THE WORLD - AHKindien.ahk.de/.../past_events/Roland_Berger/PResentation_updated.pdf090218 PPT...

090218 PPT Presentation Roland Berger.ppt

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Indo-German Chamber of CommerceMumbai, 18 February 2009

THE WORLD Seen in 2009

Prof. Dr. h.c. Roland BergerChairman Roland Berger Strategy Consultants


A. Developments 2009: First GLOBAL economic and financial crisis

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WORLD OF 2009

In a global world all countries and businesses will be affected by the current financial and economic crisis …

"We find ourselves on a ship without a rudder. India is in the same boat with everyone else. We have just one advantage: we can pull harder on the oars."

Anand MahindraCEO Mahindra & Mahindra

Source: Handelsblatt

… which is the first global financial and economic crisis ever… whereby past recipes to fight crises might not always work

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WORLD OF 2009

The crises started in the US 2007 – and then triggered a financial crisis which made banks stumble and crashed real economy …

> Beginning recession in the US housing market, lower house prices –subprime crisis

> Too much liquidity, too high leverage at too low risk prices (interest rates), intransparent derivatives and financial innovations containing subprime, lack of the right global regulation, many unregulated financial institutions, lack of transparency, sharp asset devaluation with low or no mark-to-market prices, disconnection of financial world from "real" economies

Source: NBR; IFO

… on a global scale with all economic, financial and political consequences

MAIN REASONS

INTERNATIONAL SPREAD

> Due to global interconnections of financial markets, U.S. crises spread out quickly

> First to Europe and then to the rest of the world> The Eurozone plummeted into recession in H2 2008> As well as the rest of the world, in particular, emerging markets

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All industrialized countries with negative growth in 2009 and emerging economies with dramatically declining growth rates …

Real GDP growth [%]

Source: IMF, EIU

… forecasts of econ. downturns after and in spite of massive government interventions !!!

WORLD OF 2009

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Compared to other emerging countries India's economy is relatively well off – partly due to a relatively low export quota

Source: IMF; JP Morgan; EIU

> Collapsing US economy does harm to Chinese hardware export business, while India's exports rely by far more on – sophisticated – IT and other services

GDP GROWTH [%] EXPORTS 2008 [% of GDP]

WORLD OF 2009

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Rising Unemployment as a main challenge for the industrialized countries and as well as for the emerging economies …

Unemployment rate 2008/2009f [% of total labour force]

Source: EIU, RGE2008 2009

… with possible consequences of social unrest and political destabilization, hereand there, which many governments – especially in China – are afraid of

WORLD OF 2009

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Especially, China's labor market is heavily affected by economicdownturn as (unqualified) migrant workers loosing their jobs

Unemployed Chinese migrant workers [m]

Source: Chinese Government, press

01/2008 12/2008

120

WORLD OF 2009

… which bears immense challenges for China's political stability, while other democratically ruled emerging markets like India show greater stability

EmployedUnemployed

120

83%

17%

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WORLD OF 2009

Real recovery not expected before H2 2010 for OECD countries due to the uncertainty of the duration of the financial crisis …

2010 CHN IND RUS BRA USA D EURO AREA

JP

Real GDP (%) 7.3 6.6 4.0 3.2 1.6 1.2 1.2 0.6

Consumer prices 2.5 4.4 10.0 3.7 1.5 1.3 1.3 -0.1

Unemployment rate (%)10.6 7.6 6.3 9.0 8.0 8.6 9.0 4.4

Balance on current account $ billion 290 -53 7 -30 -327 143 -84 111

Source: OECD; EIU

… and forecasts, particularly for unemployment, may yet be far to optimistic !


B. Economic Policy 2009: Coping with the crisis

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ECONOMIC POLICY OF 2009

Economic policies calling for state interventions are facing two major challenges …

1. The global financial crisis starting in the US and EU, then affecting ROW with

– the interbank market practically dead– the real economy suffering every day more and more

from a credit crunch it has never seen before

2. A global recession of the "real economy"– suffering from a drastic downturn of domestic and

global demand– caused by debt loaded consumers and businesses,

particularly in the US, afraid of unemployment

Source: Roland Berger Strategy Consultants

… which it tries to fight by injecting money and extending state guarantees together with central banks – and by establishing trust between all actors

12


Equity injections = €80 bn> capital injections in

return for new shares, silent partnership or any other equity position against interest rates

> transfer of risks in return for treasury papers to a small extend

To fight financial crisis states provide guarantees, loans, equity injections, buy toxic assets and change accounting rules, i.e.

