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Emerging Markets.indd 2 05/11/2013 17:04 guide to Emerging Markets The business outlook, opportunities and obstacles

Edited by Aidan Manktelow

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Copyright © The Economist Ltd, 2014

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Where opinion is expressed it is that of the author and does not necessarily coincide with the views of The Economist Newspaper.

While every effort has been made to contact copyright-holders of material produced or cited in this book, in the case of those it has not been possible to contact successfully, the author and publishers will be glad to make amendments in further editions.

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Emerging Markets.indd 4 05/11/2013 17:04 Contents

Contributors and sources vii Introduction 1

Part 1 Opportunities and challenges in emerging markets 1 The economy: megatrends 15 2 Identifying market opportunities 22 3 Governments and their policies 33 4 Managing talent and the workforce 42 5 Infrastructure and property 51 6 Supply, distribution and marketing 58 7 Innovation and R&D 70 8 Ethics and 76 9 Entering the market 86 10 Rebalancing and transformation 93

Part 2 Regional and country profiles The 107 China 110 115 120 125

Emerging Asia 130 132 135 138 141

Emerging Markets.indd 5 05/11/2013 17:04 The 144 147 150 153

Emerging 156 159 162 165

Middle East and North Africa 168 Algeria 172 175 179 182 185

Africa 188 191 194 197

Latin America 200 202 205 208 211 214 217

Index 221

Emerging Markets.indd 6 05/11/2013 17:04 Contributors and sources

Aidan Manktelow, director Europe, the Economist Corporate Network, edited the book. He also wrote the sections on economic megatrends, identifying market opportunities, governments and their policies, the manufacturing , competition, rebalancing and transformation, management hubs, Russia, Poland, Turkey, Ukraine, South Korea and Algeria, and the emerging Europe overview.

Frida Wallin, formerly associate director, Asia, the Economist Corporate Network, edited parts of the book.

Rodrigo Aguilero, editor/economist, the Economist Intelligence Unit, wrote the sections on Chile and Mexico.

Vanessa Barchfield, formerly research editor, EMEA, the Economist Corporate Network, wrote the sections on talent management and ethics, and conducted interviews.

Federico Barriga, editor/economist, the Economist Intelligence Unit, wrote the sections on Colombia and Venezuela.

Edward Bell, editor/economist, the Economist Intelligence Unit, wrote the section on Iran.

Robin Bew, managing director and chief economist, the Economist Intelligence Unit, wrote the introduction.

Emerging Markets.indd 7 05/11/2013 17:04 viii guide to emerging Markets

Mary Boyd, director, Shanghai, the Economist Corporate Network, wrote the sections .

Toby Iles, regional editor/economist, and North Africa, the Economist Intelligence Unit, wrote the section on Iraq.

William Lee, editor/economist, the Economist Intelligence Unit, wrote the section on Peru.

Irene Mia, regional director, Latin America, the Economist Intelligence Unit, wrote the section on emerging-market cities and the Latin America overview.

Philip McCrum, editorial director, EMEA, the Economist Corporate Network, wrote the sections on Egypt and Saudi Arabia and wrote the Middle East and North Africa overview.

Ross O’Brien, director, , the Economist Corporate Network, wrote about competition, rebalancing and Indonesia.

Katharine Pulvermacher, director, Africa, the Economist Corporate Network, wrote the sections on corporate sustainability and responsibility (CSR), distribution, Kenya, Nigeria and South Africa.

Pamela Qiu, associate director, South-East Asia, the Economist Corporate Network, wrote the sections on Malaysia, the Philippines and Thailand.

Sujatha Santhanakrishnan, editor/economist, the Economist Intelligence Unit, wrote the sections on Bangladesh and Pakistan.

Pat Thaker, regional director, Africa, the Economist Intelligence Unit, wrote the Africa overview.

Robert Ward, country publishing director, the Economist Intelligence Unit, wrote the BRICs overview.

Emerging Markets.indd 8 05/11/2013 17:04 Contributors and sources ix

Justin Wood, director, South-East Asia, the Economist Corporate Network, wrote the sections on India and Vietnam and the Asia overview.

Robert Wood, senior editor/economist, the Economist Intelligence Unit, wrote the section on Brazil.

Coralie Zacchino, editor, Wire Services, the Economist Intelligence Unit, wrote the section on Argentina.

This book drew on research available in various parts of , including The Economist newspaper, the Economist Corporate Network, the Economist Intelligence Unit and Economist Education. Insights were also drawn from interviews conducted with senior business leaders operating in emerging markets, and from discussions with Delia Meth-Cohn, formerly editorial director, CEMEA, the Economist Corporate Network, and Lourdes Casanova, senior lecturer at . The Economist Corporate Network (www.corporatenetwork.com) is the Economist Group’s business intelligence, briefing and networking service for senior executives of companies operating in emerging markets. It works closely with the CEOs and regional managers of over 400 companies such as Coca-Cola, IBM, DuPont and Dow Chemical. Any comments about this book can be sent to Aidan Manktelow at: [email protected]

Emerging Markets.indd 9 05/11/2013 17:04 Emerging Markets.indd 10 05/11/2013 17:04 Introduction: the big shift and what it means for business

Honeywell International, a multinational conglomerate, has doubled the size of its non-US business in the past ten years, driven by growth in emerging markets. Shane Tedjarati, president, global high-growth regions, says that the company’s business in China and India has been growing by over 20% annually since 2004. He points to the huge opportunities:

There is massive urbanisation happening in high-growth markets, with very few exceptions. And these markets also require infrastructure. So there’s huge spending on airports, seaports, on roads …

There is also huge growth in consumer spending, which extends well beyond the largest cities and often involves very different levels of purchasing power compared with consumers in developed economies:

The story of China is in tier two, three and four cities. It’s in the mid- market, but a different mid-market than in the US. The Chinese mid- market is about $5,000 GDP per head.

Honeywell’s success in emerging markets over that period came by radically changing its approach. Until 2004, it was basically a West- to-East company:

One of our products could be slightly modified and sold in China … But that model gets old very quickly. In 2004 we decided to take a fresh look at the market. We started by saying we were putting a lot more into understanding what the market is. So it was marketing,

Emerging Markets.indd 1 05/11/2013 17:04 2 guide to emerging Markets

R&D and putting a sales force together that really understood what kind of products our customers want, what features and at what cost. And doing that with local speed. Because these markets are fast … and dynamic.

Manufacturing then followed. The approach continues to develop and to lead to radical transformations in how Honeywell operates:

Our strategy, which we call East-for-East – design and innovate in China for China and in India for India – has now evolved and we’ve become East-to-West, because the products we’re developing here will be needed elsewhere in the world. That strategy has worked very well.

This has required a major change of mentality, including empowering local operations. Tedjarati speaks of creating the spirit of an entrepreneurial Chinese company inside a large multinational company. Honeywell now expects “high-growth markets” to drive over 55% of its growth in the coming years. Honeywell’s experience reflects the rapid transformation under way in emerging markets. Companies cannot afford to ignore these countries, which will be the main source of global growth in the coming decades. But it also suggests that in order to succeed there Western multinationals will have to get used to doing business in different ways – and will fundamentally change themselves in the process.

