BRIC 2020: What will the BRICs Look Like in the Future?

Global Global
Strategy Challenges
Executable
Solutions

BRIC 2020: What will the BRICs Look Like in the Future?
Corporate Platforms – Competitive or Obsolete for Tomorrow’s World?

France Houdard
Managing Director
france.houdard@exolus.com
November 2013
Copyright © 2013 Exolus. All rights reserved..
reserved.

0

BRIC OVERVIEW


1

BRICs Today: Intersection of Leading Global GDP, Population, Resources
> USD3 trillion GDP

…

> 100+ million people

… > 3 million sq km

100 million People

3 million sq km
Indonesia
Philippines
Canada

Bangladesh
Pakistan

US
India
China
Brazil
Russia

Australia

Germany

France

Nigeria
Ethiopia
Mexico
Japan

Italy

United Kingdom


US$3 trillion GDP (PPP)

2

BRIC’s 2020: China & India Projected to be 1st & 3rd Largest Economies
GDP* PPP-adjusted

2020 GDP*

China 1

US 2
India 3
Japan 4

$29.6 tr

$28.8 tr

$13.4 tr

$6.8 tr

Russia 6

Brazil 7

$4.3 tr

$3.9 tr
GDP* PPP-adjusted

2012 GDP*

US 1

$15.7 tr

6,4 trillions
China 2
de $

$12.5 tr

3,6 trillions
India 3
de $

$4.8 tr

Japan 4

$4.5 tr

Russia 6

$3.4 tr

Brazil 7

$2.4 tr
Source: World Bank

3

BRIC’s 2020: Russia and Brazil have Highest Per Capita GDP of BRIC’s
World Ranking (2012): Russia

#55

… Brazil

#75

… China

#94

… India

#126
2020
2012

Russia GDP per Capita
$70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

$0

US

Russia

Brazil

China

India
Source: IMF

4

Attractiveness (Past): BRICs Identified as a Top Investment Destination
BRICs Rank as Top 5 Investment Destinations in World
Top 14 Most Attractive Destinations for Future Investment
%

(2009 – 2011)

60

Percent of Responses

50

40

30

20

10

0


Source: World Investment Prospects 2009 - 2011

5

Foreign Direct Investment: China Leads BRIC’s, Rivals US for Investment
World Ranking (2012): US #1 … Russia #8 … Brazil #4 … China #2 … India #14
FDI Inflows by Country

US

(2007 – 2012)

350,000

China*
Russia
Brazil

300,000

India

250,000

200,000

150,000

100,000

50,000

0

2007

2008

2009

*China includes both Mainland China and Hong Kong

2010

2011

2012

Source: World Investment Report 2013, UNCTAD

6

Attractiveness (Future): BRICs Still Identified as Top Investment Destination
Though … Russia and Indonesia Switch for Top 5 Investment Destinations
Top 14 Most Attractive Destinations for Future Investment
%

(2013 – 2015)

60

Percent of Responses

50

40

30

20

10

0


Source: World Investment Report 2013, UNCTAD

7

Investment Drivers: What are the Key Drivers for your Offshoring Focus?
We Arrive at Countries for Offshoring by Eliminating those that do NOT have …
“M&A TARGETS:
“FAVORABLE LOCAL COMPANIES
DRUG REWITH GREATER
IMBURSEMENT THAN 5% MARKET
LISTS”
SHARE”

“RELIABLE FIBER
BACKBONE WITH
MINIMAL LATENCY”

“SUITABLE JV PARTNERS”

Sales

“LARGE MOLECULE
EXPERIENCE”

“DIVERSE DISEASE
POPULATION”
“STRONG NATIONAL
INNOVATION SYSTEM”

Engineering

“COUNTRIES RECEPTIVE TO
TAKE-OFF AGREEMENTS”
Marketing

HR

F&A

“FAVORABLE TOLLMANUFACTURING
TAX STRUCTURES”

