Keys for the Analysis of International Markets

Keys for the Analysis of
International Markets
David Martínez Turégano
Page1
Chapter of Internationalization
March 2016
CLAVES DE ANÁLISIS DE MERCADOS INTERNACIONALES
DAVID MARTÍNEZ TURÉGANO
Index
Author
1. Motivation…………………………………………………………..3
2. Great global transformations towards the 21st
century…………………………………………………………………………….4
2a. A new (old) world order……………………………….4
2b. Towards another consumer profile…………….5
2c. Development of the productive fabric and
competitiveness factors………………………………………7
2d. Impacts on demand: global industry of
consumption, needs of investment and precision
of “opportunity market” ………………………………..10
3. Synthesis of messages: final observation…………………. 15
David Martínez Turégano
Senior Economist, Bank of Spain
Cre100do Advisory Council Member
[email protected]
LinkedIn
He holds a degree in Economic Science from the
University of Castilla-La Mancha. M. Sc. in Economics and
Finance from Centro de Estudios Monetarios y Financieros
(CEMFI) of the Bank of Spain.
He has thirteen years’ professional experience in
macroeconomic analysis mostly in research departments
at financial institutions, including six years in BBVA
Research. He now belongs to the Euro Area and
Monetary Policy Division of D. G. Economics and Statistics
of the Bank of Spain.
His speciality field is the analysis of international markets,
particularly emerging economies, with a strategic focus.
He has participated in research projects related to the
impact of demographic changes, the expansion of middle
classes, trends in international trade, determinants of
economic inequality and analysis of growth risks in the
medium and long term.
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
Page2
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Thus this article can be copied, distributed and publicly communicated
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DAVID MARTÍNEZ TURÉGANO
“Everything flows and nothing abides”, Heraclitus
“Everything which is ignored is despised”, Antonio
Machado
“If you already know what you have to do and you do not
do it then you are worse off than before”, Confucius
Key words
International Markets, Emerging Economies, Structural
Changes,
Business
Opportunities,
Demographic
Transition,
Middle
Classes,
Cities
and
Urban
Development,
Competitiveness,
Value
Chains,
Consumption Patterns, Investment Needs, Market
Heterogeneity.
1. Motivation
The decision to place a company’s product on the
external markets sometimes means a turning point, both
economically and culturally, for the company’s track
record. It is a complex strategic challenge, but not more
than others when one decides to exclusively develop the
activity in the domestic market. Besides, risks are
minimised and success probabilities increase if one has
information and a rigorous analysis.
Depending on the company’s motivation to go out, the
selection of the target markets can be made in two ways:
one decides to go out and sell in particular countries or
one decides to go out and later select the countries. In
any case, in both situations it is essential to have a
notable knowledge of the opportunities and challenges
involved in every country for the product which the
company wants to sell.
The analysis of these determining factors should lead a
company to respond to two fundamental questions:
1.
2.
What markets -in what countries and in what
moment- meet our strategic objectives of
profitability and risk?
What is the best way to exploit these
opportunities and efficiently face the challenges
involved?
In the elements which support the searching for an
answer to these two questions one can distinguish
aspects of the environment —economic, legal, social,
political, cultural— which are shared by other companies
and those more directly related to the company itself and
to the activity sector, such as the productive processes
and cost structure, or the competing companies.
Having said this, the framework analysis proposed here
should be complemented with more precise market
studies which could give concrete responses to the
idiosyncratic worries of any particular company.
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
DAVID MARTÍNEZ TURÉGANO
Page3
The purpose of this article is to present the great
economic transformations which are taking place all over
the world and value their implications for the global
business development, singling out the countries and
sectors which offer good opportunities for Spanish
companies. An orientation is also added about what
aspects should be considered to select the moment of
penetration in the market and if this should be made as
an exporter from the origin, from a third country or as a
local producer.
2. Great global transformations
towards the 21st century
In the last quarter of the 20th century, the so-called
emerging countries were associated with successive
economic crises and episodes of financial instability, both
political and social, which went across the world’s
geography from Latin America to Southeast Asia going
across East Europe. Business investments could be highly
profitable in those markets, although they were subject to
a significant amount of risk in contrast to a more
conservative profile in mature markets such as advanced
countries.
The world economic panorama has greatly changed since
the beginning of the 21st century. The emerging
countries have taken into account the lessons of the
crises experienced by themselves and have implemented
a wide reform programme directed basically at the
stabilization of their economies. At the same time, China,
in the decade of the nineties, had been fostering
significant structural transformations which would later
place it as a new exporting power, condition which was
ratified with its entrance into the World Trade
Organization in 2001.
The success of economic reforms in the emerging world,
the irruption of China and a prolonged period of high
prices of raw materials, whose main producers are
developing countries, have prompted a change in the
world economic paradigm in the last fifteen years.