Common characteristics The very phrase “emerging markets” courts controversy. As a label, it lacks precision – being applied indiscriminately to countries which compete aggressively on the world stage, along with those trapped in subsistence agriculture or extraction. More focused monikers, such as (for those viewed as less developed and more challenging for business) and newly industrialising (for those bursting onto the global economic stage), may be more helpful. Some companies, like Honeywell, are switching to growth markets

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or high-growth markets. But these terms are insufficiently nuanced as well – do growth markets always grow, and are companies really writing off growth in the developed world completely? Emerging markets probably retain a greater hold among business leaders or commentators, so for the purposes of this book we acknowledge the difficulties but use the phrase anyway, as a means of describing collectively the markets of Asia, Latin America, eastern Europe, the Middle East and Africa which are of most interest to business leaders as current or prospective sources of opportunity. In any case, some characteristics do bind this group of countries together. All have incomes per head substantially lower than the US, western Europe and Japan. All are less efficient – productivity is markedly lower than in the world’s richest nations. But in these seemingly negative traits lies their promise. If inefficiency can be reduced, if workers can become more productive, if firms can climb up the value chain, then living standards can rise dramatically. The promise, alas, is not always realised. There are many examples of countries that are barely better off today than they were 20 or 30 years ago. Putting in place the right policies, setting up the right political and legal institutions and creating the conditions for growth, too often elude countries. But where countries are able to see best practice and implement a version of it at home, the opportunity for business success beckons. Because rapid growth for these countries means overcoming major challenges – and in the challenges lie opportunities for companies. These are challenges of affordability, of meeting infrastructure needs, of coming up with new and innovative products to satisfy local tastes and customs. And there are the challenges of keeping up with rapid social and economic change. The CEO of a US automotive components supplier says that in China, where his firm supplies a large local manufacturer:

The growth rates are just incredible … The challenge of staying on top of the demand is certainly unlike any other country we have ever worked in.

Of course, even where countries get it right and experience rapid growth and rising living standards, the economic, political and

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business environments hardly match up to those in the advanced economies. Growth may be fast, but is often extraordinarily volatile, with regular crises knocking the country off course. Political systems are generally immature – is often rife, bureaucrats are ineffective and policy decisions are driven by narrow special interests. And businesses often compete on a highly skewed playing field. For foreign firms hoping to profit from emerging markets, the opportunities resulting from rapid growth come with the complexities and risks of a challenging and sometimes capricious business environment. Rewards, as ever, are balanced by risks.

Historical rebalancing

The countries which are currently described as emerging were once dominant world powers. According to research by Angus Maddison, who was a professor of economics at the University of Groningen, China alone accounted for approximately 25% of the global economy from about 1500 until 1800, with India only slightly smaller. The US, now the largest economy in the world, was scarcely economically active at that time. But in the late 1700s Britain, followed by western Europe and then America, started to industrialise. The introduction of machinery, the use of steam power and the expansion of factories allowed productivity to improve. In the British textile sector, which industrialised earliest, the gains are estimated to have been a 20-fold improvement in output per person over the 100 years from 1700 to 1800, with some activities seeing even greater advances. Although the impact on the economy as a whole was smaller (since many other important sectors, such as agriculture, did not experience the same degree of mechanisation), this was sufficient to put western Europe and America on a growth trajectory which led to their domination of the global economy. Their technological lead meant that the gap in living standards between Western industrialisers and other nations widened dramatically. Why did the emerging markets lag behind for so long? While it is a gross simplification to point to a single cause, many non-industrialised markets followed economic policies which cut them off from world markets and best practices (often not by choice – the impact of colonialism was also a major factor). Some used tariffs to keep imports out, in the hope that this would

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FIG 1.1 The cost of the crisis Difference, in % terms, of real output per head before the crisis started in 2007 and in 2012

Italy

UK US Japan

Germany Russia Brazil Saudi Arabia India

China –10 0 10 20 30 40 50 60

Source: The Economist Intelligence Unit

stimulate domestic industry to rise up and meet local demand. Often it did, but without the spur of competition such industries were weak and inefficient. Best practices from other countries – in everything from effective policymaking to institutional design, from application of the rule of law to corporate management techniques – were resolutely ignored as local leaders pursued narrow agendas often more concerned with retaining power than delivering growth. As a result, crucial infrastructure was not built and populations were left uneducated. Firms were not pitted against the best and therefore lacked the imperative to improve. Output per person languished and, as a result, countries remained poor. Yet a 200-year period of Western dominance may be drawing to a close. Emerging markets are starting to narrow the gap with the West. Over the past 20 years, average growth in the emerging world has outstripped that of the developed markets by over three percentage points per year – even more at the height of the boom that preceded the 2008–09 crisis and while developed

economies were laid low thereafter. 2001 2003 2005 2007 2009 2011 2013 Catch-up between the emerging markets and the West has started because, one by one, countries have moved away from inward-looking strategies and

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begun to embrace global competition and adopt best practices. Perhaps the biggest and most well-known change of heart was in China, where Deng Xiaoping approved a series of economic reforms from 1978 onwards. The country was opened to foreign trade and investment, markets for products and services were opened to private businesses, some state-owned industries were privatised, and foreign technology and business practices were adopted. India followed suit with an economic liberalisation of its own in 1991. South- East Asia famously embraced foreign trade and became the region of both the Asian Tigers (South Korea, Hong Kong, and ) and other ASEAN growth stars such as Indonesia, Thailand and Malaysia. Latin America gradually liberalised too, with Brazil moving away from its policy of global economic disengagement in the late 1960s and Argentina reforming from the 1980s. In central and eastern Europe, reforms had to wait until the fall of the from 1989. In much of the former Soviet Union and Africa liberalising reforms remain patchy even to this day. The pay-off from reform has been tremendous. In China, for example, income per head has risen from just 2% of US levels (measured using GDP per head at purchasing-power parity) in 1981 to 18% in 2012. The gap is expected to close further in the years ahead: by 2030 Chinese incomes will be running at about a third of US levels. Other countries have done even better – some of the Asian Tigers can truly be said to have emerged, with incomes per head approaching US levels. While not all emerging regions have benefited to the same extent, there has been a widespread acceleration in growth across much of the emerging world over the past decade, as governments have adopted more market-oriented policies.

Key trends What of the future? Here are a few pointers of what to look for.

Catch-up will continue, but more slowly It seems likely, although not inevitable, that many emerging markets will continue on the road of reform, and that incomes will rise more rapidly than in the West. But the pace of catch-up may still slow, in part because the global financial crisis has been such a drag on the advanced economies although it is reasonable to assume that they

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will recover at least some of their vim in the years ahead. Catch-up also becomes harder over time. Once the most effective policies and management techniques have been adopted in the emerging world, finding new ways to narrow the productivity gap becomes harder and growth therefore slower. And in countries such as China and Russia, demographic changes will further act as a drag on growth as their populations age. Nevertheless, even with a slower pace of catch-up, the emerging world will be where the growth is for business in the decades to come.

The biggest economies will not be the richest China, India and other high-population countries are moving rapidly up the global economy league table. China is forecast to overtake the US by 2020. But China has five times as many people as the US, and its citizens will be considerably poorer on average than their Western counterparts. This means that companies will not just be able to farm out products developed with more affluent Western consumers in mind – pricing will be key.

FIG 1.2 Collectively rich, individually poor

30,000 90,000

80,000

70,000

20,000 60,000

50,000

40,000

10,000 30,000

20,000

10,000

0 0 U Japan GermanyChina India Brazil U Japan GermanyChina India Brazil S S

GDP, 2025 US$ trn GDP per head, 2025, US$

Source: The Economist Intelligence Unit

Emerging Markets.indd 7 05/11/2013 17:04

2001 2003 2005 2007 2009 2011 2013 8 guide to emerging Markets

No of politics It was once fashionable to predict that, as emerging economies liberalised their business environment and became wealthier, they would also become more socially and politically liberal. While it is true that new-found does seem to bring popular demands for social , there is little evidence that emerging-world governments are keen to respond to this. Companies will therefore need to get used to a world in which the largest economies are run according to very different rules and norms from those in the West.

