Entering into emerging markets

 

By 2025 the emerging markets of Brazil, Russia, India, China, Indonesia, Mexico and Turkey—will have surpassed the G7 group of developed nations. There has already been a rapid relocation of manufacturing activity taking place into these markets. Automobiles, aircraft engines, clothing, footwear, computers, mobile phones, domestic appliances, toys and furniture are some of the products that are being made in large and increasing amounts in China, India, Russia and Brazil.

Walmart alone imports USD15 billion worth of goods from China. This trend will continue and accelerate for the next 50 years. Why? Delphi, the major automotive parts supplier to General Motors, illustrates why this is occurring. One of Delphi’s biggest problems was that its labour costs were too high. As a result of its Chapter 11 restructuring, the company has reduced its labour costs from USD26 per hour to USD16 per hour. However if you take into consideration that the labour cost in China, India, Brazil and Indonesia is USD1 per hour then you can understand why so many companies will need to open up offices and factories in these markets to cut costs and improve margins. The relocation of sophisticated manufacturing into emerging markets requires large numbers of experienced expatriates and local managers, engineers and technicians to source this influx. In support of these high tech activities companies such as Intel, Visteon, Phillips and Carrier have set up major Technology centres in emerging markets countries. We have already seen major outsourcing of IT and back office operations to India. This is happening in Brazil, Mexico and Vietnam as well. Russia has become a global player in both oil and gas. Brazil has become a pioneer in bio-fuels. Indonesia has developed its vast natural resources—including timber, oil, gas, minerals and precious metals. As Turkey’s economy develops closer economic links with the EU, the role of the state is shrinking as massive privatisation efforts are taking place in essential sectors, such as industry, banking, transport and communications. Turkey is a major player in the garment industry and Mexico is a major oil exporter.