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The NewBRICS on the
Block: WhichEmerging
Markets AreUp and
Coming?
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Published:January 19, 201
inKnowledge@W
ton
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Building on th
foundation ofthe well-know
BRIC countrie
-- Brazil,Russia, India
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and China -- anew set of up
and-comingemerging
markets isgaining
attention. The
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so-called"CIVETS"
countries --Colombia,
Indonesia,Vietnam, Egy
Turkey and
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South Africa -are now toute
as hot marketbecause they
have diverseeconomies,
fast-growing
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populations,relatively stab
politicalenvironments
and thepotential to
produce
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outsized returin the future.
Far-flunggeographically
and shaped bvastly differen
cultural,
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religious andpolitical
structures, thCIVETS show
the potential tdevelop rapid
and reward
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those willing ttake on
emergingmarket risk
beyond themore-
established
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economist JimO'Neill.
Goldman Sachnow predicts
that the BRICcombined GD
will surpass U
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GDP by 2018and that they
will account fohalf the globa
economy by2020. The
CIVETS owe
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their acronymto the
EconomistIntelligence U
(EIU), whichforecasts the
countries will
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grow at anannual rate of
4.5% during tnext 20 years
That's onlyslightly below
the 4.9%
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averagepredicted by t
EIUfor the BRnations, and f
above the ratof 1.8%
forecast for th
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world's riches-- or "G7" --
nations. (Forwhat it is wor
a civet is anocturnal, cat
like mammal
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found in at leatwo of the
CIVETScountries --
Indonesia andVietnam.)
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In a recentsurvey
conducted byKnowledge@
arton and theglobal
communicatio
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firm FleishmaHillard, a
majority ofcorporate
executives,investors and
business lead
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indicated thatthey would be
interested indoing busines
withmultinationals
in the CIVETS
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countries.Respondents
said they wermost attracte
to CIVETSbecause of lo
labor and
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production coand the
countries'growing
domesticmarkets. Whe
asked to
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identifyweaknesses, t
surveyparticipants
cited politicalinstability,
corruption, a
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lack oftransparency
andinfrastructure
and homegrocompanies
without much
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a reputation obrand
identification.According to
Whartonmanagement
professor Wito
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Henisz, whilethere are a to
of 150 emergmarkets
worldwide, acatchy name
and new focus
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may givemultinationals
and investorsmore incentiv
to look towardthese lesser-
known
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rapidly growinmarkets abroa
that managerneed to come
understand,"says.
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TheKnowledge@
arton/Fleishm-Hillard surve
of 153corporate and
business lead
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found a rangeenthusiasm fo
differentCIVETS. When
asked to saywhich of the s
countries
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offered a "gredeal of
opportunity" o"some
opportunity,"86% cited
Indonesia,
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followed bySouth Africa
(84%), Turke(82%), Vietna
(77%), Egypt(61%) and
Colombia
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(56%). Asignificant set
respondents(42%) predict
that by 2020,the CIVETS
countries wou
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be on a levelplaying field
with the BRICin the global
economy.When compar
to the BRICs,
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the CIVETS armuch smaller
Indonesia is, far, the larges
with 242.9million people
followed by
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China 1.3billion.
'FrontierMarkets'
Henisz says sis one reasonthe decision t
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invest in theCIVETS
countries is noas clear-cut a
it is with theBRICs. A
Western
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company migbe willing to
accept somemissteps in
China becausethe rewards
would be so
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great givenChina's size.
Entering aCIVETS count
however, is amore
complicated
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strategicdecision, he
notes, and wiprobably com
with addedpressure for
short-term
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results,compared to
larger countriwhere
companiesmight be willi
to stay the
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course. "Chinais so critical th
if you mess uthe first year,
you can stayaround. That'
not so clear
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about, say,Colombia -- it
not seen asmission critica
Whartonmanagement
professor Mau
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Guillen pointsanother
importantdifference
between thetwo blocs.
