Published: January 01, 2000
Everyone wants to be at the front end of the curve, whether that’s launching a new product or entering a new market. Early mover status can be an enormous advantage. Although globalisation and the consequent adoption of more open markets policies is a macro trend that is unlikely to reverse any time soon, we must face the reality that there are still just a finite number of new geographies to tap.
But that doesn’t mean today’s global enterprises lack enticing new market opportunities. On the contrary, one needs to look no further than the BRIC nations (Brazil, Russia, India and China) as an example of how potential becomes reality in a very short period of time. These countries have emerged as engines of growth for many of the world’s most successful businesses. Virtually every Fortune 1000 company and countless aspiring middle-market companies have a well-developed BRIC strategy by now.
Naturally, this begs the question: who’s next? What nations offer the most intriguing and greatest potential to evolve into coveted new business locations? In late 2005, a group of 11 countries — Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, The Philippines, Turkey and Vietnam—was flagged as offering enormous potential. These countries hold much promise and opportunity for the entrepreneurs embedded within every organisation. Moreover, the speed at which change is now occurring in these countries has never been greater.
At first blush these 11 nations appear to have very little common ground at all. It’s a mélange that spans the globe and covers both sides of the International Date Line. After double-checking the map, we see that this country group touches four continents and includes members from Latin America, the Middle East and North Africa, West Africa, Far Eastern Europe, and Central and Southeast Asia. If one takes into account religion, language and political structure, there might be even less commonality.
Size matters in establishing a new business, and no company is inclined to take on the substantial expansion risks without the probility of a large pay-off.
Yet for our purposes there are a few key underlying reasons that support the investment thesis and bind together this group of potential economic all-stars. Perhaps at the top of the list is that they all have significant demographic scale. Size matters in establishing a new business, and no company is inclined to take on the substantial expansion risks without the probability of a large pay-off. The large population in each country evidences the significant global impact that these nations could have individually and, especially, collectively.
In loose estimates, these 11 countries account for 1.3 billion people, which equates to almost 20% of the world’s population. Also impressive is the supportive underlying demographic trend. The populations of these countries are growing as compared to many of the more mature developed economies with greying populations. [[[PAGE]]]
Beyond sheer scale, these countries appear poised to vault up and out of the wealth curve. The emergence of a powerful consumer class is well under way in many of these nations, and it represents part of a broad, longer-term secular trend. These are the consumers of tomorrow, and all aspiring companies should be eager to step forward to meet this new and potentially explosive demand. When we consider that the consumption in most of these countries begins from a very low per-capita level, it’s easy to see just how great the opportunity might be.
Common themes certainly exist across this opportunity set, but just as interesting is the fact that the risks associated here are varied and diversified. Each country is at a different point of the development curve. They should not all be grouped into the convenient emerging market bucket, and they cannot be deemed equal in risk and reward.
South Korea, for example, boasts a much more mature market profile and established infrastructure than, say, Bangladesh or Nigeria. Turkey and Indonesia are further along the road to developed status as compared to Egypt. In each case there are varying degrees of economic and, not to be underestimated, political risk. The point is that the opportunity sets could not be more different, yet each is intriguing for different reasons. And it’s important to analyse each country in the context of the specific business opportunity at hand. The potential for a consumer products company in one country may not be the same as a commodities-based business in that very same nation.
It’s also important to point out that some of these countries offer similarities to (and move closer in lockstep with) mature economies, while others are legitimate frontier markets and less allied to the economic cycle in developed nations. Mexico often mirrors the US given its proximity and the impact of the North American Free Trade Agreement (NAFTA). In contrast, a diverse export-based economy on the other side of the globe like Vietnam is apt to behave quite differently.
The obstacles facing businesses entering new markets are many. Understanding tax regimes. Complying with foreign direct investment rules and limitations. Determining the best ways to fund local operations and expansions. And, of course, figuring out the most efficient ways to repatriate capital. These are all just some of the challenges associated with opening a new foreign business, to say nothing of the significant logistical and cultural impacts that will need to be navigated.
Of course, nobody said it would be easy. In fact, we can hear the echo from the boardroom already. “You want me to open a business where?” Perhaps such a comment should not be surprising given recent news flows from some of these emerging markets. This is when a little historical context might be helpful. One need only turn back the clock and consider post-war Vietnam in the early 1970s, or more recently, Brazil circa 1993 when it was struggling with an insanely high rate of inflation. Circumstances change, and the pace of that change is accelerating given the broader access to new technologies.
