Although this blog has often analyzed emerging Ecommerce market opportunities in Brazil, Russia, India and China, most would agree that from a macro-level perspective the BRIC countries are far from emerging.
Last month, the Business without Borders program took a long look at six emerging international markets. Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa make up the CIVETS bloc of emerging international markets.
According to Wharton magazine, the CIVETS owe their acronym to the Economist Intelligence Unit (EIU), which forecasts the countries will grow at an annual rate of 4.5% during the next 20 years. Very nice aggregate growth that is only slightly below the 4.9% average predicted by the EIU for the BRIC nations, and far above the rate of 1.8% forecast for the world’s richest—or “G7”—nations.
In these countries, the average age is 27 and the growth in trade flows last year averaged 85%. The next 15 years promise to see continued social and political stabilization and stronger than average growth.
Emerging vs Emerged Markets
A natural starting point for the discussion? “How are emerging markets defined these days?”
Although the CIVETS countries are diverse countries, they are alike in that they are at least mid size counties with strong growth. The panel pointed out that ten to fifteen years ago the BRICs were the emerging markets – and that, for the most part, the bets their companies made on these markets have already paid off.
How are the CIVETS different from the BRICs?
Size for one thing. When compared to the BRICs, the CIVETS are much smaller. Indonesia is, by far, the largest with 243 million people, followed by Vietnam with 90 million, Egypt (80 million), Turkey (77 million), South Africa (50 million) and Colombia (44 million).
On the other hand, Russia has a population of 139 million, Brazil has 201 million, India 1.2 billion and China 1.3 billion. Size matters.
Rising costs are another key differences. In the BRICs, labor costs are now increasing 10% to 15% per year on average.
Competition is another point of differentiation. Today there is much more competition from and among global brands that have expanded into the BRIC countries.
So at least for now, the new emerging CIVETS countries are less expensive from a labor perspective and are less competitive as well.
CIVETS as Regional Commercial Hubs
The panel weighed in with their respective insights on these markets.
Patrick Bryski, Principal at Deloitte, said his firm is actively looking at SIVETS. “We are investing $1.2 billion in our businesses in the SIVETS markets to build up capacity in the markets. Regionally, the Middle East, SE Asia and Mexico are the key markets where we are going next.” Bryski stressed the importance of investing early in “our people that will live there to support our clients.”
Frank Cowie of Aero Precision (military aftermarket) provided an overview of the South African opportunity. “The abundance of natural resources [means there are] great opportunities especially for firms with manufacturing expertise.”
South Africa is a big exporter of energy and much of that comes from coal. There is a fast-growing tourism business that also attracts lots of foreign currency.
On the down side, 27% of the population is unemployed.
But the continued growth of manufacturing in China means the Chinese government is buying up a lot of South Africa’s natural resources and raw materials. And this is creating jobs in South Africa.
Cowie also mentioned that in these post-apartheid times, the desire among both international businesses like Coca-Cola and BMW and global investors for a presence in South Africa is also creating wealth. And this wealth is both staying in South Africa and flowing to other parts of the African continent.
Education systems have expanded from just serving the elite to focus on educating the rest of the market.
There is huge consumer demand for cell phones and for solar panels that are helping to power these and other electronic devices.
According to Cowie, “the real driving force is that the corporate people are moving into South Africa.”
Deloitte also sees many parts of Africa as huge and growing opportunities. Bryski mentioned that his firms sees more and more countries today “going into regions not single countries.”
In Latin America, more and more companies now see Colombia (see last year’s Ecommerce profile here) as a staging area for regional growth. Likewise, Turkey has the global commercial connections and chops to serve as a base of regional operations for the Middle East.
Deloitte believes that Libya, Jordan and Morocco are ideal markets that can be serviced from a regional base in Turkey. It doesn’t hurt that Turkey is a well-defended country with strong military.
The Importance of Planning and Patience
The key take-away was that although the CIVETS countries represent a huge opportunity, patience and planning is the order of the day. “Select your partner and programs well and plan for the long term” was a common bit of advice shared by all the panelists.”
Due to the smaller size of the CIVETS countries, patience is indeed a virtue. Not only do they lack the sheer number of consumers, they also trail in the presence of multinational enterprises.