Unlike China,
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Brazil, India aother emergin
markets likeMexico, the
CIVETS lackestablished
multinational
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corporations tact as platfor
for furthereconomic
development,although that
could happen
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the future."What makes
the BRIC grouunique is that
not only arethey big, but
they have the
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own companiethat are
destined to bevery importan
outside theirown countries
says Guillen.
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TheEIUacknowled
s that theCIVETS do no
have theeconomic pow
to "reshape th
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global economorder" as muc
as the BRICsand their
combined GDwill only amou
to one-fifth th
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size of the G7nations'
combined GDby 2030.
Instead, theCIVETS are
second-tier
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emergingmarkets that
have relativelsophisticated
financialsystems and d
not face
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runawayinflation,
massivecurrent-accou
deficits or pubdebt, accordin
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to the researcfirm.
"With emerginmarkets there
always risk,"cautions
Guillen. "But
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whenever youhave risk, if y
are savvy youare going to
make a nicereturn. This is
difficult game
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but it is aninteresting
one."Romeo Dator,
portfoliomanager at
Texas-based
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U.S. GlobalInvestors, wh
specializes inemerging
markets andnatural
resources, say
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overallinvestment
returns of 57last year. The
others, Datornotes, are stil
too small for
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major fundinvestments
which needgreater liquid
The BRICs, headds, are still
far from
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mature, and tCIVETS "are
almost likefrontier
markets, a stebelow the
emerging
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markets interms of size.
When does acountry
graduate to"emerging"
status? Dator
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points to onesign: "Once y
start seeingETFs
[exchange-traded funds]
developed
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around them,that means
there's enouginterest and it
worth lookinginto."
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MichaelGeoghegan,
chief executivof HSBC, is a
CIVETSpromoter. In
speech to the
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AmericanChamber of
Commerce inHong Kong la
year, heremarked, "An
company with
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global ambitioneeds to act
now [with]regards to the
markets. Intoday's world,
you can't affo
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to wait forbusiness. You
have to gowhere the
business is."Each of the
CIVETS
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presentsopportunity a
risk, accordingto emerging
market analysand Wharton
faculty:
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Colombia: Fowing years of
high-profiledrug wars,
Colombiaremains a sm
market, but h
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always been adynamic
economy withsome key
industries,including fres
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flowers, oil ancoffee.
Indonesia: Tlargest of the
CIVETS,Indonesia has
huge, sprawli
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population anhas already
benefited frominvestment by
the U.S., Chinand Japan, bu
political and
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social stabilitynever certain.
Vietnam: Alow-cost
alternative toChina for
manufacturing
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Vietnam hasambitious pla
to grow itseconomy
despite aCommunist
government.
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Egypt: Althouh Egypt has a
well-educatedprosperous
population in Nile Valley
cities, much o
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the countryremains poor
and the counthas a high lev
of debt (80%GDP). The
political future
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beyond the ruof President
Hosni Mubareis cloudy, and
the countrycould face
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religiousturmoil.
Turkey: Not adestination fo
manufacturingbecause costs
are already
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high, Turkeyremains a
promisingregional cente
which hasbenefited from
relative stabil
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and ties to theWest in a
volatile part othe world.
Membership ithe European
Union would b
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a plus, expertnote, but
religious turmmight hurt its
economicprospects.
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SouthAfrica: Althou
h it facesproblems with
unemploymenand HIV/AIDS
South Africa h
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strongcompanies, a
well-developebusiness
infrastructureand can serve
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as a gatewaysouthern Afric
Henisz notesthat in additio
to their internstrengths,
Turkey,
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Indonesia andSouth Africa
have somecompanies tha
are strong intheir regions,
which might
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make thesecountries
especiallyinteresting for
companies orinvestors
looking to gai
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additionaltraction beyon
a singlecountry's
borders. "Thecould be a
platform for
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investment thway Ireland w
for Europe," hsays, adding
that thesecountries cou
also provide
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opportunitiesfor "reverse
learning" aboubusiness
approaches totheir regions (
opposed to th
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traditionalmodel of
applyingWestern
businessmethods to
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foreignmarkets).