USA (I+II)$700 bn (4.8% of GDP)

TARP - description> grants up to $ 700 bn, half of which was made available right away and for other half Congressional approval needed> to purchase nonliquid, difficult-to-value assets from banks and other financial institutions. > allows Treasury to purchase bank loans and make direct equity investments in banks and financial institutions

UK (I+II)€550 bn (35.6% of GDP)

France €360 bn (18.0% of GDP)

Germany €480 bn (19.1% of GDP)

State guarantees = £ 250bn> loan guarantees at commercial rates to encourage banks to lend to each other> new program planed guaranteeing loans to SME's worth £20 bn

State guarantees = €320 bn> guarantees for

interbank business executed until December 2009

State guarantees = €400 bn> state guarantees against market fees for bonds of banks and loans to businesses at an individual interest rate

Equity injections = £ 50 bn> banks required to raise equity ratio

(Tier 1) > Most banks had to accept state

equity in exchange for low-interest paying preference shares

Equity injections = €40 bn> obligatory provision

of equity to French banks at rate of 8%

Bad debt insurance = £ 200 bn

> to protect banks from so- called toxic assets

> plans for decentralized 'Bad Bank' for each major bank /group

> to create one or more 'Bad Banks" in public-private partnership

> to stretch last $350 billion that Treasury has for the bailout by relying on the Federal Reserve’s ability to create money

> new lending initiative

> second package under discussion of up to € 10.5 bn

up to $2.000 bn,

no new public money


… with hopefully the clear intention to globally regulate the financial service industry and give back full private freedom to its actors after the crisis

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Only the successful solution of financial crisis will free up money for recovery of "real economy". Stimulus packages are in place …

CONSISTING OF AMOUNTING TO

… to stimulate relative growth for consumption and investments and as a consequence fighting unemployment and mitigating GDP declines

> Tax breaks of direct and indirect taxes> Infrastructure investments in transportation,

housing, energy, healthcare, communication (broad band), education …

> Subsidies through direct money transfers as equity, loans or gifts to business and consumers

> Social transfer payments to low income families, short-time workers, children …

> Stimuli for education, R&D, high-tech, clusters …

~ $1,000 bn in the US (6.5% of GDP)~ $ 600 bn in China (15.0% of GDP)~ $ 70 bn in India (1.3% of GDP)~ € 80 bn in Germany (3.1% of GDP)~ € 26 bn in France (1.5% of GDP)~ £ 20 bn in the UK (1.1% of GDP)~ $ 110 bn in Japan (2.0% of GDP)

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Biggest threats to world economy are to fall back in protectionism, state interventions, overregulation – first signs observable …


Barriers to world trade


> Subsidized credits to car manufacturers GM and Chrysler

> Equity to banks at preferred rates> White paper for new recovery plan calls

for Buying American

> Subsidization of domestic car industry> Higher tariffs for imported cars and trucks

> White paper on higher tariffs for milk, leather and textile products within Mercosur (together with Argentina)

USA

BRAZIL

RUSSIA

> Re-introduction of export subsidies for milk products

> Some countries (F, SE) have agreed upon subsidies for car manufacturers and other industries

EU

> Accused of supporting its export industries with credits at preferred conditions

> Assumptions that low exchange rate of Yuan to USD is strongly influenced by Chinese govt.

CHINA

> Stricter import rules and higher tariffs> Additional tariffs on oil imported from

neighboring countries

INDIA

… these tendencies would destroy the benefits of open global markets, particularly, for emerging and developing economies and theircitizens


C. Companies 2009: Weathering the storm

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Seven necessary measures can help our companies overcome the worst economic crisis since the aftermath of World War II

> Crises as an opportunity to increase competitiveness/ productivity> High performers should head for higher market share, best talents, innovation

Seven measures to weather the storm


1.

2.

3.

4.

5.

6.

7.