Increased turbulence Emerging markets are, by definition, immature economies. Often they have immature politics too. Economic and political crises are common – few countries that have embarked on the road to catch-up have proceeded smoothly (think of the 1997 Asian crisis, the maxi- devaluations in Argentina, Brazil and Russia, and the uprisings of the ). As emerging markets become more dominant in the global economy, such crises will continue – even though emerging markets’ resilience has increased and the 2008–09 crisis showed that Western countries are not immune from boom and bust either. But as emerging markets account for an ever greater share of global demand and spending, emerging-market crises will hurt more. So companies will need strategies that can contain volatility.

Reversals Just because emerging markets have the potential to catch up with the rich world, this does not mean that they will. In many countries the basic ingredients necessary to allow productivity to rise are absent: economies remain highly regulated, or are run for the benefit of their leaders, or are socially fractious, or have non-economic priorities such as territorial or tribal ambitions. Some countries will not join the catch-up party. Others will leave the party halfway through. Companies will need to be able to identify those countries with the best chances of sustained growth.

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Intensified competition The competition for companies is increasing and changing. This is partly because any multinational will find that its global peers are also trying hard to increase their share in emerging markets. It is also because emerging-market companies are rapidly becoming much more serious competitors. They may enjoy advantages, including better cultural understanding, more appropriate business models, better relationships with government, entrenched protectionism and possibly fewer restrictions on how they do business. Some 20% of the Fortune Global 500 are already emerging-market companies – Chinese, Indian, Brazilian, Russian, South Korean and Turkish firms all feature. They will increasingly challenge Western firms not just in their home markets but globally.

Rich-world angst This is a book about emerging markets. But Western attitudes towards the rise of the emerging world will be central to the way in which individuals and firms engage in the fast-growing countries. As the status and weight of the West decline, it is inevitable that worries will increase about a loss of influence, a loss of jobs, pressure on pay, increased demand for raw materials, the environment and the geostrategic intentions of the newly powerful countries. Business engagement in the emerging world will be complicated by rich-world angst about the global rebalancing.

Corporate rebalancing Attitudes of Western businesses to emerging markets have also evolved. In the 1990s and to some extent in the past decade, the rise in business investment in emerging markets was driven by cost cutting and , still primarily directed at catering for final demand in the developed world. But as consumption in the emerging world has surged, companies have come to see these as key markets in their own right. A 2010 report by the Economist Intelligence Unit (EIU) showed that three-quarters of companies surveyed see emerging markets as a source of new business growth. Only 23% were looking for a low-cost manufacturing base.

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Indeed, the rise of emerging markets touches every sector. A list of major investment successes in Turkey by the country’s investment agency includes big names across a range of industries: fast-moving consumer goods (Coca-Cola, Nestlé, Unilever), clothing (Mango), consumer electronics (Bosch, GE), engineering (Alstom, Schneider Electric, Siemens), automotive (Ford, Hyundai, Pirelli, Toyota), energy (Shell), chemicals (BASF), pharmaceuticals (Pfizer), agribusiness (Cargill), telecoms (Ericsson), IT (Intel, Microsoft), logistics (DHL) and finance (BNP Paribas, Citi, HSBC). Nor is the big shift just a story for FTSE 500 companies – medium-sized and even small companies are getting in on the act too. The rise of emerging countries as markets in their own right has meant a shift in priorities. Many multinational companies initially tried to tap the demand in these countries by selling unadapted (and often substandard) Western products. But as emerging markets have become a more important part of global strategy, and as multinationals have faced growing competition in these markets both from their peers and from local firms, companies are coming to accept that emerging markets require dedicated products and innovations. Multinationals have also come to understand the need to become more local. This means not just establishing a local presence, increasingly staffed by local talent, but empowering it to take decisions so that local needs can be met and companies can keep pace with the rapid pace of change. But these shifts still have a long way to go. Companies are hindered by the difficulty of grappling with the complexity of the emerging world, by resource constraints and by corporate rigidity. The changes required for success are far-reaching, requiring radical transformations in company organisation and even corporate culture. Ultimately, emerging countries need to become just as much home markets as the US, Japan or western Europe – companies need to become truly globalised. In conclusion, the balance of the global economy is shifting. The process will be bumpy and potentially unsettling. But it is also inevitable, and therefore needs to be accommodated by anyone hoping to prosper in the new world order that will result, even if it requires companies to undertake major changes.

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A guide to emerging markets This book gives some pointers to how business leaders can cope with the changes, identify where the opportunities lie, manage and mitigate the inevitable risks, and compete successfully. It is divided into two parts. Part 1 looks at the main opportunities and challenges. Chapter 1 examines the trends driving the growth of emerging markets and gives a view on how emerging markets will fare in the future. Chapter 2 looks at the extent to which emerging markets share similar characteristics in terms of business opportunities and highlights the role of market research in identifying where the opportunities lie. Subsequent chapters discuss the major challenges for business: dealing with governments and their policies; managing talent and the workforce; infrastructure and property; supply, distribution and marketing; innovation and research and development; ethics and competition; market entry; and corporate rebalancing and transformation. Part 2 is a guide to the leading emerging markets. It starts with a chapter on the BRICs (Brazil, Russia, India and China). They may be old news, but they still account for a huge chunk of the emerging- markets growth story, offer vast untapped opportunities – especially beyond the main cities – and are crucial for companies looking to rebalance towards the emerging world. Subsequent sections cover the principal markets in emerging Asia, emerging Europe, the Middle East and North Africa, Africa and Latin America. In general, the selection of countries is based on their size in terms of population, close to 30m or above, and GDP, over $100 billion in 2012. There are a couple of exceptions. Chile should not qualify in terms of population, but it is included because it completes the round-up of the “big seven” economies in Latin America. Kenya should not make it by size of economy, but as sub-Saharan Africa is currently a focus for many companies, including it provides more of a flavour of the opportunities there – and it is one of the leading markets attracting interest. The selection criteria mean that countries such as Ethiopia and Myanmar, which have large populations but whose poverty means their economies are still relatively small, do not make an appearance. Some of these countries will become

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important markets in time, and more adventurous companies are already expanding there. Broadly, though, the countries selected are the ones that are likely to be of most interest to companies based on population and market size. This does not mean that they are necessarily bankers for growth. As the country sections make clear, some of them are considerably less attractive once dodgy business environments and questionable economic prospects are factored in. Including countries such as Venezuela and Iran does, though, have the advantage of giving a fuller picture of the diversity of the emerging world.

Emerging Markets.indd 12 05/11/2013 17:04

a retail sector 189 ABB 93 road and rail networks 65 Abidjan, Côte d’Ivoire 81 trade with China 99 Abu Dhabi 171 urbanisation 188 Abuja, Nigeria 194 Ahmadinejad, Mahmoud 179, 181 Accenture 116 Air Liquide 93 Accra, 102 Akzo Nobel 100 Adidas 90, 157 Al Saud family 185 Afghanistan 141, 143 Al Shabaab terrorists 193 Africa Algeria 172–174 overview 188–190 bureaucracy 172 banking sector 189 civil war (1991–2002) 172, 175 bureaucracy and regulation 188 doing business 173–174 consumer market 190 economic growth 172 corruption 188 economic indicators 173 economic growth 188, 189 foreign direct investment 172 education 43 GDP per head 172 electricity access 189 historical snapshot 172 foreign investment 189 hostility to foreign interference GDP 188 172 information and Islamic militants 174 communications technology market dynamics 172 (ICT) 188, 189 military influence 173–174 infrastructure 189 oil and gas 172 liberalising reforms 6 poverty 172 mobile telephony 189–190 private sector 173 multinational companies in 190 security services 174 political risk 188 underinvestment 172 population growth 188, 190 unemployment 172

