Exporting within the Commonwealth and BRICS – A Road Map to Business Success

A GovKnow Briefing Event

Professor Sumon Bhaumik Aston Business School

http://www.sumonbhaumik.net

How much does the UK export to the BRICS?

To whom does the UK sell its products? Annual direction of UK exports (US$)

0

1E+10

2E+10

3E+10

4E+10

5E+10

6E+10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US

do

llars

Brazil

China, P.R.: Hong Kong

China, P.R.: Mainland

Germany

India

Indonesia

Korea, Republic of

Mexico

Netherlands

Russian Federation

Data source: International Monetary Fund (2013): Direction of Trade Statistics (Edition: February 2013). ESDS International, University of Manchester. DOI: http://dx.doi.org/10.5257/imf/dots/2013-02

What is wrong with UK’s direction of exports? How the world has changed

11%

15%

33% 3%

7% 3%

8%

9% 6% 5%

1995

Brazil

China

Germany

Hong Kong SAR, China

India

Indonesia

Korea, Republic of

Mexico

Netherlands

Russian Federation

9%

32%

21%

2%

10%

3% 8%

7% 4% 4%

2010

Brazil

China

Germany

Hong Kong SAR, China

India

Indonesia

Korea, Republic of

Mexico

Netherlands

Russian Federation

Data source: World Development Indicators, The World Bank, Washington, D.C.

What is the market potential in the BRICS?

How much appetite do BRICS consumers have for consumption?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

China India Brazil Russia USA Europe Japan

Spend less

About the same

Spend more

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

China India Brazil Russia USA Europe Japan

Trade down

Neither

Trade up

Data source: BCG Global Customer Sentiment Survey 2011 . In: Silverstein, M.J. et al. , The $10 Trillion Prize: Captivating the Newly Affluent in China and India, Harvard Business Review Press; http://documents.bcg.com/BCG_10_Trillion_Dollar_Prize_Executive_Summary_Booklet_2012.pdf.

What do the BRICS buy?

What do the BRICS consumers buy? Consumers in India

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2015 2025

54

35

24

41

43

36

4

19

32

1 1 8

0 1

2

Pro

po

rtio

n o

f h

ou

seh

old

s

Globals (>1000)

Strivers (500 - 1000)

Seekers (200 - 500)

Aspirers (90 - 200)

Deprived (<90)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2015 2025

42 34

26

6

5

5

12

12

10

3

3

3

8

9

11

17

19

20

2 3

6

5 6

9

7 9 13

Health care

Education & recreation

Communication

Transportation

Personal products &services

Household products

Housing & utilities

Apparel

Food, beverage &tobacco

Source: The ‘Bird of Gold’: The Rise of India’s Consumer Market, McKinsey Global Institute (2007)

What do the BRICS import? Principal imports of India

3.3

33.5

1.3

5.9 1

1.4 2.2

5.9 9.7

9.3

7

20.6

2000-01

Food and allied products

Fuel

Fertilizers

Machinery except electrical and machine tool

Electrical machinery

Transport equipment

Other capital goods

Chemicals

Pearls, precious, semi-precious stones

Gold and silver

Electronic goods

Others

3.1

37.4

2.4 7.2 1 3 2.9 5.1

6.1

12.6

7.1

18.1

2011-12

Food and allied products

Fuel

Fertilizers

Machinery except electrical and machine tool

Electrical machinery

Transport equipment

Other capital goods

Chemicals

Pearls, precious, semi-precious stones

Gold and silver

Electronic goods

Others

Data source: Economic Survey 2012-13, The Government of India, http://indiabudget.nic.in/es2012-13/echap-07.pdf, Table 7.5.

What do the BRICS import? Growth areas of Indian imports – selected items

Data source: Economic Survey 2012-13, The Government of India, http://indiabudget.nic.in/es2012-13/estat1.pdf, Table 7.2A.

0

5000

10000

15000

20000

25000

30000

35000

1990-91 2000-01 2010-11

US$

mill

ion

Fertilizers and fertilizer mfg

Iron and steel

Non-electrical machinery

Electrical machinery

Transport equipment

What can/does the UK sell to the BRICS?

