Pdf EM presentation Copenhagen 27 August 2014
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Transcript of Pdf EM presentation Copenhagen 27 August 2014
"GROWTH IN EMERGING MARKETS WITH SPECIAL INTEREST IN INDIA"
27 August 2014
Amit Mehta
Contents
• Tata Capital – my employer
• Emerging Markets – A discussion
• The Changing India
• OpportuniAes and accessing India -‐ a pracAcal view
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Tata Capital Limited
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Overview
n Tata Capital (TCL) is a full service Non Banking Finance Company (NBFC) having presence across corporate finance, consumer finance, private equity, investment banking and brokerage
n TCL represents the thrust of Tata Sons in the field of financial services.
n Over 3,500 employees and presence in India, London and Singapore.
Products and Services Offered
■ Offers range of travel related soluAons from AckeAng, visa and passport facilitaAon to forex Travel and Forex services
■ Leverages the Tata advantage with mulAple sourcing, evaluaAon, value addiAon and realizaAon benefits
Private Equity
■ Offers broking and distribuAon services to retail and insAtuAonal customers SecuriAes
■ Offers a diverse mix of retail offerings like consumer loan products, investment services and advisory services
Consumer Finance & Advisory
■ Offers financing of infrastructure projects, construcAon equipment and leasing Infrastructure Finance
Commercial Finance
■ Offers term loans, working capital loans, channel finance, equipment finance, lease rental discounAng, bill discounAng and structured financing
■ Offers M&A advisory and debt & equity capital market services to insAtuAonal/corporate enterprises Investment Banking
W
holesale
Retail
Emerging Markets -‐ Why do we care? • A li[le over two decades ago Emerging Markets were called 3rd world, then the descripAon
became Developing countries, (some of those became Asian Tigers), the next mutaAon was with Jim O’ Neil, coming up with the term BRIC. Now it is fashionable to call these markets “High Growth Markets”.
• The Financial Crisis and the rebalancing of the world economy
• BRICS – share of world GDP – 1990 – 15% to 35% today. With China the dominant player.
• Shig in economic demand – Economists at Credit Agricolè forecast that by 2020 EM > 50% of the world economy.
• Trends & insAtuAonal changes: Increase in South – South trade, formaAon of the G20 naAons, BRIC bank, amongst other things.
• Social factors – immigraAon, pandemics etc.
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Emerging Markets -‐ Why do we care?
• Standard Chartered –
China USA In 2020 GDP US$24.6T US$23.3T In 2010 GDP US$5.7T US$14.6T
• Today India’s GDP puts it at the 10th largest economy and in Purchasing Power Parity
terms the 3rd largest. By 2020 India’s economy is expected to be 3rd or 4th largest in absolute terms.
• The Importance of Demographics – a historical perspecAve
• Importance of GDP to the quality of Life?
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DefiniGon of Emerging Markets?
• Importance to understand what Emerging Markets are, to ensure alignment of investment and expectaAons.
• What do Prof. Krishna Palepu and Prof. Tarun Khanna of HBS think? – Markets where InsAtuAonal Voids resulAng in higher cost of TransacAons, asymmetry of informaAon and difficulty of bringing buyers and sellers together. Ranking according to GDP is not the way to decide of a market is developed.
• Market structures are a product of History, PoliAcal, Legal, Economic and Cultural forces within a country. All emerging markets feature insAtuAonal voids, however, although the parAcular combinaAon and severity of these voids varies from market to market
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What the experts say – How do you succeed?
McKinsey & Co – The defining opportunity of our Ames – US$30trillion of annual consumpAon by 2025. • Go ager Urban growth clusters • Tune into the pulse of the market to be able to idenAfy Amings and triggers of what they
call explosive growth. • Play a segmented market game that spans a range of price points as well as segments
which are idenAfied based on “local relevance” and opportunity for “global scale” • To build brands that stand for Trust and to take charge of all the nodes from factory to
consumer – i.e. route to market.
Boston ConsulGng Group – The US$10T prize that India & China will harbor by 2020 • Companies must be relevant to as well as sensiAzed to the emoAonal needs and
aspiraAons that consumer have and deliver against them. These include be[erment of their children, the desire to “live big for less” and signal their affluence, to be as well as be seen to be “discerning, informed and listened to.
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What the experts say – How do you succeed?
Bain & Company – set of rules – common pracAces that emerging market winners share • Market strategy rules are to target the mass market to achieve scale in “distribuAon,
brand building, and operaAons. To localize all elements of the total offer bundle to consumers such as distribuAon, packaging, and consumer preferences. And to provide “good enough” products, which offer be[er quality than low – end compeAAon and at higher price points which are affordable to consumers yet generate profit for the company.
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Emerging Markets require a different framework
• In this parAcular market, which market insAtuAons are working, and which insAtuAons are missing?
