ASIA BUSINESS WEEK DUBLINAsia Ireland Trade and Investment Summit

5 June 2014

Unlocking Asia’s Trade Potential for IrelandMarc Coleman,

Economics Editor, Newstalk

アジア

亚洲 ASIA एशि�या�

UNLOCKING TRADE POTENTIAL FOR IRELAND

Commissioned for Asia Business Week by

Asia Matters

Marc Coleman BA M Econ Sci ASP MBA

Managing Director, Octavian Consulting Ltd info@Octavian.ie 086 8094193

Structure of this PresentationThe scale of opportunity in Asia

Asia’s convergence story

Ireland’s potential in Asia

Country by Country analysis

Risk

Conclusions

The Scale of Opportunity in Asia

China

India

United States

Indonesia

Pakistan

Bangladesh

Japan

Phillipines

Vietnam

Thailand

South Korea

Malaysia

Hong Kong

Singapore

Ireland

The "Next 11"

- 200 400 600 800 1,000 1,200 1,400

1,324

1,241

313

242

177

150

126

95

89

70

48

29

7

5

5

1,038

Population (millions)

Aside from China and India,the “Next 11”, ie the 11 next most populatedCountries have a combinedPopulation of 1,038,000,000 people

Source: Penn tables.

China

India

United States

Indonesia

Japan

Pakistan

Bangladesh

Vietnam

Thailand

Phillipines

South Korea

Malaysia

Hong Kong

Singapore

Ireland

The "Next 11"

- 100 200 300 400 500 600 700 800 900

784

496

142

110

62

53

50

49

40

35

24

12

4

3

2

443

Workforce (millions)

Source: Penn tables.

China’s workforce exceeds those ofIndia, Indonesia and the US put together

3 distinct groupsLow income

GDPPC < $5,000 per annum

Strategies:

• “Do well by doing good”

• Demographic growth

Middle income

GDPPC > $5,000 but < $15,000

Strategies

• “Take-off” in consumables/services

• “Density dividend”/urbanisation

High income

GDPPC > $20,000

Strategies

• Demographic ageing

• Niche/Luxury brands

Singapore

Hong Kong

Japan

Malaysia

China

India

Vietnam

Bangladesh

- 10,000 20,000 30,000 40,000 50,000 60,000

51,644

42,646

38,569

36,705

30,427

27,522

13,469

8,491

8,069

4,339

3,602

3,521

3,448

2,473

1,554

GDP per capita (PPP - 2005 US$)

Middle Income

High Income

Low income

Source: Penn tables.

Future growth almost assured because…

Bangladesh 27.3China 48.1Hong Kong 31.9India 31.7Indonesia 28.6Japan 25.3Malaysia 35.5Pakistan 15.4Phillipines 22.8Singapore 42.8South Korea 31.7Thailand 29.0United States 17.0Vietnam 30.6

….. Aside from population growth…..

Savings rates – a key driver of growth potential in developing countries –

remain strong

Savings as a share of GDP annual average 2001-2011Source: IMF World Economic Outlook, April 2014

Asia: A story of convergence

- 10,000 20,000 30,000 40,000 50,000

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Asia is a clear Convergence storyGrowth from 2008 - 2011 & GDP per capita

 GDPPC (2005 US$)

GDP 2008-2011

Hong Kong 38,569 7.2%

Japan 30,427 -1.6%

South Korea 27,522 9.0%

Malaysia 13,469 7.5%

Thailand 8,491 8.1%

China 8,069 20.4%

Indonesia 4,339 17.8%

India 3,602 25.0%

Philippines 3,521 13.4%

Vietname 3,448 24.5%

Pakistan 2,473 11.7%

Bangladesh 1,554 17.2%

Source: Penn Tables

Hundreds of millions are making the journey

McKinsey:

By 2025 another 1 billion middle income consumers will join the world economy

The vast majority of them will be Asians

Critical thresholds

As average annual household incomes rise above

$10,000,

McKinsey estimate that total consumption will rise by between $10 – $30 trillion ….

….

Triggering a massive rise in the consumption of goods and services unseen since US and Europe in the 1950s, 60s and 70s

Just one example:

• 2006-2011: Indian airline passengers double from 73m to 144m

• India’s Cabinet Committee on Economic Affairs have just sanctioned Abu Dhabi based Etihad to take a 24 per cent stake in Jet Airways

• And who is a key supplier of Etihad?

ETIHAD

Upholstery Carpet

Donegal based Botany Weaving have 80 % of Indian market for airline upholstery fabrics and 50 % of Chinese market

Telephone linesCell subscriptions

Hong Kong 61.29 229.24South Korea 61.42 109.43Malaysia 15.69 141.33Thailand 9.51 127.29China 20.2 80.76Indonesia 15.39 114.22India 2.51 69.92Philippines 4.07 106.51Vietnam 11.22 147.66Pakistan 3.24 67.06Bangladesh 0.62 62.82

Asians are by-passing established norms as proven by

low telephone line – high cell phone paradox

….Emerging culture of going straight to the supplier via the internet

…..Positive implications for SME’s in terms of reducing logistical and distributional challenges

Source: Asian Development Bank, 2014

Join the E-Tail revolution

“China’s e-tail market worth $210 bn in 2012” McKinsey

…but it’s only just starting….