Develop scenarios … (and prepare for the worst)

Secure/provide financing / cash flow

Review (planned) investments and working capital

Increase productivity (lower unit costs)

Revise/focus business portfolio

Gain market share wherever possible (quantity + pricing)

Keep best talents, R&D and marketing

COMPANIES 2009

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In order to master the financial and economic crisis all liquidity reserves and efficiency potentials have to be promptly realized

Realizing of liquidity reserves and efficiency potentials

COMPANIES 2009

LIQUIDITY RESERVES / ASSET MANAGEMENT

LIQUIDASSETS

FIXEDASSETS

LIQUIDITY

> Stock reduction

> Reduction of receivables

> Prioritization of investments

> Sale of not non essential asset

Higher liquidity

Result'spotential

Growthpotential

EFFICIENCY RESERVES

Growth of returns

Savingspotential

SALES COSTS RESULT


> As well as all refinancing opportunities (equity and debt) to be secured> Markets honor efficient and internally financed companies in these times 17

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Learnings from previous crisis in EU remind us not to reduce our key employees since long-term economic success relies on them

> Majority of companies will therefore not touch but rather attract top talent !!!

Survey: Companies' number of employees in 2009 [answers in %]


COMPANIES 2009

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The same is true for reducing investments, particularily in R&D,and markets – Today's investments secure tomorrow's growth

> It may be even wise to prepone investments which might otherwise impair production when order books will be full again (to gain market share)

Survey: Companies' investments in 2009 [answers in %]


COMPANIES 2009


C. Long term economic trends in and after 2009


C.1 Long term economic trends in and after 2009DEMOGRAPHIC CHANGE

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TRENDS 2009

Worldwide growing population from 6.7 bn to 9-10 bn by 2050 Ageing population in industrialized and emerging markets ...

Average age [median; in years]; Population [thousands]ASIAEUROPE

47474643

38

0

10

20

30

40

50 728,501

2000

40

2010 2020 2030 2040

664,183

20500

670,000680,000

690,000700,000710,000720,000

730,000740,000 40

3835

3229

26

05

1015202530354045

3,704,838

2000 2010 2020 2030 2040

5,265,895

205003,800,0004,000,0004,200,0004,400,0004,600,0004,800,0005,000,0005,200,0005,400,000

Average age Population

> Industrialized world needs more capital intensive, productive + innovative business> Emerging world: Need for growth, jobs, infrastructure, education and social security

Source: United Nations – world population prospects database


Long term economic trends in and after 2009GLOBALIZATION AND NEW GLOBAL PLAYERS

C.2

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> In 2030, India will be the second biggest economic power – ahead of the US> In PPP China's economy makes up already for two thirds of the EU economy

Source: Economist Intelligence Unit; Ernst & Young

Global top 10 companies by market capitalization 2008 [bn USD]

TRENDS 2009

N11 – the "Next Eleven" Egypt, Bangladesh, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Korea, Turkey, Vietnam

USA 2.2 x

CHN 8.1 x

JP 1.4 xEU27 1.8 x

IND 6.2 x

N11 3.4 x

ES 2.0 x

2000 2030

100

Gross domestic product 2000-2030[real; 2000=100]

Globalization + rise of emerging economies: Emerging econ. gain world market share rapidly – 3 Chinese companies among Top 10

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TRENDS 2009

Globalization and rise of emerging economies: Global players arise from emerging countries, and become active in industrial markets…CROSS-BORDER M&A ACTIVITIES FROM EMERGING COUNTRIES1)

[NUMBER OF TRANSACTIONS]EXAMPLES OF NEW GLOBAL PLAYERS FROM EMERGING COUNTRIES

... thus also becoming strong global competitors for traditional market leaders

186 224

459

2000 2004 2007

Source: Thomson Financial 1) N11 + China + India


Long term economic trends in and after 2009RAPID TECHNOLOGICAL PROGRESS

C.3

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TRENDS 2009

Technological progress: Technology has been and will continue to be the global engine of growth, employment and prosperity …

TRADING COSTS1) LOGISTICS COSTS2)

100.075.0 62.5 57.5

37.5 25.0 16.0 9.5

1947 49 51 56 62 67 79 1993

105.0

56.7 45.0 45.0 40.0 48.3 35.0

100.067.7

44.1 35.5 29.514.7 11.816.2

1930 40 50 60 70 80 90 1998

COMMUNICATION COSTS3) IT COSTS4)

100.077.1

21.8 18.8 12.9 2.0 1.4 0.1

Source: Roland Berger Strategy Consultants, HWWA, Times Ten

1) Average tariff GATT/WTO 2) Avg. transport costs for 1t ocean freight ( ) and air freight ( ) 3) Cost of a 3-minute telephone call from New York to London 4) Cost of 1 gigabyte of RAM

1930 40 50 60 70 80 90 1999

100.0

1977

0.0080.886

0.0698 2003

… being a major driver both for new business models and for pullouts !… and being the driver of globalization and its worldwide consequences !

