Download The potential of growth markets: seizing opportunities in a new

The potential of growth markets:
seizing opportunities in a new
global economy
The US, Europe and other advanced nations are
on a steady economic growth path. Emerging
markets are moving at a slightly quicker pace. So
what must businesses do if they are to grasp the
opportunities that this brings, especially in China,
arguably the most dynamic of all?
The world economy is in a relatively healthy state. Most
advanced economies will register a rise in GDP of around
0.5-2% this year. Although growth in emerging markets
has slowed slightly, most of them are still growing faster
than developed economies, with China stealing much of
the limelight.1
The scale of opportunities for businesses operating in
growth markets around the world is therefore expanding.
The drivers are financial and economic stability, innovation,
rising consumption, labour market growth and more
international trade.
Standing in the way, though, are some very real hurdles.
Businesses often fail to understand new markets. They
can adopt over-ambitious or flawed expansion strategies,
and their operating models can creak under the strain.
They may find it difficult to recruit an educated and
trained workforce, be unfamiliar with local regulations and
underestimate the strength of competition from domestic
and international rivals. And lurking at the back of every
business leader’s mind is the fear of the classical boom and
bust cycle, which could end in another recession.
Such is business. Opportunities are there to be grasped,
but the risks have to be considered and mitigated.
Global economic outlook
“There are good reasons to be cheerful about the global
economy,” says Douglas Flint, Chairman of HSBC. “The
Fed didn’t taper [the size of its bond-buying programme
designed to stimulate the US economy] and the eurozone
is forecast to come out of recession in 2014.”
“The US has regained its confidence, and despite the
government shutdown this autumn our economists are
still forecasting the US economy to grow 1.9% this year,”
adds Mr Flint. “Chancellor Merkel has been re-elected in
Germany aiding economic stability in Europe, and China did
not have the hard landing that many commentators in the
West feared.”
As for the banking industry, Mr Flint refers to a speech
given by Mark Carney, Governor of the Bank of England, in
October in which he said that it was perfectly acceptable
for banking sector assets to grow much bigger than the
economies that host them if they are properly regulated.
Credit expansion could soon start to happen, and the
eurozone’s banking union is beginning to take shape.
“Turning to the East, China has clearly regained its footing
with expectations of growth rising. Even Asia’s most hardpressed markets of late, including Indonesia and India, have
recovered somewhat.”
1
Source: IMF World Economic Outlook, October 2013
China in the ascendancy
Few, if any, countries have done a better job than China in
mastering growth in recent years. Its development focus
has moved towards quality of growth and sustainable
growth. At the third plenum meeting of the Chinese
Communist Party in November major political and
economic reforms were announced in several areas that
will keep the momentum going. The reforms should,
among other things, revitalise private enterprise, reduce the
role of the government in the private sector and rebalance
the revenue raising and expenditure of central and local
governments.
Some measures will involve short-term pain but if
implemented they should result in 7-8% annual GDP
growth by unleashing further private sector demand for
investment and consumption, which in turn will put growth
on a more healthy and sustainable path and ripple positively
through the region.
The renminbi (RMB) has fast become an international
currency, and is now the eighth most traded currency in
the world. HSBC predicts that by 2015 RMB will become
the third largest currency used to settle international trade
transactions.
The importance of a country-specific business
strategy
Many multi-national corporations have found fertile ground
in China but have only been successful because they have
adopted strategies sharply tailored to the market. In doing
so, they emulate the practices of large Chinese companies
who know their customers well.
Take computers and smartphones. Chinese consumers
have different preferences from Western consumers.
They buy their IT and communications devices differently
– instead of going to large stores as many in the West do,
the Chinese tend to frequent small, specialised shops. And
they are less impressed by famous brands. In addition,
urban markets are radically different from rural markets
because the income differential between the two is much
wider than in advanced countries. Furthermore, strategies
that work well in China may also work well in India,
Indonesia and other emerging markets.
Locating senior executives in China is a must. A Londonheadquartered global advertising company has even gone
so far as to place its global chief strategy officer in China to
take advantage of the country’s many M&A opportunities
that require rapid decision-making.
Finding skilled and educated staff can be a challenge,
even in the most populous country on earth. As a result,
many foreign companies have set up learning academies
with local training firms, brought in overseas trainers and
developed their own talent.
Financing growth
HSBC has a China-specific strategy that is linked to its
strategic priorities for the rest of the world. “As a financial
provider we serve multi-nationals who come to China
to do business, as well as support Chinese companies
trading and investing overseas,” says Helen Wong, Deputy
Chairman, President and Chief Executive Officer, HSBC
Bank (China).
“Cross-border business is rapidly changing, especially with
the rise in the use of the offshore RMB. Trading of the
currency has become important in Hong Kong, Singapore,
Taiwan and London with discussions also underway for
the development of offshore RMB markets in Frankfurt,
Luxembourg and Toronto.”
China’s outward direct investment continues to increase.
Its companies are helping develop Manchester airport
in the UK, partnering with the British government to
construct a nuclear power station, building highways in
Kenya and digging a canal in Nicaragua to connect the
Caribbean with the Pacific. Wherever these corporations
go, they need banking services.
“As a leading international bank HSBC is strongly
positioned to help businesses overcome the obstacles
they face in foreign trade and investment, because we
understand local laws, regulations and culture,” says Ms
Wong. “We can’t pretend to know the industry which
investors are operating in better than they do, but what
we do know and can help them with is to manage their
liquidity risks, market risks and currency risks. Big Chinese
companies are now setting up overseas treasury centres in
the UK and the Netherlands, that’s how sophisticated they
have become.”
China’s future – how sustainable is it?
In recent years some doubts have arisen about the
sustainability of the country’s economic model. Labour
costs have risen and there are shortages of talent. Other
emerging countries are competing in the same overseas
markets. There are worries that China’s transition from an
export-led economy to a consumer-based one could signal
the end of the double-digit GDP growth it has enjoyed in
recent decades.
However, what cannot be taken away from China is the
sheer size, motivation and dynamism of its population. It
is a country of nearly 1.4 billion individuals, many of whom
aspire to achieve higher living standards. Those aspirations
will drive China’s ambitions for decades to come. Even
when it becomes a mature market, growing at mature
market rates, China’s potential will remain huge.
© 2013 HSBC Bank USA, N.A. All rights reserved. Member FDIC.
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