This new paradigm is marked by a lower risk associated
to investment and the development of businesses in the
emerging countries and it has enabled the explosion of
their middle classes and a great improvement of their
productive structures.
These
transformations
have
opened
up
new
opportunities to companies in developed countries, such
as Spain, which at the end of the most profound crisis in
the last 80 years are facing perspectives of moderate
growth and aging of their population.
2 a. A new (old) world order
The emerging countries maintained relatively constant
their weight in the worldwide economy all along the 20th
century, accounting for around 40-45 % of the GDP.
Current forecasts situate this percentage over 60% at the
beginning of the next decade, in less than five years’ time.
This participation in the world economy may sound
extraordinary, but a more extensive historical revision
identifies this anomaly precisely in the time lived between
the industrial revolutions in the West and the beginning
of the present century. It has just been in this period that
today’s developed economies have had a prominent role
in the economic activity, between the end of the Chinese
and Mogul empires and the present new leadership of
China and India.
What seems really extraordinary is how quickly the
emerging countries have reached their new condition of
great economic powers and, much more under a
historical viewpoint, the multiplier effect which this
process has had on the global conditions of supply and
demand, as will be seen in the following sections.
From a geographical point of view, as it has already been
noted, the emerging Southeast Asia is a clear leading
figure of these transformations. Thus, this geographical
region would account for more than 50% of the world’s
economic growth which is expected to take place
between 2000 and 2020. Given the starting size and the
foreseen growths, China would contribute around 30%,
India 10% and the rest of the countries the other 10%.
This phenomenon has already led to a displacement of
the world economic centre of gravity from the traditional
Atlantic axis formed by the USA and Western Europe
towards the Asia-Pacific zone1. Thus, if we take into
account the emerging Southeast Asia together with the
region’s developed countries2 and Latin America, the
contribution would amount to three quarters of the
expected world growth between 2000 and 2020.
This relevance contrasts with the marginal contribution of
developed Europe, equivalent or even surpassed by that
of Africa, Eastern Asia or Emerging Europe.
“EAGLEs Economic Outlook. Annual Report 2015”, BBVA Research,
April 2015. https://www.bbvaresearch.com/en/publicaciones/eagleseconomic-outlook-annual-report-2015/
2
The USA, Canada, Japan, South Korea, Taiwan, Hong Kong, Singapore,
Australia and New Zealand.
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
DAVID MARTÍNEZ TURÉGANO
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1
To be clear, if we want to search for economic growth in
the coming years we should look at the emerging world,
beyond the European frontiers, and, among developed
countries, at the USA.
2 b. Towards another consumer
profile
The economic stabilization in the emerging countries has
enabled a high and sustained growth from the start of
the new century, exploiting the capacities and
competitive advantages of a series of economies in a
phase of development inferior to that of the developed
countries.
This positive evolution has underpinned highly significant
profits in the population’s purchasing power, giving rise
to an explosion of middle classes. This evolution is clearly
a profound change in the perception of consumer
demand in these countries, basically associated up to
now to a more accelerated demographic growth and a
population younger than in the developed world.
The average consumer’s profile is
experiencing in-depth transformations.
undoubtedly
In the demographic field, emerging countries retain a
more expansive profile than advanced economies,
although this general characterization becomes diluted if
we consider the temporal dimension and the comparison
between countries3.
In this way, on the one hand, it must be noted that the
population in the emerging world is “maturing”. The
falling birth rate and the rising life expectancy have
substantially increased the population’s average age, with
a rising weight of the demographic segments of working
age, with a greater consumption capacity. The decisive
point of this situation is now taking place since, in the
next decades, the segment of people aged 65 and more
will gradually gain weight as ageing is a generalized
phenomenon in the emerging countries.
On the other hand, there are emerging countries which
now present demographic structures similar to those of
developed economies, with a working age population
which is contracting; in particular, in Eastern Europe, but
also in Thailand and China. In contrast, Latin America and
India are in the transition to that point in the next
decades, a long way away from the classical pyramid
picture still prevailing in sub-Saharan Africa, with a wide
base of young people.
Among developed countries, the USA shows the least
negative demographic profile, with a favourable
migratory balance which supports greater growths of
population —especially of working age— and a less
marked ageing than in European countries or Japan.
World population by age and sex (1990, 2010 and forecast for 2030)
% of total world population
100+
Women
Men
100+
Women
Men
100+
90-94
90-94
90-94
80-84
80-84
80-84
70-74
70-74
70-74
60-64
60-64
60-64
50-54
50-54
50-54
40-44
40-44
40-44
30-34
30-34
30-34
20-24
20-24
20-24
10-14
10-14
10-14
0-4
0-4
0-4
7 6 5 4 3 2 1 0 1 2 3 4 5 6 7
7 6 5 4 3 2 1 0 1 2 3 4 5 6 7
Women
Men
7 6 5 4 3 2 1 0 1 2 3 4 5 6 7
Detailed information and previsions for countries are available in the
United Nations: http://esa.un.org/unpd/wpp/
3
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
DAVID MARTÍNEZ TURÉGANO
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Source: own elaboration from United Nations data (2012)
As far as the population’s purchasing capacity is
concerned, the estimates and previsions show that
middle classes will account for two thirds of the world
population in 2025, exceeding five thousand million
people in this segment at the start of the 21st century4.