Emerging Markets.indd 221 05/11/2013 17:05 222 guide to emerging Markets

Alibaba 23 tax system 204 Alstrom 10 volatility 202 American Tower 38 Arroyo, Gloria Macapagal 144 Amil 121 ASEAN (Association of South-east Andes mining projects 201 Asian nations) 6, 112 189 Asia Anti-Bribery Act (UK) 76, 78 overview 130–131 Apple 60–61 diversity 131 Aquino, Benigno, III 144 economic growth 131 Arab spring 8, 34, 169, 172 emerging-market cities 18 Arap Moi, Daniel 191 free-trade agreement with Argentina 202–204 Colombia 208 agriculture 202 global revenues 93 boom and bust 202 globalisation of service competition policy 204 industries 131 crony 204 industrialising and urbanising debt default (2001) 202, 204 130 202 manufacturing 130 doing business 202–204 24 domestic investment 204 multinationals in 130 economic growth 202 population 130 economic indicators 203 private consumption 131 economic liberalisation 202, Asian crisis (1997–98) 8, 135, 146, 204 147 economic reform (1980s) 6 Asian Tigers 6 foreign investment 204 AstraZeneca 93 GDP per head 202 AT Kearney Global Services historical snapshot 202 Location Index 140 inflation 202 , and trade quotas 41 international dispute settlement Avon 28 203 Azerbaijan 29, 158 labour force 202 manufacturing 202 b market dynamics 202 Baghdad 183 nationalisation 203 Baltic states 157 natural resources 202 Banco Nacional de oil and gas 202 Desenvolvimento Econômico e population 202 Social (BNDES) 122 privatisations 204 Bangalore: GE health-care protectionism 203–204 division 72

Emerging Markets.indd 222 05/11/2013 17:05 Index 223

Bangladesh 61, 132–134, 152 Bouteflika, President Abdelaziz and gas reserves 132–133 172, 174 corruption 134 BP 34, 127 doing business 134 BPO see business process economic growth 132 outsourcing economic indicators 133 Brasilia 102 export processing zones 134 Brazil 29, 120–124 GDP 132 BNDES loans 122–123 historical snapshot 132 Congress’s multi-party alliances macroeconomic stability 132 36 market dynamics 132–134 corruption 77 population growth 132 “custo Brasil” 121 poverty 132 doing business 121–122 private sector 134 economic indicators 123 public-private partnerships English skills lacking in 43–44 133 foreign direct investment 200 and reverse innovation 71 GDP 108, 120, 121 132 GE R&D centre 72 urbanisation 132 global economic base effects 29 disengagement (1960s) 6 BASF 10, 59, 88 growth spurt (2004–10) 121 Basra, Iraq 183 historical snapshot 120 Behrens, Alfredo 44, 46 hyperinflation (1980s-90s) 108, Olympics (2008) 15 120 Belarus 158 inflation targeting 121–122 Bhalla, Surjit 24 infrastructure 120–121, 122 Bharatiya Janata Party (BJP) 115 interest in Africa’s non-oil Bhumibol Adulyadej, King 150 sectors 189 Bhutto, Benazir 142 labour laws 48, 49 Big Cola 84 large-scale protests (2013) 201 Blanco, Edgar 65 market dynamics 120–121 BNP Paribas 10 market potential 124 Bogotá, Colombia 18, 102 maxi-devaluation 8 Boko Haram 194 middle class 107, 120 boom and bust 8, 156, 159, 160, oil production 120, 121, 122 162, 202 protectionism 123–124 Booz & Company 72 public-private partnerships 122 Bosch 10 R&D 200 Bosideng 112 retail sector 65 Boston Consulting Group 62 Summer Olympics (2016) 120

Emerging Markets.indd 223 05/11/2013 17:05 224 guide to emerging Markets

underinvestment 108 Caucasus 158 World Cup (2014) 120 Cayman Islands 37 “bread and dignity” 169, 175 Central Asia 158 bribery 76–79 of Iraq 183 BRICs (Brazil, Russia, India and central and eastern Europe (CEE) China) 22 163 overview 107–109 boom and bust in 159 China as the cornerstone 107, divergence between states 157 108 nearshoring 62–63 concept of 15, 17–18 over-reliant on foreign capital need to reform internally 107, inflows 156 109 Centre for India and Global offering untapped Business, Judge Business opportunities 11 School, University of organising round cities 100 Cambridge 73 outbound investors 109 Chad 39 private consumption 20, 22 chaebol (industrial rise of 107 conglomerates) 147 societal transformation of 107 Chambers, John 95 Britain Chávez, Hugo 217, 219 4 217, 219 infrastructure spending 21 Chennai, India 52 brownfield 89 Chery 112 build-operate-transfer 162 Chevron 39 83, 156, 157 Chile 205–207 Burberry 23 competition 207 business process outsourcing doing business 207 (BPO) 145–146 dynamic domestic economy BYD 70 207 earthquake (2010) 205 c economic growth 205, 207 Cambodia 61, 152 economic indicators 206 : transport problems 51 energy costs 205–206 Camisea gas project 214 financial sector 207 Canada: North American Free free-trade agreements 205 Trade Agreement (NAFTA) 211 GDP 207 Cape Town, South Africa 197 high-value-added industries Cargill 10 206 Caribbean region 201 historical snapshot 205 Caterpillar 67 labour market 207

Emerging Markets.indd 224 05/11/2013 17:05 Index 225

market dynamics 205–206 income 6, 23, 47, 111 middle class 205 “indigenous innovation” policy population 205 113 service industries 205 infrastructure 21, 63 skill shortages 207 injury compensation 49 China 110–113, 200 joint ventures 88 12th and latest five-year plan labour unrest 61, 112–113 (2011–15) 108, 110, 111 land prices 56 and Africa 99, 189 market dynamics 110–112 automation versus low-cost mergers and acquisitions 112 labour 61 mid-market 1 automotive sales 20 middle class 111–112 Coca-Cola in 91 new “workshop of the world” communications 113 61 cornerstone of BRIC economies “open door” policy 110 107, 108 and Oreo 68–69 corruption 77, 113 overtakes Japan 107, 110, 130 demographic changes 7, 111, 113 per-head disposable income in doing business 112–113 urban China 19 economic growth 3, 7, 34, 108– population 110 109, 111, 121 poverty 107, 110 economic indicators 114 power dynamics of economic reforms (from 1978) 6 Communist Party 36 electricity capacity 54 private consumption in 30 exchange rate 31 productivity 17 exports 111 R&D in 72, 74 financial sector 113 regional structures 100 forecast to overtake the US 7, 15, retail sector 65 107, 130 rural economy 113 foreign-currency reserves 110 SEZs 40 free-trade agreement with Chile soft skills go untaught 43 205 state-owned enterprises 110, 112 GDP 29, 109, 110–111, 113 supply chains 58 GDP per head 115 trade litigation 112 global investment 112 urbanisation 26, 100 government effectiveness 35 China-ASEAN trade agreement historical snapshot 110 (2010) 112 historically a dominant world China-Taiwan trade agreement power 4 (2010) 112 Honeywell in 1–2, 85 Chotukool 70

