Frontier Strategy Group’s research has found that Multinational companies across Asia use a wide variety of channels to influence government policy as differing political systems and cultural norms demand unique strategies to manage domestic government engagement.
1. Effective Channels For Influencing Government Policy
Companies across China, India, and S.E. Asia find local industry organizations, chambers of commerce, and external government affairs agencies to be the three most effective channels for influencing government policy
2. Top Choice For Influencing Government Policy
Local industry organizations are also the first choice for more than 40% of the respondents for influencing government policy across all regions
Interestingly, India is the only region in which engaging external government affairs agencies is a top choice for influencing public policy. Handling India’s political complexities and unreceptive government officials requires strong local connections that government affairs agencies are able to manage effectively
In China, engaging business partners to influence public policy is considered highly effective due to the strong relationship between the government and the private sector. This is not surprising because “guan xi” (relationship ties) play a very important role in gaining access to policy makers thus influencing their decisions
*Shishir Sinha contributed to this post
Countries across Asia are beginning to see their growth deteriorate as ongoing problems in the eurozone, persistent malaise in the US, and a government-engineered slowdown in China undermine the region’s prospects. Several ASEAN countries have already begun cutting interest rates to spur growth; however, it is unlikely that their efforts will be sufficient to halt the regional slowdown
- Bangladesh: Bangladesh is not likely to be able to sustain strong economic growth due to its weak fundamentals as well as the global slowdown
- Cambodia: Cambodia’s GDP growth in the new year will likely be hit by the devastating floods and global economic slowdown
- China: Scarce labor and rising wages are problems no longer limited to producers operating in coastal China
- India: Companies should begin making contingency plans for a stagflation scenario in 2012
- Indonesia: A new land acquisition bill will help accelerate Indonesia’s infrastructure development and ease bottlenecks in the economy
- Japan: Companies should make contingency plans for significant power shortages in Japan this summer
- Malaysia: Rising global volatility and a broad slowdown in Asia are undermining the confidence of Malaysia’s businesses and consumers
- Pakistan: Companies should make contingency plans to deal with a weaker rupee as Pakistan’s currency may depreciate over the coming months
- Philippines: Although Manila has begun taking steps to protect the Philippines’ growth, the country remains relatively exposed to a global slowdown
- South Korea: A new FTA with the US will have a dramatic effect on the competitive landscape of several major industries across Korea
- Taiwan: Growth is strong based on regional demand; however, caution is needed as trade might falter with global economic uncertainty
- Thailand: A newly-announced flood defense plan along with recent monetary easing should help spur Thailand’s slowing growth
- Vietnam: Companies should make plans to deal with striking workers as the labor unrest that is rocking Vietnam is unlikely to subside in H1 2012
Reuters recently released an interactive infographic depicting the evolution of the middle-class around the world. Emerging markets such as China, India and Indonesia are estimated to increase Asia’s share of the global middle-class to 64% and account for over 40% of global middle-class consumption by the year 2030.
Original Article in MarketWatch
Matt Lasov, director of global research at Frontier Strategy Group, said the emerging markets’ performance in 2012 depends on their relationship to the euro zone.
“The euro zone is in a recession that is likely to get worse,” Lasov said. “We see a two in three chance that there is a breakup of the euro zone in 2012 — most likely Greece leaving.”
And “success for emerging markets will be determined by linkages to the euro zone,” he said.
“The clear outperformers in the short term are India, Indonesia, and Sub-Saharan Africa,” according to a research note from Frontier Strategy Group, referring to those markets as having “low linkage” to the euro zone. “These markets are characterized by rapidly growing domestic demand and diversifying economies that are creating middle class growth” and they have limited trade relationships with Europe.
The Middle East and Latin America are linked to Europe because of trading in commodities, the note said, referring to these markets as having “medium linkage” to the euro zone. “Reduced European demand for oil will impact state revenues, but most markets have more than enough reserves to weather a crisis.”
Russia, meanwhile, is “positioned to be the biggest underperformer,” the note said. “Oil exports to Europe are driving Russia GDP growth more than ever before,” and as oil prices fall below the $110 per barrel built into the Russian budget, “Russia will enter deficit.”
If you’ve been focusing on end-of-year business performance this week instead India’s macroeconomy, you’ve missed a lot. This flowchart highlights key events of the past week and the ultimate drivers: Global uncertainty, inflation, and upcoming state elections.
