The Future of the Emerging Market

The future of the emerging market (1) has been called into question recently. On one hand bloggers and commentators on real estate forums are throwing theories about that the current press attention being given to banking problems in the U.K. and economic problems in the U.S. will see investment in emerging markets slow, and any money being spent being put into established markets. One, screen-named Kim on the Totally Property forum was even so bold as to say “I think the emerging market is now overplayed and we are saturated with new emerging markets that are cheap and likely to stay cheap.”

On the other hand financial and global economy experts are predicting that the emerging market of Brazil will grow into the world’s fifth largest economy in the coming years. What’s the truth here?

I personally believe that emerging markets are just that: emerging. No matter how slow the global economies get, people will always be taking their yearly holidays, and rising tourism is what is fuelling the emergence of these under-developed countries. As people from the developed countries of the world, with more disposable income visit these countries and spend their money on accommodation and their holiday spends, this develops the economy.

As tourism increases tour operators start looking at the country and sending scouts to investigate its potential, the number of flights to the country increases and before you know it Hilton hotel chains are being built and taking on staff from the ground up. Like the massive sky scraping Hilton hotel complex in the emerging market of Panama’s capital, Panama City. O.K. many of the most senior staff might well be relocated to run the hotel, but even if all senior staff are imported, how long is it going to be before bright young locals are getting promoted — possibly even achieving a really high position should one of the execs get a better offer.

Promotion or not the amount of jobs a complex like that provides for the local community, who then have a lot more money to spend on accommodation, possibly rental or even buying their own homes. This all brings massive regeneration into the community and the economy.

Therefore, with emerging markets, fuelled by tourism as they are, if anything a slow down in the markets could well strengthen the emerging markets, on the grounds that, the current emerging markets have good climates, and low cost of living, so people can have a cheap holiday in the sun. That is an attraction even now, a low cost holiday in the sun, and on top of the that, off the beaten track, possibly exotic and somewhere different than all your friends have been. But this is a property investment take on emerging markets, so where does real estate investment, and potential profit thereof fit into my theory…

Well, the shrewdest investors will put their money into a swanky off-plan apartment or villa around the time that flights start increasing, major tour operators launch a new destination, and hotel chains like Hilton get in on the action. And that is generally the case, investment property overseas property agents see a market emerging and start to get property there onto their books as soon as possible. When property in an emerging market starts to receive interest from global buyers, this in itself causes prices to rise.

Whereas before property has had to be affordable for the local population, given enough global attention, property values will start to get closer to what the property is worth to global buyers with more money. Not just that, as the economy develops prices start to rise for building materials, builders and laborers start not only expecting, but needing a higher wage to keep up with increasing living costs, this all pushes up house prices.

Therefore a market’s emergence has a kind of perpetual motion; once the emerging market wheel starts turning it very rarely stops. In short, once a market becomes known as an emerging market, and I don’t just mean because Terrry down the pub says so. I mean once experts start calling a country an emerging market, and overseas property agents start offering property there amass, then the chances are prices are already rising across the board, and will continue to do so for the foreseeable future.

Disentangling Emerging Markets

I get quite cross when I hear people talking about ’emerging markets’ or even ‘BRICs’ as a single great lump of investment. To me, investing in Russia is completely different from investing, in, say, Brazil or China.

How do we distinguish one emerging market from another? Let’s look at what’s available in the market right now.

There’s one kind of emerging market, which I call the post-colonial market. Russia is a good example. What’s good about Russia? Well, it’s big, and it’s got loads of natural resources – aluminium, oil, gas, precious metals, you name it, it’s got it. In fact it’s got so much gas that it can hold its neighbour Ukraine to ransom just by turning off the taps.

Unfortunately most of those natural resources are in unfriendly environments, like Siberia – a frozen waste most of the year which turns into a mosquito-ridden waste for the remaining few months of it. The cost of extraction is high, and when I took a look at Russian aluminium a few years ago the cost of production was actually higher than the market price. Commodities prices has rocketed since then, but it’s probable that Russian plants still have a higher cost of production than more efficient producers – since most of the profits of high prices seem to have gone to buying Premier League football clubs, rather than investing in more up-to-date facilities.

‘Post-colonial’ emerging markets don’t do well in the long run. Much of Africa runs this sort of economy, exporting oil or coffee – and failing to create new industries with the returns. These markets are tied to commodity prices, and if commodity prices fall, they’ll do spectacularly badly.

Then there’s, say, China. Far from being a natural resources producer, China is now a net importer of many commodities. For instance Chinese demand (or lack of it) is the usual quoted reason behind moves in the copper price. Instead, China has become a major exporting economy competing in labour intensive sectors such as textiles, electrical equipment, and industrial machinery.