Emerging Markets.indd 225 05/11/2013 17:05 226 guide to emerging Markets

Cisco 95, 103 corruption see under ethics Citi 10 and competition and under Civic Platform (PO) (Poland) 159 individual countries 17 creating shared value (CSV) 80, 81 clustering countries 99 credit availability 29–30 Coca-Cola 10, 65, 67–68, 72, 82, credit growth 30 91 Credit Suisse 21 collectivisation 110 135, 204 Colombia 208–210 currency devaluation 30, 117, 125, business environment 208 153 competitiveness 209 Cyprus 128 corruption 210 17, 22, 156, 157 doing business 210 “” 209 d economic growth 208 Dakar, 102 economic indicators 209 Dallas, Texas: economic growth 18 education 210 decentralisation 73, 96–97, 100 free-trade agreements 208 decollectivisation 110 historical snapshot 208 Deloitte 87 independent institutions 208 Democratic Republic of the infrastructure 210 Congo (DRC) 189 internal conflict 208, 210 Deng Xiaoping 6, 110 market dynamics 208–209 developed markets natural resources 208–209 effect of the crisis on 15 population 208 export markets 15 poverty 210 private consumption levels 20 unemployment 210 DHL 10 urbanisation 208 disabled workers 48 colonialism 4 distribution see under supply, Commonwealth of Independent distribution and marketing States (CIS) 102, 156–158 distribution centres 52 Communist Party of Vietnam Dow 189 (CPV) 153 Dow Southern Africa programme competitiveness 31, 108, 120, 152, 80–81 202, 209 Dubai 102, 170–171 consumer spending 1, 131, 169, 177, Dupont 157 193, 200 “Dutch disease” 108, 209, 217 corporate responsibility see under ethics and competition e corporate social investment 80 East African Community 193

Emerging Markets.indd 226 05/11/2013 17:05 Index 227

eastern Europe ELN 210 lack of resilence 15 Emerging Europe, the Middle East rapid rates of credit growth 30 and Africa (EEMEA) 98, 99 eBay 23 emerging-market cities 18–20 Economist, The 31, 35, 51 emerging markets Economist Corporate Network ability to grow while (ECN) Asia 93, 98, 101, 102, 130 developed world in crisis 16 Asian Business Outlook Survey business investment in 9 (2012) 136 common characteristics 2–4 Economist Intelligence Unit (EIU) historical rebalancing 4–6 9, 15, 18, 20, 84, 97, 126, 130, 135, investment opportunity 20 138, 147, 190, 200 key trends 6–8 Global City Competitiveness corporate rebalancing 9 Index 19 increased turbulence 8 Egypt 168, 175–178 intensified competition 9 budget deficit 176 politics 8 consumer spending 177 reversals 8 coup (2013) 175 rich-world angst 9 disparities in wealth 176 pace of growth 15, 20, 22 doing business 176–178 private consumption levels economic indicators 177 20–21 foreign direct investment 176 employer branding 45 GDP 175, 176 entering the market 86–92 GDP per head 176 acquisitions 88–89 historical snapshot 175 appointed distributors 90 market dynamics 175–176 brownfield 89 175 franchises 90–91 population 175 greenfield 89–90 relative poverty 176 growth goals 91–92 revolution (2011) 99, 175, 176, 177 joint ventures 87–88 services sector 175 modes of entry 86 structural reform 176 Ericsson 10 176 Estrada, President 144 transport problems 52 ethics and competition 76–85 unemployment 175–176 bribery and corruption 76–79 violence in 176, 177–178 tackling the problem 78–79 Eindhoven University of corporate responsibility 79–82 Technology 65 failure of traditional CSR El Salvador 201 79–80 Elfrink, Wim 95–96 making CSR work 80–82

Emerging Markets.indd 227 05/11/2013 17:05 228 guide to emerging Markets

Ethiopia 11, 189, 193 foreign direct investment (FDI) 36, euro zone 156–159 84, 111, 117, 121, 128, 138, 149, 150, Europe 172, 176, 200, 204 overview 156–158 Fortune Global 500 9, 84 competition 156 franchises 90–91 divergence between northern Fransoo, Jan 65 and southern Europe 157 FTSE 500 companies 10 fragmentation 157 Fujimori, Alberto 214 GDP 156 growth rates 157 g hardest hit by the global nations 126 financial crisis 156 GE 10, 71, 72, 98 industrialisation of western Geely 85 Europe 4 General Motors 24, 189 investment in Africa 189 Ghana 189 market share 156 GlaxoSmithKline 98, 103 mature economies 156 Global City Competitiveness R&D spending 72 Index 19 Europe, the Middle East and global competitors 83–85 Africa (EMEA) 101, 102–103, 157, Global Innovation 1000 report 161 (2010) 72 European Union (EU) 159, 164, 167, Global Intelligence Alliance 64 205, 208 globalisation 61, 103, 131, 135 export processing zones (EPZs) 134 Globalisation Centre East, Bangalore, India 95 f Godfrey & Boyce Manufacturing 70 Facebook 136 15, 54 Falun Gong sect 35 Goodyear 35, 90 FARC 210 Google 74 Fashola, Babatunde 195 government policies 33–41 fast-moving consumer goods government effectiveness 34–36 (FMCG) 127, 128 investment incentives and SEZs FAW Group 60 40 FIA , São Paulo the legal and regulatory climate 44 37–38 financial crisis (2008–09) 5, 6, 8, local sourcing requirements 40 15, 29, 125, 126, 132, 156, 165, 188, political culture 36 201, 205, 208 political stability 34 Folli Follie 112 quality-certification procedures Ford 10 41

Emerging Markets.indd 228 05/11/2013 17:05 Index 229

risk mitigation 37 Hutchison Essar 37 the tax system 38–39 hyperinflation 108, 120 trade quotas 40–41 Hyundai 10, 147 156 greenfield 89–90 i gross domestic product (GDP) IBM 85, 98, 100, 116, 129, 189 28–29 Ikea 25, 127 growth goals 91–92 IMD 152 growth markets 2–3, 17, 44, 62, 94, India 4, 115–119 96, 98, 99, 102, 124, 157, 162, 164 balance-of-payments crisis Gulf () 39, 43, 169, 170, (1991) 115 176, 185, 187 corruption 77, 108, 118, 137 Gulf of Mexico 212 current-account deficit 117 Gupta, Anil 42–43, 44, 71 demographic profile 108 distribution 67 h doing business 117 H&M 112 economic growth 115 Halliburton 77 economic indicators 118 Hangzhou Wahaha 82 economic reforms (from 1991) 6 high performers see under education 43 managing talent and the electricity capacity 54 workforce “frugal engineering” 116 high-growth markets GDP 29, 116 bribery in 77 GDP per head 115 and BRICs 107 “Hindu rate of growth” 108 density in Asia 98 historical snapshot 115 investment in 2, 3, 69, 156 Honeywell’s success in 1, 2 urbanisation in 1 importance of family 27 201 industrial sector 116–117 Honeywell International 1–2, 83, inflation 108, 117 85, 103 infrastructure 21, 52, 117 Hong Kong, an Asian Tigers 6, investment 115, 117, 119 101–102 investment in Africa 189 Horn of Africa 193 IT and business-services sector HSBC 10 116, 131 Huawei 84 land issue 55, 56, 118–119 Hub Power Co 142 least developed of the BRICs Humala, President Ollanta 214 108 17, 157 macroeconomic problems 108 Hussein, Saddam 182 market dynamics 115–117