Unlike China, Brazil, India and even other emerging markets like Mexico, the CIVETS lack established multinational corporations to act as platforms for further economic development, although this is beginning to happen according to the panel.
While planning and patience are key, make sure you pay close attention to regulations.
Vanessa Wu from HSBC in Hong Kong said that in some Asia markets, her clients need to be aware that ten to thirteen regulatory changes can occur every day.
Cowie suggested that hiring plenty of local talent can be a smart way to drive sales and marketing and to not get caught up in regulatory red tape – or worse.
“We save lots of sales and marketing and voice of customer stuff for the locals [we hire] but HQ handles the transactions. The best advice is to learn the regulations first because you can end up in jail. I didn’t know is no excuse.”
Of course staying out of trouble means that the vetting of local hires has to be a very important part of the expansion process.
“Know that hundreds of people will tell you about the business they can bring you. But you have to vet them because they can get you in trouble.” For these matters, Cowie’s firm uses Trace, a company that vets and cross-checks people’s backgrounds and experience.
Internationally ambitious firms should also know that it will cost them a lot to collect unpaid bills.
To the topic of getting paid, the panel reminded firms that they need to be careful with their contracts, especially when it pertains to professional services. Although this insight may be less pertinent to Ecommerce businesses (but plenty relevant for web designers and technology solution providers), the panel said that design industries have a tough time setting up wholly owned businesses in many emerging countries.
“A key learning is that you have to have a different payment approach. For many, an invoice is simply an invitation to negotiate. You need to pretty much be paid everything up front – and getting paid can be tough after you hand over [something like engineering] drawings.”
Getting Around CIVETS
More pertinent to the online retailers in the audience was the need to understand the state of the on-the-ground logistics in the CIVETS countries.
The panel pointed out that logistics is not necessarily a point of differentiation between the BRICs and CIVETS countries.
For instance in China the connections outbound from ports have only recently gotten better. But in India, getting product around is still very difficult – “it is terrible and there are still lots of antiquated ports and so forth. But the airports are getting better.”
Among the CIVETS, Turkey’s transportation infrastructure is pretty good. But the panel suggested that Vietnam’s current grid is not so good.
In South Africa, the energy export business means that there has long been investment in logistics. Since South Africa has many great ports and its rail service is also very good, overall the logistics grid is highly sophisticated.
Turkey is similar to South Africa on the logistics front. Egypt is somewhat of a step down, but “not too bad” according to the panel.
In addition to physical infrastructure, the panel stressed the importance of thinking of “human infrastructure” (e.g. trained or “trainable” labor). In Vietnam, for instance, Intel tried to set up shop (instead of in India) but struggled to find people.
The panel agreed that finding good people in emerging markets can become a chicken or the egg situation – namely “Does corporate expansion or the supporting infrastructure come first?” To smooth out the process and reduce risks, more globally-minded expansionists are increasingly looking at public private partnerships to deal with this matter.
And the Winner(s) Is ….
If you had to choose one or two of the CIVETS markets for Ecommerce, which would it be? Although domestic turmoil and political instability appear to be a thing of the past for both Colombia and Vietnam, both markets still seem to be a bit on the early side of the growth curve. Colombia more so than Vietnam, which is busily attracting manufacturing as China gets expensive.
As the Arab Spring enters a second year, Egypt’s constitution has been suspended. Current instability aside, the relatively wealthy and prosperous country still has many many poor people and a high level of debt (80 percent of GDP). And religious issues may resurface.
As gateway countries with strong ties to the West, Turkey and South Africa are probably the best bets right now. Turkish labor costs are the highest in CIVETS. But Turkey is the right nation in right spot at the right time with all the right friends.
Indonesia comes up in lots of conversations about up and coming, yet off the radar international markets. Obviously its large population has already encouraged investment from the U.S., China and Japan. So political and social stability are the wild cards here. Oddly, few of the Borders panelists had much to say about the island nation.
On the other hand, only Turkey and Indonesia have shown up in two acronyms - both are also included in the “MIST” emerging countries (Mexico, Indonesia, South Korea and Turkey).
First the BRICs and now the CIVETS. And don’t overlook the MIST countries.
Happy market hunting.
Until next time
Cheers
P.S. A civet is a nocturnal, catlike mammal found in at least two of the CIVETS countries—Indonesia and Vietnam.