- 10,000 20,000 30,000 40,000 50,000 0

10

20

30

40

50

60

70

80

90

Internet users per 100 & GDPPC

Already there:HK, SK, ML

On there way:TH, CH, PH, VT

Queueing to get started: BG, PK, IND, INDON

GDPPC (2005 US$) Internet usersHong Kong 38,569 72.8South Korea 27,522 84.1Malaysia 13,469 65.8Thailand 8,491 26.5China 8,069 42.3Indonesia 4,339 15.36India 3,602 12.58Philippines 3,521 36.24Vietnam 3,448 39.49Pakistan 2,473 9.96Bangladesh 1,554 6.3

Source: Penn tables, Asian Development Bank, 2014

Ireland’s potential in Asia

Ireland’s trade potential with Asia

Asia’s share of world population = 62 %

Exports to Asia as share of Irish exports = 6.2%

By population – an indicator of long term potential – we are underweight in Asian exports by a factor of 10

Sources: - IMF- CSO- Penn tables

Our tradein 2013

(€m)

Share of countries

listed

(%)

Rel. size of countries

listed (GDP)

(%)

Avge export growth

fcst 2014-19

(%)

Total export growth fcst 2014-19

(%)

Implied exporttotal 2019

(€m)

Implied growthfor exports

(€m)

Bangladesh 5.5 0.1% 1.0% 12.1% 123.3% 12.4 6.8

China 1418.2 26.2% 44.2% 6.3% 53.4% 2175.5 757.3

Hong Kong 525.2 9.7% 1.1% 7.8% 68.8% 886.5 361.3

India 281.3 5.2% 18.5% 8.7% 78.9% 503.2 221.9

Indonesia 75.6 1.4% 4.3% 6.2% 52.2% 115.1 39.5

Japan 1692.0 31.2% 15.9% 5.0% 41.0% 2385.7 693.7

Malaysia 197.7 3.6% 1.6% 3.8% 130.2% 455.1 257.4

Pakistan 28.4 0.5% 1.8% 5.2% 142.6% 68.9 40.5

Philippines 79.8 1.5% 1.4% 10.1% 96.0% 156.4 76.6

Singapore 559.9 10.3% 1.1% 6.6% 56.7% 877.4 317.5

South Korea 321.4 5.9% 5.4% 9.7% 90.6% 612.6 291.2

Thailand 137.6 2.5% 2.4% 4.2% 33.8% 184.1 46.5

Vietnam 94.5 1.7% 1.3% 11.5% 114.2% 202.4 107.9

Colour code red = trade well below potential. Huge growth opp

from demographic &density

(urbanisation) driven strategy.

Colour code blue = trade well above relative GDP share. High income. Retention by

niche/luxury/brands

Colour code green = small now but very dynamic and rapidly growing.

Country by country analysis

Hidden Tiger, Crouching Dragon

बा�घ(tiger)

龙(dragon)

CHINA: Consumers “crouching & ready to pounce”

Just 35% of Chinese GDP is consumption

14th March 2014 National People’s Congress decides consumption spending must rise

Relative to investment led strategy, this means greater opportunities for SME’s in China

A consumer boom waiting to happen…

• China by far the biggest market with – as noted above – more workers than India, US and Indonesia combined

• GDPPC is approaching $10,000 mark very soon

• Household consumption much lower than western and even neighbouring country levels

• Shift from infrastructure and commodity boom to consumer goods favours SME’s

• E-tail revolution favours internet ready companies

GDPPC (2005 US$) Household cons. % GDPSingapore 51,644 33.1%United States 42,646 75.9%Hong Kong 38,569 62.6%Japan 30,427 59.5%South Korea 27,522 51.0%Malaysia 13,469 52.0%Thailand 8,491 52.8%China 8,069 27.9%Indonesia 4,339 58.0%India 3,602 51.8%Philippines 3,521 75.8%Vietnam 3,448 47.5%Pakistan 2,473 71.0%Bangladesh 1,554 70.7%

Source: Penn tables, Asian Development Bank 2014

Household consumption as % of GDPSource: IMF World Economic Outlook, April 2014

Areas of growth Demographic dividend: Rapid growth in “G2” population, those born after

1980

Higher lifestyle aspirations

Internet generation more open to western marketing and consumer tastes

Density dividend: 310 million Chinese will move to urban areas in the next decade. This creates

Agglomeration effects and spiralling demand for “urban lifestyle” goods

You’ve heard of the “Mega cities” Shanghai, Shenzen, Beijing.

Consider hundreds of “Middle cities” 200,000-10m where next wave of growth is coming

China: What we sell. What we could sell. What we sell

€1.4 billion exports to China last year

Mostly Chemical, medical pharmaceutical (approx. 25%)

ICT (12%)

Electrical machinery (25%)

Food (11%)

Density & demographic dividend: Potential for beverage and food exports only scratching surface of potential.