Emerging Markets.indd 229 05/11/2013 17:05 230 guide to emerging Markets

microcredit industry 34–35 see also infrastructure middle class 115–116 and property and under politics 115 individual countries purchasing-power parity 30 infrastructure and property 51–57 R&D spending 72 land and real estate 55–57 regional structures 100 power supply 54 and reverse innovation 71 telecommunications and urbanisation 116 broadband 54–55 115 transport services 51–53 Indonesia 61, 135–137 injury compensation 49 alternative technology 136 innovation and R&D 70–75 an ASEAN growth star 6 adapting products for local corruption 136, 137 conditions 72 doing business 136–137 creating a global R&D function economic growth 135 73–74 economic indicators 137 frugal innovation 70–71 foreign investment in 135–136, intellectual property protection 137 74–75 historical snapshot 135 relocating R&D 72–73 language 49 reverse innovation 71 market dynamics 135–136 Inovar-Auto 124 natural resources 136 Intel 10 “New Order” 135 intellectual property 31, 74–75 private consumption 135 International Energy Agency 54 self-sufficiency 136 International Monetary Fund trade quotas 41 (IMF) 157, 176 industrialisation 4, 21, 123, 130, International Road Transport 146, 147 Union 53 information and communications International technology (ICT) 16, 188, 189 Telecommunications Union Infosys 70 (ITU) 132 infrastructure International Tribunal for the Law boom driven by emerging of the Sea (ITLOS) 133 markets 21 internet 51, 55, 80, 113, 154, 198 crucial infrastructure not built 5 Iran 12, 170, 179–181 high-growth markets 1 1979 revolution 179 investment in 19 bazaar merchants 181 meeting needs 3 diversified economy 179 a widespread problem in Africa doing business 180–181 189 economic indicators 180

Emerging Markets.indd 230 05/11/2013 17:05 Index 231

economic liberalisation (late Islamic Revolutionary Guards 1990s - early 2000s) 179 Corps 181 historical snapshot 179 Istanbul 102–103, 163, 164 Islamic republic 179 large, young population 179 j largest economy in MENA 185 Jaguar 85 market dynamics 179 108, 201 negative real interest rates 179 Japan nuclear programme 179 automobile industry 58 oil and gas sector 179, 181 China overtakes 107, 110, 130 resistance to foreign investment free-trade agreement with Chile 180 205 sanctions 168, 179, 181 global revenue 93 state enterprises 181 R&D spending 72 Iraq 182–184 success of Sony Walkman 84 banking sector 182 wealthiest country in Asia bureaucracy 184 (1960s) 144 corruption 184 Johannesburg 102 doing business 184 John Deere (tractor manufacturer) economic growth 182 73 economic indicators 183 joint ventures 60, 87–88, 91 foreign investment 182–183 Jonathan, President Goodluck 195 GDP growth 183 historical snapshot 182 k inflation 183 KANU 191 infrastructure 184 53, 158 Kurdish population 182 KBR 77 market dynamics 182–184 Kenya 191–193 oil economy 182, 183–184 consumer spending 193 political instability 182, 184 corruption 193 ’s regime dependent on toppled (2003) 182 192 security risks 184 doing business 192–193 Shia/Sunni Muslims 182 drought 193 telecommunications sector 182 economic indicators 192 underinvestment 184 financial services 193 US troops withdrawn (2011) 182 historical snapshot 191 violence in 182 independence (1963) 191 Islamic Justice and Development market dynamics 191 Party (AKP) 162 middle class 191, 193

Emerging Markets.indd 231 05/11/2013 17:05 232 guide to emerging Markets

multi-party democracy (from Land Rover 85 1991) 191 152 Nairobi as hub 191 large strategic units 99–100 non-governmental largest economies, world’s ten organisations (NGOs) 191 (2000 and 2020) 16 oil and gas 191 Latin America reliance on tax revenues 191 overview 200–201 reputation for innovation 193 “big seven” economies 11, single-party rule 191 205 telecommunications 55, 193 choice of hub 102 terrorist incidents 193 competition 200 tourism 191 consumer spending 200 violence 191, 193 democracy 200 Kenyatta, Jomo 191 drug-related crime 201 KFC 37, 91 economic growth 200 Khosla, Sanjay 68, 69 foreign direct investment Kia Motors 56, 57 200 Kibaki, President Mwai 191 infrastructure 200 King Abdullah University of liberalisation 6 Science and Technology, Saudi major spending programmes Arabia 44 201 Kirchner, Cristina Fernández de middle class 200 202–203, 204 natural resources 200 Kirchner, Néstor 202 poverty reduction 200 Knowledge@Wharton 95 reforms unpopular among Koc Holdings 163 voters 201 KPMG 97–98 social unrest 201 Kuala Lumpur 140 (PiS) party Kurdish issue 163, 182 (Poland) 159 Kurdistan 182, 183 Lawson 82 Kurdistan Regional Government legal and regulatory climate (KRG) 182 37–38 Lenovo 85 l LG 116, 147 labour see managing talent and Libya 168 the workforce Lima, Peru 18, 214 labour costs 47 literacy 28, 80, 153 labour laws 48–49, 62, 118 living standards 3, 4, 205, 207 Lagos, Nigeria 18, 102, 194 L’Oréal 37 land and real estate 55–57 Lula da Silva, Luiz Inácio 120

Emerging Markets.indd 232 05/11/2013 17:05 Index 233

m market opportunities 22–32 Mac 400 electrocardiogram (EEG) bottom of the pyramid 26–27 machine 71 characteristics of emerging McKinsey & Company 18, 19, 24, markets 22–23 31, 93 demographics 28 2012 report 20–21, 97 due diligence 31–32 Maddison, Angus 4 exchange rate 31 Maduro, Nicolás 219 GDP 28–29 Malaysia 138–140 income 29–30 an ASEAN growth star 6 inflation 30–31 Bumiputera favoured 138, 140 local differences 27–28 doing business 139–140, 143 market research 38 economic indicators 139 middle of the pyramid 24–25 education 139–140 proxy indicators 31 foreign direct investment in 138 top of the pyramid 23–24 GDP 138 market share 23, 97, 156, 170 historical snapshot 138, 141 Massmart 89 Islamic finance sector 140 197 market dynamics 138, 141–143 MENA see Middle East and North open economy 138 Africa private consumption 138 202 private investment 138 mergers and acquisitions (M&A) race-based politics 138 112 strong manufacturing clusters Mexico 211–213 140 banking sector 213 management hubs see under Christmas bonus in 48 rebalancing and transformation corruption 213 managing talent and the distribution 65 workforce 42–50 doing business 212–213 labour costs 47 domestic economy 211 labour laws 48–49 drug-traffickers 213 localising talent 43–45 economic indicators 212 retaining high performers 45–46 economic liberalisation 211 the Western expatriate 42–43 energy sector 201, 212 workforce relations 49–50 financial crisis (1994/95) 211 Mango 10 foreign direct investment 200 manufacturing see under supply historical snapshot 211 distribution and marketing infrastructure 212 110 labour relations 213 Marcos, Ferdinand 144 manufacturing 200, 211, 212–213

Emerging Markets.indd 233 05/11/2013 17:05 234 guide to emerging Markets

market dynamics 211–212 multinational companies nearshoring 62 in Africa 190 per-head income 211 in Asia 130 second largest economy in Brazilian 122 Latin America 211 in Central Asia and the skill shortages 213 Caucasus 158 Walmart scandal 78 competition 10, 82, 83, 84 Mexico City 65, 102 expansion through acquisition Miami 102 85 microcredit industry 34–35 and Indonesia 135, 136–137 Microsoft 10 interest in Africa’s non-oil middle class, expansion of 20, sectors 189 22–23, 24, 107, 115–116, 120, 143 and land issue 57 Middle East and North Africa in the Middle East and North (MENA) Africa 168–169 Arab spring 8, 34, 169, 172 and need to be more local 10, consumer attitudes 169 27 employee demands 170 in Poland 161 GDP growth 169 and political stability 34 government spending 169 regrouping 98 international companies in relocating R&D 72 168–169 in Russia 128 market share 170 sale of unadapted Western middle class 170 products 10 new spirit of enterprise 170 taxation 39 overview 168–170 Western multinationals’ need resilient business 168 to change 2 young populations and high Mumbai High Court 37 birth rates 169 Muslim Brotherhood 175 Mitsui 61 Myanmar 11, 133 mobile phones 24, 37, 55, 113, 132, 151–152, 189–190 n Mondele¯z International 68 Nagpal, Harit 66–67, 96–97 money-laundering 77 Nairobi 102, 191, 192, 193 Monterrey, Mexico 102 “nano-stores” 65 Morsi, President Mohammed 175, NASSCOM 116 177 nationalisation 185, 203, 219 Motorola 74–75 NATO 159 Mubarak, President Hosni 175, natural resources, extraction of 35 176 nearshoring 62, 158