Frontier Strategy Group’s prognosis for India’s economy in 2012 is relatively grim. However, we continue to hear from clients that India is a critical growth market. A “grim” outlook for India still means 7.7% GDP growth in 2012, compared to 3.5% in Brazil and Russia.
- FSG is monitoring ongoing developments in Europe and its impact on key emerging markets like India
- In November inflation slowed to its slowest in a year, but still missed expectations. The expected wholesale price index was 9.02%; the actual was slightly higher at 9.11%.
- Seven states will go to the polls in 2012 to elect their legislative assemblies, among them Uttar Pradesh, Gujarat, and Punjab, some of the most important political states in the country.
- News on December 9 showed export data was overstated by about 5% across 2011, due to misclassification and errors in the Commerce Ministry.
- The rupee closed at an all-time low of 53.7 to the dollar on Wednesday, spurred by European debt concerns, a flight to the dollar, and bad news on industrial production.
- The rupee is likely to fall lower in the next month, as local companies buy up dollars to hedge their exposure from dollar-denominated debt.
- India’s Index of Industrial Production (IIP) contracted 5.1% percent in November, its steepest fall in over two years.
- In response to the IIP contraction, the Prime Minister is asking key ministries like power, coal, and steel to submit a wish list of legislation that is currently stuck in committee, with the intent of hastening implementation.
- Discussions around the Food Security Bill at the beginning of this week were inconclusive, and iIt is likely to be discussed during the next Cabinet meeting on December 18. The Bill gives 64% of the population the legal entitlement to subsidized food grain, and would expand the government’s food grain procurement by 20%.
- The Union Cabinet just cleared 3 bills on judicial accountability, protection of whistleblowers, and a Citizens’ Charter for grievance redressal.
- Anna Hazare is threatening a hunger strike starting December 27 if the Lokpal Bill does not pass.
- The Lokpal Bill is building up to a vote in the next two weeks. The government has an ambitious agenda: December 19, the Cabinet clears the bill; December 20, the bill is introduced in the Lok Sabha; and on December 21, the bill is introduced in Rajya Sabha. December 22 is the end of the winter session.
Indonesia is the fourth largest country in the world in terms of population. Fast growing consumption, powered by growing affluence of the middle class, is the main driver of Indonesia’s economic growth
Favorable Demographic Profile
- With a total population of 238 million, Indonesia is the fourth most populous country in the world after China, India, and the US
- Indonesia has a favorable demographic profile with 60% of population aged below 40
Consumption Driven Economy
- Private consumption is the biggest driver of Indonesia’s economic growth, representing 56% of total GDP output
- Private consumption per capita is expected to double from its current level of US$1,500 to US$3,000 in 2015
Indonesia’s Growing Middle Class
50 million households in Indonesia have a disposable income of US$3,000 or more, and this number is expected to reach 150 million by 2015
- 8 million scooters, a favored form of transportation among urban residents, were sold in 2010, compared to 1.7 million in Thailand
For MNCs, this could mean:
- Consumer goods companies should look at Indonesia seriously as the consumer spending boom is just getting started
- Despite various operating difficulties in doing business in Indonesia, MNCs should establish on-the-ground presence, either through wholly owned subsidiaries or partnerships, to catch this growth opportunity at its onset
On Wednesday, India’s government suspended its plans to open up its massive retail sector to foreign MNCs like Wal-Mart and Carrefour. Western consumer-focused companies are growing impatient as they seek out the opportunity to sell their products both in India’s major cities as well as to consumers in rural areas. Companies should proceed with caution when marketing their products to India’s rural consumers (see graphic below):
Frontier Strategy Group appeared in yesterday’s Financial Times in an article titled, Gems: Making the case for Gems
According to the Frontier Strategy Group, while China’s growth may be slowing down, India’s is increasing, and by 2014, India’s growth rate will outstrip China’s, at 8.6 per cent compared with 8.2 per cent. This has prompted fears of a hard landing for China.
For much of the past year, China’s policymakers have been grappling with how to temper sharply rising asset and consumer prices and dampen the ill-effects of an unprecedented economic stimulus following the global financial crisis – without torpedoing strong economic growth.
China first set about reining in credit in April 2010, following a record RMB12.2trn (£1.1trn) surge in bank lending since the start of 2009, according to China Economic Research.
The Frontier Strategy Group predicts that China will have trouble in tackling its public debt and its debt to GDP ration will rise from 16.2 per cent in 2011, to 16.3 per cent in 2012, 2013 and 2014, before going back down to 16.2 per cent in 2015.
