Image: WORLD ECONOMIC FORUM / swiss-image.ch / Photo Christof Sonderegger
At last week's annual World Economic Forum in Davos, Switzerland, most of those attending were very upbeat about the global economy. The World Bank, International Monetary Fund and others have predicted that 2013 will show the most significant growth in three years; but that is based primarily on the strengthening U.S. economy. But what about the emerging markets, the ones in which many firms have a significant interest?
Also last week, Agility published the Agility Emerging Markets Index which assessed 45 emerging markets on their attractiveness as logistics markets. The study considered three metrics – market size and growth potential, market connectedness and market compatibility. (An emerging market, according to the World Bank, is a country making an effort to improve its economy and achieve the same level of sophistication as a "developed" country.) Only 15 of the 45 had a 2012 GDP of over $300 billion.
According to the survey, logistics professionals were very optimistic about the prospects for most of these markets as well, with the Asia Pacific countries having the brightest perceived outlook. The top six markets, according to the respondents, are China, India, Brazil, Russia, Indonesia, and Mexico. Mexico rose two rankings from 2013, no doubt a result of "nearshoring" interest. Even though China remains a strong market, 63% of the respondents agreed that manufacturers could likely move away from China with Vietnam, India, Mexico, and Indonesia seen as the most likely destinations. When asked to identify the most significant factors affecting potential emergence, respondents listed economic growth, growing trade volume, Foreign Direct Investment (FDI), cheap labor, potential consumer spending and geographic location.
Not surprisingly, there are risks to conducting business in many of these markets. In Asia the major risks were identified as natural disasters, economic shocks and corruption in that order. In Latin America, 42% saw corruption as the major obstacle, followed by poor infrastructure. In the Middle East, government instability and terrorism were the major concerns, and in Sub-Saharan Africa, poor infrastructure and government are significant issues. Other problems noted were such things as difficult customs procedures, government policies, difficulty in setting up and doing business, security, and difficulty in repatriating profits.
From the results of this study it seems clear that economic growth is the driving force behind the most popular markets. While factors such as cheap labor, location, and population are important, growing economies are viewed as having the greatest logistics potential. For the complete report, see www.agilitylogistics.com.