Feature
New gold rush
23 June 2011
Warren Buffett once said: "In the business world the rear-view mirror is always clearer than the windshield." New opportunitists and multinationals are now peering through the fogged-up glass at the markets most likely to follow the booming BRICs as the next big thing.
A little over 300 years ago, opportunists, slave drivers and chancers, lured by the promise of gold, flocked to southeast Brazil. A century later, their descendants moved on to the fields of California, then Australia, to seek their fortune. Today’s gold rushes are no less intense. Adspend is forecast to grow only 3% in the US and the biggest European markets this year, prompting manufacturers of everything from toothpaste to supercars to look for greener pastures.
But with the BRICs well-established as gold mines, the smart money is already casting around for the next big opportunity as far afield as Albania and Bolivia, Vietnam and Montenegro. Investors understand well the allure of the basement-level opportunity. But moving too early can be a costly error, and the hotter a market, the greater the risk of getting burned.
The BRICs still have plenty of heat left in them. According to GroupM data, total adspend in Brazil last year was 56% above that five years earlier and is forecast to grow at 9.5% in 2011. In China, adspend last year was more than double that in 2005; in Russia, it has grown 61% and in India, 79%.
There are clear distinctions to remember, too. The Nielsen Company puts the total adspend in China at $99bn, compared to just $7bn in India and $37bn in Brazil last year. Growth is fastest in India, though, at 28% last year, with newspaper adspend up 44%, magazines rising 20%, and radio 34%.
OPPORTUNITY KNOCKS
Paul Robinson, chief executive of four-year-old children’s television network KidsCo, specifically targets emerging markets for launch. “As a new entrant to the kids’ market we were aware we had to build out where there was most opportunity. In many of the mature markets, they’ve got more kids’ channels and the platforms are more consolidated.”
In emerging markets, only a handful of direct-to-home satellite platforms might be competing with cable and IPTV operators for land grab. Getting the timing right means weighing up the consumer market, the competitors and the opportunities to link up with platform operators. “We look for under supply or somewhere where there are deals to be done,” Robinson says.
So what makes a market hot? The availability of personal credit has a huge impact on people’s ability to buy; infrastructure determines the feasibility of a distribution network; media market maturity dictates the complexity of reaching out to consumers; and the political environment affects everything from internet penetration to the quality of the workforce and legal landscape. That, in turn, influences foreign investment, which in turn determines the kind of jobs being created, how class structures evolve, and whether people consider milk a staple or a treat.
Vietnam and Indonesia stand out in almost every respect. The strength of their growing consumer markets is already drawing significant investment from multinationals such as Coca-Cola, Nestlé and Unilever. In Vietnam, GDP per capita is expected to double in the next 12 years, and Indonesia has a young, optimistic population. Both are among the biggest movers on the World Economic Forum’s list of the most competitive global markets, and both feature in the Goldman Sachs Next 11.
In Vietnam, Unilever launched an augmented reality campaign for Rexona Men in which cheerleaders appeared to dance around computer users. The activity, along with on-the-ground flash mobs, drove 35,000 unique users to the site. Nescafé, meanwhile, developed a social networking site, letstalk.com, that became more popular than Facebook among the coffee brand’s target audience. In Indonesia, Walls is working to boost ice-cream consumption by investing in marketing and ice-cream counters in malls.
For foreign brands with a more established hold on the market, the focus is on loyalty. LG sells a product in Indonesia every six seconds and recently ran a cross-platform campaign to mark the electronics brand’s 20th year in the country and thank consumers for making it number one.
THE NEXT BIG MOVERS
Elsewhere in Asia, Sri Lanka is appealing now that peace seems to have arrived, while Mongolia represents a basement-level opportunity. Egypt and Tunisia are ripe for growth, while Albania’s appeal lies in its emergence from a closed, state-run economy to a free-market system. In Latin America, Colombia has an increasingly wired-up population and the government is overseeing an economic stimulus package. Bolivia too has a young population but is yet to attract foreign direct investment (FDI).
Media management group Mediabrands has recently restructured shifting from geographic groupings to three clusters based on similarities in states of development, growth potential and client priority. Group one is North America, the second is G14 comprising Australia, Brazil, China, France, Germany, India, Ireland, Italy, Japan, Mexico, Netherlands, Russia, Spain and UK. World Markets is the third.
The clusters are largely based on the intentions of big clients and macroeconomic data. World Markets chief operating officer Andrea Suarez says: “It’s been excellent to see how markets in totally different places in the world can share knowledge.”
However, doing business in emerging markets can hit difficulties and delays. In India, KidsCo is ready to reach some of the 24 million households with satellite TV, but is still waiting for the downlink licence requested 15 months ago. Robinson says striking deals can be tricky with partners who have little track record. “We need to acknowledge that they’re also start-up businesses trying to grow,” he says, “and show shared risk and reward.”
Growth can also happen too quickly. A few years ago, the Latvian market went from FDI magnet to burst bubble as property prices soared and loans in foreign currencies turned sour. And sometimes, there’s just a miscalculation. When investment in pay-TV began in Asia 20 years ago, the industry thought Taiwan and Indonesia held the greatest promise; expansion into India and China came as an afterthought.
In the 21st-century gold rush, determining where and when to start digging is more complex than in centuries past, although the dividends are potentially far more lasting.
M&M VIEWPOINT
Trailblazing is exhilarating for so many reasons: the thrill of being among the first in a new market; the first to establish a name and build loyalty and marketshare; the first to cut deals with local partners.
In many categories, there are no firsts left to be had – multinationals have at least a little finger in most pies in this day and age – but there are still important decisions to be made about the degree of investment and also the timing of it. In the words of Buffett, it’s worth remembering: “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Jo Bowman