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Technological progress: China, for example, is no longer anymore only the "extended work bench" of "Western" companies …

Gross domestic expenditure on R&D [USD bn; PPP]

Source: OECD MSTI 2007-II; EIU; WEF

HIGH-TECH EXPORTS 2007 [% OF MANUFACTURED EXPORTS]

TRENDS 2009

… it is already the 3rd or 2nd largest R&D player worldwide and challenges "Western" enterprises with high-tech products produced at low-cost

1995 2007

5.3% p.a. 4.6% p.a.4.8% p.a. 20.0% p.a. 4.3% p.a.

184.1139.6

17.482.4

39.4

341.3

243.8

154.3 136.567.4

USA EU27 CHN JP D


Long term economic trends in and after 2009SCARCITY OF NATURAL RESOURCES AND CLIMATE CHANGE

C.4

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Resource scarcity and climate change: At the moment prices of resources are low – after having seen new record highs in 2008 …

Resource prices forecasts [indexes]

Source: Bloomberg Finance

… however, after the crisis' end they will soon rise again, as well as prices for all other natural resources including food !

Spot 2009f 2010f 2011f 2012f %NYMEX WTI1) 40.6 58.0 80.0 86.5 95.5 135.2ICE Brent1) 45.9 58.0 77.5 82.5 96.0 109.2NYMEX Henry Hub2) 4.6 6.5 7.9 8.5 8.5 84.8

TRENDS 2009

PRICES OF FOSSIL RESOURCES [index; 01/2007 = 100]

01/2007 02/2009

100.0110.283.471.9

1) Oil 2) Gas

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TRENDS 2009

Resource scarcity and climate change: Chinalco secures China's economic future by strategically buying a big share in Rio Tinto …

> Chinalco together with Alcoa spent USD 14 bn for9% stake in Rio Tinto (Alcoa spent USD 1.2 bn)

> Before: Uncertainty over BHP Billiton's plan to complete hostile takeover of Rio Tinto for USD 100 bn

> China: Warning flag to alert BHP that any move to take over Rio will not go unchallenged

> Recent plans of Chinalco to acquire minority stakes in some of Rio's best mining assets and issue of convertible bonds for 9% stake in Rio Tinto (total of USD 19.5 bn)

> Biggest ever investment by China in a foreign companySource: world press

… and thus heralds the next round in the fight for open access to resources

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TRENDS 2009

Resource scarcity and climate change: Stronger efforts necessary Kyoto targets failed, especially emerg. countries raised emissions

USA

Canada

2.1

Mexico

1.4

Brazil

4.8

EU27

Russia

5.8

South Africa

1.3Australia

1.3Indonesia

1.4Saudi Arabia

1.2 Iran

1.4

India

4.1China

SouthKorea

1.7

4.6

Japan

CO2 emissions 2004[share of global CO2 emissions in %]

20.7 15.2 17.8

> Climate change is a global issue that requires a global solution by all stakeholders in business and politics with a worldwide agreement

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Climate change: Industrial countries already realized high energy efficiency – further reductions are expected (esp. for the US !!!)

Energy efficiency 2008[m tons crude oil equivalent per 1bn USD GDP]

Source: BP, Roland Berger Strategy Consultants; OECD environmental outlook to 2030

TRENDS 2009

> New resource-efficient technologies are helping the industrialized world to support the emerging countries to meet their emission targets

CO2 emissions to GDP [kg/USD]


Long term economic trends in and after 2009GLOBAL "WAR FOR TALENTS"

C.5

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TRENDS 2009

Demographic change and the growing share of knowledge-based businesses is leading to a global "war" for talents

Employable population between 15 and 64 years[% of the population]

2000 2010 2020 2030 2040 2050JP 51.1

EU27 56.8

50

55

60

65

70

Source: United Nations – world population prospects database

BIRTH RATE 2007 [births/woman]

1.23

1.50

1.75

2.09

2.81

JP

EU27

CHN

USA

IND

2.88N11

> Lack of highly qualified talents will continue to worsen in "Western" economies> There is already a scarcity of qualified human resources in China and India!

CHN 61.0

IND 67.3

USA 61.1N11 65.5


E. Conclusion


37 CONCLUSION

If the great growth and wealth potential that the major global trends are opening up can be realized in its entirety …

Growth,competitiveness

2009 Time

… the emerging economies, their businesses and their citizens will have huge opportunities for growth, employment and wealth !


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Thank you for your attention!

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