Ease of Doing Business Index
(World Bank, 2011-2012)
30"
MOST
FAVORABLE
25"
Thailand South Korea
Malaysia
Taiwan
South Africa Israel
20"
Chile
Hungary Peru
MODERATE Colombia
15" Poland Mexico
Czech Republic
Turkey China
Vietnam
10"
Pakistan Egypt
LEAST Argentina
Russia
FAVORABLE
5" Brazil
Indonesia
Philippines India
Venezuela
0"
0" 5" 10" 15" GSU-CIBER (Mass) Middle Class Index30"
20" 25"
LOW
LEAST FAVORABLE MEDIUM
MODERATE MOST FAVORABLE (2011)
HIGH
© Cavusgil/Kardes 2012

50. Source: Financial Times, “A case of rise and sprawl,” Nov 7, 2011

51. Source: McKinsey, Sep 2012,
„Unlocking the potential of emerging-market cities “

52. Consumer Trends of 2012
City Living Reigns
• In 2012: 3.7 b. urban residents worldwide.
• Urban dwellers in new hubs such as Chongqing and
Guadalajara.
• A whole mass of new arrivals to cities; less disposable income
but higher consumption
• New and established ethnic groups and culture, older people
with trend-sensitive lifestyles, students, highly skilled and low
income migrant workers, consumers on city breaks, and cross-
generational households.
Consumer Vigilantes Speak up!
• On and offline protest: power of social networking, viral videos
• Willingness to try brands with greater accountability and
genuine innovation by consumers
• Less brand loyalty because of income inequality and price
increases
Source: Euromonitor International 2012 „Top 10 Consumer Trends of 2012“, March 20

54. 1: Global Economic Trends
2. Implications for Business
3. Trends in IT & Communications

55. Sector Trends - 1
• The global digital economy comes of age. Mobility, cloud
computing, business intelligence and social media -- in both
advanced and developing economies.
• Industries undergo digital transformation. With maturing
digital economy, companies will need to contend with the twin
forces of technology and globalization. Many sectors,
including technology, telecommunications, entertainment,
media, banking, retail and healthcare, will continue to be
reshaped through the application of IT.
• The digital divide reverses. With economic power shifting to
the East, cash-rich companies in the developing world are now
investing heavily in technology—often outpacing their
counterparts in advanced economies. Expect aggressive
technology-charged firms from EMs.
Source: PricewaterhouseCoopers 2012

56. Internet Users Worldwide

58. Sector Trends -2
• The EM customer takes center stage. EM customers -- the
consumer, business and government - offer huge opportunities
for Western companies that can adapt to their needs.
• Business shifts into hyperdrive. Globalization, fast-growth
economies, and new technology have accelerated the speed of
most business activities. Real-time business intelligence and
predictive analysis will be required not only for faster decision-
making, but to cope with unexpected market risks and
opportunities.
• Firms re-organize to embrace the digital economy. To operate
on the global digital playing field, where new rivals are
unencumbered by rigid policies and thinking, astute Western
firms are moving away from hierarchical decision-making, toward
a network structure that is more market-like and organic.
Source: PricewaterhouseCoopers 2012

59. Consumer Trends of 2012 - 1
Lifestyles
• Consumers are revelling in their ability to track and control
their health, identity, communication and buying habits.
• In China, entertainment has moved to the internet. Falling
theater attendance; young people interact online often via
game platforms.
Green Thrift
• Smart shopping through the apps that send coupons to
mobiles
Reality Culture and Consumers
• Ordinary people appearing in reality programming are claiming
the spotlight of the 'talented' famous and consumer attention
as well as lifestyle aspirations.
• Importance of celebrities more than political or community
leaders
Source: Euromonitor International 2012 „Top 10 Consumer Trends of 2012“, March 20

60. Consumer Trends of 2012 - 2
Smartphone Universe
• Annual smartphone sales surged from US $8.4 billion to US
$83.1 billion between 2005 and 2010, with China surpassing
the U.S.
• Global smartphone sales are forecast to reach US $137
billion in 2012.
• For many advanced economy consumers, PCs and laptops
are beginning to take a backseat; smartphones are used to
surf the Internet and watch TV anywhere.
Youth - Future Imperfect
• Young consumers are facing up to a different, less predictable
reality in terms of purchasing aspirations, work, living set-
ups, and role models.
• Marketers are focusing on the youth relationship, and
expression through tech-led communications to decipher this
transient audience segment.
Weight as a hot topic
• Good health as the most important determinant of happiness.
Source: Euromonitor International 2012 „Top 10 Consumer Trends of 2012“, March 20

61. Consumer Trends of 2012 - 3
Tech Lifestyles vs. Slow Living and the Best of Both
• Some consumers are embracing an 'always-on' lifestyle
while others are trying to disengage.
• There are also some interesting fusions of tech-led and
'slow' lifestyles that are impacting on buying behavior.
• For instance, Chinese e-commerce giant Taobao's launch of a
'try-out' home furnishings store in Beijing to overcome the
local need to examine major purchases in person.
Global Online Retailing in real terms
Source: Euromonitor International 2012 „Top 10 Consumer Trends of 2012“, March 20

62. Consumer Trends 2012 - 4
• Consumer health spending: Some 70% of OTC drug sales
growth is expected to come from EMs, half of that from BRICs.
• Consumer behavior and attitudes are changing: Consumers
use the internet to research a broad array of health options –
96% of U.S. adults who use the internet use it to look up health
information- and are open to many different health options,
including ‘alternative’ medicine. The North American market for
alternative medicine is $16.4 billion.
• The business landscape is changing: Retailers across all
industries are expanding into health and wellness. Direct to
consumer products and services are particularly ripe for
disruption. Healthcare players are diversifying their offerings in
consumer health.
Source: McKinsey 2012, May

63. Opportunities in the Growth Markets
http://www.goldmansachs.com/our-thinking/focus-
on/growth-markets/index.html?mediaIndex=video1
Insights on the Growth Markets
http://www.goldmansachs.com/our-thinking/focus-
on/growth-markets/index.html?mediaIndex=video2
Empowering Women
http://www.goldmansachs.com/our-thinking/focus-
on/growth-markets/index.html?mediaIndex=video3
Source: Goldman Sachs, March 2012

64. A view from Brazil
http://www.goldmansachs.com/our-
thinking/view-from/a-view-from-
brazil/index.html
A view from India
http://www.goldmansachs.com/our-
thinking/view-from/a-view-from-
india/index.html
Source: Goldman Sachs, March 2012