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7/31/2019 How to Succeed in Emerging Markets
1/14
Issue 15 Cybersecurity Beyond the
BRICS
Interview with P&Gs
Deb Henretta
24 34 46
Designing yourfiercest competitorMastering change bymaking it realpage 12
view
7/31/2019 How to Succeed in Emerging Markets
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34 PwC ViewIssue 15
Beyond the BRICSHow to succeed in emerging markets(by really trying)
Strategy and growth
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PwC View Issue 1535
By John Maxwell
John Maxwell is the Global Leader in PwCs Retai
and Consumer practice.
1 Emerging Markets Take Centre Stage: A Dramatic Shift in Purchasing Power, Business Monitor International, February 4, 2010
2 PwC, Central banks: After the storm, 2010.
US businesses with keyoperations beyond the maturemarkets of North America and
Europe are most optimistic
about growth. Of those withoperations in emergingmarkets, about three-quarters expect businessesin those regions to expand,according to PwCs 15th
Annual Global CEO Survey.The world is turning to the
East, and consumer goodscompaniesjust like other
sectors that ultimately depend
on purchasing power andattractive demographicsare paying attention.
Its been 10 years now since Goldman Sachs Jim ONeill rst coined the acronym BRICs
in his November 2001 research paper, The World Needs Better Economic BRICs. ONeills
forecast of the importance of these markets was prescient. For example, even after their
advances over the past decade, China, India, and Russia are predicted to triple spending
power by 2018, and Brazil is not far behind, according to a recent report by Business
Monitor International.1
While South Africa, by most accounts, has become a fth member of the BRICS (signied
by the capital S), these countries no longer sufciently represent the rise of emerging
markets. Global gross domestic product (GDP), factoring in purchasing power parity,
now has reached about a 50/50 split between the developed economies and emerging
economies. In fact, for the rst time since the dawn of the Industrial Age, the global
economic engine is being powered by Southern Hemisphere nations.2
Moreover, in the aftermath of the nancial crisis and subsequent Great Recession,
the emerging markets as a wholenot the worlds debt-ridden developed markets
have been the most resilient in the face of global distress. As Chief Economist and Leader
of PwCs Emerging Markets practice Harry Broadman puts it, Going through the nancialcrisis, the most resilient economiesmeasured by GDP or trade volumeshave been
the emerging markets.
Broadman made this comment at PwCs annual Global Retail and Consumer Leadership
Conference held recently in New York. He moderated the session A BRIC and Beyond,
which examined the notion that, while the BRICS still serve as a proxy of sorts for any
emerging markets discussion, there is much going on beyond the BRICS that business
leaders should know about.
Besides Broadman, the panel included Michael Tangney, vice chairman of Colgate-
Palmolive; Ricardo Neves, PwCs retail and consumer leader in Brazil; John Wilkinson,
PwCs retail and consumer leader in South Africa; and Adnan Akan, PwCs retail and
consumer leader in Turkey. In the following, we present highlights of their discussion.
John Maxwell
Global Retail and Consumer Leader
PricewaterhouseCoopers LLP
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36 PwC ViewIssue 15
The EAGLEs are defned as 10 emerging and growth-leading economies
When we speak of emerging markets,
just what countries are we talking about?
It depends on whom you ask: The FTSE
Group identies 22 emerging markets,
split between advanced and secondary.
Standard & Poors, which rates the sov-
ereign debt of 126 different countries,
classies 19 of them as emerging markets.
Perhaps not surprisingly, the ubiquitoussuccess of the term BRICS has spawned
a whole new set of alphabet-soup-like
terms for different groupings of emerging
markets. One is the EAGLEs, dened as
the 10 emerging and growth-leading
economies. (See Figure.) Others are the
12 countries of the Big Emerging Markets
(BEM), and the rather unwieldy CIVETS,
which includes Colombia, Indonesia,
Vietnam, Egypt, Turkey, and South Africa.
No matter how they are sliced and diced,
most emerging markets will continue to
enjoy growth that dwarfs that of the devel-
oped markets. The International Monetary
Fund and the World Bank project that,
in 2025, the pace of growth in emerging
markets still will be double that of devel-
oped markets.