The emerging countries have a central role in these
dynamics, combining demographic growth with a rapid
income transition of their population.
income transitions are not expected among developed
countries.
In this way, a double significant change occurs for the
consumer industry. The first one, already commented, is
about volume. The second one is related to change forces
of demand which affect products. In the year 2000, the
middle classes with more purchasing power and the
segment with a high income were basically constituted by
citizens of developed countries. This situation will
radically have changed in ten years’ time. In 2025 the
majority of the population with a greater income will be
residing in emerging countries, fundamentally in Asia and
especially in China; India will probably live similar
dynamics in 15 years’ time.
In the early 1980s, 60% of the population was living in
rural areas, situation which will have reversed in 2025,
with three quarters of world urban population living in
emerging countries5. It has also to be considered that this
change in weight takes place in a context in which the
world’s population is expected to surpass 8 billion people
half way through the next decade, practically twice as
high as in 1980.
A third element which conditions the demand for
consumption has to be added to demography and
middle classes. It is the process of urban development
and the leading role of cities in the world’s economic
activity.
In those developing countries where a middle class has
traditionally existed —i.e. Latin America and Emerging
Europe— it will be the segments with a higher income
that will grow to a greater extent, while significant
World population by GDP per capita (1980-2025)
Billions of people
9
High Income
Intermediate MC
Low Income
High Income
Intermediate MC
Low Income
High Middle Class
Low Middle Class
2025
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
0
2020
1
2015
2
2010
3
2005
4
2000
5
1995
6
1990
7
1985
8
1980
% of total world population
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
High Middle Class
Low Middle Class
Note: High Income corresponds to more than PPP-adjusted $40k, High Middle Class to $25-40k, Intermediate Middle Class
to $15-25k, Low Middle Class to $5-15k and Low Income to less than $5k
Source: BBVA Research (2015)
“Flourishing Middle Classes in the Emerging World to keep Driving
Reductions in Global Inequality”, BBVA Research, March 2015.
https://www.bbvaresearch.com/en/publicaciones/flourishing-middleclasses-in-the-emerging-world-to-keep-driving-reductions-in-globalinequality/
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
Detailed information and previsions for countries are available in the
United Nations: http://esa.un.org/unpd/wup/
5
DAVID MARTÍNEZ TURÉGANO
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4
World urban population and large urban agglomerations by size (forecast for 2025)
Urbanization
rateUrban
Percentage
0-25%
0-25%
25-50%
25-50%
50-75%
50-75%
75-100%
75-100%
City population
1-5 million
5-10 million
10 million or more
CityCity
population
population
Urban
1-5 million
1-5
millionpeople
5-10 millions
5-10
million
More
than 10
10
million
ormillions
more
Urban
0-25%
Source: United Nations (2012)
25-50%
50-75%
It is precisely in cities
that activities
75-100%
City population
1-5 million
5-10 million
10 million or more
are concentrated in a
country and big cities such as Tokyo or New York are
similar to economies of the magnitude of Italy or Spain.
Great cities in developed countries accounted for around
one third of the world’s GDP in 2010 6. It is now emerging
great cities that are taking the leading role of economic
growth and it is estimated that they will explain half of
the increase in global activity until 2025 and that
Shanghai or Beijing will reach London, Paris or Los
Angeles, with a GDP similar to those of Colombia or
Thailand. Out of the nearly 40 mega-cities –i.e. cities of
more than 10 million people- which are expected to exist
in 2025, half of them will be situated in emerging Asia
and only seven in the developed world.
Thus, the new standard global consumer will be an urban
citizen of an emerging country with a rising purchasing
capacity, in many cases comparable to the average citizen
of the developed world.
2 c. Development of the productive
fabric and competitiveness factors
The economic structure of a country evolves parallel to its
development, due both to the consumer’s new profile of
demand and new capacities of production units.
Estimates for 2010 and previsions for 2025 in “Urban World: Mapping
economic power of cities”, McKinsey, March 2011
6
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
As in the case of the consumption basket, a typical profile
of the economic structure can be pictured in which the
relevance of the agricultural sector gradually diminishes
for low and medium income levels and remains minimally
stable when the condition of developed country is
obtained. On the other hand, industry has a rising role up
to a medium-high income and it afterwards diminishes in
a relatively rapid way, while the opposite occurs for
services, with a strong tertiarisation process in high
development phases.
