Emerging markets continue to grow
02 August, 2012
Developing economies in Asia, South America and Africa continue to grow in spite of economic depression in the US and EU, says Ernst & Young in collaboration with Oxford Economics in their Rapid-growthmarket forecast (RGM). RGMs are likely to weather the ongoing Eurozone crisis and remain engines of global growth, though many will see expansion slow this year. Their expansion is expected to accelerate once more in 2013.
Youll find that the rapport is filled with astonishing achievements by emerging markets and the BRICS in particular, but what do these mean to you? There are many findings that could directly affect your business. For example:
The number of emerging markets households enjoying an income of over US$30,000 will more than double to 149m by 2020, overtaking the US (120m) and the Eurozone (116m). These households will have discretionary income to spend on leisure pursuits, consumer goods and holidays.
Up until now, most Western businesses would enter Asian markets because the availability of cheap labour to produce consumer goods for the developed world. In the coming years, we will see a reverse in trends: goods going from West to East.
Emerging market consumers are on average markedly younger than their rich-world counterparts, and are increasingly concentrated in cities, making them readily accessible. As they become richer, they want new homes equipped with modern amenities and filled with consumer durables. Sales in Western markets hinge upon replacement cycles and the pace of new household formation: in emerging markets, demand growth is much faster because many households are first-time buyers: that explains why refrigerator sales in China rose by 25% a year between 2005 and 2009.
It is not just the products that those new consumers are after, they are also looking for the same convenient ways to get them. This creates a demand for manufacturers of retailing equipment, but also for business-to-business services ranging from extension services for farmers to the development of software for tracking stock, transactions and customer profiles.
Entrepreneurs should not underestimate the opportunities in Africa: the continent has shown significant progress. For example, over the last ten years, mobile phone penetration has risen from less than 5% to almost 50% , and internet penetration is now at 10%. These are averages: some African countries perform better, and naturally urban areas are more advanced than rural areas.
Open trade policies have led to clustering of certain manufacturing sectors in certain areas, for example car production in Mexico, development of hair care products in Brazil. and Electronics production in China, Taiwan, South Korea and Japan. Low (labour) costs is only part of the motivation: production expertise and distribution networks are just as important. This is an important factor when consideration outsourcing.
RGMs can be leading innovation in particular areas, unhindered by the law of the handicap of a head start. Banking by mobile phone for example is well developed in Kenya and Brazil, but is a bigger step to take for many Western consumers. Innovation driven companies can benefit from consumer signals in RGMs to fine-tune their products.
As a side-note, the rapport calls on RMG governments to make the same mistakes as in the developed world: Asian consumers safe rigorously against old age and misfortune and must be persuaded to save less and spend more to become true consumers. It seems some western economist still think they know it best.
Overall, it is an interesting read and while the old economies prospects might look a bit bleak, emerging market have a bright future ahead of them.
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