Book Review_BreakoutNations_PPT.pptx

7/27/2019 Book Review_BreakoutNations_PPT.pptx

1/20

Book ReviewBreakout Nations

Author Ruchir Sharm

Pushp Toshniwal (115

Ayush Gupta (11180)


2/20

ABOUT THE AUTHOR

RUCHIR SHARMA,author of Breakout Nations, is the head of MStanley Investment Management based in New York. His main job constantly juggle a total corpus of over $20 billion of global investofunds which Morgan Stanley has deployed in the emerging marketstocks of Asia, Africa and Latin America. He travels to these countfor a week every month to understand the deeper political andeconomic dynamics of these nations.The book is born out of his experience of watching closely theseeconomies for over 15 years.


3/20

INTRODUCTION Offers a picture of state of economy in different countries across t

globe. Era of easy money and easy growth is over. Abandon the habit of simply extrapolating from general global tre

and look at emerging markets individually.


4/20

Book covers most growing economies across Asia (China, India,Indonesia, South Korea, Taiwan, Philippines, and Thailand) Latin

America (Brazil, Mexico) Eastern Europe (Turkey, Czech RepubliPoland, Russia and Hungary) and Middle East countries like SoutAfrica. Countries like Nigeria, Sri Lanka and Vietnam are considefourth world countries which would take longer than emerginmarket countries to be next breakout Nation.Further the nations considered above are classified based on theircapita income

Authors major focus in identifying the Breakout Nation is on theeconomic as well as political conditions of a particular country anthe factors driving economic growth.


5/20

PARAMETERS USED FOR EVALUATION: GDP growth of the country and its average per capita income distribution of wealth Foreign Policy Proportion of GDP spent on consumption and investment Total debt as percentage of GDP Trend of youth and productive population


6/20

Stock Exchange Dependence on export and foreign investment Size of domestic market High capacity utilization rate Basic infrastructure and spending at home

Political capability of the country to support growth Tax burden Currency value


7/20

CHINA The current economy size of China is $6 trillion a year. However,

are visible signs of slowdown in economy. China has cuts its growforecast to around 6-7% over next two-three years, compare todouble digit growth last decade.

High proportion of population falls in same income class (around$5,000 annual per capita income). It has few millionaire andbillionaire and none of them have wealth of more than $10 billion

The country is facing the disappearing the advantage of cheap labon account of Strengthening of Yuan High Inflation Wage increases faster than employees productivity Ageing of population


8/20

Wages for unskilled labor is growing at faster pace than for skilledlabor, thereby

Increases the bargaining power of laborer Increase in instances of strike and walkouts by laborer

The current position of China is similar to that of Japan in 1970s,Taiwan in 1980s and Korea in early 1990s.

Investment share of 50% to GDP enabled China to achieve highgrowth last decade, and it continues to grow at faster pace incomparison to consumption share. However, the basic infrastructu

(roads, telecommunication) is reaching its maximum capacity. The domestic consumption as share of GDP is falling, in spite of t

fact that Chinese consumption is growing. Further, there is a ban advertisement of luxury goods to restrain consumption among youand encourage savings.


9/20

Liberal credit terms and increase in availability of houses, increasthe real estate prices in major cities which was addressed throughSocial housing plan.

Although the official government debt is low, it experience high dof combined government companies and household. Also there ispresence of shadow banking sector

Chinese stock market does not facilitate investment by foreigners.Shanghai stock exchange list mostly state owned enterprises.

High possibility to be Breakout Nation


10/20

INDIA India have an advantage in form of

broad command over English which makes it easy for them to approach outside

world High proportion of youth in demographic provides India a competitive age over

emerging economics (average Indians age would be 29 years by 2020) Has an entrepreneurial zeal and access to global economy which would not lead

high unemployment once the youth reaches workforce age. Per capital income is less than $5,000. However, India has total of 55

billionaires whose combined net worth is $246.5 billion, which accoun17.2% of the GDP. This indicates concentration of wealth in hands of fe

Currently the government is incurring high expenditure on food subsidand to provide employment guarantee, which is likely to pave way forhyperinflation. Further, the deficit spending to provide basic necessitiepoor may give rise to debt problem.


11/20

Currently India is facing issues to maintain its GDP growth of around 5 Indian businessman prefers to setup companies aboard and thereby the

investment within the country is falling, which is an adverse factor for growth. Almost 50% of the earning of top 50 companies in India isdepended on exports and international acquisitions

There is a presence of crony capitalism undermines competition and sldown economic growth

The commodity boom benefitted states with high proportion of naturalreserves and high agriculture produce. This increased the per capitaincome and thereby, the demand for aspirational and luxury goods.