What surprises many, though, is the precise
nature of this growth. Much of it will resultfrom whats called South-South commerce3
as opposed to the more familiar North-
South commerce, which is advanced
countries investing in developing countries
to make products cheaply and then export-
ing predominantly to developed countries.
There is a tremendous amount of com-
merce that is taking place among emerging
markets, said Broadman. In 1970, South-
South trade was about seven percent of
world trade. Today, it is 20 percent of world
trade. That means that the usual suspects
looking for market share in emerging
Something funny happened to developing
markets as they continued to emerge:
They became the engines of global eco-
nomic growth. India, China, Brazil, and
many other countries are undergoing the
kind of economic transformation that
South Korea, Japan, and the nations of
Europe experienced during the post-World
War II boom. Economic progress in emerg-ing markets is happening at an accelerated
pace due partly to advances in technol-
ogy, sound economic policymaking, and
reduction in poverty as a result of health,
education, and other social reforms.
In fact, from 1996 to 2010, emerging
markets countries grew at more than twice
the rate of developed countriesabout
ve percent versus two percent annual GDP
growth, respectively. Even more impressive
is that, recently, income disparity between
certain emerging markets and developedmarkets is declining rapidly.
3 Commerce among emerging markets.
7/31/2019 How to Succeed in Emerging Markets
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PwC View Issue 1537
Source: BBVA
B R A Z I L
C H I N A
E G Y P T
I N D I A
I N D O N E S I A
M E X I C O
R U S S I A
S O U T H K O R E A
T A I W A N
T U R K E Y
There is a tremendous amount of commerce that is taking placeamong emerging markets, said Broadman. In 1970, South-Southtrade was about seven percent of world trade. Today, it is 20 percentof world trade.
marketsmultinationals from developed
countrieshave an additional source
of competition in successful emerging
markets brands.
This sea change in the structure of the
global economy has ushered in a new era of
South-South capital investment as well. In
the past, the transparency and liquidity ofthe US capital market proved an enormously
strong lure for many global companies,
no matter where they were based. While
the US still is one of the globes largest
recipients of foreign direct investment,
the growth of South-South foreign direct
investment ows has taken off. If you look
at where foreign direct investment out
of emerging markets goesthe multina-
tional corporations from these emerging
marketsone-third of their foreign direct
investment is taking place in other emerging
markets, according to Broadman.
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38 PwC ViewIssue 15
how te emerging mrkets were
nd sti cn bewon
The companies that thrive in emerging
markets often tend to be the pioneers.
Colgate, for example, can lay claim to a
century-long legacy of overseas opera-
tionsnot to mention customers in
200 countries today.
When Colgate vice chairman Mike
Tangney was asked about the companys
long-time success in Latin America and
Asia, he explained that when he arrived
in Colombia in the late 1970s after time
spent at several other international Colgate
locations, he found a comparably strong
Colgate operation in the city of Cali.
Tangney quizzed several in-the-trenches
managers in Colombia, trying to under-
stand their secret. They all told him the
same thing: Virtually the entire manage-
ment team had been in place for nearlytwo decades, getting to know the lay of
the land. Thus, whenever asked to account
for Colgates success in perceived risky
environments, Tangney always responds:
Consistency of management, a willingness
to take the ups and downs, persistence, and
long-term vision.
John Wilkinson cited the Shoprite Group
of Companies, Africas largest food retailer,
as another company bold enough to look to
emerging markets ahead of other compa-
nies. Today, the company has more than
1,500 stores in 16 countries across Africa.
Shoprite is very interesting because
they are seen as pioneers in Africa,
Wilkinson said. Its exciting to talk totheir management about the challenges
and opportunities in Africa.