Emerging economies gradually acquire skills and
knowledge to produce goods and services traditionally
associated to the developed world. And this is not only to
their advantage when they compete directly with
companies of advanced countries but also, from the
opportunity viewpoint, are constituted in a good
potential destiny for a company to decide to set up closer
to their end customer.
The sophistication level of the productive fabric advances
hand in hand with economic development and South
Korea is a good example. In the 1960s, with a per capita
income equal to that of its northern neighbour, exports
were mainly agricultural, primary products without
elaboration. In the early 1980s, when it had an income
level similar to that of China today, produced and sold
abroad manufactures of low technological content, such
as textiles and metal products. Finally, nowadays, it has
become an advanced country and the main source of
exporting revenues comes from technological industries,
DAVID MARTÍNEZ TURÉGANO
Page7
Percentage
(megacities)
such as automobiles, ships and optical instruments, or
electronic and telecommunications equipment.
Therefore, the evolution of labour costs (and production
costs in general) with regard to productivity levels must
be monitored.
And this evolution, shifted over time a 20-30 year period,
is now occurring in China, which has gradually become
since the end of the 20th century the world’s factory in
sectors of highly diverse technological intensity.
On the other hand, as a country develops and wages of
the productive structure grow, other costs take more
relevance, such as those related to transport of the
product to the target market.
Thus, the reflection on competitive sources similarly
undergoes a kind of revolution too.
Good examples of this are the cases of China and Mexico,
with productive structures which present significant
similarities and which have the large North American
market among their objectives. The labour cost per hour
in the manufacturing sector was three times as high in
Mexico as in China in 2010, and this fact more than
compensated the clear advantage of localization of the
former country regarding the USA. Nevertheless, for
some years wages in China have grown exponentially and
could be comparable to those in Mexico in the coming
years, reversing the sign of competitive advantage
towards a third country. Thus, we have seen a rising
interest of Asian companies in installing in Mexico in
order to exploit an environment of moderate wage
increases and nearness to the destination consumer. A
good example is the automobile sector.
Still today, low labour costs are a focus of attraction for
the activity of foreign firms in emerging countries 7, but,
as the per capita income gets closer to that of developed
countries, this competitiveness factor is diluted and other
dimensions take relevance.
On the one hand, the productivity levels of this cheaper
production structure are to be taken into account as the
cost per unit of product may be more elevated in
emerging countries. This can be compensated via
margins by selling the product outside the production
place provided that the target market has a higher
purchasing power. As a country develops and its income
level increases its capacity to “hide” its productivity gaps
is reduced, probably resulting in a relocation of
production.
Hourly labor compensation in the manufacturing sector (2000-2013)
USD at market exchange rates
USD at 2013 constant market exchange rates
12
2013
2012
2011
2010
2009
2008
2007
2006
2013
2012
2011
2010
2009
2008
2007
2006
2005
0
2004
0
2003
2
2002
2
2001
4
2000
4
2005
6
2004
6
8
2003
8
10
2001
10
Brazil
Poland
Mexico
China
Philippines
India
2002
Brazil
Poland
Mexico
China
Philippines
India
2000
12
Source: own elaboration from The Conference Board data (2014)
An international comparison of labour costs per hour in the
manufacturing sector is available at The Conference Board of the USA:
https://www.conference-board.org/ilcprogram/#Compensation
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
Page8
7
DAVID MARTÍNEZ TURÉGANO
Hourly labor compensation in the manufacturing sector (2013)
USD at market exchange rates
70
60
50
40
30
20
10
Norway
Switzerland
Belgium
Sweden
Denmark
Germany
Australia
Finland
Austria
France
Netherlands
Ireland
Italy
US
Canada
UK
Japan
Spain
N.Zealand
Singapore
Israel
South Korea
Argentina
Greece
Portugal
Slovakia
Czech Rep.
Estonia
Brazil
Hungary
Taiwan
Poland
Mexico
China (2012)
Philippines
India (2011)
0
Source: The Conference Board (2014)
A good analysis of these factors can be read in the annual
report on global competitiveness elaborated by World
Economic Forum, which evaluates the different
dimensions through surveys and indicators8.
The analysed dimensions, of a great impact on the ability
to do business in a country, cover the institutional
framework,
the
infrastructure
network,
the
macroeconomic environment, the educational and
formative levels, the efficiency in the functioning in goods
and labour markets, the development of the financial
system, the technological disposition, the sophistication
of businesses and the innovative capability.
These dimensions will be more or less relevant according
to the sector in which the company operates as well as
the organization, the abilities and the knowledge of the
own company.
Moreover, one cannot stop at the first level of analysis, as
the firm and the sector do not operate by themselves,
either locally or globally. For instance, the availability of
skilled labour in a country will be important if a company
The
latest
issue
available
can
be
read
on:
http://reports.weforum.org/global-competitiveness-report-2015-2016/
8
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
which requires this type of resources is evaluating its
settlement in such a market and its policy is to employ
local personnel, but not directly if what it wants is to
export there or develop the activity with expatriates
exclusively. However, even in this situation, indirectly, the
existence of skilled labour can be relevant if the activity
sector is related in its value change to another one which
requires it, or if suppliers are from a third country; it will
be in that country that the availability of skilled labour will
have to be checked.
