Using competitive intelligence we can understand the behind-the-scenes markets in China, the European Union, and Latin America. Long term prospects and growth areas suggest imminent changes in the global landscape. Learn more in this presentation from SIS International Research.
China, The EU and Latin America: A Changing Global Landscape
1. SIS International
Custom Research
THE CHANGING GLOBAL LANDSCAPE
USING CI TO UNDERSTAND THE
âBEHIND-THE-SCENESâ MARKETS
IN CHINA, THE EU AND LATIN AMERICAâ
Presented by: Ruth Stanat
President and CEO, SIS International Research
May 2007
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2. RISING POWERS: THE CHANGING GEOPOLITICAL LANDSCAPE
⢠19th Century â the rise of Germany
⢠20th Century â the rise of the âAmerican Centuryâ
⢠21st Century â the rise of the developing world [e.g. China and India]
Trends:
⢠Europe and Russia will decline dramatically in relative terms vis-à -vis China, India, Brazil
and other developing countries e.g. Indonesia
⢠Only an abrupt reversal of the globalization process or a major upheaval in these countries
will prevent their rise
Using CI Behind the Scenes:
â Apply a âmacro socio-geo-political frameworkâ to all CI analysis
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3. THE POWER OF CHINA, INDIA AND OTHER EMERGING MARKET
ECONOMIES
⢠Chinaâs population 1.4 billion and Indiaâs population 1.3 billion
⢠China, the worldâs third largest producer of manufactured goods â 12% of the worldâs
market share; can easily surpass Japan in a few years
⢠Chinaâs and Indiaâs need to access energy suppliers
⢠The global impact of the rise of Brazil, South Africa, Indonesia and Russia
Using CI Behind the Scenes:
â Continue to monitor the shifts in emerging markets and global economic
conditions to ensure that our clients have a framework for short and long term
planning
â Continue to monitor the demographic shifts in these countries as a âcompetitive
landscapeâ for CI analysis
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4. THE POTENTIAL âFAULT LINESâ OF
CHINAâS GROWTH
⢠Fragility of the financial system and state-owned enterprises
⢠Economic effects of corruption
⢠Water resources and pollution
⢠Possible shrinkage of foreign direct investment
⢠HIV/AIDS and epidemic diseases
⢠Unemployment, poverty, and social unrest
⢠Energy consumption and prices
⢠Taiwan and other potential conflicts
Using CI Behind the Scenes:
⢠Incorporate these strengths and weaknesses of the Chinese economic landscape into the CI analysis for
Chinese companies
⢠US -beware of local Chinese companies as emerging competitors
⢠Track their âcopyingâ patterns of international brands and products
⢠Continue to develop a SWOT analysis by Chinaâs cities, regions, industries and product sectors
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5. LONG TERM PROSPECTS â INDIA VS. CHINA
⢠India may overtake China due to:
Its working-age population will continue to increase well into the 2020s â
compared to Chinaâs one-child policy which will diminish
â Indiaâs well-entrenched democratic institutions â less vulnerable to political
instability vs. China will continue to reconcile an increasingly urban and middle-
class population with an authoritarian political system
â Indiaâs working capital markets and world-class firms in some important high-tech
sectors, which China has yet to achieve
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6. LONG TERM PROSPECTS â INDIA VS. CHINA
⢠Chinaâs ability to sustain its current pace and is probably more at risk than Indiaâs. Should Chinaâs
growth slow by several percentage points, India could emerge as the worldâs fastest growing
economy in 2020.
Using CI Behind the Scenes:
â Researchers should benchmark their CI Analysis in competing emerging countries [BRIC â
Brazil, Russia, India and China]
â Forecast a long â term perspective
â Consider potential competitors entering other low-labor cost countries [e.g. Vietnam,
Cambodia, Laos, etc.]
â Consider the energy constraints in these markets
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7. POTENTIAL GROWTH OF OTHER COUNTRIES AND REGIONS
⢠US vs. Other Regions of the World: Over the last 60 years, manufacturing
employment in the US has plummeted as these industries went abroad â yet average
American incomes have risen to the highest in the world.
⢠Latin America: During the past three years, the Latin American economies have
improved.
⢠Brazil: viewed as a âpivotal stateâ with a vibrant democratic and diversified economy
and an entrepreneurial population, and solid economic institutions.
⢠Brazil must balance pro-growth with an ambitions social agenda that reduces poverty
and generates income inequality.
⢠China has been aggressively âcourtingâ Brazil as a trading partner.
⢠The Brazilian ;president hopes that China and Russia would join the âG3â group of
emerging nations formed by Brazil, India and South Africa, to counterbalance US and
EU dominance of global trade.
