risk factors of doing business in emerging markets or “managing surprises” richard j. coyle
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Risk Factors of Doing Business in Emerging Markets OR “Managing Surprises” Richard J. Coyle Executive Director, Emerging Markets Institute Samuel Curtis Johnson Graduate School of Management Cornell University March 5, 2013. NAME THE TOP 10 ECONOMIES OF THE WORLD BY SIZE. 2012. 2050. - PowerPoint PPT PresentationTRANSCRIPT
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Risk Factors of Doing Business in Emerging MarketsOR
“Managing Surprises”
Richard J. CoyleExecutive Director, Emerging Markets Institute
Samuel Curtis Johnson Graduate School of ManagementCornell University
March 5, 2013
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NAME THE TOP 10 ECONOMIES OF THE WORLD BY SIZE2012Rank Name of
CountryGDP in $ B
1 USA 15,650
4 Germany 3,367
5 France 2,580
6 UK 2,434
7 Brazil 2,425
8 Italy 1,980
9 Russia 1,954
10 India 1,947
2 China 8,250
3 Japan 5,984
2050Rank Name of
CountryGDP in $ B
1 China 70,000
2 USA 39,000
3 India 38,000
4 Brazil 11,000
5 Mexico 9,500
6 Russia 8,500
7 Indonesia 7,000
8 Japan 6,500
9 UK 5,500
10 Germany 5,000
Source: CIA World Factbook, 2012 Source: Goldman Sachs Estimates
4 of the Top 10 economies of the world in 2012 are considered Emerging Markets6 of the Top 10 economies of the world in 2050 are considered Emerging Markets
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2012 GDP Growth Rates
Rank Rate26 727 6.828 6.829 6.830 6.531 6.532 6.533 6.334 6.335 6.236 6.237 6.138 6.139 640 641 642 643 644 5.745 5.746 5.747 5.648 5.549 5.450 5.3
KuwaitBurmaNiue
Gabon
EthiopiaSri LankaTajikistan
AngolaCambodia
Zambia
Country
Mauritania
West BankEquatorial Guinea
VenezuelaThailand
KazakhstanIndia
BangladeshIndonesia
Saudi ArabiaGeorgiaGibraltar
Peru
TanzaniaQatar
Rank Rate1 21.32 20.73 14.54 12.75 116 10.27 108 9.99 910 8.511 8.312 8.213 8.114 815 7.816 7.717 7.718 7.519 7.520 7.421 7.422 7.323 7.124 7.125 7
Sierra LeoneMacauNiger
Mongolia
IraqTimor-Leste
BhutanLiberia
Panama
GhanaCote d'IvoireTurkmenistan
ChinaRwanda
EritreaMozambique
UzbekistanSolomon Islands
Chad
NigeriaBurkina Faso
Country
Afghanistan
Laos
Papua New Guinea
Democratic Republic of theCongo
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SOME EVIDENCES OF THE SHIFT
Largest Automobile Market- China
Largest Oil Producer- Russia
Largest consumer of gold- India
Million Millionaires- China
Largest Producer of Wheat – China
Largest producer of engineers – India
Country with the most Ph.D.s per capita – Israel
Top two countries for cement production – China and India
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WHAT CONSTITUTES AN EMERGING MARKETKey Characteristics:
1.High rate of GDP growth, often coupled with low or moderate GDP per capita
2.Evolving regulatory framework, increasingly conducive to doing business
3.Large demand for investment capital coupled with under-developed domestic capital markets
4.Rapidly improving physical and business infrastructure
5.Relative political stability and improving transparency
6.Rapidly improving human development indicators
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WHERE ARE THE EMERGING MARKETS?BRIC Countries:Goldman Sachs coined the acronym BRIC to focus on four rapidly growing economies of the last couple of decades•Brazil•Russia•India•China
Other Countries:New classifications have been proposed by several groups•CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa•N-11: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam•Poland, Saudi Arabia, Argentina, Philippines, Chile, Czech Republic, Singapore, Romania, Peru etc
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What are the risks?
• Economic• Legal• Political• Cultural/Linguistic• Reputational• Physical• Technology• Corruption
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Economic
• Inflation Argentina, Average Inflation Rate, 1944 – 2010: 215%
• Currency Stability and Conversion Turkey
• Repatriation of Profits China
• Infrastructure Development India & Africa
• Unemployment Greece & Spain
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Legal• Expropriation
Argentina – YPF Subsidiary of Repsol (Spain) Venezuela
• Reliable Court System India vs. China (Guanxi)
• Land Ownership Africa, Parts of Asia, Pacific Islands Former Communist States
• Intellectual Property Protection China
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Political
• Membership in multi-lateral trade agreements and political unions
• Government Instability Arab Spring
• Taxes, Tariffs and Fees• Regulatory• Protectionism• Keep your company politically-neutral, in case the
ruling party changes!
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Cultural/Linguistic• Getting Your Advertising Message Right
McDonald’s (China) Gerber Labelling (Africa) Pepsodent (South East Asia)
• Adhering to local cultural and language protection laws
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Reputational
• Supply Chain Risks Factory work conditions (Foxconn) Child labor (Uzbek Cotton) Raw material sustainability (Wal-Mart)
• Crisis Management Bhopal Disaster (Union Carbide) Lead Paint (Mattel)
• Media/Government Relations New Market Entry (Wal-Mart)
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Physical
• Personnel Some locations extremely risky for physical safety Be aware of passport sensitivity is some markets Kidnap Insurance Police are not always trust-worthy
• Assets Strong security measures for protection – from theft
and natural disasters Need back-up plans Business Interruption Risk
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Technology
• Power Outages• Communication Blackouts• Internet and Media Censorship• Broadband widths• Local support for repair & maintenance• Cyber Risk
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Corruption
• Can be rampant• May not be viewed as unethical by local standards• Does not conform to the FCPA• May result in loss of sales, intellectual property or other
assets and can cause delays in transportation of goods• Role of organized crime• Join with other companies (trade associations) so as to
enhance the strength of your voice• Government and media relations are key!
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Risk Mitigation Steps
• Government Relations – both U.S. and foreign
• Media Relations
• Trade Associations
• Due Diligence
• Local Advisors
• Back-Up Plans
• Good Insurance
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Thank you!
Richard J. CoyleExecutive Director, Emerging Markets InstituteSamuel Curtis Johnson Graduate School of ManagementCornell UniversityTel: 607 255 [email protected]/emerging-markets-institute