Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the March 7, 2006 issue of the Bangkok Post
By Matthew Wyborn
The abundance of market opportunities in a handful of countries worldwide is creating a converging stream of financial investments. Booming economies are emerging, and consequently local competition to multinational companies is on the rise. The result is a rather complex paradox of opportunity and threat.
Are Asia-Pacific CEOs willing to conduct and build their businesses in these economies, despite the growing threat of competition? And if so, which country's market opportunities do they perceive as having the most potential, as well as the most likely competitive threat?
In recent years, economists have identified a number of countries that have appeared to be at the epicentre of globalisation. Four such countries are Brazil, Russia, India and China, which have lately become known as the Bric economies. The economic potential of these countries is such that they may become among the most dominant economies by the year 2050, while encompassing over 40% of the world's population. Despite the fact that they do not share a political alliance or formal trade association, they signed a trade and cooperation agreement in 2002.
For Asia-Pacific companies, Bric countries offer both opportunity and competition. In a recent survey by PricewaterhouseCoopers, over 300 CEOs from the Asia-Pacific region, in addition to 1100 CEOs worldwide, shared their views on these emerging economies.
Three out of four Asia-Pacific-based CEOs said they planned to do business in at least one of the Bric economies over the next three years. Of all the economies, China led as the most likely place of business for 74% of the CEOs. India was the next location of choice, followed by Russia, and then Brazil.
This indicated that a "nearest neighbour" effect may be at play for Asia-Pacific-based CEOs. This effect was echoed by CEOs worldwide. For example, those from Latin America and the Caribbean region selected Brazil as the country in which they were most likely to conduct business over the next three years, while Eastern European and Central Asian CEOs chose Russia.
However, the "nearest neighbour" effect was not the only factor delineating which countries CEOs choose to do business with. Based on the results of the survey, there was an indication that the economy of the country in which the CEO was based may be a factor. Over the next three years, developed countries are nearly twice as likely to do business with China, India and Russia, than developing countries are.
According to the Asia-Pacific-based CEOs, the reasons for doing business in each of the Bric economies differed slightly. In all four of the countries, accessing new customers and serving existing customers were at the top of the list. These were followed by reducing costs, for businesses in China and India, and increasing capacity, for those in Brazil and Russia. Forming alliances, opening new offices and developing market-unique products are at the forefront of development in all of the Bric countries.
The results from the Asia-Pacific-based CEOs differed slightly from their global counterparts. For example, there was an indication that Eastern European and Central Asian CEOs were more concerned about reducing costs than those from the Asia-Pacific Region. This indication was also reflected by Latin American, Caribbean, Middle Eastern and African CEOs, although with slightly less emphasis.
As noted by PricewaterhouseCoopers Global CEO Samuel DiPiazza, the Bric economies are presenting substantial growth opportunities for locally-based companies. In turn, these local companies are emerging as a new crop of serious global competitors. According to our survey, the majority of Asia-Pacific CEOs expected significant new competitors to emerge from China in the next three years.
Although this expectation was consistent with the views of CEOs worldwide, there were regional variations. For example, while 74% of Asia-Pacific-based CEOs expected competitors from China, only 39% of CEOs from Eastern Europe and Central Asia expected the same. Regional differences also resulted expected competition from India to be lower among Asia-Pacific CEOs than in other regions worldwide.
The rapid expansion of the Bric economies is creating a powerful paradox in which both opportunities and threats are emerging. Paramount to the success of CEOs worldwide is their ability to make this clash of interests work to their advantage.
The above is based on findings from PricewaterhouseCoopers' ninth annual Global CEO Survey, in which 1,410 interviews with CEOs were conducted in 45 countries during the last quarter of 2005.
