WINNING THE $30 TRILLION

DECATHLON: GOING FOR

GOLD IN EMERGING
MARKETS
10 June 2016
GMBA Group 2B
 10 June 2016

GMBA Group 2B

CEO: Anna Beatriz Gonzalez

Members:
Archana Shree
Mohitosh Negandhi
Saurabh Sarkar
Pankaj Beri
Overview:

1. What is the main message of the McKinsey report? (slide 4-5)

2. What is your opinion about the implementation of the
recommendations? (slide 6-8)
3. The McKinsey report is of 2012. What are the main new features
(between 2012 and 2016) in the globalized world that may change
the conclusions from the report? (slide 9-10)
4. What is the short term and longer term impact of a currency war for a
specific country? (slide 11-15)
5. Summary (slide 16-18)
6. References (slide 19)
Main Message

■ According to the report, by 2025, annual consumption in emerging

markets will reach $30 trillion—the biggest growth opportunity in the
history of capitalism. To compete for the prize, companies must master
ten key disciplines. (Atsmon, Child, Dobbs, & Narasimhan, 2012)
■ The McKinsey report is more than a decade long intensive research and
deep insight about the emerging markets. The aim is to enumerate the
most important priorities of and the business implications in fast
growing emerging markets specifically Africa, China, India, and Latin
Americas for senior executives of multinational companies (MNC’s).
■ The exponential growth in the annual consumption of emerging markets
will make the emerging market consumers the drivers for the economy’s
global demand - an opportunity most MNC’s anticipates.
Main Message

■ McKinsey identified that the purchasing choices of emerging-market

consumers will stimulate global innovation in product design,
manufacturing, distribution channels, and supply chain management
of MNC’s.
■ Moreover, that to cater the needs of value conscious emerging-market
consumers, developed-market companies must learn to adopt
strategies for every aspect of their business operations.
Opinion about the
implementation of the
recommendations:
■ In totality, the ten disciplines or areas of excellence McKinsey
identified are essential steps for MNC’s to enter emerging markets.
We would like to emphasize the following points:
■ It is important for MNC’s to analyze where the potential emerging-
market opportunities lie.
■ Change in current strategies is required for companies who aim for
global growth and rely on national perception for choosing targets.
■ It is essential for a company to check whether the emerging market
strategy is mostly local or not. As Product consumption differ across
cities within a country and often dependable on local preferences.
Opinion about the
implementation of the
recommendations:
■ The equilibrium between localization and economies of scale can be
beneficial for a company in targeting city clusters.
■ The influence of social media plays a major role on Chinese
consumers.
■ Further to in support of geographic priority setting, an urban-level
view enable companies refine their marketing strategies.
■ The changes in income patterns may suggests new markets and vary
across the cities.
Opinion about the
implementation of the
recommendations:
■ Lastly, there is a big gap or institutional voids between developed
markets and emerging markets that MNC’s have to overcome.
■ Emerging markets are attractive because of prospective high returns
to investors. However, high returns also has high risks.
■ We would like to recommend McKinsey to make further research on
the risks in entering the emerging markets like lower levels of: market
efficiency, policies, and standards compared to the developed
markets like the U.S., Europe, and Japan. Currency volatility and
political instability could be major talking points.
 Areas of Excellence–Business
lifecycle
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Areas of Excellence–Business
lifecycle
There are not many changes from what is mentioned in the report
however, a few more points to emphasize on are :
■ The growth of digital penetration in emerging markets – global
players should use this to reach target audience effectively.
■ The rise of investments into local brands – The competition from
local brands has increased significantly as they have been receiving
large investments from investment banks and hedge funds.
■ CSR activities for local acceptance – This is a trend that has been
the reason for a number of local brands to gain local acceptance from
the governments as well as people in emerging markets.
By and large the report predicts the growth and strategies to capture
emerging markets well, however, since there are moving trends, there
are always newer entry and acceptance strategies that are used to gain
advantage in these competitive markets.
Currency War

