Retail – Retail – Retail

The growth of high-end shopping malls with high-end western brands and emerging high-end Chinese brands continues. There is little evidence of a recession in 2009 when it comes to shopping. The 2010 A. T. Kearney GRDI country attractiveness chart at the following link clearly shows China in a position for retail growth.

http://www.atkearney.com/index.php/Publications/global-retail-development-index.html

The Chinese Consumer

China is, today, all about the consumer. Various estimates place the middle class population, based on purchase power parity, between 250,000,00 and 300,000,000, primarily located in the eastern 1/3 of the country. This is largely a young, upwardly mobile, aspirational two-income family demographic with one or maybe two children and with discretionary income.

Everything in China today that related to business is consumer focused. And there is, again, little sign of a recession in the major eastern regions of this country. China is what we consider an ‘engine’ country: a country that has a rapidly growing middle class that is focused on buying and which to a great extent insulates it from global financial ups and downs. Brazil, China and India are examples of ‘engine’ countries.

Labor Costs & Strikes

The media has recently been full of mention of strikes at the Honda and Toyota factories in Southern China. Some western media have picked up on the shortfall of low-end labor for the factories in Guangdong, Jiangxi and Fujian provinces.

Southern China factories for decades have been able to count on rural population migrating from the west of China to find jobs in the east because there were no real jobs in their home provinces. Today you see ads in the papers seeking such workers and offering bonuses to come to the factory regions. The once rural migrant worked now finds good job opportunities at home.

So, relatively low wages will soon not be a reason for basing manufacturing in China. Low wage operations are already moving to Viet Nam.

10 Misconceptions About Doing Business In China

Finally, let me share with the reader one of the most important articles on doing business in China in many years.

Jeff Jiang, China Strategies Consultant, Lurie Besikof Lapidus & Company, in Minneapolis has written THE article on doing business in China myths, which can be downloaded at the following link:

http://www.lblco.com/documents/LE_China.pdf

The Bottom Line: Things are not always the way they are portrayed in the media when it comes to China!!

It also may be Asia’s decade. This is true in many ways.

Asia is leading the world out of recession, as the figures below show. A ‘1’ ranking is best. Countries with strong GDP growth will have businesses growing and adding jobs.

A recent article in the ‘Economist’ reviews a Manpower study that looks at which countries will seek strong job growth in 2010. China, India and Singapore will see strong 2010 job growth. Europe will not.

http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=15677079

‘Economist Intelligence Unit’ research indicates that in 2009, Asia had:

• 34% of the total global stock market capitalization
• 34% of the world’s economy (using Purchase Power Parity)
• 60% of the world’s population
• 33% of the world’s retail sales
• 35% of the world’s car sales
• 43% of the world’s mobile phone sales
• 40% of new global investment

This trend is expected to continue and by 2020 Asia may produce 50% of the Western multinationals’ sales and profits.

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.