The derivatives presented in this example clearly indicate
the need to make a good joint assessment of
competitiveness factors, taking into account the
maximum possible number of interactions with other
agents and markets.
In the same vein, the early detection of possible
bottlenecks in the production and sale chains can be the
foundation
for
the
success
or
failure
of
internationalization.
The existence of bottlenecks is more frequent in
emerging countries, although it is not their exclusivity. A
good example is constituted by the growth difficulties
experimented by developed countries at the end of the
great recession initiated in 2008, particularly some
European countries with a high indebtedness, both
private and public, which limits the granting of new
credits and the spending capability of households and
companies as well as structural problems which diminish
DAVID MARTÍNEZ TURÉGANO
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More generally, beyond labour and transport costs, the
competitive factors of any economy are very diverse and
must be taken into account when selecting the market
where a firm wants to sell its produce, either as an
exporter or as a local producer.
As for emerging countries, the challenges they face differ
greatly from one another, depending mainly on their
income level. It is important to remember that each
development phase entails a series of opportunities, but
also of challenges. The virtue is found in keeping in step
the improvement of the population’s purchasing power
with the generation of new productive foundations for
the country.
Very frequently the way towards that virtue has been
interrupted by the easiness to make demand policies with
a favourable external environment (such as a high fiscal
expenditure or low exchange rates) which promote the
rising of income in the short term, as against the
difficulties and efforts which supply policies involve (such
as increasing the efficiency and agility of public
administration or developing an innovation system), with
returns to welfare in the short and long terms.
The countries which do not succeed fall into the so-called
“income traps”, that is to say, their inability to jump into a
superior stage of development.
Nowadays, after a continuous period of high growth,
many emerging countries are in the dilemma of
encouraging reforms or taking a step backwards,
breaking the expectations placed on those markets.
In this way, the reform programmes adopted by Mexico
and India must be welcomed as well as the measures
adopted by China for a change of economic model
towards a lesser but more sustainable growth. Peru and
Colombia must also be mentioned positively here, as they
show a business environment similar to that of Spain,
with a quite lower per capita income9; a similar situation
is observed for Indonesia, Malaysia and Thailand in global
terms of competitiveness10.
In contrast, countries equally with a great potential, such
as Brazil and Turkey, are finding more difficulties to
implement a positive structural change of their
economies.
The latest complete list of countries according the easiness index to
do businesses of the World Bank can be consulted at:
http://www.doingbusiness.org/rankings
10
The latest complete list of countries according the global index of
competitiveness
can
be
consulted
at:
http://reports.weforum.org/global-competitiveness-report-20152016/competitiveness-rankings/
9
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
Among great developed economies, the USA stands out,
with high efficiency levels of its markets and a notable
human and technological capital.
2 d. Impacts on demand
Global industry of consumption
Processes of demographic “maturity”, middle classes
and urban developments do not only entail the
expansion of the demand basis of emerging
consumption in quantitative terms, but also these
phenomena introduce significant changes into the
consumption basket.
Low income families assign a high percentage of their
income to the acquisition of basic products such as food,
clothing and footwear, which is gradually reduced as
purchasing capacity grows. Families increase then
progressively expenditures on the so-called discretionary
products such as transport, electrical appliances,
communications,
entertainment
equipment,
restaurants, tourism, personal care or financial services,
and those families with a higher income generate space
for the luxury goods industry.
This same pattern can be replicated for countries with
respect to the explosion of the middle classes11. South
Korea again is a good example, as it has experienced an
outstanding development in a relatively short period,
from being a mainly agricultural economy in the 1960s,
with subsistence consumption levels, to being a world
technological power with GDP per capita levels of a
developed market. During this transition, households’
expenditure percentage destined to basic products
diminished from nearly 40% in 1980 to less than 20% in
2010, while discretionary expenditure increased from
40% to nearly 60% in the same period.
Therefore, there is a direct connection between income
level and consumer habits which can be transferred to
the business context and activity sector of every
company through the so-called product penetration
curves. This element of analysis is undoubtedly crucial
for assessing and getting to know where and when a
significant growth of the demand for a particular
product is expected.
11
Page10
their ability to increase their production under the ageing
of their population.
