The Changing Global Landscape - SIS International Research

8/14/2019 The Changing Global Landscape - SIS International Research

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THE CHANGING GLOBAL LANDSCAPE

USING CI TO UNDERSTAND THEBEHIND-THE-SCENES MARKETS

IN CHINA, THE EU AND LATIN AMERICA

Presented by: Ruth Stanat

President and CEO, SIS International Research

May 2007

SIS International

Custom Research


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RISING POWERS: THE CHANGING GEOPOLITICAL LANDSCAPE

19th Century the rise of Germany

20th Century the rise of the American Century

21st Century the rise of the developing world [e.g. China and India]

Trends:

Europe and Russia will decline dramatically in relative terms vis--vis China, India, Braziland other developing countries e.g. Indonesia

Only an abrupt reversal of the globalization process or a major upheaval in these countrieswill prevent their rise

Using CI Behind the Scenes:

Apply a macro socio-geo-political framework to all CI analysis


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THE POWER OF CHINA, INDIA AND OTHER EMERGING MARKET

ECONOMIES

Chinas population 1.4 billion and Indias population 1.3 billion

China, the worlds third largest producer of manufactured goods 12% of the worldsmarket share; can easily surpass Japan in a few years

Chinas and Indias need to access energy suppliers

The global impact of the rise of Brazil, South Africa, Indonesia and Russia


Continue to monitor the shifts in emerging markets and global economicconditions to ensure that our clients have a framework for short and long termplanning

Continue to monitor the demographic shifts in these countries as a competitive

landscape for CI analysis


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THE POTENTIAL FAULT LINES OF

CHINAS 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


Incorporate these strengths and weaknesses of the Chinese economic landscape into the CI analysis forChinese companies

US -beware of local Chinese companies as emerging competitors

Track their copying patterns of international brands and products Continue to develop a SWOT analysis by Chinas cities, regions, industries and product sectors


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LONG TERM PROSPECTS INDIA VS. CHINA

India may overtake China due to:

Its working-age population will continue to increase well into the 2020s compared to Chinas one-child policy which will diminish Indias well-entrenched democratic institutions less vulnerable to political

instability vs. China will continue to reconcile an increasingly urban and middle-class population with an authoritarian political system

Indias working capital markets and world-class firms in some important high-techsectors, which China has yet to achieve


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LONG TERM PROSPECTS INDIA VS. CHINA

Chinas ability to sustain its current pace and is probably more at risk than Indias. Should Chinasgrowth slow by several percentage points, India could emerge as the worlds fastest growingeconomy in 2020.


Researchers should benchmark their CI Analysis in competing emerging countries [BRIC Brazil, Russia, India and China]

Forecast a long term perspective

Consider potential competitors entering other low-labor cost countries [e.g. Vietnam,Cambodia, Laos, etc.]

Consider the energy constraints in these markets


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POTENTIAL GROWTH OF OTHER COUNTRIES AND REGIONS

US vs. Other Regions of the World: Over the last 60 years, manufacturingemployment in the US has plummeted as these industries went abroad yet averageAmerican incomes have risen to the highest in the world.

Latin America: During the past three years, the Latin American economies haveimproved.

Brazil: viewed as a pivotal state 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 courting Brazil as a trading partner.

The Brazilian ;president hopes that China and Russia would join the G3 group ofemerging nations formed by Brazil, India and South Africa, to counterbalance US andEU dominance of global trade.

Argentina: has recovered from its financial meltdown earlier this decade, however,must monitor its inflation.


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POTENTIAL GROWTH OF OTHER

COUNTRIES AND REGIONS [contd.]

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 worlds largest developing countries.

Using CI Behind the Scenes: Companies must have on the ground CI contacts in these countries to conduct

the research

Test the credibility factor in these local markets as the information may be

conflicting and/or inconsistent

Hire a local consultant to test the validity of your teams findings


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POTENTIAL GROWTH OF OTHERCOUNTRIES AND REGIONS [contd]

Russia: Russias energy resources will give a boost to economic growth yet low birthrates, poor medical care, and potential explosive AIDS situation.

Northeast vs.Southeast Asia:

Northeast Asia [Non-Islamic e.g. Japan, China and South Korea etc] will becomewealthier and powerful.

Southeast Asia [Islamic fundamentalists e.g. Indonesia, Malaysia, and parts of thePhilippines] will face deep ethnic and religious cleavages.

Bottom Line: The roles of China, Japan and the US will undergo significant changeby 2020.


The CI analysis must be researched within a global context including NorthAmerica, EU, Asia and Latin America

Competitors must be research and analyzed on a global, regional and country by

country basis. Matrices must be develop to benchmark competitors on this basis.


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THE DRILL DOWN ON CHINA

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 worlds disk drives; 70% of the worlds photocopiers and 80% of theworlds Christmas trees

China is one of Americas chief creditors; America will continue to fuel Chinas growth by buyingChinese goods

The Challenges

Communist party struggles

Private sector lacks funding

Tax hikes

Economic disparity

Taiwan issue


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THE DRILL DOWN ON CHINA [contd]


Research the risk of the intellectual property issue in China [short, medium and long term]

Research the long term economic environment of China for remitting profits back to NorthAmerica or the EU

Quantify the long term financial gains vis--vis the potential for a potential domestic marketshare in this fast growing, dynamic market.