IT

R&D

Legal

“MATURE INSURANCE PRODUCTS”
Distribution

“CARBON FIBER
AEROSPACE “UNINTERUPTABE
POWER”
TECHNOLOGY”

Sourcing
Production

“STRONG IPR
PROTECTION”

“UNIVERSITIES
SPECIALIZED IN
METALURGY”
“LOCAL LANGUAGES WITH
ACCENT NEUTRALIZATION
POTENTIAL”
“NON-HUMAN PRIMATE RESEARCH”

“GOOD INCENTIVES”

“LOW TURN“LOCAL ACCOUNTING OVER RATES”
“HIGHCOST
STANDARDS SIMILAR
PRESSURE
“MINUS 60° SHIPPING
C
TO US GAAP”
NATURAL GAS
LOGISTICS
“FINE CHEMICALS”
TRUNKLINES”
“RELAXED
“NON-UNIONIZED
INFRASTRUCTURE”
ENVIRONMENTAL
“SKILLED
CHEAP LABOR”
REGULATIONS”
MACHINISTS”
“2 MILLION GALLONS OF WATER PER DAY”
“Ro-Ro PORTS”


Source: Exolus

8

Corporate Deployment Pattern (China): Companies Moving Up Value Chain
Value Chain Deployment: Production-> Sales -> R&D -> Back Office

2

Markets

3
Sales

Marketing

Knowledge

Engineering

IT

HR

F&A

R&D

Legal

Distribution

Sourcing

4

Efficiency

Production

COST

1

Resources
9

The Future (China): 3rd Party Outsourcing of Core & Non-Core Processes
Contract Outsourcing:

5

R&D (CRO/KPO) … Sales (CSO) … Manufacturing (CMO)

Markets

5
Sales

Marketing

Knowledge

Engineering

IT

HR

F&A

R&D

Legal

Distribution

Sourcing
Production

5

Resources
10

Corporate Deployment Pattern (India): Direct Opposite that of China
Value Chain Deployment: Back Office > R&D -> Sales -> Production

3

Markets

2
Sales

Marketing

Knowledge

Engineering

IT

HR

F&A

R&D

Legal

Distribution

Sourcing

1

Efficiency

Production

4

Resources
11

CHINA


12

Framework: What Does China Look Like from Space? At Night?
Why?


Source: NASA (United States – National Aeronautics and Space Administration)

13

Framework: Structural Determinants of China’s Economic Geography …
67% Mountains, Deserts, Steppe …

90% of 1.3 billion Population in EAST

Heilongjiang

Jilin
Liaoning

Xinjiang

Inner Mongolia

Gansu

Beijing
Tianjin

Hebei
Shanxi

Ningxia

Shandong

Qinghai
Henan

Shaanxi

Mountains

Jiangsu

People

Tibet

Hubei

Sichuan

Anhui
Zhejiang

Chongqing

Hunan

Shanghai

Jiangxi

Guizhou

Fujian

Yunnan
Guangxi


Guangdong

14

Growth Trend: Fastest Growing Large Economy in World
Economy Doubles every 7 Years … Tripled most Recently
China GDP (USD trillion)
9

8

USD (Real Market Rates)

7

6

Hosts
OLYMPIC
games

3x

5

4

Accepted full
convertibility for
current account
transaction

3

2

China
Opens to
the World

Applied to join
GATT

1

Eliminated its
dual exchange
rate

Admitted to
WTO

2x
2x

0


Source: IMF

15

Wealth Trend: Forward Trend in Exploding Middle Class
100 Million People Move into Middle Class Every 5 Years
Middle Class Income Bands for Urban Population
900

822
800

756

Urban Population (millions)

99

Global > US$107,800

90

Affluent
US$3,800 - 107,800

525

Upper Middle Class
US$21,501 – 53,900

73
35

Lower Middle Class
US$13,500 – 21,500
Poor < US$13,500

684

700
607
600

Urban Household Income
(US$ – PPP-Adjusted)

