The new BRIC brands - are you ready to compete with them?

You shouldn't by now need any convincing that the future growth of your business depends on your success in targeting new, dynamic and aspirational middle class consumers from the Big Rapidly Industrialising Countries of Brazil, Russia, India and China but, if you do, you must read the summary of the latest Trend Briefing from trendwatching.com which offers many examples of new products, brands and offerings which are being snapped up in places like China, India, Malaysia, Turkey, South Africa, Mexico and many others.

Seriously, if you don't read anything else in this (or any) issue of Insights, please take a moment to scroll through the vast array of new products, brands and innovations emerging from China, India, Brazil and other emerging countries. Many of these new names are already displacing long established players in many sectors (eg fashion, cosmetics, sportswear, automobiles etc.) and are successfully competing for the attention of consumers of all ages in emerging countries. Click here to be amazed!

It just goes to show that nobody is safe in the new global economy. As you can see, the most successful brands are those offered by the smaller innovators in fashion, food & beverage, automotive, personal & domestic care, consumer electronics, mobile telecoms, travel, and many more....not the big western brands and massive local corporations…

Why now?

• Both consumers and brands in emerging markets are rapidly getting wealthier, more sophisticated, more mobile, and more educated, resulting in an abundance of confidence, enthusiasm, creativity, and entrepreneurialism
• Many emerging markets (other than China) have younger populations, and will not be confronted with ageing populations for a long time to come, meaning an endless source of young entrepreneurs as well
• Brands from emerging markets are well positioned to cater to other booming emerging markets, while they may be perceived around the world as less arrogant, too. On top of that, they are less hindered by too many legacy systems and old world thinking
• Emerging markets will soon boast the biggest markets for everything, from cars and beers, to detergents and mobile internet: not a bad environment for innovation to flourish

It's really important for all entrepreneurs, businesses and innovators to take notice of these developments before its too late! You don't need me to tell you that it's an opportunity aswell as a threat.

Why not finish 2010 with a plan to start targeting these new consumers in 2011 and beyond? We are running two workshops in November on exactly this topic. Follow the links below for more information and to register:

16th November 2010 - Click here for more information

18th November 2010 - Click here for more information

I hope to see you at one of these sessions

The new BRIC consumer – are you ready to reach them?

There has been a lot of talk recently about the emergence of the new emerging middle class consumer, their substantial and increasing buying power and the explosion in the number of new internet and mobile phone subscribers from each of the four BRIC countries (Brazil, Russia, India and China). McKinsey have published a number of very interesting articles on this subject, and there is plenty of chatter on the internet and in the mainstream media about this new army of cashed up, aspirational shoppers.

Amongst the constant stream of mind boggling statistics, numbers and charts, here a few highlights worth dwelling on:

• There are more cars sold in China today than in America. Experts predict that there will be 50 million cars sold every year in China by 2030!!
• In India, over 240 million people will enter the workforce in the next 20 years, and over 24 million people (a number greater than the total population of Australia) will become “affluent” (ie those earning more than 1 million rupees per annum, the top 2% of the Indian population)
• Retail sales in Moscow now exceed Paris and London
• In Brazil, 32 million people have moved into the “middle” and “high” income bracket in the last 5 years, a figure that is expected to double in the next 5 years
• China and India together already have 500 million Internet users, and a further 700 million more will be added by 2015, generating revenues of more than $80 billion in Internet commerce.

An army of 2 billion middle class consumers have now emerged from the BRIC (and other emerging) countries, are currently spending US$6.9 trillion per annum and, according to McKinsey, this figure will rise to US$20 trillion in the next decade, a figure which represents about double the current consumption of the USA!

