GLOBAL SLOWDOWN AND EMERGING MARKETS. New relations on the global markets. Aleš Cantarutti. Global slowdown and emerging markets.
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New relations on
the global markets
FACT: The collapse in global demand in 2009 brought on by the biggest economic downturn in decades - the biggest contraction of world trade in volume terms since the Second World War
“For the last 30 years trade has been an ever increasing part of economic activity, with trade growth often outpacing gains in output. Production for many products is sourced around the world so there is a multiplier effect — as demand falls sharply overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries”
Pascal Lamy Director-General of WTO
Source: OECD National Accounts.
Reasons for trade contarctions
Growth in the volume of world merchandise trade and GDP, 1998-2008Annual % change
Prices of selected primary products, January 1998 — January 2009 Index, January 2002=100
FACT: Not only is the worldwide slowdown hurting developed economies more than emerging economies, but it’s affecting the latter differently and substantively - altering their role in the global economy.
Great crisis is forcing change at three levels
Developing countries are becoming relatively bigger markets;
“Emerging markets will account for a larger share of the world’s output when the recession ends than when it began. That will make them even more attractive.”
Antoine van Agtmael, Investment firm Emerging Markets Management
Governments are reshaping the contours of economic development even as they stoke growth through monetary and fiscal policy measures;
China used the $586 billion stimulus package to influence demand and supply in 10 industries that together account for 50% of the country’s GDP.
“The government calls it a stimulus, but it’s really redesigning industries. That’s why 9% GDP growth in China tomorrow won’t be yesterday’s 9% growth,” David Michael, Greater China head of the consulting firm BCG
Competition in developing countries has become more intense;
With exports shrinking, companies in those countries are concentrating
more on growing their sales at home.
The rivalry is particularly heated in markets for commodities, such as steel,
cement, and aluminum, and for upmarket and middle-market consumer segments.
FACT: Companies in emerging markets have started responding to the challenges these changes pose and many of them saw the downturn coming and modified their strategies quickly.
“Between 1995 and 2008, Indian companies grew so quickly that many bad habits crept into their operations. They’re trying to eliminate them. After more than a decade of growth, they are taking a breather to restrategize,”
Nirmalya Kumar, London Business School.
Manufacturers are using Tata Motors
the slackening of demand low-cost
as an opportunity to developinovations
advanced products of their own,
so that they won’t always have
to serve as subcontractors.
“Some costs, like talent costs, are lower today, so it’s a good time for companies to invest in developing innovation capabilities,” Peter Williamson, University of Cambridge’s Judge Business School
FACT: Most Western companies are preocupied with the crisis in their home markets but they need to start focusing on the next phase of global growth.
THEY MUST TRACK FIVE TECTONIC SHIFTS THAT
ARE EMANATING FROM THE DEVELOPING WORLD
A GROWING DIVIDE
The response: stay focused on emerging markets
Western companies must keep investing – advantages in new market segments (rural segment which is tough to break into)
THE RETURN OF FAMILY-STYLE LEADERS
The response: Change your leadership criteria
Invest in entrepreneurial local managers
“For breakthrough performance in developing countries, you need breakthrough leadership” Accenture research report 2009
A REVERSAL IN M&A
The response: Join forces with emerging giants
Western companies need help from local companies to go into China’s hinterland or Indian’s rural market – partnering with emerging giants and offering them knowledge and assets (triangulation strategy);
Kawasaki – Bajaj Auto, Telefonica – Huawei Technologies
HIGHER STAKES IN SUSTAINABILITY
The response: Go green globally
Unsutable cascading strategy; cooperatinon with local rivals – launch eco-friendly products all around the world at the same time
THE CALL OF AFRICA
The response: Tap Africa’s potential
It’s time Western multinational companies go on consumer safaris
“The future of Guinness may lie not in Ireland’s pubs but in Africa’s bars,” Vijay Mahajan, University of Texsas
THE CALL OF AFRICA
AREA: 92,090sq. km
POPULATION: 10,7 million
GDP-per capita: 16.100 (2009)
GDP growth rate: -3,3% (2009)
INFLATION RATE: - 0,9% (2009)
Labour productivity: 69,5% of EU -27
services represent 73,6% of BDP
in 2009 export droped for 20%
(Spain 26,7%, Germany 13,7%, France 12,7%)
markets and Afican markets
whose official language is Portuguese
(also cultural and history links)
Portuguese export (Mozambique)
“Portugal finds itself between the low prices of China, India and Pakistan on the one hand and the design image of Italy and German quality on the other. Portuguese products are not recognised.” Antonio Saraiva, President of CPI