Ultimately, to properly gauge risks and rewards, a very deep dive needs to take place for each specific business opportunity. Countless inputs and variables must be considered. That type of analysis is neither possible here, nor the point of this article. Here we simply attempt to reinforce the notion that intriguing potential exists in these nations, albeit not without risk. [[[PAGE]]]
The People’s Republic of Bangladesh is a relatively small country by landmass but very large in demographic stature. With a total population of 159 million, it’s the seventh most populous country in the world and also one of the densest. GDP (purchasing power parity) was estimated at more than $259bn in 2010, with a real growth rate of 6%.
Cotton textiles and the garment industries are key drivers of the economy, and Bangladesh also has a vibrant agricultural sector producing rice, jute, tea and sugar. Service industry accounts for more than half of the economy, yet approximately 45% of its labour force of 74 million is employed in the agriculture sector.
Companies typically are drawn to Bangladesh for its low-cost but high-skilled labour force, as well as its agricultural resources. English is widely spoken, and the country has established itself as a competitive export site with dedicated export zones and tariff-free access to many markets. Bangladesh has been more successful in attracting capital in recent years, perhaps reflecting liberalisation of foreign direct ownership rules. The exports of labour to other Middle East nations, and the remittances back to Bangladesh, have also been cited in growing the domestic economy.
Key criticisms centre around the country’s poor infrastructure, overpopulation and underemployment. According to the World Bank, alleviating power shortages, raising public investment and removing the bottlenecks for private investment are all critical factors that need to be addressed to ensure sustainable growth. Bangladesh’s ranking in the World Bank’s Doing Business 2011 was 107.
Located in the northeast corner of Africa, Egypt is situated at the important geographic intersection of Africa, the Middle East and Europe. Approximately 82 million people live in Egypt. The Egyptian economy benefits from infrastructure that is more robust than many early stage development countries. In 2010, GDP (PPP) was estimated at $500.9bn with a real growth rate of 5.3%. The economy is supported by textile, tourism, and light manufacturing industries.
Egypt has a relatively good track record of instituting economic and market reforms, and as such it has been able to attract foreign capital. However, Egypt carries with it higher political risk, evidenced by the regime change of early 2011. Simmering food inflation and relatively high unemployment, especially among the young, will need to be addressed to preserve macroeconomic stability. Egypt’s ranking in the World Bank’s Doing Business 2011 was 94. [[[PAGE]]]
With 246 million people, the archipelago nation of Indonesia is the fourth most populous in the world, and its enormous labour force of 117 million people is poised to move up the wealth curve. Also supportive is its democratic political structure, which has recently implemented financial and tax reforms that continue to draw foreign direct investment. It’s helpful that the Jakarta Stock Exchange is well-established, which keeps Indonesia on the radar of emerging market investors.
In 2010, GDP (PPP) was estimated at $1.03tr, with real growth of 6%. The country benefits from a bevy of natural resources, including large reserves of oil, natural gas and timber. Indonesia is a major exporter of garments and footwear, as well as agricultural staples like rice, coffee, cocoa, and palm oil. Tourism is also an important industry for the economy.
Poverty and poor infrastructure are considered key risks for Indonesia. The World Bank estimates that 32 million Indonesians currently live below the poverty line, and nearly half the population is not far from the poverty line. Job growth, food inflation, and better infrastructure are often cited as limiting factors. Indonesia’s ranking in the World Bank’s Doing Business 2011 was 121.
Sandwiched between the Persian Gulf and the Caspian Sea, Iran is a major player in the oil trade and a member of OPEC. The oil-rich nation recorded 2010 GDP (PPP) of $864bn with a real growth rate estimated at 3%. The economy is dominated by petroleum and petrochemical products, although textiles, cement and other industries also contribute. Wheat, rice, beets and sugar support the agricultural sector. Also important is its significant population of 78 million people, making it the second most populous nation in the Middle East behind Egypt.
The state plays a dominant role in the economy with a large presence in most major sectors. The resulting inefficiency has hindered economic growth, as have geopolitical issues surrounding the region. Investment in Iran is increasingly difficult, if not impossible, due to the growing pace and scope of international sanctions. These measures may prohibit individuals and companies, including Bank of America Merrill Lynch, from engaging in dealings with Iran and have frozen the assets of most major Iranian financial institutions. Iran’s ranking in the World Bank’s Doing Business 2011 was 129. [[[PAGE]]]
South Korea is unique among the subset of countries offering multinational companies access to growing markets that are much more mature and developed by comparison to other markets within the group. In many respects South Korea’s recent history and development since WWII can be used as an example of how to turn potential into reality. Over the past several decades per capita GDP has increased many times over, and in 2010 total GDP (PPP) was $1.467tr. South Korea bounced back quickly from the recent financial crisis, and real GDP growth was estimated at 6.1% in 2010.
