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Transcript of Marc coleman, Asia Business Week Dublin
ASIA BUSINESS WEEK DUBLINAsia Ireland Trade and Investment Summit
5 June 2014
Unlocking Asia’s Trade Potential for IrelandMarc Coleman,
Economics Editor, Newstalk
アジア
亚洲 ASIA एशि�या�
UNLOCKING TRADE POTENTIAL FOR IRELAND
Commissioned for Asia Business Week by
Asia Matters
Marc Coleman BA M Econ Sci ASP MBA
Managing Director, Octavian Consulting Ltd [email protected] 086 8094193
Structure of this PresentationThe scale of opportunity in Asia
Asia’s convergence story
Ireland’s potential in Asia
Country by Country analysis
Risk
Conclusions
The Scale of Opportunity in Asia
China
India
United States
Indonesia
Pakistan
Bangladesh
Japan
Phillipines
Vietnam
Thailand
South Korea
Malaysia
Hong Kong
Singapore
Ireland
The "Next 11"
- 200 400 600 800 1,000 1,200 1,400
1,324
1,241
313
242
177
150
126
95
89
70
48
29
7
5
5
1,038
Population (millions)
Aside from China and India,the “Next 11”, ie the 11 next most populatedCountries have a combinedPopulation of 1,038,000,000 people
Source: Penn tables.
China
India
United States
Indonesia
Japan
Pakistan
Bangladesh
Vietnam
Thailand
Phillipines
South Korea
Malaysia
Hong Kong
Singapore
Ireland
The "Next 11"
- 100 200 300 400 500 600 700 800 900
784
496
142
110
62
53
50
49
40
35
24
12
4
3
2
443
Workforce (millions)
Source: Penn tables.
China’s workforce exceeds those ofIndia, Indonesia and the US put together
3 distinct groupsLow income
GDPPC < $5,000 per annum
Strategies:
• “Do well by doing good”
• Demographic growth
Middle income
GDPPC > $5,000 but < $15,000
Strategies
• “Take-off” in consumables/services
• “Density dividend”/urbanisation
High income
GDPPC > $20,000
Strategies
• Demographic ageing
• Niche/Luxury brands
Singapore
Hong Kong
Japan
Malaysia
China
India
Vietnam
Bangladesh
- 10,000 20,000 30,000 40,000 50,000 60,000
51,644
42,646
38,569
36,705
30,427
27,522
13,469
8,491
8,069
4,339
3,602
3,521
3,448
2,473
1,554
GDP per capita (PPP - 2005 US$)
Middle Income
High Income
Low income
Source: Penn tables.
Future growth almost assured because…
Bangladesh 27.3China 48.1Hong Kong 31.9India 31.7Indonesia 28.6Japan 25.3Malaysia 35.5Pakistan 15.4Phillipines 22.8Singapore 42.8South Korea 31.7Thailand 29.0United States 17.0Vietnam 30.6
….. Aside from population growth…..
Savings rates – a key driver of growth potential in developing countries –
remain strong
Savings as a share of GDP annual average 2001-2011Source: IMF World Economic Outlook, April 2014
Asia: A story of convergence
- 10,000 20,000 30,000 40,000 50,000
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Asia is a clear Convergence storyGrowth from 2008 - 2011 & GDP per capita
GDPPC (2005 US$)
GDP 2008-2011
Hong Kong 38,569 7.2%
Japan 30,427 -1.6%
South Korea 27,522 9.0%
Malaysia 13,469 7.5%
Thailand 8,491 8.1%
China 8,069 20.4%
Indonesia 4,339 17.8%
India 3,602 25.0%
Philippines 3,521 13.4%
Vietname 3,448 24.5%
Pakistan 2,473 11.7%
Bangladesh 1,554 17.2%
Source: Penn Tables
Hundreds of millions are making the journey
McKinsey:
By 2025 another 1 billion middle income consumers will join the world economy
The vast majority of them will be Asians
Critical thresholds
As average annual household incomes rise above
$10,000,
McKinsey estimate that total consumption will rise by between $10 – $30 trillion ….
….
Triggering a massive rise in the consumption of goods and services unseen since US and Europe in the 1950s, 60s and 70s
Just one example:
• 2006-2011: Indian airline passengers double from 73m to 144m
• India’s Cabinet Committee on Economic Affairs have just sanctioned Abu Dhabi based Etihad to take a 24 per cent stake in Jet Airways
• And who is a key supplier of Etihad?
ETIHAD
Upholstery Carpet
Donegal based Botany Weaving have 80 % of Indian market for airline upholstery fabrics and 50 % of Chinese market
Telephone linesCell subscriptions
Hong Kong 61.29 229.24South Korea 61.42 109.43Malaysia 15.69 141.33Thailand 9.51 127.29China 20.2 80.76Indonesia 15.39 114.22India 2.51 69.92Philippines 4.07 106.51Vietnam 11.22 147.66Pakistan 3.24 67.06Bangladesh 0.62 62.82
Asians are by-passing established norms as proven by
low telephone line – high cell phone paradox
….Emerging culture of going straight to the supplier via the internet
…..Positive implications for SME’s in terms of reducing logistical and distributional challenges
Source: Asian Development Bank, 2014
Join the E-Tail revolution
“China’s e-tail market worth $210 bn in 2012” McKinsey
…but it’s only just starting….