Emerging Markets.indd 234 05/11/2013 17:05 Index 235

Nehru, Jawaharlal 115 o Nestlé 10, 52, 81, 93 Obopay 73 New York Times 78 OECD 64, 198 Nigeria 194–196 Anti-Bribery Convention 76, 77 62, 158 regulations 196 Oreo 68–69 corruption 77, 193, 194, 195 output per person 5 counterfeit and “grey” products outsourcing activities 9, 66, 116, 196 140, 158, 161 democracy 194 business process outsourcing doing business 195–196 (BPO) 145 economic growth 194, 197 economic indicators 195 p energy reform 196 Pakistan 141–143 foreign investment 189 and Afghanistan 141, 143 historical snapshot 194 civil unrest and threat of independence (1960) 194 terrorist violence 141 international companies cotton crops devastated by 195–196 floods (2010) 40 market dynamics 194 doing business 143 military rule 194 economic growth 141 Muslim north/Christian south economic indicators 142 194 education 141 Nigerian law 196 financial services and telecoms oil dominance 194 sectors 142–143 political instability 194 foreign investment 142 telecommunications sector historical snapshot 141 194 infrastructure 143 violence 194 market dynamics 141–143 Nike 67 middle class 143 Nintendo 84 military coups 141 Nissan 135–136 power sector 141–142 Niyazov, Saparmurat 31 privatisation 143 Nokia 24, 52, 93 telecoms sector 142–143 non-governmental organisations a vital US ally 141 (NGOs) 191 Partido Revolucionario North America: R&D spending 72 Institucional (PRI) 213 North American Peña Nieto, President Enrique Agreement (NAFTA) 211 201 North Vietnam 153 PepsiCo 30, 82, 127–128

Emerging Markets.indd 235 05/11/2013 17:05 236 guide to emerging Markets

Peru 214–216 population 144 doing business 215–216 private consumption 146 economic growth 214, 216 and telecommunications 55 economic indicators 215 unemployment 145 GDP per head 214 Pinochet dictatorship 205, 207 historical snapshot 214 Pirelli 10 infrastructure 216 Tribune-Review 74 labour market 216 Pizza Hut 27 market dynamics 214 Poland 157, 159–161 market reforms 216 banking sector 159 middle class 214 business growth 22 mineral deposits 214–215 competition 160–161 population 214 doing business 160–161 private investment and economic growth 160, 161 consumption 214 economic indicators 160 rural communities 215 education 161 Shining Path 214 emergence from communism social conflict 215, 216 159 Petróleo Brasiliero () 122 historical snapshot 159 Petronas 39 infrastructure 159 Pfizer 10, 78 manufacturing 161 philanthropy 79–80 market dynamics 159–160 Philip Morris International 157 NATO and EU membership 159 Philippines 144–146 outsourcing services 161 BPO business 145 politics improving 159 call centres 131, 145–146 small and medium-sized corruption 144 enterprises 161 doing business 145–146 weathers 2008–09 crisis 17 economic growth 144 polycentric innovation 73 economic indicators 145 portfolio capital 117 education 145 156 export industry 144, 146 Posco 37, 119 foreign investment 144 poverty GDP 144 and BRICs 107 historical snapshot 144 and low output per person 5 infrastructure 144, 146 reduction in 107, 120, 132, 200 labour force 144–145, 146 statistics of 26 manufacturing sector 146 see also under individual market dynamics 144–145 countries mineral resources 144 Prahalad, C.K. 26–27

Emerging Markets.indd 236 05/11/2013 17:05 Index 237

prices Latin America 102 commodity 108, 132, 200 the new neglect 94–95 consumer 20 regrouping: new geographical electricity 192 organisation 98–100 energy 126, 184 large strategic units 99–100 expectations about 29 organising around cities 100 land 56 small country clusters 99 oil 125, 127, 129, 169, 182, 207 relocating: more big boots on property 101 the ground 97–98 volatile 30, 138 rethinking: an emerging-market private consumption 20–21, 30, mindset 103–104 121, 131, 135, 138, 146, 185 relocating 97–98 privatisation 33, 125 Repsol-YPE 203 Procter & Gamble 37, 93 reshoring 62 property see infrastructure and resources-for-investment deals 189 property reverse innovation 71 protectionism 9, 17, 120, 123–124, 35 203–204 risks public-private partnerships (PPPs) and business environment 4 122, 133 for foreign firms in Iran 181 Puea Thai Party 150 government interference 37 purchasing-power parity (PPP) 15, intellectual property 75 30, 122, 130, 150, 162, 165, 211 level of 23 Putin, Vladimir 125, 127 political risk in Africa 188 security risks in Iraq 184 q spreading 60–61 quality-certfication procedures 41 and strong local presence 168 Roberson, Dennis 74 r 156, 157 R&D see innovation and R&D 134 Radjou, Navi 73 Rousseff, Dilma 120, 122 Rand 71 Rowhani, Hassan 179 Razak, Dato’Sri Najib 138 Russia 125–129 real estate, land and 55–57 acquisitions issue 89 rebalancing and transformation automotive industry 21, 129 93–106 business connections of groups corporate transformation 95–96 within government 36 key principles 96–97 Coca-Cola advert 67–68 management hubs 101–103 company expansion in 91 emerging Asia 101–102 competition 127, 129

Emerging Markets.indd 237 05/11/2013 17:05 238 guide to emerging Markets

corruption 77, 125, 127 Saudi Arabia 99, 170, 175, 185–187 crisis of 1998 125 Al Saud family 185 currency devaluations 30, 125 capital expenditure 187 doing business 127 competitiveness 185–186 drives its neighbours’ doing business 186–187 economies 157 domestic demand 187 economic growth 7, 126 economic diversification 185, economic indicators 128 186 education 126 economic growth 185 foreign direct investment 128 economic indicators 186 GDP 126, 128 foreign-currency reserves 185 GDP per head 125 government spending 185, a growth market of global 186–187 significance 157 historical snapshot 185 historical snapshot 125 job creation 185–186 inflation 108 market dynamics 185–186 labour laws 48 nationalisation 185 market dynamics 125–127 oil dependency 185 maxi-devaluation 8 poor payer 187 middle class 125 second largest economy in oil/gas 125–127, 156 MENA 185 poor demographic outlook stability issue 185, 186 125 Schneider Electric 10, 97–98 poor image in Seattle, Washington State: 127 economic growth 18 poverty reduction 107 Selena Group 53 private consumption in 30 September 11th 2001 terrorist redundancies 49 attacks 141 regional structures 100 SEZs see special economic zones rivalries between government shadow economies 29 factions 34 Sharma, Amit 37–38 trade bans 41 Shell 10, 166 underinvestment 108 , China 40 working visas 49 Shia Muslims 182 Shinawatra, Thaksin 150 s Shinawatra, Yingluck 150 Sabanci Group 163 Shining Path 214 Samsung 84, 147 Shtokman gas field, Arctic 126 Santiago 102 Siemens 10, 56, 77 São Paulo, Brazil 102 Singapore 6, 101–102