I like to think of this as a ‘truly emerging’ market. It’s not just ’emerging’ in terms of being a long way away and having an increasing GDP – it’s also emerging in the sense of structurally changing its economy. It’s emerging from an agricultural and commodity-driven economy into a capitalist manufacturing and services economy – something which, if you read your Christopher Hill, England did back in the 17th century.

India is another market that’s emerging in this way. True, it still has a huge hinterland of rural poverty relying on the agrarian economy, but it has managed to build companies like Wipro that are competitive on a global scale. Visit the call-centres and IT companies of Bangalore, even, and you’ll see a tin shack with two cows lying in the dust next to a gleaming Norwich Union office building – but despite fits and starts, despite incredible bureaucracy and uneven development, the economy is changing.

Of course you could take the view that finding the term ’emerging markets’ deceptive is a piece of pedantry on my part – it’s a convenient term for the non-developed world. In my view, though, that’s a bit like Columbus found ‘India’ a useful description for that little set of islands he found – a basic navigational mistake covered up later by calling them the West Indies.

More seriously, though, an increasing number of collective investments including ETFs and OEICs market themselves to investors using the ’emerging markets’ label. Investors obviously think they’re getting one clearly defined thing – and my worry is that if they don’t do their research in depth on the funds, they’re going to get another.

An investor who thinks they’re getting into ‘the next Taiwan’ or ‘the next Korea’, looking for an economy based on mass production of industrial goods, is going to be pretty disappointed if they end up with a fund whose main holdings are oil, copper and palm oil producers.

Fortunately investors can pick and choose which emerging markets they want – at least to some extent. For instance Lyxor offers ETFs that focus on specific markets – there’s an MSCI India ETF, a China Enterprise ETF, and an MSCI AC Asia-Pacific (ex-Japan). First State offers a set of investment funds including Indian Subcontinent, Greater China Growth, and Latin America. (It also offers interesting funds playing particular aspects of world markets, such as the First State Global Listed Infrastructure fund and Global Property, though these are not focused on emerging markets per se.)

Saying ‘I want an emerging markets percentage in my portfolio’ is not enough. It’s like saying ‘I want to buy some stocks’ without any idea of whether you’re a value investor, a growth investor, an income investor, or what sectors might be attractive. Investors need to decide on what kind of emerging markets they want to buy – and why.

The 5 Soft Skills All HR Pros Working in Emerging Markets Should Have – Excuses Are Not Accepted

Becoming a great HR Professional in any country or culture is never easy. It takes time and experience.

Unfortunately, if you work as an HR Professional in emerging markets, you know that “time” is not your friend and “experience” means nothing. Partly because you have to deal everyday with situations where there is little precedent for what you need to accomplish. But also because your company wants you to execute all HR activities better, faster and smarter than anyone else. No time to sit back and wait… No one to teach you how to do…

In such a challenging situation, the only ones who possess a great set of interpersonal skills have an opportunity to survive and grow professionally. Probably you know this already but it’s worth a reminder. As a global HR Professional, it’s not sufficient to only master your traditional HR skills learned in your home-country. You also must to develop some specific intercultural qualities – or you will find yourself ineffective in emerging markets. And obviously, that’s not your goal.

In this article you are going to find a list of 5 essential interpersonal skills you will have to master in order to be considered as an HR high potential. As you read through it, you will discover that these skills are interdependent each other. In other words: the development of one cannot exist without the others. I know that seems a little bit complex but in fact, it’s a pretty good news for you! That means if you manage to develop one of them, it will be easier for you to develop the others. So don’t panic! Take a closer look below and see which skills you need to gain to dramatically improve your HR career in emerging markets.

1. Self-awareness or having a deep understanding and intuitiveness of yourself and others.

Being aware of yourself and the perception you are projecting is an essential skill you need to have. As an HR Professional working in emerging countries, one of the first things to do is to figure out how you are perceived by others in order to be able to adapt your behavior and build strong relationships with your employees. By gaining an awareness of your own cultural norms, values, worldview and communication, you will also be able to better understand yourself. That’s a critical step toward understanding your employees regardless of where you are in the world. So take some time to reflect on yourself and learn to be a little more emotionally intelligent.

2. Inquisitiveness or the willingness to learn and be curious.

Having an insatiable demand for knowledge is an important trait of successful HR Professionals in emerging markets. In an environment where change is the only constant, asking questions, investigating as well as seeking explanation are probably the best ways to find solutions to any issue. It will also help you solve problems creatively and take advantage of opportunities. So be adventurous: start asking more questions for which you don’t have the answers and seek information outside established boundaries. Open up and be curious!