• Which part of our business model can be adversely affected by these insAtuAonal voids? • How can we build compeAAve advantage based on our ability to navigate the insAtuAonal
voids? • How can we profit from the structural reality of emerging markets by idenAfying
opportuniAes to fill voids, served by the market intermediaries.
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HBS, Prof. Palepu & Prof. Khanna’s Toolkit help to understand
• The Macro Context
• Market segments – these are disAnguished not only by income and prices but also needs, tastes and psychological characterisAcs.
Global Middle Class Aspiring Bo[om of the Pyramid
• The Product markets – retail – super markets, credit card usage • Labour markets • Capital markets
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Broad Strategic Choices – as per HBS Profs.
Once managers understand the market, the Broad strategic choices faced are: • Which aspect of the exisAng business model to replicate or adapt? • Should they compete or go it alone? – MulAnaAonals bring brands, capital, talent and
resources – do they have local knowledge to overcome insGtuGonal voids? • Accept or a[empt to change market context – are some of the insGtuGonal void’s
opportuniGes? • Enter, wait or exit? – Evaluate e.g. Retail D.I.Y Chains
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VariaGons within the large markets in India & China
• These markets are large and they vary hugely within the confines of a country. This is not easy for naAonals of those countries too.
• Financial Times, London, 23 August 2014-‐ “Chinese pilots told to lose the accent by 1
January 2016”. Pilots face ejecAon from cockpits if their accents fail to pass the muster. Under new rules, pilots will have to pass ”level four” test of Mandarin Chinese. Bad news if you have a thick accent. China has 56 ethnic groups and speak 80 languages and dialects.
• India has 29 States and 7 union territories. The country’s consAtuAon has defined 22
major languages but the reality is that there are a few hundred languages spoken with numerous dialects. Fortunately a lot of formal business is done in English.
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ContrasGng GDP and populaGon levels across India’s states
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Source: Economist Intelligence Unit
Changing India
• India is an aspiraAonal society. People work hard to improve their situaAon in life and have been described by JK Galbraith, a former US Ambassador to India, as extremely adaptable.
• Over the last few years the Indian society has been crying out for InsAtuAonal Change. People do not want cronyism and parAes like the Aam Admi Party (Common man’s party) have arisen and are asking quesAons.
• The desire for change has ushered in a new Prime Minister, Mr Narendra Modi with a significant majority in Government. Mr Modi was previously Chief Minister of Gujarat since 2001 and has transformed that state to India’s leading state with a modern economy – 40% manufacturing!
• Mr Modi has pledged insAtuAonal reform in India, he wants India to have a more inclusive society and wants to improve the dignity of women. He recognises that young Indians need jobs and is focusing on quality manufacturing whilst respecAng the environment. To do this he is going to focus the educaAonal system to improve skills and will use digital technology to reach out to the people.
• The recent Indian budget has focused on fiscal consolidaAon, liberalisaAon of sectors such as, Insurance & Defence, clarified and improved investment rules in Real Estate and Infrastructure and clarified and assured Foreign Investors of stability in policy. 14
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Trends of UrbanisaGon
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So where are the big Gcket opportuniGes?
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• Physical infrastructure
• Public infrastructure subsAtutes – Healthcare, EducaAon and skills, Travel, communicaAon & transportaAon
• Consumer durables (producAvity tools) • Quality of life improvers. “Do Good products” and “Feel Good Products” –
perceived as core to life. • Entertainment services, consumer durables that facilitate entertainment • Children centric everything
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Sectoral breakup of projected Investment: 12th Plan
XI Plan XII Plan
Sectors US$ bn Share (%) US$ bn Share (%)
Electricity 148 30.8 320 31.8
Roads & Bridges 86 17.9 183 18.2
TelecommunicaAon 90 18.8 162 16.1
Railways 48 10.0 105 10.5
IrrigaAon 50 10.5 111 11.0
Water supply & SanitaAon
26 5.4 57 5.7
Ports 11 2.3 24 2.4
Airports 7 1.5 15 1.5
Storage 2 0.5 5 0.5
Oil & Gas Pipelines 11 2.3 24 2.4
Total 478 100.0 1006 100.0 20
At 2006-‐07 prices
Government IniGaGves to Mobilise Investment & Growth
• NaAonal policy on manufacturing • Government e-‐ Procurement to speed approvals, reduce bureaucracy and increase
transparency. • CreaAon of four Industrial corridors to enable easier planning approvals.
• Delhi -‐ Mumbai Industrial Corridor (DMIC) • Amritsar – Kolkata Industrial Corridor (AKIC) • Bengaluru – Mumbai Economic Corridor (BMEC) • Chennai – Bengaluru Industrial Corridor (CBIC)
• DMIC – is in progress • 6 States • 1483 km • 14% of the country’s populaAon • 8 new Industrial ciAes with NaAonal Investment and manufacturing zones.