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The CI Challenges of China

Market Research

1999: Only SSB is able to release government statistics

1999: Non governmental and local survey organizations are unauthorized to conductnational market research and are not authorized to release national statisticalinformation.

1999: Each market surveys 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: Piracy of ideas in China is rampant. If we can make it, they can fake it.- Robert Zoellick, US Trade Representative, February 27, 2004

Using CI Behind the Scenes: Conduct due diligence in terms of Intellectual Property CI research

Secure bi-lingual experts

Provide a realistic CI analysis for clients in terms of the potential IP threats in China


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INDIA RISING

According to Goldman Sachs, over the next 50 years, India will be the fastest growing ofthe worlds major economies [because its work force will not age as fast as the othereconomies].

By 2040, India will become the worlds third largest economy.

Indian companies are growing at an annual rate of 15-25%.

Indias growth is perceived to be bottoms up rather than top down and planned. Indias growth is in spite of the government not because of the government.

Indias companies use their capital more efficiently than Chinese companies.

In India, the individual is king.


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INDIA RISING [contd]

Indian consumers are gearing up for action and are beginning to take on mortgages rather thansavings.

Personal consumption represents 67% of GDP in India vs. 42% in China. [Only the US is higher at70%].

Credit card industry in India growing at 35% a year.


Conduct on the ground research in this market not desk research

Conduct talk to the customer research in this market

Formulate local contacts to execute the BI/CI research

Consider the governmental/ political barriers to market entry in this country and a realistictimeframe


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INDIA RISING [contd]

The Pros:

Has a sustained democratic government for over 60 years.

Current government is committed to economic reform.

Indias 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 124out of 177 countries in the world.

While the Indian entrepreneurs and consumers are confident, the Indian state is perceived [by thepress] to be hesitant, cautious and suspicious of the changing world around them.

The Bottom Line:

Indias society is open, eager, and confident to take on the world.

The US may be happy to join forces with India for global dominance.

Using CI Behind the Scenes: Benchmark Indian firms vis-a-vis Chinese competitor firms for a realistic assessment of the future competition

on Asia

Conduct competitive pricing scenarios vis--vis these countries


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SHIFTS IN GLOBAL FOCUS

Global Aging and Migration: Approximately one-half of the worlds population lives in countrieswhose 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.].

Japans Economic Interests in Asia have shifted from Southeast Asia toward Northeast Asia[e.g. especially China and the China-Japan-Korean triangle].

An Enlarged Europe will have the ability to increase its weight on the international scene. The EUs 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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SHIFTS IN GLOBAL FOCUS (contd.)

The EUs growing diversity of its population provides it with an ability to forge strong bonds both tothe south with the Muslim world and Africa and the east with Russia and Eurasia.

EUs challenge: Unlike finding Ireland, Spain, Portugal and Greece, the EU has lesser funds tobring 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 alesser degree, Russia and Japan.

Using CI Behind the Scenes: Benchmark competitors on a global basis: North America, Europe, Latin America, Asia Pacific

Weight the risk/reward trade off factors by region and country

Always incorporate a CI Global Perspective in your analysis


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THE FUTURE SUPERPOWERS

THE EU: depends on whether it under takes major economic and social reforms to deal with its agingworkforce problem. The EU must initiate:

More legal immigration and better integration of workers coming from North Africa and the MiddleEast

Increased flexibility in the workplace; e.g. encouraging young women to take a few years off tostart families in return for re-entry into the workplace in the EU

A solution to avoid its being dragged down by Germanys 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 nearlydouble its consumption of energy by 2020 to maintain a steady rate of economic growth. Chinawill strive to be less dependent on the US.

Chinese firms are investing overseas projects in the Caspian region, Russia, the Middle East, andSouth America in order to secure more reliable energy sources.


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THE FUTURE SUPERPOWERS RUSSIA

[CONTD]

Russia, as the largest energy supplier outside of OPEC, could be well-positioned tomarshal its oil and gas reserves to increase its supply of the EU demand from 27% to 31%by 2010.

Algeria, which has the worlds eighth largest gas reserves, is also seeking to increase itsexports to Europe by 50% by the end of this decade.

US UNIPOLARITY HOW LONG CAN IT LAST?

Growing numbers of people around the world, especially in the Middle East and thebroader Muslim world, believe that the US is bent on regional domination.

In the future, growing distrust of the US could discourage support of US interests and theformation of asymmetric military capabilities as a hedge against the US.


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CONCLUSIONS

Not only is the world not flat it is convex

CI analysis must be conducted in this fast paced and rapidly changingworld

CI information gathering methods must differ from region to region andcountry to country

The challenge is to conduct short term research in a rapidly changinglong-term balance of power global environment

Documents

The Changing Global Landscape - SIS International Research