But for companies with no presence or just
nascent operations in emerging markets,
what good is talk of being a corporate
pioneer in 2012 when consumers all over
the world use mobile devices; more than
a billion people can access the Internet;
and millions enter the ranks of the middle
class every year? The irony is that despite
an ever-smaller and more interconnected
world, there still are many opportunities tobreak new ground. Three key C-suite attri-
butes can help ease the transition: a taste
for risk, in Tangneys words; a willingness
to disregard conventional wisdom about
emerging markets; and a commitment to
being there for the long haul.
attribute one:a tste for risk
According to Tangney, there is a value
proposition paradox at work in some African
countries that many companies without
experience there cant appreciate. While
some consumer packaged goods companies
are reluctant to build businesses in relatively
poor countries, assuming that they can sell
products only very inexpensively, Tangneysaid that, on the contrary, some of these
consumers are willing to pay a premium.
Even though consumers may have minimal
purchasing power, the value of what Colgate
sells to them is greater than the value in
developed markets, Tangney said. When
I go into homes in Soweto, South Africa, I
ask the question, Why do you buy what you
buy? And they say: The health of my fam-
ily is important. I am not going to buy the
cheapest product. We can, in fact, command
a premium price. But companies must beprepared for poor quarters, poor years, and
just about everything in between. Over the
years, weve dealt with chaos, civil insur-
rection, nancial disruption, Tangney said.
If youre looking for a sure thing, emerging
markets are not the way to go. You need a
taste for risk and a tolerance for ambiguity.
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PwC View Issue 1539
Unilever is another consumer products
company embracing the opportunities in
emerging markets while being aware of the
risks. Shifting much of its business to new
markets will mean a lot of changes,
as Unilever CEO Paul Polman explained in
an interview for PwCs 14th Annual Global
CEO Survey, published last year: Within
10 years, 70 percent of our business willcome from the Far East, Polman said. That
shift eastward has tremendous implications
for our companys structure and culture. The
values at the heart of our company certainly
wont change, but our culture and business
model will need to evolve to reect a chang-
ing customer demographic.
Other consumer goods CEOs clearly share
the same view: According to the survey,
57 percent anticipate that theyll need to
make strategic changes to capitalize on
the increasing prosperity of consumers inemerging markets. One of these CEOs is Bob
McDonald, Chairman of the Board, President
and CEO of US-based Procter & Gamble
(P&G). He explained to PwC just how com-
mitted P&G is to emerging markets, despite
the risks. He told us: We currently have 20
new factories under construction around the
world19 in developing markets and one in
a developed market, which is the US.4
Companies with the DNA to stake a claim
today in emerging markets may nd large
swaths of them still open for penetration.
Brazil, for example, is a huge economic
success story, but its relative insularity still
scares off some foreign companies. Brazil
has been an economy that, in some ways,
has been very closed, even when compared
with other emerging markets, said panelmember Ricardo Neves. Historically, we
have always been bureaucratic and put
a lot of fences around the internal mar-
kets. But those regulations will inevitably
loosen, because as Neves said, Theres a
lot of discussion about lower prices and
better-controlled ination if we were more
open to competition. The global consumer
goods companies and retailers that are
rst-movers in Brazil will have an enor-
mous advantage.
According to Adnan Akan, opportunities
abound in Turkey as well, particularly for
large retailers. About 60 percent of the
retail market is classied as traditional,
compared with just 20 percent for WesternEurope. That leaves plenty of consumers
hungry for the conveniences of modern
retail. And for consumer goods companies,
theres a lesson in what Napoleon Bonaparte
once said: If the world were just one coun-
try, Istanbul would be its capital. Turkeys
straddling of Europe and Asia gives it a
major advantage as a production center.
The panel included (fromleft) Harry Broadman,Michael Tangney, RicardoNeves, John Wilkinson, and
Adnan Akan.
4 PwC, 14th Annual Global CEO Survey, 2011.
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40 PwC ViewIssue 15
attribute two: leve convention
wisdom t te border
system, he said. But now you see develop-
ment all over the continent and investments
being made in countries geographically
removed from South Africa. There is a lot
of interest in Africa now so the various
countries are trying to promote themselves.
The ways they are doing that are as varied as
the 50 or so different countries of Africa. For
example, according to Wilkinson, Mauritiushas taken steps to make it much easier for
global companies to enter the country.
Another common assumption about many
African countries is that corruption and
instability will sink any efforts for success.