INDIA

A different challenge

An opportunity to ….

… “Do well by doing good”

Lower threshold incomes…more basic needs need fulfilling

Diet, sanitation, education

43 per cent of children under 5 still underweight. 17 per cent of adults below necessary dietary intake

81 per cent of people still work in subsistence or family farm/micro business

Sanitation, education still challenges...Government investment in infrastructure education and sanitation are priorities that create huge opportunities

Improving farm efficiency and food technology a huge challenge for India and a huge opportunity for Ireland given our expertise

New pro-business and reformist gov’t under Modi creating positive momentum

India: What we sell. What we could sell. What we sell

€281 million exports to India last year

Chemical, medical pharmaceutical (5%)

ICT (26%)

Transport equipment (15.1%)

Miscellaneous / other (35%)

Do well by doing good: Demographic dividend in population driven food, food technology and farming technology products.

Japan

日本Lower overall pop growth and economic growth.

But advanced state of interest in western brands, lifestyle produce

Rise of large, wealthy and mature older demographic cohorts brings its own opportunities:

- Niche goods- Travel- Luxury branded goods

Japan: What we sell. What we could sell. What we sell

€1.7 billion exports to Japan last year

Organic chemicals (27%)

Photographic, optical, watches, clocks (24.2%)

Oils, cosmetics, toiletries (11%)

Medical pharmaceutical (6.3%)

Miscellaneous / other (12.5%)

What we could sell: Highly differentiated and value added branded products.

Big in Japan

www.inismeain.ie

Irish knitwear company using highly successful etail business model projecting image of

Traditional Ireland in western-conscious wealthy consumers.

South Korea (€321m 2013 exports)

Fish (!)

Toiletries

Medical / pharma

ICT

Malaysia (€197m 2013 exports)

Dairy products

Misc processed foods

Medical / pharma

ICT

South Korea, Malaysia, Singapore, Hong Kong SAR

Singapore (€560m 2013 exports) ICT

Medicinal/pharma

Professional & Scientific equipment

Chemical

Relatively little food, no apparel

Hong Kong SAR

Familiar common law system

Western business custom & business services

Excellent entry point for mainland China

Indonesia

Dairy products

Toiletries, cosmetics, oils

Indonesia, Malaysia, Thailand,

Malaysia

Dairy & miscellaneous foods

Toiletries

ICT

Electrical

Thailand Medical

ICT

Toiletries, oils cosmetics

Phillipines Electrical

ICT

Industrial

Vietnam Fish

Miscellaneous edible

Toiletries

Medicinal

Phillipines, Vietnam, Pakistan, Bangladesh, Mongolia,

Pakistan

Not classified

Bangladesh

Not classified

Mongolia

Not classified

RISK

Careful monitoring of financial & economic stability needed

Inflation Current A/C GG Gross debt GG primary balanceBangladesh 7.1% 2.6% 41.8% -1.2%China 2.5% 2.1% 22.4% ?Honk Kong 4.3% 3.1% 33.8% 0.6%India 8.1% -2.0% 66.6% -2.7%Indonesia 8.1% -3.3% 26.0% -2.2%Japan 1.4% 0.7% 243.0% -7.6%Malaysia 3.2% 3.8% 58.2% -2.7%Pakistan 5.9% -1.0% 60.1% -3.5%Phillipines 4.1% 3.5% 38.3% 2.4%Singapore 2.0% 18.4% 103.8% 5.5%South Korea 1.1% 5.8% 36.7% 0.1%Thailand 1.7% -2.8% 45.3% 0.6%United States 1.2% -2.3% 104.5% -4.1%Vietnam 6.0% 6.6% 55.0% -4.3%

Source: IMF World Economic Outlook April 2014

Drucker

“Culture eats

strategy”

Culture

Strategy

PESTEL analysis Political Stability of gov’t, rule of law and order

Economic Direction of gov’t policies…are they unstable/electorally driven or stable and future oriented…e.g. China & India focus respectively on consumption and business reforms

Size of shadow banking system, regional gov’t indebtedness

Social Look at key demographic growth cohorts and changing attitudes to western lifestyle…such data can help find huge potential

Technological Clearly focus here is on online mobile friendly etailing. India especially interesting given removal of restrictions by Modi gov’t on online retail and impending take-off in etail markets across Asia

Environmental Ireland’s green image highly relevant to Chinese gov’t initiatives on CO2 challenge

Legal Does Ireland have trade agreement?

Does Ireland have double taxation agreement?

Status of formal laws versus informal business practice, networks “Guangxi”

Entry points to Asia

Britain: Vibrant Asian business community with strong links to Asia

Hong Kong: Common law, English speaking & excellent business service environment

India: Common law, English speaking

new reformist government

CONCLUSION• Asia’s macro economic potential is astounding• Asia small share in our exports means we are significantly underselling• Strategies need to be targeted to specific country conditions• Modest but clear penetration for indigenous goods mean it can be done• Sectoral / demographic research can unlock potential

info@Octavian.ie 01-2841446 www.octavian.ie