What does UK sell to the BRICS countries? Composition of exports to BRICS

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Val

ue

51: Organic chemicals

52: Inorganic chemicals

54: Medicinal and pharmaceuticalproducts

67: Iron and steel

68: Non-ferrous metals

72: Machinery specialized forparticular industries

73: Metalworking machinery

74: General industrial machinery& equipment, and parts

76: Telecommunications & soundrecording apparatus

Data source: Organisation for Economic Development and Cooperation (2007): International Trade by Commodities Statistics (Edition: 2007). ESDS International, University of Manchester. DOI: 10.5257/oecd/itcs/2007

How do Indian imports and UK exports to BRICS stack up?

• 4 principal (non-petroleum) imports of India

– Machinery except electrical and machine tools (5.9 -> 7.2)

– Transport equipment (1.4 -> 3.0)

– Other capital goods (2.2 -> 2.9)

– Fertilizers (1.3 -> 2.4)

• 3 key exports of UK to BRICS

– Organic chemicals

– Iron and steel

– General industrial machinery and equipment, and parts

How well does the UK perform, therefore, with respect to exports to India?

0

5000

10000

15000

20000

25000

30000

35000

Au

stri

a

Bel

giu

m

Den

mar

k

Fin

lan

d

Fran

ce

Ger

man

y

Gre

ece

Irel

and

Ital

y

Net

her

lan

ds

No

rway

Po

rtu

gal

Spai

n

Swed

en

Swit

zerl

and

UK

US$

mill

ion

Indian imports from select EU countries

2010-11 2011-12

Percentage change

Share (percent)

Austria 31.7 0.2 Belgium 21.4 2.1

Denmark 31.1 0.1 Finland 24.1 0.4

France 3.5 0.8 Germany 32.2 3.2 Greece 24.4 0

Ireland 52.1 0.1 Italy 27.2 1.1

Netherlands 44.2 0.5 Norway -12.3 0.2

Portugal 263.9 0.1 Spain 21.1 0.4 Sweden 23.8 0.4

Switzerland 30.3 6.6 UK 40.7 1.6

Data source: Economic Survey 2012-13, The Government of India, http://indiabudget.nic.in/es2012-13/estat1.pdf, Table 7.4A (Direction of imports: Imports by regions and countries).

How easy is it to do business with the BRICS?

Snapshot of selected issues

• Cost of doing business

• Law and its enforcement

• Availability of skilled labour

Cost of doing business

0 1 2 3 4 5 6 7

Best

Brazil

China

India

South Africa

Infrastructure quality

Quality of electric supply (1-7)

Quality of port infrastructure (1-7)

Quality of roads (1-7)

0 1 2 3 4 5 6 7

Best

Brazil

China

India

South Africa

Government

Burden of government regulations (1-7)

Favouritism in decisions of government officials (1-7)

Irregular payments and bribes (1-7)

Data source: Global Competitiveness Index 2012-2013, World Economic Forum

Regulatory issues Guidelines for licensing of new private banks in India

• “Foreign shareholding in the bank: The aggregate non-resident shareholding in the new bank shall not exceed 49% for the first 5 years after which it will be as per the extant policy.”

• “The bank shall open at least 25 per cent of its branches in unbanked rural centres (population upto 9,999 as per the latest census).”

Source: Reserve Bank of India, http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28191

Legal institutions

0 1 2 3 4 5 6 7

Best

Brazil

China

India

South Africa

Legal institutions

Efficiency of legal framework in challenging regulations (1-7)

Efficiency of legal framework in settling disputes (1-7)

Source: Global Competitiveness Index 2012-2013, World Economic Forum

Sector-wise availability of skilled labour in India

0

5

10

15

20

25

30

35

Percentage distribution of 15-29 population with formal vocational training (2004-05)

Source: India Labour Report 2009 (Table 3), A report by TeamLease (www.teamlease.com) and IIJT (www.iijt.net)

Where does that leave UK and UK companies?