Session at Northeastern brings strategic insights to global markets.
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Sixty percent of the world’s customers will come from Emerging Markets (EM). A new demographic is rising in emerging economies that are global and open. And right now, the US is getting skittish about globalization. Was this a good thing? Our role in globalization is now being questioned by politicians and citizens. This and other topics were covered at a Northeastern Center for Emerging Markets event, hosted by Ravi Ramamurti, Professor and Director of the Center.
Whatever side you fall on—this was the worst thing that developed countries did to open up China and Asia, vs. an exciting path forward, a win/win situation for the globe—“We have to learn to deal with globalization,” stated Professor Ramamurti at the kickoff for this insightful and stimulating event.
His points to the audience were thus:
Markets/Customers—60% of them will come from the emerging markets. These markets are loaded with huge demographics of young and upwardly mobile people. We want them as customers.
Production Platform—EMs will still be the low-cost producer for the world, though China is outsourcing manufacturing these days, too.
Center of Innovation—Ravi stated that we are seeing more innovation from Asia with the plethora of universities, in particular from India.
New mega corporations will emerge (already, like Reliance and others). He pointed to the past and the rise of Japanese and Korean companies now hosting global giants like Samsung and more.
Professor Ramamurti assembled a great set of speakers and panels. Here are some highlights:
Ron Somers, President US-India Business Council
Somers kicked off his session with a discussion on interests and markets aligning with India. India is becoming a security ally and a policy issue for the US since they are becoming a big customer of US Aerospace & Defense products. Beyond Defense, they are a source of trade in other strategic markets such as the Energy market, especially for renewable. India has a 150,000 MW demand and has to find a way to get energy services into the most remote areas. This could make India a great partner and customer for US energy products and services. We all know the Indian high-tech and Life Sciences power. That is the upside. However, India still has great challenges with the 600M people who live on $2 a day. India has had a great economic explosion that made a lot of people wealthy, but the challenge is how to bring others along. India has rising discontent, Maoist insurgencies; the States of Bihar and Uttar Pradesh have a 50% illiteracy rate. Yet with all that, huge investments are being made and innovations are there. India’s new auto costs 1 lakh rupees equal to two thousand US dollars! Couple that with a $1.7 trillion infrastructure build up. There will be an explosion of roads and drivers in these new vehicles that could also revolutionize the global auto market.
Money is not just going one way. Essar Steel, for example, with its investment in US, is one company from which we can learn efficiency, Somers stated. They can mine in Virginia and Montana, ship raw material to India, make end products and ship them worldwide, and make money!!!
Why India, he concluded? It’s the world’s largest democracy with 1/5 of the world’s population. We can solve big problems together, like water and air pollution and extreme weather. We have been working with India on combating human trafficking, and on terror and drug trafficking from Afghanistan. We can understand each other’s language and legal ‘culture.’ With 30,000 colleges and 70% of the population under 35 and 54% aged 25 or under, India is embracing free markets!
Steven Bipes, Executive Director, Brazil-US Business Council
Forecast—Brazil may be the 5th largest economy, soon. It is the 8th largest economy today and predicts 7% growth this year (p.s. Brazil has no debt). Their middle class is up by 17% since 2002. Of course it is the largest economy in South America, with Sao Paulo's GDP bigger than the entire Argentinean economy!
Many know that Brazil prides itself on its energy independence, and it is a net exporter. They plan, Bipes says, for $220B investment in energy and focus on renewable. There is a lot of innovation in the country with many PhDs, but Brazil needs to connect research to development—to business—in order for the research to add value. So expect more from Brazil. We will come back to Brazil in conclusions below.
Ryan Ong, Director, Business Advisory Services, US-China Business Council
Also in their survey, 66% of the companies stated that China was one of the top five priorities, with many stating it as number one. (Clearly we are obsessed with China). Another myth concerns making money in China. Can you make profit in China? Their survey says yes you can, and they do.
However, it is no matter that China is reviewing trade policies in anti counterfeiting; their IP problems are big, not only with exports (China is the biggest exporter of counterfeit IP) but also within their own country.
The China story is not over, at all. Great opportunities exist in the second tier cities in China (like Jilin, Shenyang, Nanjing, Chengdu and more) which are large untapped markets with infrastructure vs. the well-established markets of Beijing, Shanghai, Hong Kong, etc.
More problematic markets were discussed, for example doing business in Russia, by today’s standards a pretty small market, except for key industries.
Other sessions covered sourcing from EMs, selling into EMs, and a great case study of Hasbro.
The Big Issues in Emerging Markets
Intellectual Property Rights—this is a persistent and growing larger issue in all these markets. Though momentum is toward the EM markets, this issue will slow down their growth and continue to cost the US billions in recovery, legal fees, tax dollars going to customs inspections and loss of revenue. And in the trade war between Brazil and the US, part of Brazil’s retaliation against the US is not only increasing tariffs and duties of US imports, but also stripping US companies of their Intellectual property rights in the country. “Suspension of concessions or obligations of intellectual property rights from the United States.“ It seems that Brazil, which established a patent office in 2005, is quite keen on protecting the IP of its own companies, but not so of the US’s. This is quite nasty. So mega companies, from industrial to consumer with great brands, are having their challenges, it appears. Have we connected the dots here? Saving money on the factory and then spending it on recovery?
Navigating the terrain is still an issue, as are getting licenses to operate (without connections and bribes - editor’s note) and protecting your investments. Though most nations there have organizations and ministries (along with our own Commerce Department) to understand the terrain, it’s still who you know that makes you successful in many markets.
One thing that kept jumping out at me was the alignment of interests. All the countries have huge challenges ahead—which we all shared: energy, pollution, care of citizens, public services and how to provide them.
If we look at globalism as an opportunity for win-win, we can collaborate more and have the capital to innovate towards:
Alignment of interests—working together on world problems—from global warming, to terrorism, to economic stability.
Healthcare—conquer disease and create low-cost and available healthcare
Education—with so much of the world still illiterate, there clearly is a worldwide market for elearning!
We have complementary trade opportunities—we are good at X, you are good at Y. The question is how to maximize the value to both sides and avoid conflicts and reprisals. Trade wars don’t work; both sides always have something the other needs. Negotiations and dialogue should always be our top activities (see next week, Dare to Ask, on negotiating).
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