Looking for growth beyond the BRICs

The weakening of many Western economies following the global financial crisis means that any company looking to expand internationally over the next few years should give careful consideration to the growing strength of emerging economies. In fact, the most important legacy of the financial crisis is that it revealed a new world order in terms of economics and market dynamics. The International Monetary Fund forecasts that the total GDP of emerging economies could overtake that of the developed economies by as early as 2014.

In 2001 the economist Jim O’Neill coined the acronym “BRIC” to indicate the emergence of four new powers in the global economy (Brazil, Russia, India and China). These countries have managed to grow substantially in the past ten years and to weather the financial crisis more successfully than many fully-developed Western countries.

Source: PwC Economics (World in 2050, The BRICs and beyond: prospects, challenges and opportunities, 2013)

However, a number of other countries that are expected to drive global growth in the next four decades have recently been identified. They are smaller and less advanced than the BRICs, but they are economies that have high potential for growth through 2050. As shown by the graph above, most of these countries are in Southeast Asia, Africa and Latin America.

As part of their growth strategy, businesses should consider expanding their operations in these countries in order to boost their profits. When thinking about which countries to target we need to identify the key drivers of growth. These include:

Favourable demographics: Emerging economies have young, fast-growing populations. For instance, it is estimated that Nigeria’s working age population will grow by 123% in the next four decades, whereas Japan’s is expected to fall by 37%.
Growing consumption: Emerging markets have historically focused on exports of cheap manufactured products, but the rise of incomes and the subsequent emergence of a new middle class are leading to higher domestic consumption and an appetite for Western products.
Urbanisation: Population of these countries, previously residing to rural areas, is flowing to the cities. Expansion of urban areas results in increased demand in commodity products as well as higher investment in infrastructure projects.
Natural resources: Many of the emerging countries sit atop some of the largest resource deposits in the world. Governments bringing them to the market have already started seeing the benefits.
Gradual economic and political stabilisation: A history of corruption and political turmoil, problems previously endemic to these countries, are gradually giving way to higher standards of corporate governance. Improved transparency and alignment with international business standards and requirements attracts more foreign capital and helps the countries integrate themselves into the global marketplace.
Low debt levels: Debt levels in most of the emerging countries and particularly in Southeast Asia do not exceed 20-30% of their GDP, which are significantly lower rates compared against those of developed economies. Citizens in emerging countries also tend to have high saving rates.

It is, however, worth pointing out that emerging markets offer risky investments and they do not suit all types of investors or businesses. The process through which a country is moving from the status of emerging to developed is not always smooth. Emerging countries could face political upheaval, geopolitical conflicts, natural disasters or other unforeseen events that could hold them back for years and jeopardise their ability to realise their long-term growth potential. Moreover, risks associated with currency fluctuation or high inflation are inherent to any kind of international investment in a high growth market. Consequently, provided that businesses take only reasonable risks and a certain level of caution is exercised, expansion in emerging markets can provide significant returns, likely to outweigh these offered by fully-developed economies.

When assessing a country in which to expand, it is essential that we undertake a detailed market analysis so that we understand the macroeconomic environment. Here at Milner Strategic Marketing, we work with clients to assess new investment opportunities, by gauging the size of the market, calculating how fast the market is growing, conducting detailed competitor analyses and wider macro environmental analyses. This market analysis supports strategic decision making and helps clients understand the full range of risks and opportunities.

If you want to discuss with us how we might help you perform the due diligence required for an important investment decision we would be delighted to hear from you.

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