531

500

53

170
355

400
300

461

239
255

200

157
106

100
0

2005

2010F

2015F

2020F

2025F
Upper Middle Class
Lower Middle Class


Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008

16

Urbanization Trend: Forward Trend in Mass Migration into Cities
150 Million People Moved into Cities every 10 Years

China’s Urban Population versus Rural Population

1,600
1.45 billion
1.4 billion

1,400

1.3 billion
1.2 billion

624

Rural Population
(million)

822

1,200

Urban Population
(million)

Urbanization Rate

1 billion

705

1,000

782
800
600

833
822
684

400
200

531
381
245
23%

31%

40%

49%

57%

1985

1995

2005

2015

2025

0


Source: World Urbanization Prospects 2007

17

Result: Emergence of 10+ Mega-Cities the Size of Countries
60 Million Population + World-Class Infrastructure
Mega-Clusters

China’s Emerging MEGA-CITIES

Mega-Corridors

Heilongjiang

Jilin
Liaoning

Xinjiang

Inner Mongolia

Gansu

Beijing
Tianjin

Hebei
Shanxi

Ningxia

Shandong

Qinghai
Shaanxi

Mountains

Jiangsu

Henan

Tibet

Anhui

Hubei

Sichuan

Shanghai
Zhejiang

Chongqing
Hunan

Jiangxi

Guizhou

Fujian

Yunnan
Guangxi


Guangdong

18

Corporate Deployment Pattern (China): Companies Moving Up Value Chain
Value Chain Deployment: Production-> Sales -> R&D -> Back Office

2

Markets

3
Sales

Marketing

Knowledge

Engineering

IT

HR

F&A

R&D

Legal

Distribution

Sourcing

4

Efficiency

Production

COST

1

Resources
19

1. Resource Seekers: Where do Supply Chain Functions Migrate?
Low Cost Bands + Emerging Mega-Cities
Wage Bands / Mega-City Overlay

Wage Bands

(Normalized to Highest Wages)

Mega-Cluster
Mega-Corridors

Heilongjiang

Jilin
Liaoning

Xinjiang

Inner Mongolia

Gansu

Beijing
Tianjin

Hebei
Shanxi

Ningxia

Shandong

Qinghai
Henan

Shaanxi

Mountains

Jiangsu

Tibet

Anhui

Hubei

Sichuan

1

Shanghai

Zhejiang

Chongqing
Jiangxi

Hunan
Guizhou

Fujian

Yunnan
Guangxi


Guangdong

1

20

1. Resource Seekers: Major Automotive Investment Across Span of China
World‟s #1 Consumer … World‟s #1 Producer
China Automotive Production
VW: Audi, Jetta, Bora, Golf

BMW: 3 Series and 5 Series

Mazda: M6

GM: GL8

Toyota: Land Cruiser

GM:Chevrolet (Epica, Sail, Aveo, Lova)

GM: Wuling

Hyundai: Sonata, Elantra

Changchun

Daimler-Chrysler: MercedesBenz, Cherokee, Jeep

Toyota: Vios, Corolla, Crown

Zhengzhou

Daihatsu: Charade
Wuhan

Toyota: Terios, Prado
Suzuki: Alto, Swift, Gazelle

Fiat: Iveco

Beijing
Tianjin

Mitsubishi: Pajero, Outlander

Nissan: Paladin, pickup

Kia: Pride, Accent, Optima

Shenyang

Ford

Yantai
Qingdao

VW: Santana, Passat, Polo, Gol, Touran

Yancheng
Wuhu

Nanjing
Shanghai

Chengdu
Nanchang Taizhou
Chongqing
Changsha
Fuzhou
Liuzhou

Mitsubishi: Pajero

Mazda: Premacy, Familia

Peugeot-Citroen: Fukang, Elysee,
Xsara, Peugeot, Picasso
Honda: CR-V

Honda: Accord, Fit, Odyssey
Nissan: Bluebird, Sunny

Toyota: Camry


Geely: Haoqing, Meirie, Uliou, Maple

Nissan: Teana
Hainan

GM: Spark, Wuling

Chery: Fulwin,Cowin,Easter,QQ,A5,V5

Guangzhou

Isuzu: F-Series, N-Series
Ford: Fiesta, Mondeo

GM: Buick Regal, Royaum,Lacrosse,
Excelle, Cadillac

Soueast: Lioncel, Delica, Freeca, Soveran
Daimler Chrysler: Spinter Vito/Viano
Ford: Transit