An economic snapshot of South Korea looks more like developed country than an emerging market.
South Korea’s economy is dominated by service and industrial sectors, with less than 8% of the labour force working in agriculture. Its population of 49 million is highly educated with a literacy rate of almost 98%. South Korea’s major industries include electronics, telecommunications, automobiles and steel, among others.
An economic snapshot of South Korea looks more like a developed country than an emerging market, but is the growth opportunity for new entrants in this market past? Not likely. In fact, South Korea’s prominence on the global stage continues to grow. The major advantages cited for doing business here include its human resources and a tech-savvy workforce, excellent IT communications infrastructure, a sophisticated domestic consumer market, good logistics and transportation, and its free economic zones that include efficient air and sea connections to other markets.
As a net importer of energy, however, high commodity prices are seen as one factor that could undermine growth. Periodic confrontations with its extremely isolated and combative neighbour to the north also pose some elevated risk. By and large, though, the relatively mature knowledge-based economy is very enticing for new businesses. South Korea can also make an ideal Asian hub in a stable environment, thereby facilitating further penetration into other less-developed regional markets. South Korea’s ranking in the World Bank’s Doing Business 2011 was 16.
For diversity of opportunity, Mexico is the only Latin American nation among this grouping. It is probably second only to Korea in terms of developed economies. With a population of 114 million people, it is the 11th most populous country in the world and offers significant scale on its own. Its export-based economy suffered during the global financial crisis, but GDP (PPP) rebounded in 2010 to $1.56tr and growth is estimated at 5%. Unemployment is hovering around 5.6%, though underemployment is thought to be higher.
Mexico’s economy is dominated by industrial and service sectors, including substantial food and beverage, textiles, automobile manufacturing, iron and steel, and tourism industries. And, of course, Mexico is an important producer of oil and petroleum products and boasts other natural resources as well.
Mexico offers a lucrative geographic advantage in that it borders the US, thereby making it an ideal just-in-time manufacturing location and point of entry for goods headed into the largest economy (for the moment) in the world. In addition, it offers excellent access to a host of rapidly maturing Latin America consumers. Relatively sound public finances, an apparent commitment to improving infrastructure, and a mostly stable macroeconomic picture are constructive.
There are, however, ample challenges that keep some companies away despite its open markets and relative stability. Reducing poverty, tackling underemployment, and addressing a recent surge in crime related to the illicit drug trade often top the list of concerns. Mexico’s ranking in the World Bank’s Doing Business 2011 was 35. [[[PAGE]]]
Nigeria is one of the most resource-rich countries in the group, but the West African state has been limited by a poor infrastructure, high levels of poverty and political instability. Nigeria accelerated its implementation of economic reforms in the early 2000s and it appears committed to that course. It is aggressively pursuing its UN Millennium Development Goals and instituting reforms aimed at raising the standard of living, improving health and education, and fostering more international investment and development.
All this bodes well for its 155 million Nigerians, which make it the most populous country in Africa. Real GDP growth for 2010 was estimated at 6.8%, and total GDP (PPP) was $369.8bn. Nigeria is an important oil exporter and a member of OPEC, thereby fuelling large capital inflows and underscoring the potential.
Nigeria’s labour force is estimated at approximately 48 million, but almost 70% continue to work in the fragmented agricultural sector. Still, the country is a net importer of food. Other challenges include the poor transportation infrastructure, a history of political instability, and the over-reliance on the oil sector. Nevertheless, the country’s scale and inherent resources make it a compelling draw. Nigeria’s ranking in the World Bank’s Doing Business 2011 was 137.
In 2010, Pakistan’s GDP (PPP) totaled $451.2bn, making it the 28th largest in the world, with GDP growth of 2.7%. The economy has historically been hampered by poor infrastructure, electricity shortfalls, political discord and the lack of foreign investment.
The South Asian nation is the 8th most populous in the world with 187 million people. It is estimated that over 40% of its large labour force of 56 million work in agriculture where major crops include rice, wheat and sugar cane. Other major industries include textiles and apparel, food processing, pharmaceuticals and construction materials. Unemployment is relatively high at an estimated 15%, and roughly one-quarter of the population live below the poverty line.
Despite these headwinds and the often-dire headlines, many companies (especially those from the UK, given the historical ties) have moved to capitalise on the large but under-served emerging domestic consumer. The low wage base for companies setting up manufacturing facilities, ample agricultural and untapped natural resources, and a population with good technology and English-speaking skills all point to Pakistan’s potential. It is also an attractive hub and gateway to many fledgling Central Asian economies. Pakistan’s ranking in the World Bank’s Doing Business 2011 was 83.