3. Cultural sensitivity/empathy or the capacity to put yourself in another person’s shoes.

If inquisitiveness is a “head” quality of a great global HR Professional, empathy is all about the heart. Having empathy is having compassion and understanding for someone else’s feelings, thoughts, attitudes and beliefs. For an HR working with people from diverse cultural backgrounds, it means being able to put her/himself in employees’ position, picturing their perspectives and being receptive to their concerns. By mastering this skill, you will have a genuine awareness of other people and be able to know how they would like to be treated by you. It’s clearly a powerful skill to gain! So before you judge or speak, think of the individual.

4. Learning ability or the ability to learn from experience.

Being able to adapt experience and knowledge to different environments is an important skill that anybody needs to have. But for HR people working overseas, this characteristic is crucial because they have to immerse themselves in an unfamiliar environment full of new people and challenges they have never met before. Learning more and more quickly and being capable of changing as a result of this learning will definitely give you the strength to respond and overcome the toughest situations. So explore and experiment.

5. Open-mindedness or being more receptive to new experiences, ideas and people.

Today global companies operating in emerging markets need HR Professionals capable of building bridges with local employees. By being nonjudgmental and truly open-minded to listening to others, you will be able to build trusted relationships with diverse employees and learn new ways of thinking and handling things. So stop generalizing or jumping to conclusions. You will be more likely to appreciate cultural differences and develop cultural intelligence.

Smart global HR Professionals cannot afford to not have these interpersonal skills! No matter what anybody else have told you, being an effective and efficient cultural communicator is the single most important step toward becoming a successful HR player in the global HR arena. So be ambitious and start to learn the “intercultural language”!

–> Any comments, questions or suggestions? Feel free to Ask Me Anything by sending me an email at eliseeokonda.loma@hrinemergingmarkets.com

I will be glad to answer you!

Why It Is a Good Idea to Buy in the Emerging Markets

“To do, or not to do” – that is the big question. The debate about whether it’s a good idea to invest money in the emerging markets is not new. Some analysts have been saying that it is not recommended. They say that the emerging markets or the EM’s are bound to get sucked into the recession that has become a global phenomenon. These markets can grow only if, and when, the western economies grow, they add.

Surely, we want to believe this. We want to feel good knowing that the west rules, even today. But in reality, it is not true. It seems more and more likely that the economic domination of the US and the other western economies is a thing of the past. Sure enough the US economy will recover, and will play a leading role in the future. But it can never perhaps dominate the market again, like it used to do once. That day is long, and truly gone.

Yes, the emerging markets have also been hit by recession. But it now seems that these markets are more stable than the western markets. Many of the emerging markets such as China, India and Brazil are huge domestic markets. These markets are growing everyday, because they are now doing a lot of business within themselves.

Take Brazil for instance. Who would have thought that China would one day be the #1 trading partner of Brazil, even though China is so far away geographically?

Stocks in the Emerging Markets Offer an Amazing Opportunity

The emerging markets are growing fast. You will find some of the fastest growing and high-potential stocks here. In fact, if you do an analysis of the best stock indices according to their performances, you will find that they are mostly from the EM’s. Even when the global markets suffered terribly, the impact wasn’t very severe here.

Analysts often say that the Indian and Chinese stock markets have climbed too rapidly, and a fall is imminent. They were right. These markets did crash, but the recovery was fast too. In just a few months, the markets re-bounded, reaching almost their historic highs. It seems that these markets are fundamentally more stable.

Also, in the Chinese market, the price-earnings multiple is much lower than what it is in the UK. So this means that the valuation of an average stock in the UK is higher than what it is in China. Now, an over-valued stock will surely fall, no matter what the economic condition.

The Western Economies Are Now Depending On the Emerging Markets

There was a time when the EM’s had to depend on the west. But now it is the other way round. Chinese goods are flooding the west, and India and Brazil and reaching there too. Their export figures are growing every quarter.

Here’s another fact about the financial strength of these EM’s. Did you know that by 2014, the debt burden of G7 countries is expected to be 114% of their GDP? On the other hand, it will just be 35% for these emerging markets.

It is thus a good idea to put your money into these emerging markets now. Do it smartly, and watch your investments soar.

Key Distribution Issues in Emerging Markets

Fragmented markets – What is the balance between modern and traditional trade? Modern trade (e.g. Shoprite supermarkets) in most African countries, with the exception of South Africa and Kenya, is still in the very early stages of development. The contribution is in the low single digits. Reaching large numbers of traditional outlets (e.g. Mom & Pop, Dukas, Sooks) is a difficult and costly business.

Channel strategy – How do channels function and operate? Companies must map out a clear channel strategy and identify which channel the selected distributor will service. A poorly defined channel strategy can severely damage any distributor roll-out. One size does not fit all.

Outlet base – Are traditional and non-traditional channels well defined? In most emerging markets, determining the outlet base can be a challenging undertaking. Companies need to understand both the existing and potential outlet base. A well defined every dealer survey (EDS) is a key component of any successful distributor roll-out.