But the reality, according to Wilkinson,
is that while foreign investors need to
perform detailed analysis of any country
they consider, the operating environment
Its not just a tendency to shy away
from risk that leaves plenty of opportuni-
ties on the table in emerging markets.
Assumptions about how to do business in
various emerging markets unnecessarily
shackle companies.
For example, for global companies enter-
ing Africa, its been conventional wisdomthat the path to success starts in South
Africa, moves north through Namibia,
Botswana, and Zambia, and then swerves
east to Tanzania or perhaps west to Nigeria
and Ghana. According to panel member
Wilkinson, however, the days of any one
template for investment in Africa are
long gone. South Africa has been in that
fortunate position with the most developed
economy, infrastructure, and banking
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PwC View Issue 1541
is much improved. Africa is not a country;
its a continent, Wilkinson said. So there
are different market sizes, income levels,
languages, and cultures. But as a whole,
Africa is booming, political risk has less-
ened, and the operating environment has
improved in many countries.
For Brazil, a number of companies stillremember the instability and runaway ina-
tion of the 1990s, dynamics that, back then,
were synonymous with the rest of Latin
America. But the levels of instability and
ination of the past are nowhere to be found
today, and what developed is a burgeoning
middle class with tens of millions of young,
educated workers moving up the economic
food chain. In addition to the high-income
Brazilian customers that always have existed
for multinational companies, there now are
millions of up-and-coming consumers. For
companies that are agile and adaptable, this
is a huge opportunity to create new market
share, as well as to protect the market share
they already have.
The instability and ination issues
we had have been gone now for 12 to15 years, explained Neves. We have
built very strong markets from both the
perspective of production and consump-
tion. Thats one reason Brazil has been
able to ride out the nancial crisis and
recession and not be as affected by it.
In Turkey, the events of the Arab Spring
introduced a potentially new story line
for consumer companies. While Turkey
The amount of global commerceamong emerging markets20%
has long been a regional manufacturing
powerhouseit makes more televisions
and buses than any other country in Europe
and is the fourth-largest manufacturer of
automobilesthe potential liberalization
of the Middle East could position Turkey as
the ideal launching pad for export to these
countries. Turkey as a base for production
and exporting to the Middle East, as wellas the Balkans, makes a lot of sense, said
Akan. We have connections with all of
these regions and a strong manufacturing
and logistics capability. Akan also pointed
out that Turkish entertainment program-
ming is very popular with certain Middle
East countries, so companies that target
Turkey as a market essentially hit all of the
Middle East with their product advertising
at no extra cost.
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attribute tree: Commit for
te ong u
Colgate has been active in emerging
markets for decades and maintained its
commitment while managing political,
operational, and cultural risk. But numer-
ous other companies havent met with that
success and have retreated. So for the
retailer or consumer products company
looking to make a long-term play in emerg-
ing markets today, what are some of the
most critical issues that need to be man-
aged? (For Broadmans personal point of
view, see Navigating the risks and oppor-
tunities in emerging markets, on page 44.)
First, the good news: Our panel agreed that
the demographics in virtually all emerging
markets work in any companys favor. Take
Africa, Turkey, and Brazil. Africa contains
more than one billion people and some of
the fastest-growing countries in the world
in terms of GDP, including Ghana, which
grew the fastest in 2010 (China was the
fourth fastest growing). It is estimated that
in 30 years time, one in every ve children
will live in Africa, and the continent will
have the largest working-age population.Foreign direct investment overall still is
quite low, accounting for less than ve
percent into emerging markets, so there
still are plenty of opportunities. Africa
strikes me as a perfect case of rst-mover
advantage, posited Broadman.
Turkey boasts a growing and youthful popu-
lation. While it has few natural resources
to speak of, its manufacturing acumen and
geographic position at the crossroads of
Asia and Europe make it an ideal platform
for production. Its growing Internet usage
and relative lack of a modern retail industry
make it a ripe growth area for global onlineretailers. And Brazil? It might have the best
demographic prole of any emerging mar-
ket: a large, young, educated population;
abundant natural resources; a multicultural
society; and a high percentage of Internet
penetration. But challenges remain.
