Is the Rest of the World Ready for a Unified BRIC?

Leaders of the BRIC countries (Brazil, Russia, India and China) met last week in Russia for the first-ever summit between the leaders of these emerging-market giants. While trade between the four nations is not large enough to warrant a new trade bloc, they do share common interests in global trade that they might address more effectively as a group. The reported topic of this first set of meetings included a move to decrease the role of the US dollar in global commerce.

The combined strength of these economies is considerable. Already, they represent 15% of global GDP and 43% of the world's population. They also hold 40% of the world's gold and hard currency reserves. More importantly, these countries' annual GDP growth rates are forecasted to be double that of developed countries over the next five years. China is expected to overtake the US soon as the number-one consumer in the world, while India's rural market is an example of resilience and growth in the face of the global economic crisis. It is no wonder that global retailers are placing big bets in emerging markets, with much focus on the BRIC countries. The growing maturity of these economies is also hastening the emergence of a host of homegrown companies able to compete outside their home market.

For global businesses, the BRIC countries are an essential factor - as a group and individually - when setting growth strategies. Moreover, the large firms based in these countries are quickly becoming formidable competitors, as they grab up land and businesses in smaller emerging-market countries. Multinational corporations in developed nations would do well to broaden their BRIC country analyses to include the market opportunity and emerging competition in these geographies.

Small and Medium-sized Businesses Gain New Attention as Pillars of Emerging Market Economies

China's state-owned banks are showing unprecedented increases in their lending to small and medium-sized businesses (SMBs). This expansion is part of a trend in which emerging-market governments are increasingly active in supporting the SMBs within their economy. Jamaica and Russia are also making a concerted effort to recognize and support SMBs and to help them grow, especially as millions of laid-off workers look for ways to rejoin the formal economy.

Giant multinational corporations (MNCs) such as Huawei in China and Wipro in India often get the lion's share of attention in discussions about emerging-market business. Yet, SMBs form the backbone of most of these countries' economies. Data from the World Bank indicates that SMBs employ about three quarters of all workers in countries as diverse as Turkey, Mexico, Egypt, China and Bangladesh. During economic downturns, the role of SMBs comes into sharper focus. They are often particularly hard hit due to their precarious financial position and reduced access to sources of credit.

SMBs in emerging markets are often underserved and overlooked by MNCs because it can be difficult to identify, size and characterize this target market. Additionally, MNCs are often unsure of how to reach developing-country SMBs or provide purchase financing, especially in nations with weak or non-existent credit systems (Google.org notes the "missing middle" between microfinance and traditional commercial finance). MNCs would do well to investigate local partners who could provide SMBs with innovative payment methods. Industry associations or specialized businesses can also be an effective avenue for targeting these often diffuse businesses. Such focused efforts may provide both MNCs and their SMB customers with the edge they need during these challenging economic times.

AMIA Conference puts spotlight on developing country Health Information Systems

by Brendan Smith

Historically a term that prompts more eye glazing than heart throbbing, medical informatics is suddenly a hot topic. This is in part because of President Obama’s decision to include $19 billion in the economic stimulus package to digitize American health records, which health experts hope will result in increased efficiency in the notoriously wasteful American health care system. But the idea of creating electronic medical records (EMR) has also gained traction in the developing world, where it is hoped that they could improve the continuity of care for patients while giving health officials a clearer picture of the health trends and problems in their countries.

Against this backdrop the American Medical Informatics Association’s (AMIA) Spring Congress took place last week in Orlando. While much of the activity centered on the role of informatics in the US health system, a global health track focused on health information systems in the developing world and the need for better coordination among donors and US-based organizations such as AMIA in helping poor countries to deploy and operate such systems. In her keynote address, Sally Stansfield, the executive secretary of the Health Metrics Network (HMN), noted the plethora of disease-specific and donor-driven systems and requirements that proliferate across the developing world and the negative consequences they have for developing unified, comprehensive systems.

One of the most interesting and provocative points Stansfield made in her talk is that developing country governments are now often in a position to say “no” to donor projects that don’t fit into the country’s master plan for development, and that they need to do exactly that, because, in her words, “the donors sometimes need the countries more than the countries need the donors”. This point illustrates a larger one about development aid. While well-intentioned, donor aid often works at cross purposes with countries’ larger development goals, furthering the agenda of individual donors rather than that of the nation at large and leaving countries with a welter of unconnected projects. While country governments surely need to put together comprehensive, unified development plans, donors must ask themselves how the initiatives they fund fit into those plans, rather than simply how these initiatives dovetail with their own agenda. The development of health information systems over the next several years may demonstrate just how effectively they are doing that.

Weathering the Recession in Emerging Markets

Vital Wave Consulting's CEO, Brooke Partridge, discussed how to Weather the Recession in Emerging Markets in today's seminar series event. The discussion revolved around:

How is the global recession impacting emerging-market opportunities? Most large developing countries will see a decline in their GDPs this year, but will quickly recover and will grow between 3% to 6% in 2013. India and China are, in particular, the two stars of the developing world, generally and during this recession. Latin America is defying its own history. In previous recessions, the region struggled to bounce back, but, over the last decade, many Latin American countries have implemented better fiscal policies that bode well for the region’s economy. Export-oriented economies in both the developed and developing world have been particularly hard hit by this recession.

Which trends and dynamics of emerging markets remain constant and should be addressed in emerging-market strategies?
Although we are in the midst of a global recession, it is important to keep perspective, there are still a great deal of emerging-market citizens with purchasing power. These individuals may be modifying consumption patterns, looking for less-expensive items and substituting for traditional brands/quality, but there is still significant purchasing occurring in these countries. In terms of purchases, in a series of interviews Vital Wave Consulting conducted with emerging-market citizens, everyone aspired to the three essentials: a stove, refrigerator and television...and increasingly the mobile phone. They felt they had a respectable standard of living with these products in their home.

What are the important aspects of business model design for emerging markets?More than technology or product innovation, business model innovation is the key to accelerating the purchase of products further down the economic pyramid. In recent years some new business models have proven effective for business growth in emerging markets, and they can be considered for application or modification in your own business - these include:

• Pay-per-use
• Smaller quantities for purchase
• Community purchasing
• Financing of even low-cost items Separation of economic buyer and end user

What are the internal dynamics within large companies that can impede success in emerging markets, and are also likely to become even more pronounced during and economic downturn? Many internal dynamics within large corporations are more powerful inhibitors to emerging-market growth than challenges in the markets themselves. And during hard economic times, these dynamics can become even more powerful and require yet more attention to overcome their impact. First and foremost is the issue of incentive structures. For example, growth in emerging markets requires well crafted success metrics imposed on all parties involved in the process to ensure the desired focus and behavior. This includes the sales force.

An audio recording and the sides from this session will be posted on the Vital Wave Consulting website (http://www.vitalwaveconsulting.com/) later this week.

In the interim, we invite more comments and discussion on this topic.