Burgeoning Potential: Growth in Emerging Markets

With about 80 percent of the world's population, emerging market countries offer a number of growth opportunities for midsize businesses. When you narrow your focus to China, India and Brazil, you find that these three countries make up more than 20 percent of the global economy—and the proportion is growing. In fact, some anticipate that all of the emerging markets will represent about 70 percent of total global GDP growth over the next four to five years, with more than half of this growth coming from China and India alone.Footnote  (Opens Overlay)

With this level of growth potential, emerging markets are attractive for U.S. companies seeking to expand globally.

The Ascent of Emerging Market Economies

There are many factors that contribute to the growing importance of emerging
markets in the global economy. Three of the most important are scale, growing
middle classes and infrastructure needs.

Scale

The scale of the emerging markets is huge. With more than a billion people each, the populations of China and India combined dwarf those of developed countries such as the U.S. and Europe. In addition, the economies of China and India are anticipated to grow at a rate of 7 percent to 8 percent annually versus a U.S. economic growth of about 2 percent to 3 percent per year. Based on this level of growth, more than 50 percent of global GDP will originate from China and India over the next 40 years.

Growing Middle Classes

A critical component of the explosive growth in emerging markets is the rapidly expanding middle class:

  • China's middle class is currently estimated to be about 157 million people and could swell to 670 million by 2021.Footnote  (Opens Overlay)
  • India's middle class, while currently small by global standards, is expected to grow to 267 million people in the next five years, a 67 percent increase.Footnote  (Opens Overlay)
  • Brazil's middle class is now equal to 50 percent of its population of more than 200 million people as of January 2011.Footnote  (Opens Overlay)

The significance of middle class growth is that businesses are beginning to focus on selling their goods to the rising consumer class within the emerging markets rather than exporting them to other countries. To this point, J.P. Morgan's current economic forecasts predict that in 2012, the emerging markets will represent 38.9 percent of total global consumption, while the U.S. share will decrease to 26.5 percent.

 
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Growth in Emerging Markets

Morgan McGrath identifies the three key reasons that U.S. middle market companies are expanding into emerging markets.

 
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Graph: Percentage of Global Consumption from 1990 to 2012. China rises from 1% to 3%, United States rises then falls from 27% to 26%, Developed Markets fall from 79% to 60%, and Emerging Markets rise from 21% to 40%.

Infrastructure Needs

As the emerging market countries grow in both population and economic strength, the need for improving and expanding infrastructure grows with them. Expansion of roads, railways, ports and other infrastructure components will require extensive funding and investment. For example:

  • India's government has pledged to spend well above $1 trillion on infrastructure in the next five to six years.
  • Public and private investments in Brazil for infrastructure improvements are expected to exceed $500 billion by 2015.

These and other infrastructure projects provide opportunities for U.S. companies to invest and participate in this expansion.

 

Opportunities for Midsize U.S. Companies

Because of the tremendous growth in emerging markets, the opportunities for midsize U.S. companies span the spectrum from services to heavy equipment and from export opportunities to in-country physical expansion. At J.P. Morgan, we are seeing a number of trends among our midsize U.S. company clients:

  • Physical expansion of manufacturing or distribution facilities to various emerging market countries to shorten their supply lines and reduce costs.
  • Manufacturing companies taking the opportunity to export construction materials and a variety of heavy equipment—such as trucks, turbines or manufacturing equipment.
  • Increasing interest from professional services firms to export expertise, such as architectural design, engineering, education, training and legal services.
 

Key Challenges in Emerging Markets and How J.P. Morgan Can Help

Operating in emerging market countries can provide exceptional opportunities for business growth; however, it can be confusing and complex. Each of these countries presents different challenges due to business processes and procedures, varying financial structures and complex regulations. With country specialists in the U.S. and dedicated commercial bankers located in these key growth markets, J.P. Morgan can help U.S. midsize companies navigate these challenges and identify solutions for your global growth strategy.

 
Challenges J.P. Morgan Solutions
Leverage strength of business in the U.S. into a global position Our bankers in the U.S. have a deep understanding of each client's business and can work with their in-country counterparts to help businesses establish their presence in these markets.
Managing costs Many U.S. businesses move into emerging markets to help manage their distribution costs and shorten their supply chain. We can help companies establish a financial foundation for their expanded business: opening accounts, establishing lines of credit and managing other treasury services.
Growing companies face growing business complexities We help businesses deal with unique international standards, operating nuances, political obstacles and unexpected market turbulence.
Fragmented banking relationships Our extensive global resources and operations in more than 60 countries enable us to help create a consolidated and portable banking relationship between the U.S. parent and its in-country subsidiary.

In addition, our robust technology provides clients with a consolidated view of multiple statements and operations, providing the big financial picture.
Navigating through the complex and changing regulations We have a deep understanding of the regulations and procedures in each country and can advise clients on how to meet these requirements.
Currency restrictions and risk J.P. Morgan can provide currency and other risk mitigation for clients worldwide.
 

To learn more about how Chase's solutions can help you,
please contact us or call your Commercial Banker.