Sources: Company Websites, Publically Available Information

21

1. Resource Seekers: Major Cost Savings through Production & Sourcing
Is it POSSIBLE for a Company‟s Economy … to Surpass that of Countries?

Company

China
Sourcing

China Trading Partners: Imports from China
(Annual Volume in USD billions)

$27 billion
U.S.

$18 billion
$10 billion

Hong Kong
Japan
South Korea

$8.5 billion

Germany
Netherlands

$5.5 billion

7th Place

Wal-Mart
$2.6 billion

Singapore
Taiwan

$2.5 billion

$2.2 billion

10th Place

Dell
Russia

0

50

100

150

200

250

$1.8 billion


22

2. Market Seekers: Where are the Market Opportunities?
Low Cost Bands + Emerging Mega-Cities + High-Income Geographies

Per Capita Annual Income
(USD, PPP-Adjusted)

Per Capita Income / Wage Band Overlay

> 40,000
Heilongjiang

30,000 - 40,000
25,000 - 30,000
20,000 -25,000

Jilin

17,500 - 20,000
0 - 17,500

Xinjiang

Liaoning

Inner Mongolia

Gansu

1Beijing

Wage Bands

Hebei

Mega-Cities

Shanxi

Ningxia

Mega-Corridors

Tianjin
Shandong

Qinghai
Henan

Shaanxi

Jiangsu

Tibet

Anhui

Hubei

Sichuan

1

Shanghai

Zhejiang

Chongqing
Jiangxi

Hunan
Guizhou

Fujian

Yunnan
Guangxi


Guangdong

1

23

2. Market Seekers: Per Capita Disposable Income Growing 6% Per Annum
Per Capita Disposable Income Growing at Average 6% Per Annum
China

Disposable Income Per Capita
(USD per annum)

Russia
Brazil

80,000

India

70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2000

2005


2010

2015

2020

2025

2030

2035

2040

2045

2050

Source: GS Global ECS Research

24

2. Market-Seekers: Car Sales Proxy for Directional Market Sizing?
Car Penetration Highest in China Risking Steeply
China
India
Russia
Brazil

Car Penetration in BRIC
(units per 1,000 people)

Car Penetration in China

700

180
160

600

140

500

120
100

400

80

300
60

200

40
20

100

0

0
2010

2020


2030

2040

2050

Sources: Association of European Business; Autostat;; Other

25

2. Market-Seekers: To be World’s 2th Largest Pharma Market by 2015
USD28 billion Market by 2015 … 9th in World
Pharmaceutical Market Size Country Ranking
(USD billion)

2000

2005

2010

2015F

USA

150

USA

262

USA

441

USA

524

Japan

58

Japan

65

Japan

75

China

103

Germany

17

Germany

24

Germany

48

Japan

85

France

17

France

21

France

39

Germany

55

UK

11

UK

16

China

34

Brazil

47

Italy

11

Italy

15

UK

32

France

44

China

6.8

China

13

Italy

28

UK

36

Brazil

6.7

Brazil

10

Brazil

24

Italy

31

Canada

6.3

Canada

10

Canada

22

Russia

30

Spain

6.2

Spain

9.8

Spain

21

India

28

Copyright © 2013 Exolus. All rights reserved.. Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus 26

2. Market Seekers: Spending Growth Sustained Through Global Crisis
Sustained Retail Sales Growth … Huge Shift in Discretionary Spend

Retail Sales Growth

Personal Expenditure

3.5

3.1
3

15.2% Growth (2012)

