http://www.businessweek.com/magazine/content/10_05/b4165084462859.htm

The Beijing Municipal Development and Reform Commission announced in September 2009 that the gross domestic product (GDP) per capita in Beijing in 2008 was $9,075 and is likely to reach $10,000 by the end of 2009. (Stratfor)

AdAgeChina recently stated that over the next 15 years, China’s so-called gray market of consumers aged 50 plus will become the most potent spending demographic on the planet. By 2025, there will be more than 500 million “mature” Chinese consumers, or almost 36% of the Chinese population. Today, the country has 300 million Chinese over age 50, making up 21% of the population.

There would seem to be sufficient middle class for foreign companies to target in both countries currently, while many fully developed countries have consumers who are reluctant to spend.

Oil demand by developing countries is projected to rise 62% to about 56 million barrels a day by 2030.

In the developed world, however, oil demand is expected to decline – yes, decline – by 10% to about 40 million barrels a day.

This shift from the majority of today’s main oil need  going from developed countries to energy hungary developing countries is likely to have profound implications for the world trade balance.

And may result in potentially game changing political alliances as the developed world concentrates on other energy sources while the developing world seeks more and more oil.

Where will this oil come from? Will the same sources be providing energy as today?

Of course, this is very hard to predict. Recent projections that oil supply is about to peak globally are being proven wrong by immense deep water finds off the northwest coast of Brazil and in the supposedly fully explored US Gulf of Mexico. And much of the western coast of Africa remains unexplored based on current geophysical exploration technology.

And then there is the US gas component. Recent major discoveries in long explored areas of the US may result in a long term electric power generation solution through clean burning indigenous gas without expensive liquid imports that were thought necessary just a couple years ago. Perhaps the US’ energy ‘crisis’ once again will be solved by local, new sources of oil and gas – albeit at a price.

Meanwhile governments have gotten into the energy exploration business. The Chinese character for crisis also means opportunity. Government controlled Chinese companies are tying up major oil fields and exploration areas directly with other governments, essentially eliminating private oil and gas exploration companies.

And what does the projected 62% increase in oil demand for the developing world mean for all of us on this small blue planet???

* As reported in the November 10, 2009 edition of  ’The Economist’ magazine.

]]> http://edwardsglobal.com/blog/2009/11/16/the-coming-change-in-global-oil-usage/feed/ 0 http://edwardsglobal.com/blog/2009/05/10/half-the-world-is-middle-class/ http://edwardsglobal.com/blog/2009/05/10/half-the-world-is-middle-class/#comments Sun, 10 May 2009 22:02:41 +0000 Administrator http://edwardsglobal.com/blog/2009/05/10/half-the-world-is-middle-class/ The February 14, 2009 edition of ‘The Economist’ magazine had a special section on the world’s middle class.

If one defines the Middle Class as people with one third of their income left for discretionary spending after providing for basic food and shelter, new research -defined in detail in ‘The Economist’ – indicates that as of 2005 there were 2.6 billion people in the Middle Class – about 55% of the world’s population.

This has immense implications for companies selling their products and services on a global basis. And for the future development of the world, for that matter.

As people emerge into the Middle Class, they do not merely create a new market. They think and behave differently. They are more open-minded.

This aspirational, new to Middle Class population is more likely to invest in new products, new technologies and new businesses than the already rich, who tend to try to defend their existing assets.

This new Middle Class are now concerned about quality, brand and convenience for their discretionary spending. They often show they have ‘made it’ by frequenting western branded businesses, which are seen to have better quality and be more convenient than local brands.

And the newly Middle Class like to show off by being seen at western brands. How else can one explain almost 30 Starbuck’s in the Greater Shanghai Area with western prices and often busier than in the U.S.?

This changes countries and offer immense future opportunity for western brands on a global basis.

Last Saturday’s ‘Wall Street Journal’ had a front page article on this subject.

http://online.wsj.com/article/SB123934751932407099.html

Chinese demand for crude oil hit a one-year high in March. Steel mills imported record quantities of iron ore in March. Cars sales hit a monthly high.

Articles in today’s ‘Wall Street Journal’ highlight upbeat news on the China property market and stock market.

Companies like Tesco PLC, Carrefour and Wal-Mart Stores Inc. continue to see the Chinese consumer as a good long-term bet.

Walmart http://online.wsj.com/article/SB123258172515304267.html

Yum http://online.wsj.com/article/SB122896373927096997.html

This has been due to a rush by European and Asia Pacific companies to acquire licenses from US franchisors – who are most of our Clients.

The economics are simple. A US$250,000 license from a US franchisor cost 200,000 Euros in the summer of 2006. Today it costs 155,000 Euros.

The news is also good for Australian companies. The same US$250,000 license cost $330,000 Australian dollars in mid 2006 and would cost $260,000 Australian dollars today.