One particularly interesting development is the explosion in the number of mobile phone subscribers (which is a lower cost and therefore more accessible item, and is expected to rise to roughly 140 phones per 100 people even in very low per capita GDP countries) which is causing market players in media, telecommunications, consumer products and financial services to completely re-think their traditional business models. For example, mobile banking holds much greater potential than internet banking, with a high likelihood that it will leapfrog online financial activity in emerging markets. And value-add services, ranging from personalised weather reports to product and price information on-demand, are rapidly changing the way in which consumers source, compare, assess, reject and buy many different products via their mobile phones.

The good news for new market entrants is that all players in the BRIC countries (big and small) are having to develop an entirely new approach to serving the new emerging consumer, which levels the playing field and creates new opportunities for smart, innovative, savvy and brave new entrants who are willing to jump in and swim with the bigger fish! It means that the major brands of yesterday may not be the successful brands of tomorrow. Nobody is safe!

So what does this all mean for us in Australia? Is this an opportunity or a threat? Do we have a chance to compete with major brands from the US and Europe? And do we have the appetite for this?

Here are some of my thoughts:

• All Australian companies (big and small) need to develop a strategy to engage with these new emerging countries – you can’t sit back and allow this once-in-a-generation opportunity pass by without at least giving some thought as to how it could affect your business – as an opportunity or a threat (don’t forget that Chinese and Indian companies also have a vision to go global – and Australia is a country that interests them greatly!)
• Opportunities exist across the board for Australian companies, particularly in some of our more progressive and innovative industries (e.g. technology, design, high value manufacturing, cleantech, environmental protection etc.) and also some of our more traditional areas (eg education, tourism, finance and professional services). To remain relevant, we have to start participating now.
• Do your research. How could your business or ideas thrive in an emerging country like China (a country on our doorstep with whom we have enjoyed close ties and strong relationships for over 35 years) whose economy has grown by over 8.5% per annum for the last 30 years and, by the year 2025 or earlier, will overtake the US to become the largest economy in the world? Is there something that you do, or offer, or sell which would appeal to a small segment of a country with over 1.3 billion people? If so, start now to immerse yourself in the opportunity. Don’t let the grass grow under you!

You must start familiarising yourself with all of these countries now. Read a book, take a holiday, search the internet, join a delegation and saturate yourself in everything you can find about these new economic power-houses! Imagine living in the United States in the 1930s and witnessing all of the technological and economic advances that took place over the next 50 years. You now have the chance to do that all over again in China, India, Russia or Brazil. Get started now!

8 Reasons to Invest in India

It seems to me that, with all of the focus on China (extensive media coverage, World Expo, the resources boom, Government policy on foreign investment etc.) India is being largely ignored in Australia, both from a business and investment point of view. I believe this is a mistake because India deserves at least the same coverage as China, at least from an investment point of view, if not more.

Here are at least eight reasons why India is a compelling story for investors:

1. Size of India
India’s GDP is currently US$1.3 trillion, making it the 8th largest economy in the world. However, in PPP terms, which recognises India’s low cost base, the GDP notionally rises to three times this amount (US$3.8 trillion) which places it on a similar size to Japan and, by 2013, it will become the third largest economy in the world (after the USA and China) in PPP terms. However, despite representing 7.5% of Global GDP (on a PPP basis) in 2010, India attracts less than 0.5% of investment inflows. An anomaly which is unlikely to continue for much longer!

2. Economic growth
India’s economy is currently growing by 8.75% per annum (in 2010) and this GDP growth rate is expected to increase to 9% - 10% per annum for each of the next 10 years. India’s GDP will grow five times in the next 20 years, and GDP per capita will almost quadruple.

3. Diversity
The Indian economy offers investors exposure to a wide range of opportunities from consumer goods and pharmaceuticals to infrastructure, energy and agriculture. With its strong services sector (comprising 50% of India’s economy), particularly in knowledge-based services (IT, software and business services) India has proved that industrialisation and the export of commodities and resources is not the only path to rapid economic development.

4. Demographics
India is one of the youngest countries in the world, with an average age of 25 and likely to get younger. India’s working-age population will increase by 240 million over the next 20 years. With a population of 1.2 billion, a strong work ethic, high levels of education, democracy, English language skills and an entrepreneurial culture, India is poised to dominate the global economy in the next 20 years.