90
80

2.5
USD Trillions

100%

1.8
2

70
60

1
2

4
11
9
7

12

0.7

0.4
0.5

30

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


 Consumer Goods

9

 Education

6

 Home Appliances

 Housing
 Clothing

54

20

31

10
0

 Health Care

8

40
1

10
4

 Transport &
Communications

16

50

1.5

16

 Food

0
1990

2011

Source: China National Bureau of Statistics

27

3. Knowledge Seekers: Where are Key Nodes for R&D Functions?
“R” of R&D Seeks Universities … “D” Seeks Markets & Production
R&D Centers
(# Operations)

Research & Development Centers
(Number of Operations in Select Cities)

> 10
> 50

Heilongjiang

> 150
Jilin

Wage Bands
Mega-Cluster

Liaoning

Xinjiang

Inner Mongolia

Mega-Corridors
Gansu

1

Beijing
Tianjin

Hebei
Shanxi

Ningxia

Shandong

Qinghai
Henan

Shaanxi

Mountains

Jiangsu

Tibet

Anhui

Hubei

Sichuan

Shanghai

1
Zhejiang

Chongqing
Jiangxi

Hunan
Guizhou

Fujian

Yunnan
Guangxi


Guangdong

1

Source: UNCTAD, WIR

28

3. Knowledge Seekers: Big Pharma Migrating R&D Functions to China
Costs
R&D Centers
(# Operations)

Disease Diversity

R&D

Clinical Trials

Research & Development Centers
(Number of Operations in Select Cities)

> 10
> 50

Heilongjiang

> 150
Jilin

Wage Bands
Mega-Cities

Liaoning

Xinjiang

Inner Mongolia

Mega-Corridors
Gansu

Beijing
Tianjin

Hebei
Shanxi

Ningxia

Shandong

Qinghai
Henan

Shaanxi

Jiangsu

Tibet

Anhui

Hubei

Sichuan

Shanghai
Zhejiang

Chongqing
Hunan

Jiangxi

Guizhou

Fujian

Yunnan
Guangxi


Guangdong

Source: UNCTAD, WIR

29

4. Efficiency Seekers: Seeking Efficiencies through Shared Service Centers
Efficiencies … Economies of Scale … Knowledge Sharing … Standardization
Shared Service Centers / Mega-City Overlay

Shared Services
Wage Bands

Heilongjiang

Mega-Clusters
Mega-Corridors

Jilin
Liaoning

Xinjiang

Inner Mongolia

Gansu

1

Beijing
Tianjin

Hebei
Shanxi

Ningxia

Shandong

Qinghai
Henan

Shaanxi

Mountains

Jiangsu

Tibet

Anhui

Hubei

Sichuan

1

Shanghai

Zhejiang

Chongqing
Jiangxi

Hunan
Guizhou

Fujian

Yunnan
Guangxi


Guangdong

1

Source: KPMG “A new Dawn: China’s Emerging Role in Global Outsourcing”, 2009

30

5. The Future (China): 3rd Party Outsourcing of Core & Non-Core Processes
Contract Outsourcing:

5

R&D (CRO/KPO) … Sales (CSO) … Manufacturing (CMO)

Markets

5
Sales

Marketing

Knowledge

Engineering

IT

HR

F&A

R&D

Legal

Distribution

Sourcing
Production

5

Resources
31

5. China Future: Virtual Integration – Contract Outsourcing Core Functions
Global Virtual Integration Models … Even Big-Pharma LEAP-FROGGING Generations

China’s CRO Market

CSO Cases


Boehringer Ingelheim






First Big Pharma to have entrusted a sole distributor for all of
its products in China: Sinopharm.

14

Sinopharm is China’s largest pharmaceutical distributor by
sales and the only China distributor to cover the entire PRC.

12

Boehringer Ingelheim’s sales spiked upward by 45% from
2006 to 2007; Sinopharm saw an annual growth rate of 32%.