See footnote 2
DAVID MARTÍNEZ TURÉGANO
Consumption basket in South Korea (1980-2010)
%
60
90%
55
80%
50
70%
45
60%
40
50%
35
40%
30
30%
25
20%
20
10%
15
0%
Low Income
Discretionary
Interm. Income
Semi-necessities
56
40
37
27
24
17
10
High Income
1980
Discretionary
Basic products
1990
2000
Semi-necessities
2010
Basic products
Note: Basic Products refer to Food, Clothes and Footwear, Semi-Necessities to Housing, Equipment and Health,
Note: Basic Products refer to Food, Clothes and Footwear, Semi-Necessities to Housing, Equipment and
and Discretionary Expenditure to Transport, Communications, Leisure, Restaurants, Hotels, Personal Care and Insurance
Health, and Expenditure to Transport, Communications, Leisure, Restaurants, Hotels, Personal Care, Insurance
Source: BBVA Research (2013)
Source: BBVA Research (2013)
The main handicap of this instrument is the common
absence of data, especially when the spotlight is put on
very concrete products, which is why it will be
companies with a traditional presence in foreign markets
that will take advantage of their own information to
make previsions or extrapolate trends to other markets.
Thus, for instance, in the automobile sector, the
available estimations12 show that the number of cars per
capita grows slowly at first up to medium levels of
development, increases its expansion in a significant way
and is stabilised when a country reaches advanced
standards.
in Europe or Colombia in Latin America, as against what
happens in more mature emerging countries like Poland
or in developed countries, where the great majority of
sales corresponds to the renewal of the existent fleet —
which, in any case, means an attractive business for the
most dynamic advanced economies like the USA.
A good example of this pattern is China, where up to the
year 2000 the automobile ratio did not reach 10 units
per 1,000 inhabitants and had a car fleet inferior to that
of Spain with a very superior population volume (9
million as against 17 million cars, respectively). As a
result of China’s transition to being a country with a
medium income and high growth rates, previsions say
that the ratio of car possession will be over 150 units per
1,000 inhabitants in 2020, for a total car fleet superior to
200 million vehicles.
This would happen, for instance, with electrical
appliances, since, according to a study by McKinsey13,
the highest acceleration in the demand for refrigerators
would take place on the low income levels and a
saturation level per capita would soon be reached,
whereas the selling of washing machines would be more
progressive as the purchasing level rises.
With these parameters, and in a similar way, notable
increases of car fleets are expected in the coming years
in the majority of countries in South Asia (with a
foreseen explosion for India in 15 years’ time), in Turkey
“Emerging Markets Key for the Automobile Sector”, BBVA Research,
October 2012.
https://www.bbvaresearch.com/KETD/fbin/mult/121010_EAGLEs_AutoPr
ojections_EN_tcm348-359255.pdf
12
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
It must be emphasized that having penetration curves
for every product is very important, as their stages of
low growth, explosion and stabilization can occur in
completely different times and intensities, even within
the same sector.
An additional element with an impact on the
consumption industry which is worth stressing is the
reduction of households’ size which is caused by
economic development and that it would compensate
the lesser growth of the population in the emerging
world in terms of family units of consumption, which,
after all, will be the relevant ones for industries of
“Urban World: cities and the rise of the consuming class”, McKinsey,
June 2012.
http://www.mckinsey.com/insights/urbanization/urban_world_cities_and
_the_rise_of_the_consuming_class
13
DAVID MARTÍNEZ TURÉGANO
Page11
Consumption basket (CPI weights) (2012)
Average according to GDP per capita
100%
durable consumption goods like electrical appliances or
automobiles.
transport equipment, industrial facilities, offices and
infrastructures.
Finally, in the developed countries it is important to
highlight that, although there is not a significant income
transition or changes associated to it in the consumption
basket, there are trends that are worth being followed.
The first one is the ageing of the population, as the
elderly, with a rising weight, present a very different
spending pattern from the adult population, with a
lesser assignation, for instance, to durable consumption
goods14. The second one is the change in the habits of
the new generations of consumers, the so-called
millennials, that is to say, those born in the 1980s and
early 1990s, with a greater tendency to share
consumption or use the new technologies15.
For instance, in the area of infrastructures, estimations
made by the World Bank situate the needs in the
emerging economies in some 850 million dollars annually
up to 203016, including sanitation, conservation and
channelling of water, transport, electricity and
communications. The majority of these investment works
are being generated in Asia, given the population volume
and the economic growth, but they are also significant in
Latin America or sub-Saharan Africa.
Needs of investment
The development of emerging economies is not only
having a global transcendence in the consumer industry;
very relevant changes and impacts are occurring in the
productive area and in the demand for investment goods,
both in volume and composition.
The generation of an industrial basis first, the posterior
sophistication of the productive fabric and the switch to a
service economy gradually condition investment needs,
which are progressively being adjusted to the new
consumption profile as well.
Let us take the case of China as an illustrative example. In
the middle 1990s, capital stock was concentrated (around
75%) in the hands of the construction sector, industries of
basic products (raw materials and manufactures of low
technological content) and public services. Fifteen years
later, the weight of the capital stock of private services,
networks (of supply, transport and communications) and
industries of technological content, both medium and
high, had grown over 40%, reflecting the enormous
productive developments of the Chinese economy.