[[[PAGE]]]
The Pacific island chain of the Republic of the Philippines is a unique, multicultural society strategically located in fast-growing Southeast Asia. The economy has rebounded smartly since the financial crisis, growing at an estimated 7.3% in 2010. Total GDP (PPP) for 2010 was approximately $353.2bn.
The Philippines is already known for its highly educated and low-cost labour force that has excellent technical competency and good command of the English language. As such, it serves as an effective call centre, electronics assembly and business process outsourcing location for many multinational businesses. The country has largely undergone a transformation from agrarian economy to one reliant on manufacturing and services sectors. The large population base of 102 million is rapidly moving up the wealth curve, and a powerful domestic consumer class is emerging.
The Philippines benefits from gold, nickel, copper resources, and the recent discovery of natural gas reserves also bodes well. Key risks remain a high poverty rate, vulnerability to natural disasters, and the pace at which reforms are being instituted. Philippines’ ranking in the World Bank’s Doing Business 2011 was 148.
Turkey is one of the more developed economies in this group. It possesses an intriguing opportunity set on many levels. Geographically, it sits at the intersection of Asia and Europe and it seems to straddle both regions culturally as well. It also occupies a strategic location controlling the Turkish Straits, an important shipping channel connecting Central Asia to Europe. Turkey is the 17th most populous country in the world with 79 million people.
Although Turkey still has a large agricultural economy, it has a growing manufacturing and services sector with important textiles, automobile, shipbuilding, consumer electronics and home appliances businesses. Turkey also has important natural resources of coal, iron ore, copper, and it is a de facto player in the oil trade thanks to its strategic location and pipelines that bring oil from the nations to its east.
In 2010, Turkey’s GDP (PPP) was estimated at $958.3bn and growing at a rate of 7.3%. Unemployment is estimated at 12.4%, and roughly 17% of the population is below the poverty line.
The government still plays a major role in key industries, and the implementation of reforms is viewed as slow. However, Turkey is applying for EU membership, which if successful could be a significant driver to accelerating economic growth and development. Political risk, fiscal imbalances and the lack of economic stability are all seen as limiting factors. Turkey’s ranking in the World Bank’s Doing Business 2011 was 65. [[[PAGE]]]
Another Southeastern Asian country on the list, Vietnam, is a tightly controlled, one-party Communist state country, yet authorities have ceded some economic control and implemented many reforms to modernise and adopt a market economy. Major reforms began in the mid-1980s and changes continue today. The transformation has been remarkable, and Vietnam is already on the radar of many large companies for both its potential as a manufacturing location, as well as its emerging middle class.
Vietnam is a densely populated country of 91 million people. The economy continues to morph from an agricultural to industrial base. More than half the labour force still works in agriculture, but that represents a shrinking 20% of the total economy. In 2010, GDP (PPP) was estimated at $278.1bn with a growth rate of 6.8%. Major products of the export-based economy include crude oil, textiles, footwear, and timber, along with agricultural products of rice, seafood and coffee.
An important point about Vietnam is that the political leaders appear committed to both continued economic reforms and substantial educational investment in the hopes of attracting foreign capital and increasing its low-wage economic base and per capita GDP, which still ranks at only 166th in the world. Political risks, competition from state-run enterprises, inflation, and the need for continued development of a modern central banking authority are cited as key risks. Vietnam’s ranking in the World Bank’s Doing Business 2011 was 78.
There is no denying that aggressively expanding a global enterprise carries with it some dimension of elevated risk. This is especially true when targeting markets with immature infrastructures and evolving cultures of commerce. Yet each of these 11 countries brings with it an intriguing opportunity that cannot be ignored, particularly for companies seeking high growth potential over the next several decades. Developing a longer-term strategy that targets several of these emerging, large-population markets can be a means to position your organisation for the future. And given the nuances and diversity of risks inherent to each of these countries, it’s an opportunity to do so in a measured and risk-appropriate manner. It’s never easy, but ultimately, to the risk takers go the rewards.
This article is for informational purposes only. It does not constitute an offer or commitment to buy or sell or a solicitation of an offer to buy or sell a security or any financial instrument, or a commitment to enter into a transaction, of the type generally described herein. The information contained herein, and any other communications or information provided by Bank of America Merrill Lynch, is not intended to be, and shall not be regarded or construed as, a recommendation for transactions or tax or investment advice, and Bank of America Merrill Lynch shall not be relied upon for the same without a specific, written agreement between us. The information contained herein has been obtained or derived from sources believed to be reliable, but we do not represent that it is 100% accurate or complete and it should not be solely relied upon.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