Presence of wide diversity so the concept one size fits all does not woIndia. So marketing a product in India requires much detailed research conscious efforts by brand manager

Moderate possibility to be breakout Nation


12/20

BRAZIL Worlds leading exporter of raw material sugar, orange juice

poultry, beef. The strong demand for export drives up the currency value makin

export expensive for outsiders. It faces high Interest rate. The country spends too little on basic infrastructure (roads, airpor

factories, supply chain) and citizen welfare (low investment increating school or generating skilled labor workforce), which hasincreased inefficiencies and thereby overall transportation cost.

Although, it has per capital income of $12,000. The high capacityutilization rate of 84%, makes labor expensive.

In past, the economy experienced devaluating currency andhyperinflation started in 1980s, reached its peak in 1994.


13/20

It is one of the most closed economies among emerging markets,with total import and export accounts for only 15% of GDP.

The government has huge reliance on tax income, with tax burden38% of GDP, which is highest among emerging market countries.

The education level is very low with average schooling age of aro7 years. This makes it difficult for the country to obtain skilled lab

Current focus: manage and stabilize exchange rate, interest rate anflow of foreign money in and out of the country

Low possibility to be a Breakout Nation


14/20

RUSSIA It has an average per capital income of around $13,000 and expenditur

consumption is one of the highest. Further, the sale of auto and luxury

is increasing at around 20%, leading to worst traffic jam in and aroundcapital city. It has high proportion of income inequality, as it is a houseover 100 billionaire individual in Moscow but does not have manymillionaires.

In Russia, there is excessive government control over strategic sectors loil and gas. As the economy is protected by state, the proportion of smaand medium size companies is very low compare to other emergingmarket.

The basic infrastructure is poor with frequent power outrage, lack of connectivity between top three cities, aged railways fleet and poor roadtransport.

The Country experience slow growth rate but faces high inflation, whictranslates into growth rate that is sharply falling.


15/20

Moscow stock exchange does not have any global manufacturing listed.

It has increasing proportion of aging population and reduction in

working age population. Further, the immigration into the countryalso low. In addition, the overall population size is small and dispwhich gives rise to logistical challenges in transportation of itemsbasic necessities.

Banking system is poor and mortgage market is almost non-existeRussians avoid depositing money in banks, thereby makes it diffifor Russian bank to lend out efficiently. Heavy investments like buhouse are also transacted in cash.

Reliance on foreign borrowing is high, thereby experienced severadverse effect during 2008 economic crises.


16/20

The high level of presence of crony capitalism with the country hgiven rise to Special job category to deal with bribe-seeking publiofficials within all corporate.

Skolkovo, a city 500 miles west from Moscow has an incubator fostartup technological companies.

To be a breakout Nation, Russia need to find an alternative source of earning and reduce its reliance on commodity export.


17/20

SOUTH KOREA The country have experience growth rate of more than 5% for ove

five decade. It has per capital income of more than $20,000, and it is able to

maintain income equality. South Korean consumption expenditurehas fallen and as they are now regarded to be suffering fromboomophobia .

Korean Stock exchange is open to foreign investor, who owns morthan one-third of Korean stocks.

The economy is heavy dependent on manufacturing sector, whichexpanding steadily. However, it has not been able to develop servisector. The universe of manufacturing industry ranges from cars toaerospace, robotics to biotech and rechargeable batteries to materiscience.


18/20

Further, the companies invest heavily in R&D and much effort is mto reduce income inequality. Exports has grown steadily over pastdecade and now account for almost 53% share in GDP.

Samsung, Hyundai and LG are the top three Korean companies thhave global presence today. Further, other Korean companiesproduce wide range of products, have higher pricing power andstrong profits compare to its global peers.

Korean prefers to invest in home country rather than investing in

foreign countries. This personal drive of Korean has boostedmanufacturing sector within the country.

Apart from manufacturing Korean have brought innovation in stoscript, films and music.


19/20

The Korean stock are normally traded at discount to its value as mof its business are family owned, which is seen as more interestedgenerating market share rather than profits. To overcome, thissituation, many reforms with respect to financial reporting andfrequency of reporting are introduced within the country.

Further, the banking sector is under-developed; as a result largecompanies are dependent on external funds.

High possibility to be Breakout Nation .


20/20

CONCLUSIONBreakout Nations defies conventional theories and the author does nfollow the path expected. He finds healthy economics even behind architecture and believes a leader who gets economy right can getaway with almost anything in politics.The book speculates on the basis of historical and present experiencas to which nations from among the emerging economies will actuabreakout and move to the high income category.

Documents

Book Review_BreakoutNations_PPT.pptx