ResistingGeneralizati
According to tsurvey resultsrespondents
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agree that themost importa
factorspositioning
CIVETScompanies to
compete in th
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global economare: the value
of their produand services
(75%); GDPgrowth in the
countries
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(74%); theirfinancial
position (53%innovativenes
of products orservices (45%
and recognitio
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of their brandoutside their
home countrie(28%).
Respondentsalso
characterized
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the strengthsand weakness
of CIVETS-based
multinationalsin the global
marketplace.
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leadingcompanies in
the UnitedStates and
Europe. Thatwas followed
67% of
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participants wagreed that
thesecompanies lac
appropriatetransparency
and corporate
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governancestandards to
competeinternationally
66% who feltthe companie
do not have t
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public policy opublic affairs
expertiseneeded to
compete; 64who said the
firms do not
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have themarketing and
brandingcapabilities to
succeed in theglobal
marketplace;
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52% who feltmultinationals
in CIVETSnations do no
have thecommunicatio
capabilities to
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succeed in theglobal
marketplace;and, finally,
51% who feltCIVETS
companies are
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limited in theiglobal thinkin
When askedwhat they loo
for indetermining
whether a
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CIVETS counthas the
potential to beon a level
playing fieldwith one or
more BRIC
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countries, therespondents'
topconsideration
was politicalstability.
According to
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Wharton finanprofessor Fran
in Allen, theCIVETS
countries aredifferent, it is
hard to
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fundamentalisand regional
volatility asissues to watc
for whenevaluating
investments i
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these markets"You have to
look at thepolitics carefu
in each of thecountries."
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The era in whforeign
investors hadfear
nationalizationof assets has
largely faded,
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but foreigngovernments
can still add rto investment
projects,perhaps throu
heavy taxatio
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the means ofproduction.
That's why wedon't see
political risk atoo much of a
problem, but
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would besurprised if it
went away fogood," Allen
adds. "It maytake other
forms.
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Governmentdebt problems
may [result intaxation being
much higher -although we
have got a wa
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to go before Ithink that wou
happen."In 2005,
Goldman SachO'Neill came u
with a new
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concept for thnext generatio
of emergingmarkets -- the
"Next 11" or"N11," made
of four CIVETS
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and seven othcountries.
O'Neill, who isnow chairman
of GoldmanSachs Asset
Management,
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notes thatColombia and
South Africawere not
included in hisN11 because
their populatio
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size restrictstheir ability to
grow into largmarkets. "Our
N11 Groupwould also
include
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Bangladesh,Pakistan, the
Philippines,South Korea,
Iran, Nigeriaand Mexico, a
these 11 wou
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be a morediverse and
attractivegroup," O'Nei
says.The EIU, in
turn, narrowe
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that list downNigeria,
according to tresearch firm,
too dependenon commoditi
Iran's politics
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andinternational
relations are tunstable. The
Philippines --dubbed a
"perennial
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underperform" -- also suffe
from weak,unstable
politics,according to t
EIU. Political
8/7/2019 The New BRICS on the Block-debate
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instability willhold back
Thailand aswell, and
Pakistan'ssecurity
problems are
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acute.Bangladesh,
meanwhile, istoo poor and
vulnerable tothe effects of
climate chang
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O'Neill plans trelease a pap
this monthelevating
Mexico, SouthKorea,
Indonesia and
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Turkey, alongwith the BRIC
to a new statuas "Growth
Markets." TheEIU left Mexic
and South
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Korea off its lbecause they
were alreadysuccessful and
were "old newto investors.
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Wharton facupoint out that
Russia, whichremains
dependent onnatural
resources and
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has facedpolitical ups a
downs, does nreally rank wi
the other morsuccessful
BRICs.
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However,Henisz notes
that Russiaillustrates the
gamble with aemerging
market
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strategy, andsuggests that
five or 10 yeafrom now, one
or more of theCIVETS may b
laggards. "I'm
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not laying oddon which ones
but one or twwill be outlier
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