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Industrial Corridors being planned to follow DMIC
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RestarGng the engine of Investment and Growth
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For Consumer good -‐Three types of India – MulG Gered Structure
Strata HH Pop Share of Inc. Share of Exp. Per Cap GDP Top 20% 48.1m 216 55.5% 39% US$3,982 Next 40% 96.3m 473 29.9% 39.1% US$980 Bo[om 40% 96.3m 521 14.8% 21.9% US$434 • PopulaAon of about 1.2bn. The Global segment is 1% of the populaAon, with the middle
amounAng to 20%. This middle class has been described as the a[racAve market, the reality is that the middle class is the upper class. Non -‐ middle class expenditure is higher and income is growing steadily. By 2025 the “Global segment will grow to 2%” but the Middle Class will grow to 41%.
• In terms of consumpAon intensity – half of rich India lives in rural India.
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Rama Bijapurkar – a leading strategist’s thoughts on accessing the market
What companies do? • What is the market for my exisAng strategy? Instead of my strategy for this market?
• ConvenAonal wisdom – think global act local, has been interpreted as “keep the religion, change the ritual”
ReflecAon – Are you looking for an extension market for your global segment or a local strategy for the local market?
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Assessment of Real Opportunity Prof. C.K. Prahalad -‐ “While it is true that mulAnaAonals will change Emerging Markets forever, the reverse is also true” • Prof Prahalad was referring to green fieled thinking and product development that would
create block buster relevance, avoid the value arrogance of global being automaGcally superior to local, and towards creaGng perceived value advantage.
• Needs to have a mulGpronged strategy for a mulAAer market. • The mindset needs to be reprogrammed on market evoluAon, changing the center of gravity
of global consumpGon and takeoff threshold of Income. • It is important to assess ready opportunity – whilst an assessment is required of the present
size of the market and how ripe it is for my exisGng strategy, it is also important to assess how much this opportunity will grow over Gme, as more consumers evolve in income and sophisAcaAon
• It is absurd to think that just because income rises, consumpGon behaviors converge – Poland will not be similar to China. It is also important to assess not just the size of the opportunity, but the size of my opportunity, that is, of the share that is possible to capture.
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What race are you running?
• The macro strategy and micro strategy are equally important. Many MulA NaAonal Companies do not believe that they are running a different race – hence they believe running the same race in India will serve them. India is a new race altogether against new compeGGon, in a new environment with a new customer need.
• As discussed the 3 India’s and the fundamental income & demand structure between Emerging Markets and Developed Markets, where margins are Razor sharp and huge volumes are possible. This requires a whole different way of doing things dismantling and redesign of the tried and tested methods of monitoring and managing global businesses:
-‐ strategy development processes, -‐ performance management and review process, -‐ organisaAon design, and -‐ power distribuAon
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Examples of Strategies for Emerging markets
Its not only about price– One global leader in Glucometers made money from compeGng with path labs, and switching diabeGcs to doing tesGng themselves. They gave machine free but made money on the strips because people tested themselves more ohen with their own machines. In India the advice was to work with the Path lab and provide a instamaGc service which consumers would pay for to avoid mulGple visits to the lab. They could not be persuaded at the Gme that their religion was to add value to diabeGcs by offering self-‐ monitoring of blood glucose and that compeGng with the path lab was merely one form of ritual to pracGce the religion. CreaBon of a new segment -‐ Tata Motors with created a new segment with the launch of Ace a mini-‐truck that addressed the small end of commercial vehicle that was previously dominated by the three wheeler segment. Based on feedback from its customers the company launched a four wheeled mini truck that had a lower through life usage cost although it had an iniGal higher outlay. This cost differenGal was met with provision of consumer credit and lots of educaGon to its customers. This strategy helped Tata Motors expand its sales away from the highly compeGGve and cyclical medium & large segment of commercial vehicles. Industry revoluBon -‐ Tetra Pak has established itself as a developed world champion with its asepGc packaging for milk and juice– the consumpGon paierns for milk and juice are different in India and perhaps it could run the India race by developing packaging for chutneys or staple Indian food such as Dal (pulses) or Sambar (in South India), thereby giving rise to a industry revoluGon in the fresh food market.
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The Mundane issues on accessing the Indian market
• PercepAons
• Myths
• RealiAes
• Taking the Right Approach
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Perceived barriers to entry
• A changing rate of GDP growth • Currency fluctuaAons • Bribery & corrupAon • Complicated bureaucracy • Inability to get money in and out • Legal complicaAons • Inadequate infrastructure
Source: SannamS4
Real barriers to entry
The real barriers to entry or issues which hamper a foreign company doing business in India • Where regulaGons exclude or limit foreign market entry e.g. Defense, media, mulA-‐brand
retail.