Infrastructure
Over the past two decades, China has shown
how advancing a countrys infrastructure
can help spur economic growth. In the case
of Brazil, the country completed many in-
frastructure projects due to its hosting of thesoccer World Cup in 2014 and the Summer
Olympic Games in 2016 in Rio de Janeiro.
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PwC View Issue 1543
But as Neves pointed out, strong Internet
access can go a long way toward hiding
weak spots in infrastructure: In Brazil, the
way that companies are looking to use social
media to test products and introduce new
products into the marketplace has really
overcome part of the infrastructure need.
In fact, any company looking at Brazil as
a long-term investment needs to under-
stand this equation: The combination of a
youthful, educated populace; an Internet
penetration rate of more than 50 percent
and growing; and a burgeoning middle classequals a huge potential for online retail-
ing. We have a very young population and
high level of Internet usageand not just
homes with high speed Internet, Neves
said. Hundreds of thousands of shops offer
access where anyone can go in. And they are
buying things online as well.
Infrastructure needs in Turkey and Africa,
apart from South Africa, are more daunting.
Akan recounted how Turkey still predomi-
nantly uses railways built before World War
I. Wilkinson pointed out that companiesopening multiple factories in Africa often
dont realize the continents enormous
sizethe land masses of China, the US, and
India all would t within Africas borders
and distance between the major cities. And
the continents ports, like Turkeys railroads,
are from another era. Despite the prob-
lems these infrastructure gaps present for
companies doing business, one silver lining,
according to Wilkinson, is that many compa-
nies that work on infrastructure projects no
doubt will prosper in the coming years.
Corruption
Each member of the panel addressed cor-
ruption and graftissues likely to comeup in any discussion of emerging markets.
Interestingly, each saw the problem in terms
of the larger questions of advancing an open
political system and maintaining the rapid
clip of economic growth. The belief is that
corruption is less when there is a robust
economy and the political system is open.
We are very proud of our democracy in
Brazil and the liberty of the press, Neves
said. The reality is that consumer products
companies will face the issue, especially
those that sometimes sell through direct
channels to government agencies or to someof the local municipalities. But with our
democracy, and as we keep improving eco-
nomically, we will continue to clean that up.
In Turkey, Akan pointed out that the
country has bettered its position on various
indices that track corruption. He believes
that things have improved a lot in the last
10 years, and it is mainly attributable to
the improvement in economic growth.
Wilkinson noted that companies that dont
stick to strict rules and impeccable business
ethics end up regretting it. Some compa-
nies investing in South Africa and the rest
of Africa have bent a little to the left or
right, and they end up getting burned,
he said. So theyve learned their lessons.
Seizing opportunities
It was tting that an executive as well-
traveled and experienced as Tangney
offered the nal perspective on the cyclical
nature of world business and the need to
spot opportunities where they exist: I can
remember when Latin America was weak
and dangerous, he said. They spoke of
the debt crisis. Now its the Europeans who
have the debt crisis. Today, in our world,
Africa has the high potential to do very
well. Companies have to act according totheir beliefs about what the future holds.
1:5It is estimated that in 30 years time, one in every ve children willlive in Africa, and the continent will have the largest working-agepopulation. Foreign direct investment overall still is quite low,accounting for less than ve percent into emerging markets, sothere still are plenty of opportunities.
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PwC ViewIssue 15
eitrial
Editorial Director
Tom Craren
Managing Editor
Gene Zasadinski
Assistant Managing Editor
Christine Wendin
View points Editor
Angela Pham
Contributing Editors
Mike Brewster
Emily Church
Cecily Dixon
Susan Eggleton
Benjamin Isgur
Sandy Lutz
Susan Poole
Anand RaoBill Sand
Jamie Yoder
onlin
Jeffrey Dreiblatt
Adiba Khan
Scott Schmidt
Jack Teuber
dsign
Odgis + Company
Creative Director
Janet Odgis
Senior Designer
Banu Berker
Designers
Rhian Swierat
T. Chlo Bartholomew
Cntributrs
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