Emerging Markets.indd 238 05/11/2013 17:05 Index 239

Skoda 49 economic growth 147, 149 56, 57, 157 economic indicators 147 Slovenia 156, 157 foreign direct investment 149 Smart-Connected Communities free-trade agreements 149 95 GDP per head 147 SMEs (small and medium historical snapshot 147 enterprises) 83, 122–123, 124, 161 household debt 147 Somali government 193 interest in Africa’s non-oil Sony 84 sectors 189 South Africa 188, 197–199 market dynamics 147–148 regime 197, 198 pace of growth 22, 147, 149 banking sector 197 R&D 147 capital markets 197 relations with 149 doing business 198–199 robotics 147 economic growth 198 services sector 148 economic indicators 199 strong domestic companies 147, historical snapshot 197 149 income inequality 198–199 South Pars gas field 181 industrial action 198 South 193 infrastructure 189 South Vietnam 153 labour laws 198 South-East Asia market dynamics 197–198 ASEAN growth stars 6 mineral wealth 197 Asian Tigers 6 non-energy investment 189 south-east Europe (SEE) 156–157 population 197 Soviet Union, fall of (1989) 6 productivity 198 Spain: boom and bust 160 residual influence of apartheid special economic zones (SEZs) 39 36 61 retail sector 198 Standard Chartered Bank 37 right to strike 49 Starbucks 60 telecommunications sector 198 Startup Chile 207 unemployment 198 state-owned enterprises (SOEs) unique position in Africa 197 110, 112, 153, 154 violent crime 197 strikes 49, 113, 170 South Korea 147–149 Suez Canal 175 ageing population 147 Suharto, President 135 an Asian Tiger 6 Sunni Muslims 182 chaebol (industrial supply, distribution and conglomerates) 147 marketing 58–69 doing business 148 choosing suppliers 59

Emerging Markets.indd 239 05/11/2013 17:05 240 guide to emerging Markets

distribution 64–67 Thailand 6, 131, 150–152 choosing and managing constitutional monarchy 131, distributors 66 150 creating a distribution consumer market 150 network 66–67 doing business 151–152 integrating suppliers 60–61 economic indicators 151 the manufacturing revolution education 151 61–63 floods (2011) 150 advanced manufacturing foreign direct investment 150 techniques 63 GDP 150 automation versus low-cost GDP per head 131 labour 61 historical snapshot 150 global manufacturing 63 infrastructure 151–152 reshoring, nearshoring, investment in 150 offshoring 62–63 labour costs 152 marketing 67–68 lack of English-language monitoring supply standards proficiency 152 60 market dynamics 150 supply chains 58, 117, 198 military coup (2006) 150 Symantec 116 minimum wages 152 Syria 168 power struggle 150 civil war 163 productivity 152 reliant on exports 150 t telecoms technology 151–152 Taiwan 6 TNK-BP 127 talent management see managing tourism 154, 171, 175, 189, 191 talent and the workforce Toyota 10, 58, 61 189 Prius 60 tariffs 4–5 trade unions 49, 50, 81, 113, 213 Tata Group 70, 85 transformation see rebalancing Tata Motors 119 and transformation Tata Sky 66, 96 Transparency International, TCI 58 Corruption Perceptions Index Tedjarati, Shane 1–2, 83–84, 85, (2012) 77 103–104 168 Telkom 198 Turkey 162–164 Telmex/América Móvil 211 competition 163 Tesco 87 current-account deficit 163 Thai Rak Thai government customs union with the EU 164 150 demographics 162

Emerging Markets.indd 240 05/11/2013 17:05 Index 241

disabled workers 48 heavy industry 165 doing business 163–164 historical snapshot 165 economic indicators 164 independence from the Soviet economic liberalisation 162 Union (1991) 165 energy issue 163 market dynamics 165 financial crisis (2001) 162 oligarchs 167 financial system 162 Orange Revolution (2004) 33, GDP per head 162 165 health-care sector 162, 164 reliance on gas imports from historical snapshot 162 Russia 166–167 infrastructure 162, 163 retail and services sectors 165 investment in 10 Yanukovych regime 33 Kurdish issue 163 unemployment 36, 145, 172, 175– labour-market regulation 163 176, 198, 210 large-scale protests (2013) 162, Unilever 10, 26, 65, 72, 74, 93, 103, 163 116, 135, 157 low indebtedness 162 (UAE) 43, market dynamics 162–163 170–171, 175 military coups 162 diversified economy 170 political risks 163 economy dependent on tax system 163 immigrant workers 171 transport issue 52, 163 GDP 171 Turkmenistan 31, 158 importance as a regional hub Tymoshenko, Yulia 33, 165 170 infrastructure 171 u third largest economy in MENA Ukraine 22, 157–158, 159, 165–167 170 agricultural sector 165 (UN) 190 banking system 165 Millennium Development corruption 167 Goals 80 currency 165 (US) doing business 166–167 automotive sales 21 economic boom 165 China forecast to overtake the economic indicators 166 US 7, 15, 107, 130 foreign investment 165 free-trade agreements 205, 208 free-trade agreement with EU industrialisation 4 167 investment in Africa 189 GDP per head 165 largest economy in the world 4 hard-hit by 2008–09 financial North American Free Trade crisis 165 Agreement (NAFTA) 211

Emerging Markets.indd 241 05/11/2013 17:05 242 guide to emerging Markets

reshoring 62 Vietnam 61, 131, 152, 153–154 start of recovery 17 banking system 153 UnitedHealthcare 121 centralised economy 131 University of Groningen 4 communist state 131, 153 University of Maryland: Smith corruption 154 School of Business 42 currency devaluation 153 urbanisation 1, 18, 21, 26, 54, 100, doi moi (economic renovation) 116, 130, 132, 154, 188 programme 153 US Foreign Corrupt Practices Act doing business 154 (FCPA) 76, 78 economic growth 153 US Securities and Exchange economic indicators 155 Commission (SEC) 77–78 financial services 154 Uzbekistan 158 foreign investment 153, 154 GDP 153 v GDP per head 131 Vaca Muerta shale formation 202 historical snapshot 153 value chain 3, 79, 81, 136 inefficient state-owned Venezuela 12, 217–219 enterprises 131 chavismo 217, 219 inflation 131, 153, 154 corruption 217, 218 infrastructure 154 doing business 217–219 manufacturing 153 “Dutch disease” 217 market dynamics 153–154 economic growth 217 population 153–154 economic indicators 218 state-owned enterprises 153, economic volatility 217, 219 154 falling GDP 17 tourism 154 government attitudes 218–219 urbanisation 154 historical snapshot 217 Vietnam war 153 inflation 207–208 Visser, Wayne 79 labour laws 218 Vodafone 37 lags behind as an investment VoIP (voice over internet protocol) destination 219 198 market dynamics 217 Volkswagen 49–50 nationalisation threats 219 Volvo 85 natural resources 217 population 217 w poverty and inequality 217 Walmart 78, 89, 189, 198 price and exchange controls Warsaw 102 218 Water and Development tax regime 218 Authority (WAPDA) 142

Emerging Markets.indd 242 05/11/2013 17:05 Index 243

Western expatriate employees y 42–43 Yahoo! 116 Wimm Bill Dann 128 Yanukovych, Viktor 33, 165, 167 Wipro 70 Yeltsin, Boris 125 Wong, Stanley 37 Yemen 168, 176 workforce relations 49–50 Yunnan province, China 60 26, 53, 197 (WEF) z 144, 146 Zara 82 World Trade Organisation (WTO) ZTE 84 40, 110, 112, 126, 141 Wuttke, Joerg 59

x Xintang, China 40

Emerging Markets.indd 243 05/11/2013 17:05