For Chinese investors – who are strong buyers of US franchises these days – the cost of the license has dropped 15% over the past two years due to currency appreciation.

While this is good news for US franchisors as far as up front fees are concerned, there is a down side. Traveling to Europe and Asia Pacific for negotiations, training and support costs considerably more than two years ago.

And 36 years of international experience says the dollar will come back at least some of the way towards the exchnage rates of mid 2006.

Meanwhile, it is a peak time for US franchisors to license their business model into other countries.

Countries with a strong Rule Of Law have been perceived to be inherently less risky for foreign investors. A strong Rule Of Law has generally meant foreign investors were treated equally to local investors. And, economists have repeatedly found that the better the rule of law, the richer the nation.

A new set of studies show that the tie of the Rule Of Law to economic growth is not as simple as previously thought, as discussed in an article in the current issue of ‘The Economist‘ magazine (see link at right).

There is an “intrinsic difficulty of defining the rule of law, combined with the problems of knowing how specific laws work in practice.” What the new studies have “not yet shown beyond doubt is that the rule of law is a precondition for economic growth everywhere.”

New definitions of the Rule Of Law are emerging, as quoted from this article:

“(1)‘Thick’ definitions treat the rule of law as the core of a just society. In this version, the concept is inextricably linked to liberty and democracy.

(2) ‘Thin’ definitions are more formal. The important things, on this account, are not democracy and morality but property rights and the efficient administration of justice. Laws must provide stability. They do not necessarily have to be moral or promote human rights.

The existence of competing definitions of something may seem fatally to undermine its usefulness.”

After discussing efforts to improve the Rule Of Law in places such as Argentina, Chile, Eastern Europe and Russia, the article concludes as follows: “the more economists find out about the rule of law, the more desirable it seems—and the more problematic as a universal economic guide.”

All that having been said, my 36 years of experience working in over 60 countries from first to fifth world, says where there is strong Rule Of Law foreign investors are much more likely to get a good return on their investment and to be able to maintain control of their brands and business than in counties with weak laws.

Investor beware!

Mr. Nordan says, “Many U.S. companies who are facing revenue struggles at home are being lured by the bright lights of international expansion and the vision of vast untapped markets of consumers or business buyers overseas.’

He goes on to say, “Unfortunately, many will make the same mistakes and suffer the same consequences as those who have gone before – international markets are strewn with failed (first) attempts.”

He gives a number of reasons why companies fail in their international development:

Expansion for the wrong reason
False assumptions about the nature of the international market
Underestimating the operating costs in an international market
Exporting your domestic operations to the local market
Deciding to become a global company too late
Failing to get expert advice

Mr. Nordan finishes by saying, “For international expansion, be cautious, be clear, be patient.”

This is probably the best advice I have heard on this subject in my 36 years of doing international business in over 60 countries.

Read the full text of this very important article at the link on the right side of this page.

Some emerging countries encourage new business growth at the grass roots. Egypt and Turkey are examples of recent rapid growth through releasing small business from bureaucracy.

Other countries stifle entrepreneurship and individuality. The low or negative economic growth rates of Venezuela and Burma are examples of this form of government control.

And some countries are improving year to year, moving up the Index of Economic Freedom, such as Vietnam and Mauritius.

The author of a 15 January 2008 Wall Street Journal editorial on this Index, Mary Anastasia Grady, sums things up this way, “Today’s entrepreneurs, across the globe, have similar aspirations and abilities. If only the politicians would let them be free.”

If you are considering doing business in another country, perhaps it would be worthwhile to find out whether new business development is encouraged or impaired by government regulations and controls.

There is a link to the Heritage Foundation web page in our link section. You can download the full 150+ country index and find out which countries are doing better and which you might want to give a pass.

Tom Lydon, the US-based Global Guru of ETFs, defines them as “a basket of securities that represents a specific sector, region or specific index. ETFs are like a mutual fund, yet trade throughout the day like a stock. They are priced and traded continually throughout the day, and provide transparency, liquidity, and cost efficiency.”

Tom, who is a regular on CNBC, MarketWatch and Bloomberg, sees ETFs becoming the way for investors – business people – to measure growth around the world. He also shows on his website how “Global markets will no longer be in sync with the U.S. market.” Hence, he believes monitoring ETFs is the way to know where the world’s economy is going.

Regular readers of this blog and companies we help go global will know that we are always seeking new tools to rank countries as places to do business. Country ETFs provide, we believe, a window on how well the local economy is doing. A growing economy – with appreciating stock indiex ETF – could be a place for foreign companies to invest.

In his 2007 Year End Report, Tom Lydon makes 10 ETF predictions that should be read and understood by all business people doing global business. Check out Tom’s predictions at the link on the right side of this page.