Move aside BRICs, the EAGLES have landed !!

After the enormous marketing success achieved by Goldman Sachs with its BRIC (Brazil, Russia, India and China) report, creating new emerging market acronyms has become the newest fad. HSBC jumped onto the bandwagon with the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and the latest to join the acronym brigade is the Spanish banking group BBVA with its EAGLES !!

Emerging Market Acronym Game (Source: Financial Times)

What the EAGLES approach does differently

BBVA’s rationale is that current groupings like the BRICs pay too much attention to size, and not enough to incremental growth rates.They are rigid and imply an unchanging list of economies on which potential investors should focus. The EAGLES are the 10 countries that will contribute more to global demand over the next decade than the G7 excluding the US. BBVA's economists believe the concept allows better and worse performing economies to move in and out - respectively - of the sample over time.

Ok, so who is it?

EAGLES stands for "Emerging And Growth-Leading Economies" and includes the usual suspects China and India, of course. The other are Brazil, South Korea, Indonesia, Russia, Mexico, Turkey, Egypt and Taiwan.

What's the big deal? Is there anything new?

Nothing much actually. Four of the ten are BRICs and three are CIVETS. The remaining three - Mexico, South Korea and Taiwan - are strong emerging markets since a long time. 

The only interesting thing in the list is in order of importance - Russia is ranked below South Korea and Indonesia. BBVA believes that investors and the general public are still too focused on the BRIC concept. They believe that Russia is not a country which will generate a lot of additional demand and that investors should focus elsewhere.

The link to the report is here.

Standard Chartered predicts a 30 Year Global Boom !!

Even as the developed economies struggle to kick-start growth, Standard Chartered global bank Standard Chartered has come out with a report that predicts a global economic Super-Cycle which they expect will last three decades.

What's a "Super-Cycle"?

The report defines a super-cycle as “a period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanization and technological innovation and characterized by the emergence of large, new economies.

There have been two previous Super-Cycles:

• The first Super-Cycle lasted 43 years from 1870 to 1913. This was the Industrial Revolution that led to rise of America and England and an unprecedented boom in global prosperity.
• The second Super-Cycle lasted 25 years from 1945 to 1970. This was the stunning rise of Japan and Germany as they recovered from the Second World War.

Super Cycle 3?

The report says that we are now in the third Super-Cycle. It began in 2000 and should last until 2030. It will be all about emerging markets (India, China, Indonesia, the Middle East, Africa and Latin America). The key difference is that while earlier super-cycles impacted a small portion of the population of the world, Super Cycle 3 will impact 85 per cent of the world population.

The Losers

Wealthy economies in North America, Europe and Japan will be biggest losers. Their share of  global GDP will drop from 72%  in 2000 to 29% in 2030. Although these countries will benefit from the growth in emerging markets, their economic clout will reduce substantially.

China, China, China

The biggest winner is China of course. The report predicts that the China's economy will be twice as large as the U.S. by 2030. In 2030 China will account for an astounding 24% of global GDP compared to just 9% now.

India will be the other major winner from this generation's Super-Cycle.

By 2012 India will be fastest growing economy in the world. (That's right, faster than China !!) Average annual GDP growth is expected to be 9.3% per year for the next two decades.

Optimistic? Unreal? 

No, not really. In the last decade (2000 to 2010), in-spite of terrorist attacks, wars in Afghanistan and Iraq and an unprecedented Financial Crisis, the global economy has doubled growing from $32 trillion in 2000 to  $64.7 trillion in 2010. Global trade has also recovered to pre-recession levels.

Want to read more?

The report is available as a free download on Standard Chartered's website.

Google vs. China

All the discussions about Google's threat to withdraw from the Chinese market have so far have talked about freedom of speech--whether it's good (most people) or bad (some Chinese Government supporters). Many others are of the opinion that Google is trying to make a business decision look like a moral one. So which one is it?

IMHO Google’s decision to stand up to Chinese cyber-oppression is praiseworthy. By announcing that it no longer plans to censor search results in China, even if that means it must withdraw from the country, Google is showing spine — a kind that few other companies or governments have shown toward Beijing. No one was willing to start a confrontation with the Chinese Government. You can justify a lot of things if the pot of gold is big enough.

This move is also in line with Google's move to place its business and ethical interests squarely behind open technologies and open information (which essentially means against censorship). In December, a Google senior vice president, Jonathan Rosenberg, issued an online manifesto which had the following text “There are forces aligned against the open Internet — governments who control access, companies who fight in their own self-interests to preserve the status quo. They are powerful, and if they succeed we will find ourselves inhabiting an Internet of fragmentation, stagnation, higher prices, and less competition.”

Also the argument that Google has been out-competed in the Chinese market is incorrect. In the last 3 years it has managed to penetrate the Chinese search market. Google’s search market share has climbed from 13 percent in 2006 to 36 percent in the fourth quarter of 2009 While Google’s sales in China remain small, the business is growing rapidly and Google just had its best quarter in that country. 

Google’s change of heart in China may not have been solely about freedom of speech, but also about something that strikes at the core of its business: the security of information stored on Google’s servers. Also to the extent that there is any gain from this kind of move, the first company to do it gets all the headlines. The second company to do it will be seen as a follower who didn’t have the courage to act according to its convictions in the first place.

Google is the only entity in the world that has moral authority against China, and they just used it. By publicly challenging China’s censorship, Google has stirred up the debate over the government’s claim that constraints on free speech are crucial to political stability and the prosperity that has accompanied it. Even if it is unlikely to pose any immediate threat to the Communist Party, Google’s move has clearly put the Chinese Government in a difficult position. What could be likely outcome? In a conflict between the Communist Party and Google, the party will win in the short run. But in the long run, my money is on Google.

Google To Exit China ?

On  12th January, Google threatened to pull out of China after it learned of immense security attacks and attempts by the Chinese Government to gain access to the Gmail accounts of Chinese dissidents and human rights activists. Read Google's official statement here. Google agreed to censor its search results in China when it entered the market in 2006. If Google does leave, it would be an unusual rebuke of China by one of the world's largest companies.

Foreign companies already face a long list of obstacles while doing business in China, including “buy Chinese” government policies, widespread counterfeiting and growing restrictions on foreign investment. China has long restricted the sale of foreign movies, books, music and other media. For example, China only allows the broadcast of only 20 foreign movies per year.

When China joined the W.T.O. in November 2001, it promised to allow free trade in government buying. But it has never actually done so, leaving the Chinese government free to use its enormous buying power to steer contracts to Chinese-owned companies. China has also restricted the export of the so-called 'Rare Earth' elements which are important ingredients in things like hybrid engines, magnets used in wind turbines etc. China has become the world’s largest auto market, yet it still limits foreign automakers to 50 percent stakes in auto assembly plants in China and imposes steep tariffs on imported cars.

If Google pulls out of China China could be left with just one major Internet search engine: Baidu.com. Baidu is the clear market leader in China. Refer the market share below:

Considering the size of the Chinese market (300mn plus internet users), the market is considered strategically important. The search market in China reached revenue of two billion yuan ($293 million) in the third quarter of 2009, 28% higher than a year earlier

Google's revenue in China is relatively small. As per analyst estimates only a few percentage points of Google's nearly $22 billion in 2008 revenue came from China. In fact it is possible that Google’s inability to catch Baidu was one reason the company might have decided it was willing to give up on the China market.

Does Google still believe in 'Do No Evil'?
Maybe, maybe not...

What China Can Learn From 1929

This article from NewsWeek discusses the similarities between America in 1929 (just before the Great Depression) and China in 2008

http://www.newsweek.com/id/174529/page/1