• Where government departments are required for licensing or clearances (Central/State)
• Where you need to acquire land
• When you need a large and ready skilled workforce for a new business
• When your business is partnering with government or is bidding for public tender projects
• When your business is in compeAAon with a major Indian incumbent
• When you do not know what you are doing or you haven’t done your homework
• When you have not got the right support partners. Source: SannamS4
1. India is only a market good for cheap labor for outsourcing & tech co’s.
2. There is no local experAse in our field / we are a niche business
3. Our products & services are too expensive for the market
4. We will approach the market the same way we did China (or other markets)
5. The only way we can enter the market is via a JV partner
6. We will achieve our goals by having a distributor and will visit once a year
7. We didn’t need to do detailed market research, because we met a great guy at a trade show and he is going to represent us locally
8. We do not have the capital to invest in such a big market
9. The bureaucracy is too complicated and we will be unable to get our money out
Source: SannamS4
Market entry myths & misconcepGons
Market entry: the realiGes 1. It’s only a market good for cheap labor for tech co’s and blue chip outsourcing
• Rising middle class of 250m+ with an appeAte for consumpAon
• Demographic dividend for consumpAon as well as labor provision (50% of the populaAon is under 25 years of age).
2. There is no local experGse in our field / we are quite niche
• There is an abundant bright, well educated and knowledgeable workforce
• For every internaAonal product & service India has an equivalent, it just may not be as advanced, as well made as an internaAonal alternaAve
3. Our products & services are too expensive for the market
• Value proposiAon key – but it comes in different forms. There is a burgeoning luxury goods market at the top end, but Indian consumers are also cost/value conscious
4. We will approach the market the same way we did China (or other markets)
• India needs to be treated as its own market(s). You will need local guidance and experAse to advise you on how to tailor & pitch your product/service to the local market
Source: SannamS4
5. The only way we can enter the market is via a JV partner
• There are many ways to enter the market. Direct vs. Indirect vs. Incubator. Think about “why” you are choosing a parAcular strategy? What do you need? What does the future look like?
6. We will achieve our goals by having a distributor and will pay a few visits a year
• A market as complex and expansive as India needs full Ame local presence if your business is to succeed. This doesn’t mean distribuAon is the wrong approach, it just needs nurturing
7. We didn’t do detailed market research because we hired a great guy we met at a trade show
• Do you know your rep/partner(s)? Do you really know your market?
• Appoint the right people – in the right way
8. We do not have the capital to invest in such a big market
• Establishing a full Ame presence with sales and markeAng resource for a year can only cost you around $100k (all in). Invest wisely. Establish and build a team as a local does
9. The bureaucracy is just too complicated and we cant get money in and out
• Not if you take good advice Source: SannamS4
Market entry: the realiAes.
Avoid the horror stories!
Taking the right approach Whichever model you adopt, make sure you are comfortable with the answers to the following
quesGons: • Have I reviewed all opAons for the right route to market? Direct vs. Indirect vs. Other
– Do I need a partner? Can I do this myself?
• Have I done my homework on the local market
– e.g. pricing models, the compeAAon, real cost of landing a product e.g. duAes, shipping, taxes, storage & distribuAon?
• Do I understand the consumer?
– Branding, packaging, pricing, value proposiAon, culture, generaAonal shig • Where do I start? Do I aim to cover the whole country?
• Who is looking aher my interests on the ground?
-‐ Am I recruiAng the right team
• Who is navigaAng/managing the admin & bureaucracy for me? (legal/tax/regulatory/HR/banking)
• Do I have the management bandwidth/knowledge at home to manage this?
• Am I matching expectaAons and reality? Source: SannamS4
Take the right approach & India need not be a difficult market
HR ma[ers -‐ local staff are key If you are serious about developing a business in India having your own person on the ground is a must
• Do you know who are you hiring?
• How are you going to manage them? -‐ Hierarchies
• Have you got the right contract in place?
• Are you compliant?
• Are you overpaying?
• Do you understand what makes a difference to your local staff?
– Have you got a career / job Atle / salary path mapped out (wage inflaAon?)
• Who are your clients? Who do they expect to be doing business with?
– Cultural fit – your business culture vs the needs of the local market
• Are you prepared for the li[le local differences?
• Did you know the average Indian employee gets 38 days holiday per year? Source: SannamS4
Thank you I would like to end with two quotes “If we could bring eastern wisdom and western efficiency together, we would all be winners” – Unknown “Not everything that counts can be counted, and not everything that can be counted counts” – A[ributed to Albert Einstein (quoted in George Magus’s book – Uprising)
Contact
Amit Mehta Senior Vice President Tata Capital Plc 30 Mill Bank London SW1P 4WY Tel: +44 20 7975 8336 Email: [email protected]
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