10

8


Pfizer




Outsources to Wuxi PharmaTech: synthetic chemistry,
parallel medicinal chemistry, and bio-analytical services. It
also has a 3-year CRO contract with Wuxi PharmaTech to
provide services in the areas of: in-vitro Absorption,
Distribution, Metabolism and Excretion (ADME) services.

Outsources to Shanghai Institute of Materia Medica (SIMM)
chemistry requirements.

AstraZeneca


6

4

2

GSK




CRO Cases

Invested USD14 million in Wuxi Pharma Tech for the
synthesis of 150,000 compounds.


0
2006

2007

2008

2009e

Preclinical Development

2010e

2011e

Clinical Development

Sources: Goldman Sachs: Healthcare Services: CROs, December 2007; Exolus Research

32

The Future: Where Pareto-Optimal Envelopes for Deployment Concentration?
Intersection of Wealth + Production + R&D Hubs + Mega-Cities

(USD, PPP-Adjusted)

Per Capita Income / Wage Band Overlay

> 40,000
Heilongjiang

30,000 - 40,000
25,000 - 30,000
20,000 -25,000

Jilin

17,500 - 20,000
0 - 17,500

Xinjiang

Liaoning

Inner Mongolia

Gansu

1Beijing

Wage Bands

Hebei

Mega-Cities

Shandong

Qinghai
Henan

Shaanxi

Innovation Hub
Optimal Envelope

Shanxi

Ningxia

Mega-Corridors

Tianjin

Jiangsu

Tibet

Anhui

Hubei

Sichuan

1

Shanghai

Zhejiang

Chongqing
Jiangxi

Hunan
Guizhou

Fujian

Yunnan
Guangxi


Guangdong

1

33

INDIA


34

Framework: What Does India Look Like from Space? At Night?
Why?



35

Framework: Structural Determinants of India’s Economic Geography …
High Population Density across most of Country
A-Cities – Highest Population and FDI
Jammu / Kashmir
Himachal
Pradesh

Punjab

Haryana Uttarakhand
New Delhi

Arunachal
Pradesh

Sikkim
Rajasthan

Uttar Pradesh

Madhya Pradesh

Gujarat

People

Chhattisgarh

Mumbai

Assam
Bihar

Meghalaya

Jharkhand
West Bengal
Kolkata

Tripura

Mizoram

Maharashtra

Hyderabad
Karnataka

Andhra Pradesh

Bangalore
Chennai
Tamil Nadu
Kerala


36

Growth Trend: A Historical Growth Leader Among Giant Countries
Economy Doubled every 8 Years
5

India GDP (PPP adjusted)

World Bank’s
Country Strategy
(2009-2012)

4.5
4

3.5

USD tr

3
Bilateral Cooperation
with European Union

2.5
India Opens to
World

2

1.5

2x

Microchip
Revolution.

2x

1

2x
0.5

0


Source: World Bank, EIU

37

Wealth Trend: Forward Trend in Exploding Middle Class
50 Million People Move into Cities every 10 Years
Middle Class Income Bands for Urban Household
Urban Household Income
( US $ - PPP - Adjusted )

140

Urban Population (millions)

120
8

Global >= US$ 22,158

31

Upper Middle Class
US$ 11,079 - 22,158

58

Lower Middle Class
US$ 4,431 – 11,079

14

Poor <= US$ 4,431

100

80

60
43
40
6

23

41
25

20
27

20

12

8

5

2005

2015

2025

0
1985

1995

Upper Middle Class
Lower Middle Class


Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008

38

Urbanization Trend: Forward Trend in Mass Migration into Cities
> 100 Million People Move into Middle Class Every 10 Years
India’s Urban Population Rural Population

1600
1.5 billion

1400

1.3 billion

1.2 billion

1200
1.04 billion

1000

880

Rural Population
(million)

590

Urban Population
(million)

0.86 billion

847
800

815
750

600
636
400
200

220

290

340

2001

2008

465

0
1991


2020

2030

Source: World Urbanization Prospects 2007

39

Result: Emergence of 7 A-Cities (Concentrated Population and FDI)
India‟s Strengthening A-Cities
Srinagar
Jammu
Pathankot