⢠Argentina: has recovered from its âfinancial meltdownâ earlier this decade, however,
must monitor its inflation.
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8. POTENTIAL GROWTH OF OTHER
COUNTRIES AND REGIONS [contâd.]
⢠Mexico: After experiencing many years for cyclical crisis, the Mexican economy has
proved to be the most sound and reliable in Latin America.
⢠Indonesia: may revert to a growth rate of 6-7 percent, along with its population growth
to 250 million, would make it one of the worldâs largest developing countries.
Using CI Behind the Scenes:
â Companies must have âon the groundâ CI contacts in these countries to conduct
the research
â Test the âcredibility factorâ in these local markets as the information may be
conflicting and/or inconsistent
â Hire a local consultant to âtest the validityâ of your teamâs findings
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9. POTENTIAL GROWTH OF OTHER
COUNTRIES AND REGIONS [contâd]
⢠Russia: Russiaâs energy resources will give a boost to economic growth âyet low birth
rates, poor medical care, and potential explosive AIDS situation.
⢠Northeast vs. Southeast Asia:
⢠Northeast Asia [Non-Islamic â e.g. Japan, China and South Korea etc] will become
wealthier and powerful.
⢠Southeast Asia [Islamic fundamentalists e.g. Indonesia, Malaysia, and parts of the
Philippines] will face deep ethnic and religious cleavages.
⢠Bottom Line: The roles of China, Japan and the US will undergo significant change
by 2020.
Using CI Behind the Scenes:
â The CI analysis must be researched within a global context including North
America, EU, Asia and Latin America
â Competitors must be research and analyzed on a global, regional and country by
country basis.
â Matrices must be develop to benchmark competitors on this basis.
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10. THE âDRILL DOWN ON CHINAâ
Why China?
⢠Number 1 FDI in 2003; No 6 trading nation, No 2 by 2009
⢠50% of it its imports are destined for exports
⢠230+ mobile phone users and rising
⢠Will be the No 2 car market by 2007
⢠Manufacturers 37% of the worldâs disk drives; 70% of the worldâs photocopiers and 80% of the
worldâs Christmas trees
⢠China is one of Americaâs chief creditors; America will continue to fuel Chinaâs growth by buying
Chinese goods
The Challenges
⢠Communist party struggles
⢠Private sector lacks funding
⢠Tax hikes
⢠Economic disparity
⢠Taiwan issue
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11. THE âDRILL DOWN ON CHINAâ [contâd]
Using CI Behind the Scenes:
â Research the risk of the intellectual property issue in China [short, medium and long term]
â Research the long term economic environment of China for remitting profits back to North
America or the EU
â Quantify the long term financial gains vis-Ă -vis the potential for a potential âdomestic market
shareâ in this fast growing, dynamic market.
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12. The CI Challenges of China
⢠Market Research
â 1999: âOnly SSB is able to release government statisticsâ
â 1999: Non governmental and local survey organizations are unauthorized to conduct
national market research and are not authorized to release national statistical
information.
â 1999: Each market surveyâs scope; and content had to be pre-approved by the SSB.
2002: All of the above was rescinded by WTO entry.
⢠Intellectual Property
⢠Legal System
⢠Corruption
⢠Cultural
The Bottom Line: âPiracy of ideas in China is rampant. If we can make it, they can fake it.â
- Robert Zoellick, US Trade Representative, February 27, 2004
Using CI Behind the Scenes:
â Conduct âdue diligenceâ in terms of Intellectual Property CI research
â Secure bi-lingual experts
â Provide a ârealisticâ CI analysis for clients in terms of the potential IP threats in China
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13. INDIA RISING
⢠According to Goldman Sachs, over the next 50 years, India will be the fastest growing of
the worldâs major economies [because its work force will not age as fast as the other
economies].
⢠By 2040, India will become the worldâs third largest economy.
⢠Indian companies are growing at an annual rate of 15-25%.
⢠Indiaâs growth is perceived to be âbottoms upâ rather than âtop down and planned.â
⢠Indiaâs growth is âin spite of the governmentâ â not because of the government.
⢠Indiaâs companies use their capital more efficiently than Chinese companies.
⢠In India, the âindividual is king.â
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14. INDIA RISING [contâd]
⢠Indian consumers are âgearing up for actionâ and are beginning to take on mortgages rather than
savings.
⢠Personal consumption represents 67% of GDP in India vs. 42% in China. [Only the US is higher at
70%].
⢠Credit card industry in India growing at 35% a year.