But for this positive scenario to take place, the
converging of economic and financial stability is needed,
as well as private initiative and reform impulses, not
forgetting the need for each company to make a
multidimensional analysis of markets.
An attractive additional sector within investment is
housing, both because of demand needs and the
problems and shortages which this sector has in many
emergent economies.
As far as demand is concerned, demography is still
expansive and the reduction effect of household’s size is
also favourable to compensate the expected lesser
growth of population. Besides demographic factors, the
greater level of urban development and the higher
purchasing power will sustain the demand for housing in
the future, with an impulse of the segment of greater
quality and price because of the middle classes’
explosion.
Thus, in general terms, the economic dynamism which is
expected in the emerging world for the coming years
backs important growths of investment in machinery,
As for the repercussions of ageing on consumption in Spain a special
box could be read in the Consumption Outlook of BBVA Research,
Second Half 2013:
www.bbvaresearch.com/publicaciones/situacion-consumo-segundosemestre-2013/ (in Spanish)
15
www.goldmansachs.com/our-thinking/pages/millennials/
14
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
“Capital for the Future: Saving and Investment in an Interdependent
World”, World Bank 2013:
http://siteresources.worldbank.org/EXTDECPROSPECTS/Resources/4768
82-1368197310537/CapitalForTheFuture.pdf
DAVID MARTÍNEZ TURÉGANO
Page12
16
GDP per capita (2014)
USD
25000
Market exchange rates
PPP-adjusted
20000
15000
10000
5000
Russia
Brazil
Malaysia
Mexico
Turkey
Colombia
China
Peru
Indonesia
Philippines
India
0
Source: IMF (2015)
Precision of “opportunity market”
The traditional approach of analysis and selection of
markets has as a reference unit the economy of a country.
Nevertheless, territorial heterogeneity can reach levels
equivalent to differences between countries.
Thus, taking as a reference the variable GDP per capita,
the states in northern Mexico and those situated in the
Yucatan Peninsula have a very superior income to that
registered in the southeast area of the country. And
something similar occurs between the coastal Chinese
provinces and the inland ones, or between the western
See, for example, “Room for Development: Housing Markets in Latin
America and the Caribbean”, IADB, April 2012.
http://www.iadb.org/en/research-and-data/dia-development-in-theamericas-idb-flagship-publication,3185.html?id=2012
17
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
states in India and the central and eastern inland ones.
This heterogeneity ought not to be alien to developed
countries, with comparable income differences between
north and south in Italy and Spain, or between coastal
and southeast states in the USA.
The diversity picture inferred from these data implies that
it is necessary to use the same criteria of analysis which is
used to approach a “country-market” and to take into
account the importance of the level of economic
development seen in previous paragraphs for the course
of consumption demand or productive capability and
competitiveness, as well as the need to analyse the whole
value chain beyond a concrete market of final demand.
Let us consider, for instance, a country which has a great
city with a high purchasing power because it is a finance
centre, while the rest of the territory, heavily populated,
has a subsistence economy. The average income of the
country would be an erroneous indicator to measure the
real potential of the mentioned market, as we are actually
facing a polarised income structure. Once this problem
has been solved and the great city has been identified as
a genuine market for the company because of its high
income per capita, the complete analysis would indicate
that the only way of access could be export, as the bases
for implementation as a local producer do not exist,
because of lack of both a supplying industrial fabric and
infrastructure to take the product to the end customer.
DAVID MARTÍNEZ TURÉGANO
Page13
When assessing investment projects in housing, the
problems and shortages of this sector will also have to be
considered as challenges and opportunities. These
problems and shortages concentrate in urban areas and
include the lack of basic infrastructures, finance access of
families, informal settlements, low quality of materials,
insecurity problems and overcrowding17. Public policies
have therefore a crucial relevance when determining the
projects in this field and are complementary to private
initiative, particularly in the provision of sanitation,
drinking water, transport, lighting, security, social services,
healthcare and family and education services.
In addition to this key factor of territorial heterogeneity, a
second relevant element in the definition of “opportunity
market” of a company, especially in the consumption
sector, is the correct measurement of the purchasing
power of the population.
The information on the per capita income in the sources
of every country is ordinarily available in local currency
only, which does not allow making international
comparisons, and the value of the mentioned income is
of no use to assess internationalization options.
International organisms, such as the International
Monetary Fund or the World Bank, also present data in
units comparable between countries, usually in American
dollars, which allows an approximation to relative
differences between markets.
However, these figures also present a drawback, which
consists in the existence of very different prices in various
countries which may not be reflected in exchange rates
into which the per capita income in local currency is
transformed. These differences can be corrected by
adjusting values through purchasing parity.
Therefore, the exporting company is conditioned to a
greater extent by exchange rate variations.
In contrast, the firm which produces locally, and for the
local market, is more interested in getting to know the
population’s purchasing power in terms of the products
which they can acquire. In this case, the relevant variable
will be the revenues adjusted through purchasing parity,
related to a greater extent to domestic development and
growth.
