Tokyo Bay Traders- The Emerging Asian Markets
Tokyo, Japan, October 01, 2011 -- For several years now we have been preaching and re-instating that The New Normal is where Asia and the Emerging Markets Drive Global Economic Growth with the U.S. and Europe trailing behind. Investors should focus on Companies that are plugged into Asia and the Emerging Markets..
Compelling reasons to increase engagement
Multinational companies can no longer afford to ignore emerging markets. However they also need to consider the difficulties involved.
With approxiametly 50% of global economic output now coming from emerging markets, multinationals have increased their investments in these countries so that they now generate about 20 per cent of their revenues from the developing world, 20 years ago this only accounted for 10 per cent of revenues.
The so-called Bric economies alone – Brazil, Russia, India and China – will add approxiametly $12,000bn to the global economy over the next decade, which is double that of the US and the eurozone combined. That leaves multinationals little choice about increasing their emerging market investments. Those that don't will close vital ground to their competitors from the developed world and, increasingly, from the emerging economies such as China, India, Russia and Brazil.
The head of the Investment Climate Facility, an African-focused investment promotion group says: “I hear this question ‘How can you stop China?’ You don’t and you can't' You get in there. It will be the largest economy in the world'.
However companies investing in these emerging economies do face multiple challenges. Broadly speaking these divide into two: challenges from local established companies, whether they be competitors or partners; as well as the challenges that arise from the general business environment, ranging from corrupt customs officials and untransparent courts to strikes.
Without a doubt, the most significant development is the emergence of big local companies who are now prepared to deal with western and Japanese multinationals on their own terms.
In the past, these were often state-backed and state -owned minerals-based groups such as Russia’s Gazprom, Petrobras of Brazil, and the Chinese oil group Cnooc
Today however alongside these resources majors, emerging markets are forging future multinationals in manufacturing, companies such as ZTE and Huawei. The Chinese companies that are ranked amongst the world’s top five telecoms equipment makers, Tata, the Indian grouping that now controls Jaguar Land Rover, and the Brazilian-led Anheuser-Busch InBev and South Africa’s SABMiller, two of the world’s largest brewers.
In finance and services, emerging markets companies are further behind, but they are most certainly in the race in terms of size if not their global reach.
For example, three of the top 10 banks in tier one capital terms worldwide are Chinese.
Many western organisations complain their emerging market rivals – notably Chinese – benefit from certain unfair advantages, such as restrictions on foreign access to their markets (especially in public procurement) as well as cheap state-driven finance.
Chinese executives retort that western companies are moaning because of the fact they are now facing for the first time, genuine competition from emerging market challengers.
This is not true however, considering the earlier emergence of South Korean and Japanese global companies. This time however the scale of the challenge is much greater.
Even when there is truth in various protectionist arguments, developed world multinationals cannot and should not rely on political counter-measures.
History suggests they should instead address their weaknesses and focus on their strengths – as the European and US carmakers did, belatedly, in response to the rise of the car industry in Japan.
The only way for e multinationals to fight back was “by shifting their businesses to developing markets and focusing on those goods and services in which they already hold a competitive lead”.
What about investors? Should they back emerging market rivals or multinational?
Various reports earlier this year argued that developed world multinationals were the best bet, with 50 selected groups having outperformed the S&P 500 index over the last five years.
However over the last 10 years, emerging markets have outperformed developed world multinationals with emerging market exposure: the FTSE index of multinationals has 30% or more of their revenues from outside their home turf and has returned about 30%t in the past decade, this is compared with a 250% gain in the MSCI emerging markets index.
The response traditionally to this disparity is to say that emerging markets come with greater risk. But the larget they grow, the more stable their economies become and the more successful these companies become, the less this applies.
Whatever the difficulties they face, the more compelling the reasons for established multinationals to increase their engagement in these markets.
About Tokyo Bay Traders.
Tokyo Bay Traders is a financial services company focused on helping clients manage and service their financial ambitions, providing fast, reliable advice and execution on over 50 markets. Tokyo Bay Traders offers investment management and investment services through a fully trained, client focused team. For more information please visit www.tokyobaytraders.com.
Tokyo Bay Traders is a financial services company focused on helping clients manage and service their financial ambitions,
Tokyo Bay Traders
Tokyo, Japan 105-0022
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