Globalisation & emerging markets

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Agenda Globalisation • Evolution of Globalisation • Global Economic Status • Emerging Markets

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Transcript of Globalisation & emerging markets

Page 1: Globalisation & emerging markets

Agenda

• Globalisation

• Evolution of Globalisation

• Global Economic Status

• Emerging Markets

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Globalisation

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Globalisation

• At political and economic level, globalization is the process of denationalization of markets, politics and legal systems, i.e. the rise of Global Economy.

• At business level, Globalisation is when companies decide to take part in global economy and establish themselves in foreign markets, by most cost effective way of production and selling in a profitable manner in a world without barriers.

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Evolution of Globalisation

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Evolution of Globalisation

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Globalisation Challenge

• Creating a strategy to address the entire spectrum of product, process, and resource challenges faced by the organizations as they introduce their products or services into global markets.

• Review the domestic strategy to retain and improve the competitive position

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Globalisation Strategic Challenges

1. 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.

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Global Strategy Alternatives

• Exporting – direct and indirect• Counter Trade• Turnkey projects• Licensing• Franchising• Joint Ventures• Direct Foreign Investment

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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

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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

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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

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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

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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

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Global Economic Data

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Global Economic Activity – 2005

Country GDP$billion

US 12410China 8182Japan 3914India 3699Germany 2454UK 1869France 1822Italy 1651Brazil 1568Russia 1539Mexico 1068

GDP adjusted for PPP

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Global Economic Activity – 2005

Country 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

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Global Economic Activity – 2005

Country GDP POP$billion Million

US 12410 298China 8182 1314Japan 3914 127India 3699 1095Germany 2454 82UK 1869 61France 1822 61Italy 1651 58Brazil 1568 188Russia 1539 143Mexico 1068 107

GDP adjusted for PPP

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Global Economic Activity – 2005

Country 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

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Global Economic Activity – 2005

Country GDP POP GDP per Export %Exp$billion Million capita $ $billion to GDP

US 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

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World Trade Merchandise - 2004

$billions

Exports Imports

Value Value

World 8907 9250

North America 1324 2013

Latin America 276 237

Western Europe 4031 4140

C./E. Europe/Baltic States/C IS 449 268

Africa 232 212

Middle East 390 252

Asia 2388 2224

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Merchandise Trade 2004Country Export $ billion Import $ billion

United States 819 1536

UK 347 464

Germany 912 717

France 449 466

Japan 566 455

Italy 349 351

China 593 561

India 76 97

Russia 184 96

Mexico 189 206

Brazil 97 66

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World Trade Services - 2004

$billions

Exports Imports

Value Value

World 2125 2095

North America 379 335

Latin America 56 58

Europe 1126 1025

Africa 48 55

Middle East 36 41

Asia 450 512

Ref: WTO

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Services Trade 2004Country Export $ billion Import $ billion

United States 318 260

UK 172 136

Germany 134 193

France 110 96

Japan 95 134

Italy 82 81

China 62 72

India 40 41

Russia 20 33

Mexico 14 19

Brazil 12 16

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Regional Trade - 2005

Region Trade in $billions

Populationmillions

Trade per capita in $

APEC 2200 2500 840

EU 1600 600 2667

NAFTA 700 450 1520

ASEAN 120 290 385

SAARC 5 1380 3.50

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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

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India – Trade 04-05 by Region

$billionsRegion Exports Imports Trade

Americas 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

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India – Trade 04-05 MerchandiseCategory Exports Imports

Agri/Commodities 6.65 8.00Mining 11.00 36.30Iron & steel 3.63 2.60Chemicals 12.68 8.50Engineering 14.59 23.60Textiles 12.02 1.00Gems & Jewellery 13.70 9.42Others 5.03 17.65Total 79.25 107.07

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Emerging Markets

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Emerging Markets Growth Factors

Political Stability

Economic, Political, and Legal Reforms

Entrepreneurship

Central Planning with Outward Orientation

Factors of Production

Industries Targeted for Growth

Financial Incentives

Privatized State-Owned Enterprises

Large, Accessible Markets

Low Tariffs

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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.

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CHINA

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CHINA

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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

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Religion in China

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India & China

Competing giants India China

Population in billion 1.09 1.31

Population growth rate 1.38% 0.59%

GDP growth rate 1993-2004

8.4% 8.4%

FDI $ billion 4.3 53.5

Foreign exchange reserve $b

160 795

Fixed & mobile phones /1000

150 645

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India & China

India ChinaLiberalisation began 1990 1980Per capita GDP $ PPP 1991 2005

10903400

11386300

Trade $ billion 2004 190 1383Trade relative to GDP 3.78% 11.95%Hiring & Firing:Difficulty of Hiring IndexDifficulty of Firing IndexFiring costs (weeks of wages)

339079

114090

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FDI Attractiveness

Description India China

Educated 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%

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China’s Reform Agenda

Restructure state enterprises. SOEs account for about two-fifths of the industrial output but soak up four-fifths of investment.

Sell state assets. Sell off all but 1,000 of China’s 305,000 state enterprises and allow some to go bankrupt.

Build social services. Create housing, pension programs, and other services to relieve burdens on SOEs and to care for millions who may lose jobs.

Slash tariffs. Reduce average tariffs to 17 percent in 1997 and to 15 percent by 2000 as part of China’s bid to join the World Trade Organization.

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RUSSIA

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Russia

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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

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RUSSIA - Rebuilding of a Super Power

• High price recovery for Russian oil, gas and commodities• 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

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RUSSIA - Rebuilding of a Super Power

• High price recovery for Russian oil, gas and commodities• 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

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BRAZIL

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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

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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

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Useful Data

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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

Highways* Railways Trucks Electricity(km) (km) and Buses Production

Country (000) (000) in Use (000) (million kwh)

*Includes unpaved and paved.

Infrastructure of Selected Countries

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Living Standards in Selected CountriesPercent of Households

Households Persons per Piped Flush Electric(000) Household Water Toilers Lighting

Brazil 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%

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Consumption Patterns in Selected Countries (percent of household expenditures)

U.S. Germany Singapore Mexico Poland Iran Kenya Thailand India

Food 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%

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Emerging Market Companies

Country Company Industry

Brazil EmbraerCVRDSadiaPetrobras

AerospaceMiningFood & beveragesOil & Gas

China Techtronics IndustriesHuawei & ZTEHaier & HisenseLenovoCNOOCChina MobileShanghai Bao Steell

Power ToolsTelecom ServicesElectronic AppliancesComputersOil & GasTelecom ServiceSteel

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Emerging Market Companies

Country Company Industry

South Africa

SabMiller Beer

Egypt Orascom Telecom Services

Mexico America MovilCemex

Telecom ServicesCement

Russia GazpromVistSeverstalMMC Norilsk Nickel

Oil & GasComputersSteelNon-ferrous metals