- 10,000 20,000 30,000 40,000 50,000 0
10
20
30
40
50
60
70
80
90
Internet users per 100 & GDPPC
Already there:HK, SK, ML
On there way:TH, CH, PH, VT
Queueing to get started: BG, PK, IND, INDON
GDPPC (2005 US$) Internet usersHong Kong 38,569 72.8South Korea 27,522 84.1Malaysia 13,469 65.8Thailand 8,491 26.5China 8,069 42.3Indonesia 4,339 15.36India 3,602 12.58Philippines 3,521 36.24Vietnam 3,448 39.49Pakistan 2,473 9.96Bangladesh 1,554 6.3
Source: Penn tables, Asian Development Bank, 2014
Ireland’s potential in Asia
Ireland’s trade potential with Asia
Asia’s share of world population = 62 %
Exports to Asia as share of Irish exports = 6.2%
By population – an indicator of long term potential – we are underweight in Asian exports by a factor of 10
Sources: - IMF- CSO- Penn tables
Our tradein 2013
(€m)
Share of countries
listed
(%)
Rel. size of countries
listed (GDP)
(%)
Avge export growth
fcst 2014-19
(%)
Total export growth fcst 2014-19
(%)
Implied exporttotal 2019
(€m)
Implied growthfor exports
(€m)
Bangladesh 5.5 0.1% 1.0% 12.1% 123.3% 12.4 6.8
China 1418.2 26.2% 44.2% 6.3% 53.4% 2175.5 757.3
Hong Kong 525.2 9.7% 1.1% 7.8% 68.8% 886.5 361.3
India 281.3 5.2% 18.5% 8.7% 78.9% 503.2 221.9
Indonesia 75.6 1.4% 4.3% 6.2% 52.2% 115.1 39.5
Japan 1692.0 31.2% 15.9% 5.0% 41.0% 2385.7 693.7
Malaysia 197.7 3.6% 1.6% 3.8% 130.2% 455.1 257.4
Pakistan 28.4 0.5% 1.8% 5.2% 142.6% 68.9 40.5
Philippines 79.8 1.5% 1.4% 10.1% 96.0% 156.4 76.6
Singapore 559.9 10.3% 1.1% 6.6% 56.7% 877.4 317.5
South Korea 321.4 5.9% 5.4% 9.7% 90.6% 612.6 291.2
Thailand 137.6 2.5% 2.4% 4.2% 33.8% 184.1 46.5
Vietnam 94.5 1.7% 1.3% 11.5% 114.2% 202.4 107.9
Colour code red = trade well below potential. Huge growth opp
from demographic &density
(urbanisation) driven strategy.
Colour code blue = trade well above relative GDP share. High income. Retention by
niche/luxury/brands
Colour code green = small now but very dynamic and rapidly growing.
Country by country analysis
Hidden Tiger, Crouching Dragon
बा�घ(tiger)
龙(dragon)
CHINA: Consumers “crouching & ready to pounce”
Just 35% of Chinese GDP is consumption
14th March 2014 National People’s Congress decides consumption spending must rise
Relative to investment led strategy, this means greater opportunities for SME’s in China
A consumer boom waiting to happen…
• China by far the biggest market with – as noted above – more workers than India, US and Indonesia combined
• GDPPC is approaching $10,000 mark very soon
• Household consumption much lower than western and even neighbouring country levels
• Shift from infrastructure and commodity boom to consumer goods favours SME’s
• E-tail revolution favours internet ready companies
GDPPC (2005 US$) Household cons. % GDPSingapore 51,644 33.1%United States 42,646 75.9%Hong Kong 38,569 62.6%Japan 30,427 59.5%South Korea 27,522 51.0%Malaysia 13,469 52.0%Thailand 8,491 52.8%China 8,069 27.9%Indonesia 4,339 58.0%India 3,602 51.8%Philippines 3,521 75.8%Vietnam 3,448 47.5%Pakistan 2,473 71.0%Bangladesh 1,554 70.7%
Source: Penn tables, Asian Development Bank 2014
Household consumption as % of GDPSource: IMF World Economic Outlook, April 2014
Areas of growth Demographic dividend: Rapid growth in “G2” population, those born after
1980
Higher lifestyle aspirations
Internet generation more open to western marketing and consumer tastes
Density dividend: 310 million Chinese will move to urban areas in the next decade. This creates
Agglomeration effects and spiralling demand for “urban lifestyle” goods
You’ve heard of the “Mega cities” Shanghai, Shenzen, Beijing.
Consider hundreds of “Middle cities” 200,000-10m where next wave of growth is coming
China: What we sell. What we could sell. What we sell
€1.4 billion exports to China last year
Mostly Chemical, medical pharmaceutical (approx. 25%)
ICT (12%)
Electrical machinery (25%)
Food (11%)
Density & demographic dividend: Potential for beverage and food exports only scratching surface of potential.