Using CI Behind the Scenes:
â Conduct âon the groundâ research in this market â not desk research
â Conduct âtalk to the customerâ research in this market
â Formulate local contacts to execute the BI/CI research
â Consider the governmental/ political barriers to market entry in this country and a realistic
timeframe
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15. INDIA RISING [contâd]
The Pros:
⢠Has a sustained democratic government for over 60 years.
⢠Current government is committed to economic reform.
⢠Indiaâs middle class is 300 million strong.
⢠One million elected woman in villages in India.
The Cons:
⢠The United Nations Human Development Index [e.g. Income, health, literacy, etc.] ranks India 124
out of 177 countries in the world.
⢠While the Indian entrepreneurs and consumers are confident, the Indian state is perceived [by the
press] to be hesitant, cautious and suspicious of the changing world around them.
The Bottom Line:
⢠Indiaâs society is âopen, eager, and confidentâ to take on the world.
⢠The US may be âhappyâ to join forces with India for global dominance.
Using CI Behind the Scenes:
â Benchmark Indian firms vis-a-vis Chinese competitor firms for a realistic assessment of the future competition
on Asia
â Conduct competitive pricing scenarios vis-Ă -vis these countries
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16. SHIFTS IN GLOBAL FOCUS
⢠Global Aging and Migration: Approximately one-half of the worldâs population lives in countries
whose fertility rates are not sufficient to replace their populations. [e.g. Australia, North America,
East Asian countries such as Taiwan, Singapore, Hong Kong and South Korea, etc.].
⢠Japanâs Economic Interests in Asia have shifted from Southeast Asia toward Northeast Asia
[e.g. especially China and the China-Japan-Korean triangle].
⢠An âEnlarged Europeâ will have the ability to increase its weight on the international scene.
⢠The EUâs declining fertility rate [1.4 vs. the 2.1 replacement level] over the next 15 years, will force
the EU to import several million workers, chiefly from Muslim countries].
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17. SHIFTS IN GLOBAL FOCUS (contd.)
⢠The EUâs growing diversity of its population provides it with an ability to forge strong bonds both to
the south with the Muslim world and Africa and the east with Russia and Eurasia.
⢠EUâs challenge: Unlike finding Ireland, Spain, Portugal and Greece, the EU has lesser funds to
bring up countries in Central Europe and Turkey to the economic levels to the rest of the EU.
⢠Migration has the potential to resolve the problem of a declining work force in Europe and to a
lesser degree, Russia and Japan.
Using CI Behind the Scenes:
â Benchmark competitors on a global basis: North America, Europe, Latin America, Asia Pacific
â âWeight the risk/rewardâ trade off factors by region and country
â Always incorporate a CI â Global Perspective in your analysis
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18. THE FUTURE SUPERPOWERS
THE EU: depends on whether it under takes major economic and social reforms to deal with its aging
workforce problem. The EU must initiate:
⢠More legal immigration and better integration of workers coming from North Africa and the Middle
East
⢠Increased flexibility in the workplace; e.g. encouraging young women to take a few years off to
start families in return for re-entry into the workplace in the EU
⢠A solution to avoid its being âdragged downâ by Germanyâs restrictive labor laws
⢠A streamlined decision making process to enable collective action
CHINA and INDIA:
⢠China will need to boost its energy consumption by about 150% and India will need to nearly
double its consumption of energy by 2020 to maintain a steady rate of economic growth. China
will strive to be less dependent on the US.
⢠Chinese firms are investing overseas projects in the Caspian region, Russia, the Middle East, and
South America in order to secure more reliable energy sources.
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19. THE FUTURE SUPERPOWERS RUSSIA
[CONTâD]
⢠Russia, as the largest energy supplier outside of OPEC, could be well-positioned to
marshal its oil and gas reserves to increase its supply of the EU demand from 27% to 31%
by 2010.
⢠Algeria, which has the worldâs eighth largest gas reserves, is also seeking to increase its
exports to Europe by 50% by the end of this decade.
US UNIPOLARITY â HOW LONG CAN IT LAST?
⢠Growing numbers of people around the world, especially in the Middle East and the
broader Muslim world, believe that the US is âbent on regional domination.
⢠In the future, growing distrust of the US could discourage support of US interests and the
formation of asymmetric military capabilities as a hedge against the US.
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20. CONCLUSIONS
⢠Not only is the âworld not flatâ it is âconvexâ
⢠CI analysis must be conducted in this âfast paced and rapidly changing
worldâ
⢠CI information gathering methods must differ from âregion to regionâ and
âcountry to countryâ
⢠The challenge is to conduct âshort term researchâ in a rapidly changing
long-term âbalance of power global environmentâ
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