Territory – Is the territory well defined and does the distributor have the ability to service the territory? Companies must build distributor capability and schedule joined training sessions. Companies must also ensure they have detailed territory maps and a clear understanding of the outlet density.

Regional differences – What are the regional, urban and rural differences in distribution?

Product flow & reasons for purchase – How do products flow in the market? Often small groceries purchase product directly from the wholesale channel. In some cases they might purchase certain stock keeping units from modern trade (e.g. consumer goods Thailand). The wholesaler is often in close proximity to these outlets (2-5km radius). They provide a basket of goods, and in some cases credit, if they have a good relationship with the small grocery.

3rd Party Logistics -Where do the 3PLs operate in the country? 3PLs often cover the major roads well. However, in emerging markets they normally have a limited footprint in rural areas.

Selection criteria – What are the key components of a successful distribution partnership? Many distributors fail because critical components of the selection criteria are overlooked. The selection criteria will likely include important components such as capital, infrastructure, warehousing, transportation and required organizational structure.

Service – Assess the service and delivery for each channel and the service partners they work with. Review the key issues with service and delivery and map out the distribution models employed.

Customer service frequency – What is the frequency of product replenishment and reasons for the frequency?

Role definition – What are the company and the distributor are responsible for? It is important to review the organizational structure and how the company will support the distributor. Ensure that each profile (e.g. salesperson) has a clear understanding of his or her role.

Account development – How should account development be managed? This a critical component of any distributor operation. Not all accounts are equal. In most cases, companies need to prioritize and focus their attention on high value or strategic customers. Companies also need to determine how they will split the account development activities between the company and the distributor.

Value chain – Do we understand the value and margin of partner in the system?

Cost to serve – What is the true cost to serve? The true cost to serve is sometimes underestimated and companies must have a clear understanding of the cost to serve for both the distributor and the company. In many cases in emerging markets, financial cost centers provide limited data and financial modeling is essential to determine the true cost to serve. Many distributors fail because the remuneration is set too low and not adjusted for inflation on a periodic basis.

Low cost distribution – What local distribution solutions exist in the market that can be leveraged? Often small groceries are situated in congested areas, with narrow gravel roads where trucks can’t enter. In these markets you might find pushcarts, trolleys or motorbikes (e.g. Vietnam). Tapping into their distribution structure can lower cost and increase product availability. Some consumer goods companies have also successfully managed to organize these lower cost distribution models and make it work for their operations and product portfolio.

Warehouse -How will new systems impact on the existing warehouse? The warehouse function is sometimes overlooked when a company implements a new route-to-market system. Companies need to anticipate how the new system will impact on the warehouse function and what changes need to take place.

Stockholding – What is the required service frequency? Outlets in emerging markets often have limited cash flow and, in some cases, limited space to stock product. Review the required service frequency and the need for micro supply depots or wholesalers.

Key Performance Indicators – What are the key performance drivers? By focusing on the key performance drivers of your business, avoid overextending yourself. Sometimes less is more. Include key performance measurements in your business planning process and evaluate on a yearly basis whether you are using these measurements to track and improve your business. There is no point in tracking something just for the sake of tracking.

Processes- Are processes and systems well defined and standardized? Always aim to eliminate non-value adding activities where possible. Standard Operating Procedures (SOPs) simplify your business procedures and help to ensure the same quality in all operations.

Skills – What skills need to be recruited or developed? Emerging market operations often lack critical skills. It is dangerous to make assumptions about what people can and can not do. For any principal working with a distributor, conduct a skills gap analysis to determine the training recruitment needs.

Complexity – Can the distributor handle the level of complexity in the business? In many cases distributors that distribute all SKUs to all channels fail. Always aim to reduce the complexity in the business.

Collaboration – How will the distributor share information with the company? Too often critical information is only available at distributor level and not shared with the company. Also consider the role that can technology play in information sharing.

Appropriate technology – What technology is necessary? Evaluate mid tech solutions and identify the “appropriate technology” for your operation. Don’t overdo it.

Patience– How much time do you have? Ensure you have management buy-in. A Route-to-Market roll-out requires patience and a continuous improvement mindset. Small incremental changes can sometimes go a long way.

Legal issues – Are there are any legal issues with transporting your product category? It is also important to understand if there are any regional regulations impacting transportation and supply depots.

Culture – What are the culture issues? Take time to understand culture issues and don’t assume anything. Change your thinking when working in other markets.

Take note of the evolution – Are you taking the necessary steps to adapt to change? Too often supply chains in emerging markets evolve without any strategic plan. Modern trade and retailing are expanding and middle class consumers shopping patterns are changing. Consider how these changes in the market will affect your business.