Is the emerging markets growth story over? Not a bit of it, says KPMG in a survey published on Wednesday.
The audit, tax and advisory firm surveyed 100 senior executives at US businesses about their business development plans and found that 69 of them said their top priority was geographic expansion, primarily into high growth and emerging markets.
Half the respondents work at companies with revenues of $100m to $1bn, the other half with revenues of $1bn to $10bn. Asked where they would make capital investments of more than $5m over the next year, the top choices were Brazil (27), China (26), Mexico (17) and India (13).
So, the Brics have not lost their appeal – though maybe Russia has. Other countries mentioned included the Philippines, Turkey, South Africa, Korea, Indonesia, Vietnam and Colombia.
Mark Barnes, leader of KPMG’s US high growth markets practice, said the target countries:
possess natural resources, a hunger for goods and services such as healthcare and financial services, and a need for vital infrastructure… While some of these countries may not generate immediate returns, they have bright, long-term growth prospects and companies that establish an early presence can gain a competitive advantage.
Of course, KPMG would hate companies to go into these markets without engaging the services of a competent advisory firm. This from its statement:
“While many companies anticipate revenue growth in emerging and high-growth markets, we’ve seen plenty of companies – especially smaller companies – struggle to succeed usually because they didn’t conduct the necessary due diligence or identify the right business partners,” said Barnes.
“Companies need to enter into these markets with their eyes wide open and a deep sense of cultural understanding of how business gets done because these markets are highly entrepreneurial and competitive.”
And it’s interesting that the executives surveyed believe the rise of the EM consumer will provide the growth they seek:
Consumer market growth (64 percent), tax incentives (26 percent), and government initiatives (23 percent) were selected as the top revenue growth drivers in high-growth and emerging markets over the next year. Middle class growth (59 percent) and rapid urbanization (31 percent) were cited as the main factors driving consumer growth in high-growth and emerging markets.
Some would say that, far from illustrating the potential for future growth, the recent rise of a new consuming middle class in countries like Brazil was a product of factors – such as high global commodity prices, cheap subprime money and cheap QE money – that are beyond the influence of EM governments and unlikely to be repeated in the foreseeable future.
We wouldn’t disagree with the idea that there is still growth in emerging markets. You just have to be very careful indeed in picking your targets and setting your objectives.
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