5. High Savings
With a savings rate of 37% of GDP, India’s domestic savings fuels most of its investment requirements, and only 20% of India’s total public debt is sourced from foreign borrowing. With significant investment to be made in upgrading India’s poor infrastructure in the next 10 years (estimated to be US$1.7 trillion) India’s Government is taking various steps to further encourage private and foreign investments.

6. Domestic economy
India’s domestic consumption, generally led by the private sector, has played a significant role in India’s growth and is expected to remain firm as more people enter the workforce and the emerging middle classes. India’s wealthiest consumers (those earning US$1m or more in PPP terms) will increase by 40 million in the next 10 years! Every sector within India’s consumer market is booming, making India far less vulnerable to external shocks and pressures than other emerging markets.

7. A Robust financial sector
India has a robust, diversified and well regulated financial system which has allowed it to weather the global financial crisis without any major difficulties and present an image of quality, resilience and transparency. India’s banking sector is strong, with top quality balance sheets, high levels of competition (there are around 80 banks in India) and strong corporate governance.


8. Quality of Investment Markets
The Bombay Stock Exchange is the second oldest in the world (165 years) and offers investors a low cost, highly efficient and well governed environment in which to prosper from India’s extraordinary economic growth. The Indian stockmarket has generated investment returns of over 15% per annum over the last 10 years and experts expect this to increase in the next decade. More significantly perhaps, Indian investors have doubled their money over the last 3 years at a time when many have lost money in almost every other market
Don’t take my word for it…talk to investment professionals and advisers who can offer you objective and independent advice. But don’t wait another 10 years to find that India offered a compelling investment opportunity.

I am grateful to Bharat Shah and my friends at ASK Investment Managers for their assistance with some of the points made above, and hope that ASK and other Indian specialists will continue to promote Indian investment opportunities in Australia

Farewell Kevin Rudd - we'll miss you!

I have to admit (and I know it won’t surprise you to hear this) that I’m really going to miss Kevin Rudd.

Yes, I know he had to go for all kinds of domestic, parochial, poll-driven, factional and political reasons (actually I don’t really understand any of this, but no doubt someone will explain it to me one day!) but, for a brief shining moment, Australia stood tall on the world stage, with our Mandarin-speaking Prime Minister rubbing shoulders with leaders of countries of far greater significance than our own and, for the first time in a long time, Australians (or perhaps it was only me?) had reason to believe that we really were making a difference in defining the new world order of the 21^st century.

Who will forget that defining moment at APEC 2007 in Sydney when Kevin Rudd, then leader of the opposition, dared to trump John Howard in his crowning moment, and addressed the Chinese delegation in Mandarin. The delighted look on the face of Hu Jintao and his aides said it all, John Howard squirmed, Alexander Downer gritted his teeth and the Howard Government knew that it was all over for them. You can re-live that moment by clicking here

And later, in his early days as prime minister, at a meeting of the G8 in which the “shadow nations” (now all members of the G20) were invited to participate, Kevin Rudd found himself introducing President Hu Jintao of China to Prime Minister Manmohan Singh of India and acting as translator. This informal but poignant moment was perfectly captured on camera (see photo above) and reported in the Canberra Times:

"As Prime Minister Kevin Rudd lingered with his Indian counterpart Manhohan Singh in what leaders jokingly referred to as the G8 "holding pen" on Wednesday, another of the eight invited guests wandered up to join the conversation. China's President Hu Jintao normally has an interpreter at his elbow and apparently was unaware that on this occasion, he had momentarily given his linguistic aide the slip. As Hu proceeded with rapid-fire small talk and Singh looked blank, the Mandarin-speaking Australian leader's conduit moment arrived. For the minute or two before the panic-stricken interpreter rushed over, Rudd did the translation. He was doubtless quite chuffed that little old Australia had made such a practical contribution."

