High-growth markets: five leaders under the spotlight
All businesses are looking to high-growth markets for expansion. Although frequently grouped together, all of these new economic powerhouses are quite different. They have their own unique market characteristics, infrastructure challenges, demographics and industry strengths.
We investigated some of the key high-growth markets in a series of blogs for Enterprising Business and Connecting Technology. The key findings are outlined below.
Recent economic performance in the Middle East has been influenced by the Arab Spring, with those countries experiencing the most social change feeling the biggest financial impact. This has meant that growth in the Middle East remains largely centered around the oil-rich Gulf states, which contribute a significant proportion of the region’s activity.
These states form the Gulf Cooperation Council (GCC) – namely Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the UAE. In 2012 the Middle East and North Africa (MENA) region boasted a combined GDP of around $2.9 trillion, with much of that coming from the GCC members. Of that $2.9 trillion, around 78% of it came from the region’s natural resources, primarily oil and gas.
GCC countries are also at the forefront of infrastructure investment and development throughout the Middle East, with rail, road, technology and public transportation projects. The region is set to invest around $120 billion in assorted infrastructure initiatives by 2020, with rail projects receiving a huge chunk of the outlay. Saudi Arabia alone is plowing $25 billion into a state of the art rail network while the UAE has committed $7.6 billion to enhancing the metro system in Dubai.
The UAE is at the forefront of technology investment in general, with its ICT spend between 2013 and 2015set to hit $40 billion. Around three-quarters of this investment will be in communications, helping to better connect the Emirates to the outside world and giving multinationals further incentive to set up operations in the region.
What links General Electric, Philips and IBM? Perhaps surprisingly, they have all moved the global headquarters of significant company functions to China. While China has long been a destination for companies looking for a plentiful supply of skilled and cheap labor, this newer development shows how important China has become as a market for multinationals.
The draw for them and countless other multinationals, is the massive market demand generated by Chinese consumers. For example, China is already the world’s third-largest luxury good market according to Euromonitor, accounting for 7% of total sales of $318 billion. Its share will rise to $17 billion over the next five years – representing 26% of total global sales. In fact overall retail growth is strong in China according to its National Bureau of Statistics (NBS), with a 12.5% increase in 1H 2013 compared to a year earlier.
One of the foundations of China’s recent growth has been innovation across a wide range of sectors. Consultant McKinsey offers some interesting insights in this across a number of different sectors. It found that companies in China were very focused on doing innovation by commercialization. In other words bringing products to market quickly and testing them in the marketplace. This allows them to refine their ideas and deliver what consumers want. In essence this innovation is much closer to Google, compared to say Apple.
A key part of China’s economic growth has been the transformation of its infrastructure, including roads, railways, power supply and communications networks. Even today, the country continues to pump staggering quantities of money into these areas. In September, the China Government announced that it planned to invest a further $325 billion to improve both fixed and wireless broadband infrastructure in the country through to 2020.
Business process outsourcing (BPO), which started off with call centers and now encompasses a wide range of services from software development to back office support, has been a huge source of growth for India. In the five years from 2008 to 2012, the Indian BPO industry grew from $63 billion to $101 billion, representing 7.9% of the country’s GDP.
Many other countries are looking to wrest the BPO crown away from India. In fact, according to the Indian government’s own economic survey, the country lost about 10% of the BPO market to countries as varied as Brazil, China and the Philippines. However, according to the Indian outsourcing association Nasscom, most of this is in call center outsourcing.
In order to get themselves out of the cut-throat world of wage arbitrage, the IT services industry is already hard at work pushing itself up the innovation value chain. India’ proven education system is known for producing engineers that can excel in research and development for both domestic and multinational corporations (MNC).
In fact, 25 more MNCs have set up R&D centers in India in the last 18 months, bringing the total to well over 1,000. They are from a wide range of industries including Internet, engineering and technology. This represents nearly a quarter of the overall global engineering R&D outsourcing market, making India the clear market leader.
Over the past decade Brazil has been one of the world’s true economic success stories. One of the BRIC nations, along with Russia, India and China, Brazil has attracted huge inward investment even in the face of the global economic collapse, with average GDP growth of more than 4 per cent between 2004 and 2009, peaking at 7.5 per cent in 2010.
One of the main factors underpinning Brazil’s recent rapid growth and emergence as an economic world power is its vast natural resources. Brazil is home to vast tracts of fertile land, ready and waiting for multinational corporations (MNCs) to expand operations into. To put the scale into some kind of perspective, there is 865 million acres of unused arable land available in Brazil, over two and a half times the total farm land in the USA. The country also boasts large amounts of energy resources – energy provider Petrobras is the largest company in the southern hemisphere – and Brazil’s natural exports of agricultural products, metals and energy all can meet the demand from the fast-growing Asian economies.
The 2014 FIFA World Cup and subsequent Summer Olympic Games in 2016 offer Brazil further opportunity to showcase itself to the world on the very largest of stages. The soccer World Cup is expected to attract over 600,000 visitors to Brazil in summer 2014, bringing with them a $70 billion boost to the economy and huge opportunities for investors. The country’s Ministry of Sports estimates that 332,000 permanent jobs and 381,000 temporary jobs will be created through infrastructure and tourism-related jobs around the World Cup.
The infrastructure question is key to Brazil’s success in hosting two such major events and ensuring that they leave a legacy for the country’s citizens. President Dilma Roussef recently endorsed a planned infrastructure spend of $66 billion, mainly allocated to road and rail systems, but with $10 billion aimed at information technology and communications.
In 2009, Russia’s IT market slumped by a staggering 40% in one year alone. With stable oil prices and a burgeoning middle class, the IT market has recovered. IDC reckons the market will grow 7% this year to $35 billion and will continue to grow at this rate to $46 billion in 2017.
Leading the recovery is consumer spending on hardware, particularly tablets, but IDC also highlights increased investment on IT services, software and hardware by transport, telecoms, utilities, government, education and healthcare sectors. Around $7 billion is spent on IT services and a further $5 billion on software.
The market is sufficiently large for Russia to have developed its own software development expertise rather than being dependent on Silicon Valley exports. Indeed, Russia is now successfully exporting software developed for its home market, not only to neighboring states but with brands like Kaspersky, exports can be global.
Today there are one million people working in IT in Russia, 300,000 of which are employed within IT firms. Software-Russia.com estimates that around 100,000 are programmers working in software development. Splitting this down again, half work in developing customer software for export, and the remaining half develop for the domestic market. While not as large a number as China or India, for instance, the staff churn rates are much lower, typically less than 10% a year.