INDIA
A different challenge
An opportunity to ….
… “Do well by doing good”
Lower threshold incomes…more basic needs need fulfilling
Diet, sanitation, education
43 per cent of children under 5 still underweight. 17 per cent of adults below necessary dietary intake
81 per cent of people still work in subsistence or family farm/micro business
Sanitation, education still challenges...Government investment in infrastructure education and sanitation are priorities that create huge opportunities
Improving farm efficiency and food technology a huge challenge for India and a huge opportunity for Ireland given our expertise
New pro-business and reformist gov’t under Modi creating positive momentum
India: What we sell. What we could sell. What we sell
€281 million exports to India last year
Chemical, medical pharmaceutical (5%)
ICT (26%)
Transport equipment (15.1%)
Miscellaneous / other (35%)
Do well by doing good: Demographic dividend in population driven food, food technology and farming technology products.
Japan
日本Lower overall pop growth and economic growth.
But advanced state of interest in western brands, lifestyle produce
Rise of large, wealthy and mature older demographic cohorts brings its own opportunities:
- Niche goods- Travel- Luxury branded goods
Japan: What we sell. What we could sell. What we sell
€1.7 billion exports to Japan last year
Organic chemicals (27%)
Photographic, optical, watches, clocks (24.2%)
Oils, cosmetics, toiletries (11%)
Medical pharmaceutical (6.3%)
Miscellaneous / other (12.5%)
What we could sell: Highly differentiated and value added branded products.
Big in Japan
www.inismeain.ie
Irish knitwear company using highly successful etail business model projecting image of
Traditional Ireland in western-conscious wealthy consumers.
South Korea (€321m 2013 exports)
Fish (!)
Toiletries
Medical / pharma
ICT
Malaysia (€197m 2013 exports)
Dairy products
Misc processed foods
Medical / pharma
ICT
South Korea, Malaysia, Singapore, Hong Kong SAR
Singapore (€560m 2013 exports) ICT
Medicinal/pharma
Professional & Scientific equipment
Chemical
Relatively little food, no apparel
Hong Kong SAR
Familiar common law system
Western business custom & business services
Excellent entry point for mainland China
Indonesia
Dairy products
Toiletries, cosmetics, oils
Indonesia, Malaysia, Thailand,
Malaysia
Dairy & miscellaneous foods
Toiletries
ICT
Electrical
Thailand Medical
ICT
Toiletries, oils cosmetics
Phillipines Electrical
ICT
Industrial
Vietnam Fish
Miscellaneous edible
Toiletries
Medicinal
Phillipines, Vietnam, Pakistan, Bangladesh, Mongolia,
Pakistan
Not classified
Bangladesh
Not classified
Mongolia
Not classified
RISK
Careful monitoring of financial & economic stability needed
Inflation Current A/C GG Gross debt GG primary balanceBangladesh 7.1% 2.6% 41.8% -1.2%China 2.5% 2.1% 22.4% ?Honk Kong 4.3% 3.1% 33.8% 0.6%India 8.1% -2.0% 66.6% -2.7%Indonesia 8.1% -3.3% 26.0% -2.2%Japan 1.4% 0.7% 243.0% -7.6%Malaysia 3.2% 3.8% 58.2% -2.7%Pakistan 5.9% -1.0% 60.1% -3.5%Phillipines 4.1% 3.5% 38.3% 2.4%Singapore 2.0% 18.4% 103.8% 5.5%South Korea 1.1% 5.8% 36.7% 0.1%Thailand 1.7% -2.8% 45.3% 0.6%United States 1.2% -2.3% 104.5% -4.1%Vietnam 6.0% 6.6% 55.0% -4.3%
Source: IMF World Economic Outlook April 2014
Drucker
“Culture eats
strategy”
Culture
Strategy
PESTEL analysis Political Stability of gov’t, rule of law and order
Economic Direction of gov’t policies…are they unstable/electorally driven or stable and future oriented…e.g. China & India focus respectively on consumption and business reforms
Size of shadow banking system, regional gov’t indebtedness
Social Look at key demographic growth cohorts and changing attitudes to western lifestyle…such data can help find huge potential
Technological Clearly focus here is on online mobile friendly etailing. India especially interesting given removal of restrictions by Modi gov’t on online retail and impending take-off in etail markets across Asia
Environmental Ireland’s green image highly relevant to Chinese gov’t initiatives on CO2 challenge
Legal Does Ireland have trade agreement?
Does Ireland have double taxation agreement?
Status of formal laws versus informal business practice, networks “Guangxi”
Entry points to Asia
Britain: Vibrant Asian business community with strong links to Asia
Hong Kong: Common law, English speaking & excellent business service environment
India: Common law, English speaking
new reformist government
CONCLUSION• Asia’s macro economic potential is astounding• Asia small share in our exports means we are significantly underselling• Strategies need to be targeted to specific country conditions• Modest but clear penetration for indigenous goods mean it can be done• Sectoral / demographic research can unlock potential
[email protected] 01-2841446 www.octavian.ie