Returning to the previous example, let us suppose that a
company commercialises a product at a domestic price of
12,000 dollars; if this product were exported to Mexico at
a cost of the producing country, this would leave the
average consumer out of its demand (10,000 dollars),
whereas if it decided to settle to produce locally at a local
cost, the average income (18,000 dollars) would greatly
exceed the price of the product, generating a larger
consumption base.
The benefits of information in each of these
transformations are better understood with an example.
The average income per capita in Mexico is estimated at
around 150,000 Mexican pesos, level which cannot be
valued unless we live in that country and compare it with
our revenues and expenditures. If we apply the exchange
rate in effect, this value is converted into somewhat more
than 10,000 dollars, which we compare with 26,500
dollars for Spain or 81,000 dollars for Norway.
Nevertheless, prices of products in Mexico are lower than
those in these two countries, which is why we value the
Mexican consumption basket at US dollar prices, which
results in an average income of more than 18,000 dollars
adjusted through purchasing parity, some 80% more than
measured in exchange rates, comparing this now with
35,000 dollars for Spain or 67,000 dollars for Norway18.
The distinction is important as the use of one or the other
definition will depend on whether the company is
oriented towards export or multi-localization.
Page14
For an exporting company it is relevant to know the
population’s capability of international purchasing, that is
to say, which global consumers have the necessary
revenues in dollars to evaluate the purchase of a product.
Compared estimations for 2015 of every country can be seen in the
data basis of the IMF: http://bit.ly/1VvNIu0
18
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
DAVID MARTÍNEZ TURÉGANO
3. Synthesis of messages
Final observations
In this report we have intended to underline the great
transformations which are being produced in the world’s
economy and particularly the opportunities which these
developments are already offering to Spanish companies
for the settlement or extension of businesses in foreign
countries. The driving factor of these changes is the rising
leading role of emerging countries, not only with a high
growth —differently superior to that of developed
countries— but also with a constantly growing weight in
the definition of trends in global markets.
It is difficult to synthesize in a few pages the impact of
the present global economic developments of business
activity.
Also within the investment industry, in addition to a more
elevated growth horizon, relevant global trends driven by
emerging countries are identified, such as a greater
productive capability of companies and a more
prominent sophistication of the economic fabric in these
markets. In this context, attractive growth opportunities
for investment in machinery, transport equipment,
industry installations, offices and infrastructure are being
generated; and, as far as households are concerned, also
in housing.
As for markets which will be of greater interest in the
coming years, the area of emerging Asia stands out over
the others, with China and India leading the way, well
supported by the ASEAN countries, all of them driven by
the generation of large middle classes, while in Latin
America our look must be set on the promising future of
Mexico and, with a lower market dimension, Colombia
and Peru. Among the developed countries, the USA
shows an advantageous position in the demographic and
competitive fields compared to that of Japan or European
economies.
Secondly, this diagnosis about the need for knowledge is
all the more evident in view of the transformations which
are taking place. The change of paradigm in emerging
countries implies to get away from the comfort of mature
markets and look at countries with enormous dynamism
which continually transform their consumers’ profiles,
their productive structures and their competitive factors.
In the case of Spain, in view of the difficult domestic
situation, a virtue should be made out of necessity in
order to implement business projects which are well
worth it19.
In the third place, these changes in our usual thought
places demand a great deal of preparation, willingness to
change and ability to adjust to new profiles of customers
and markets. Strategic decisions, commercial policies,
logistic organization and other managing aspects of a
company involve the necessary human capital.
A fourth and last message, reiterated through the
previous pages, is the heterogeneity of markets, both
geographically and temporarily, which means that “good
businesses” for every product may present themselves in
different places and times. Anticipating these dynamics
may mean the decisive advantage over the competition,
but always with a clear question in mind: what each
company is aiming at.
“España está en crisis, el mundo no”, Josu Ugarte (2013), Ediciones
Gestión 2.000
19
KEYS FOR THE ANALYSIS OF INTERNATIONAL MARKETS
DAVID MARTÍNEZ TURÉGANO
Page15
In the consumption industry, the population’s growth in
emerging countries is still a supporting factor but its
importance has diminished in the last years and this
tendency will continue in the coming decades. On the
contrary, the boom of middle classes is primarily taking
over, being localized in urban areas, with greater
purchasing power and substantial changes associated in
the consumption basket, while in developed countries
variations in expenditure habits more related to the age
of consumers, ageing of the population and the role of
millennials are also taking place.
And it is complicated because, as a first general highlight,
it is essential to avoid simple tools and comparisons
when international markets are analysed. A company
must address its potential opportunities from sound
knowledge and a multidisciplinary and transversal vision,
as many are the factors which are to be taken into
account. In this respect, a challenge may be an
opportunity and vice versa.