I also remember those heady days in early 2008 when I visited China several times and basked in the glory of living in a country whose Prime Minister was recognised and admired by the average man in the street. The only leader of any western nation to ever address the Chinese in their own language. A real game changer if ever there was one.

“Where are you from?” asked the taxi driver in almost perfect English as I jumped into the back seat, “Australia” I said proudly. “Ah…” he said, with a wide toothless smile, “your Prime Minister…Lu Kuwen….he speak very good Mandarin!” That doesn’t happen every day!

Please don’t get me wrong. I have nothing against Julia Gillard. In fact, I’m sure she’ll be a very good prime minister, and will take care of all those things that matter the most to average Australians. But I thought she was already doing a great job has his deputy! While Kevin Rudd was strutting the world stage, signing Kyoto, attending the G20, staying up all hours at Copenhagen and re-defining Australia’s role in the Asia Pacific, Julia Gillard was at home doing a fabulous job as acting prime minister. The perfect combination for Australia and now significantly depleted by the rather sudden dumping of Kevin Rudd.

I hope he will return as Foreign Minister, or as Ambassador to the United Nations or in some other significant role, because Kevin Rudd did a great job for Australia, much more than perhaps anyone realises, and placed us firmly on the map alongside important countries around the world. He will be badly missed, not only by me, but I hope that we haven’t seen the last of him. I’m sure we haven’t….

Don't write off Russia!

There’s far too much negative commentary, perceptions and ignorance out there about Russia.

Back in the dark days of the GFC, the doomsdayers were predicting an “Armageddon scenario” in eastern Europe, with escalating debt, banking collapses and corporate failures likely to wipe Russia and some of its neighbours off the economic map for at least a decade or two! Some even suggested that the “R” should be removed from “BRIC” as Russia wasn’t worthy of its place amongst the new economic super-powers of the future.

Well, as it turns out, it was Western Europe that we should have all been worried about! The Russians are fast recovering from the global downturn, with predictions of a very respectable GDP Growth rate of over 5.5% this year, and not one Bank failure, corporate collapse or sovereign debt default to justify any of the doomsayers. Furthermore, with rising disposable income and low personal debt, Russia’s rapidly growing middle class are doing their bit for the global economy judging by retail sales in Moscow (which now exceed those in London and Paris!) and the 7 million mobile phones purchased in the first quarter of 2010 alone!

Even more encouraging are the moves being made by President Medvedev to seriously address two of Russia’s most widely reported long term problems:

An Ageing Population
The Government is introducing a number of programs designed to improve Russia’s demographic profile by supporting foster families, improving pre-school education and offering financial incentives payments for second births

An Over-Reliance on Oil and Gas Exports
President Medevedev’s new 2008 blueprint “Strategy 2020” includes an ambitious plan to attract foreign capital to an “innovation city” in the Moscow suburb of Skolkovo designed to “revive the greatness of a nation once known for scientific and technological achievement”. His vision is for the technology sector to make up 15% of exports by 2020, attracting billions of investment into innovative projects and driving out corruption, abuse and theft (which is one of Russia's greatest problems). I heard last week that Medvedev had sacked 14,000 policemen! I am sure there’s still a long way to go but that must be a good start!

Russia’s economic fundamentals are already the envy of most of Europe, their GDP per capita is the highest of all the BRICs (currently US$9,750 rising to US$15,500 by 2014 according to the IMF) and, according to our friends at East Capital:
* Russian corporate earnings are expected to be the highest in the world in 2010 (43% higher than in 2009)
* The Russian stockmarket is trading at a 26% discount to the other global emerging markets and is very cheap (at a PE ratio of 6.4 based on 2010 earnings)

Russia is currently the 6th largest economy in the world, will be one of the top performing stockmarkets of 2010, and their fast growing economy offers significant potential to exporters and investors. Don’t believe everything you read in the press!

Best wishes

David Thomas