New markets, new opportunities

Column Roger Dassen, former CEO of Deloitte

Roger Dassen,  Global Managing Director, Clients, Services, and Talent, of Deloitte Touche Tohmatsu Limited (DTTL), enlightens us about the advantages and disadvantages of operating in Emerging Markets. As there will always be constant developments and new markets, it is best to embrace changes rather than distance ourselves from them.

New markets, new opportunities
This anecdote of an entrepreneur circulates on LinkedIn, who asks his HR-manager: “are all the schooling opportunities the company offers really necessary”. “What if we invest a lot in our employees and they leave?” HR-manager replies: “What if we fail to do so and they stay?” With good will, it is possible to pull the comparison between the entrepreneur and the HR-manager through to emerging markets. Isn’t it too risky to do business and invest in these emerging markets? What happens when such an adventure fails? The counter question is: “What happens when these emerging markets are the economic powerhouses of the future and you didn’t invest?” There’s one guarantee, these markets are no hype anymore. The growth of these markets in the world economy is enormous. According to the IMF, these markets now own 40% of the world gross production. It was only 25% ten years ago.

See opportunities
Doing business is to take and weigh the risks. As future accountants, you all know the importance of risk management, but on the other hand: doing business is to see opportunities. And those opportunities still exist. Starting with the BRIC-countries (Brazil, Russia, India and China), who probably will be more important than the American market in a few decades. Furthermore; Indonesia, Malaysia, the Philippines, South-Africa, South-Korea, Thailand, Turkey and Vietnam, developed rapidly recent years.
Especially in China, the economic growth between 2003 and 2011 was at an all-time high. This was caused by a combination of factors: large import of (cheap) capital from established markets and high prices on commodities, enhanced by growing demand from China.  Although the double digits are gone, there is still growth. 40 percent of the world gross product is pretty impressive.

Joint ventures
There are still risks, to begin with China, it is almost only possible to form a joint venture locally and the implicit rules for joint ventures are different compared to Western costumes.  The influence in the business of the joint venture is not necessarily determent by a main shareholder from the Netherlands. To prevent problems in the future regarding business structure and tax planning, clear agreements are essential. Dutch main shareholders have to take in account a lot more to avoid problems in the future. The problems Dutch main shareholders could come across are published by Deloitte: ‘Emerging markets, emerging opportunities’ (2012).

Secondly, it is important to understand why the growth in an emerging market is declining or stagnating, because it happens in every market sooner or later; “trees don’t reach heaven”. The question is whether or not reduction in the market is caused by structural problems. Last year, worldwide financial conditions deteriorated, causing investors to withdraw and therefore the growth declined in all the emerging markets. This doesn’t mean that there are structural problems in those markets themselves, but sometimes it is possible. China and South-Korea are solid growth markets, where other countries are struggling with indebtedness or political uncertainties for example. What do these factors mean for the future? Is it still worth investing, or did it become too risky? In short, to see opportunities is good, but you have to know when to pull out. That’s entrepreneurship.

Another growth market
One final remark: emerging markets are interesting growing markets, but they are not the only ones, for example innovation. New technologies are developing rapidly. A couple of years ago nobody knew about 3D-printing, but this spring a skull transplant has been performed in the Netherlands using this technology. Complete branches are changing because of this, for example health care, education, logistics, manufacturing and tax advice. There keep coming more challengers: new players who change the market and supplant big and traditional players. Think about Uber in the cab branche, Rocket Lawyer in the advocacy and Netflix in the media. New business models keep arising. The question whether branches will change isn’t right anymore, it’s when do they change. Within Deloitte we’ve for seen this many years ago and now we’re developing diverse services to guide our clients with their own innovations and changes within the market

And so I return with the anecdote of the entrepreneur and the HR-manager. There is no use turning away from changes, because there will always be new developments and new markets. So dive into it and search for opportunities – but stay alert, now as a student and later on as an accountant.