■ Currency war or competitive devaluation is the phenomenon where

countries intentionally devaluate their currency in the foreign
exchange market.
■ Devaluating the currency improves exports and also has a negative
impact of imports to the country, both of which help improve the
domestic market and employment in the country.
■ However, devaluation can harm the purchasing power of the citizens
and makes both import of goods and foreign travel expensive.
Short Term Impacts of Currency
War
■ Advantages
– Improvement in exports over competitor countries
– Reduction in imports
– Companies shift focus to the home market
– More domestic capital flows
■ Disadvantages
– Foreign exchange volatility
– Reduced Foreign Direct Investment
– Reduced global trade
– If competitor nation also devaluates its currency, it ends in a lose-lose
scenario for both nations
Long Term impacts of Currency
War
■ Foreign exchange volatility leads to long term decline in overseas trade
and capital investment due to loss of contracts
■ It is difficult to overcome the trade contraction suffered by devaluation
■ Economic growth is slowed down
■ Higher cost for hedging
■ Increases liabilities on international loans, higher amount of interest
required to be paid
■ The major burden is borne by the middle-class as overseas travel
becomes much difficult for them and also trade restrictions may impact
severely
Currency War – Prisoner’s
Dilemma

Country B Country B Stays

Devalues Put
Country A
Devalues -1%, -1% 1%, -2%
Country A Stays
Put -2%,
• The matrix shows prisoners 1% 0%, 0%
dilemma when two countries
contemplate devaluing their currencies.
Currency War – Prisoner’s
Dilemma
• Suppose when one country devaluates its currency, its export
revenues rise by 1% while the competitors exports fall by 2%.

• In case both the countries devalue their currency, it drops both their
export revenues by 1%, and there would be no change in revenues if
both countries keep the current valuation of their currency.

• In this case, both countries might consider that the possibility of 1%

profit or loss in devaluating its currency is better than the 2% loss in
not devaluating the currency.

• Now imagine this dilemma being faced by a large group of countries,

like in the Asian market in the real world. This is why the currency war
is a complicated scenario.
Summary

■ Globalization made the world smaller. As more countries open their

economy to other countries, it creates spending which increases GDP.
■ This leads to growth in countries making them part of the emerging
markets.
■ As reported by McKinsey in 2012, emerging markets are projected to
consume $30 trillion annually by 2025. This makes them drivers of
global demand that MNC’s would like to have a share of.
■ In order to get a piece of the pie, McKinsey recommended ten
disciplines or areas of excellence where MNC’s should have a mastery
of.
Summary

■ Emerging markets are very promising with high returns to investors

but, along with it are high risks. This is why it was mentioned in the
report that although emerging markets are very promising, MNC’s are
still having a hard time penetrating through maximum profits this
market compared to when they execute their plans in their home
(developed) markets.
■ Like the currency war where China was used as a representative for
emerging markets, it creates currency volatility in the economy.
■ It will create more challenges for trade between nations and could
slow down economic growth.
Summary

■ Our group replotted the ten disciplines recommended by McKinsey on

the business life cycle model to further understand where and when it
most applies so that MNC’s can have a better picture when planning
their strategies to enter the emerging markets.
■ Through globalization, some best practices to enter emerging markets
are clustering of activities and innovation which could lead to higher
market efficiency, added market value and more structured
government policies and financial standards.
References
Atsmon, Y., Child, P., Dobbs, R., & Narasimhan, L. (2012, August). Winning the $30 trillion decathlon:
Going for gold in emerging markets. Retrieved June 09, 2016, from McKinsey & Company:
http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/
winning-the-30-trillion-decathlon-going-for-gold-in-emerging-markets
BNP Paribas Investment Partners. (2015, August 12). Will China join the currency war? Retrieved June 09,
2015, from https://elearning.spjain.org/bbcswebdav/pid-61129-dt-content-rid-381378_1/courses/
GIIGMAY16SG/GIIGMAY16SG_ImportedContent_20160602025816/S%204%20-%202%20Will
%20China%20join%20the%20currency%20war.pdf
Khann, T., Palepu, K., & Sinha, J. (2005, June). Strategies that fit emerging markets. Retrieved June 09,
2016, from Harvard Business Review: https://hbr.org/2005/06/strategies-that-fit-emerging-markets
Investopedia. (n.d.). Emerging Market Economy. Retrieved June 09, 2016, from Investopedia:
http://www.investopedia.com/terms/e/emergingmarketeconomy.asp?
layout=infini&v=5B&adtest=5B&ato=3000
Introduction to Business. (n.d.). Retrieved June 09, 2016, from Emaze:
https://www.emaze.com/@ALQLWRZI/-Presentation-business-2