Golden Quadrilateral
North-South Corridor
East-West Corridor

Ludhiana
Chandigarh
New Delhi
Jaipur

Agra

Guwahati

Lucknow

Gwalior Kanpur
Allahabad
Kota
Varanasi
Udaipur Kota
Gandhinagar

Ahmedabad
Rajkot Vadodara
Porbandar
Surat
Mumbai

Silchar
Kolkata

Nagpur

Cuttack

Baleshwar
Bhubaneshwar

Pune
Hyderabad

Vishakapatnam

Vijayawada
Chennai

Bangalore
Coimbatore
Kochi


Madurai

Source: Exolus Research

40

Corporate Deployment Pattern (India): Direct Opposite that of China
Value Chain Deployment: Back Office > R&D -> Sales -> Production

3

Markets

2
Sales

Marketing

Knowledge

Engineering

IT

HR

F&A

R&D

Legal

Distribution

Sourcing

1

Efficiency

Production

4

Resources
41

1. Efficiency Seekers: India Global Leader in BPO / ITO
Success in BPO Leads to Oversubscription of Key Cities

Leading BPO Cities
Next Tier BPO Cities
Chandigarh
Delhi
Noida
Faridabad
Gurgaon
Jaipur

Ahmedabad
Vadodara

Lucknow

Indore

Kolkata

Nagpur

Bhubaneswar

Mumbai
Pune

Mangalore
Coimbatore
Kochi

Hyderabad

Bangalore

Visakhapatnam

Chennai
Tiruchirappalli
Madurai

Trivandrum


Source: NASSCOM 42

1. Efficiency Seekers: … Explosive Growth Projected through 2020
IT-BPO Growth Rate @ 11.9% CAGR
India IT-BPO Projected Growth

Export
Domestic

(2010 – 2020F)
250
225 bn

USD Billion

200

150
175
111 bn

100
73.1 bn

88
50

50.1
50
23

23

2010

2014

0


2020

Source: NASSCOM 43

1. Efficiency Seekers: … and Drives Emergence of 25 New Cities for BPO
New 2nd and 3rd Cities roughly 28% Cheaper than 1st Tier Cities
Srinagar
Leading BPO Cities
Next Tier BPO cities

Shimla

Ludhiana
Chandigarh

Dehradun

Delhi

Follower Cities

Noida
Faridabad
Gurgaon
Jaipur

Aspirant Cities

Gangtok
Lucknow
Kanpur

Patna
Varanasi

Gwalior
Allahabad

Ahmedabad
Vadodara

Indore

Surat

Bhopal

Ranchi
Raipur

Aurangabad

Pune

Goa

Hyderabad
Hubli-Dharwad
Bangalore

Mangalore
Mysore
Coimbatore
Kochi

Siliguri
Durgapur
Kolkata

Nagpur

Nashik
Mumbai

Guwahati

Bhubaneswar
Visakhapatnam

Vijayawada
Chennai
Pondicherry

Salem
Tiruchirappalli
Madurai

Trivandrum


Source: NASSCOM

44

2. Knowledge Seekers: Big Pharma Deploying R&D Functions to India
Evolving Biopharmaceutical Innovation Clusters
Jammu / Kashmir
Himachal
Pradesh

Punjab
New Delhi

Haryana Uttarakhand
New Delhi
Sikkim
Gurgaon

Rajasthan

Uttar Pradesh

Assam
Bihar

Madhya Pradesh

Gujarat

Arunachal
Pradesh

Chhattisgarh

Meghalaya

Jharkhand
West Bengal
Kolkata

Tripura

Manipur

Mizoram

Orissa

Maharashtra
Mumbai
Thane
Pune

Goa

Hyderabad
Karnataka

Andhra Pradesh

Bangalore
Tamil Nadu
Kerala


Source: Centre for International Trade in Technology of IIFT, Companies Website

45

2. Knowledge Seekers: Technology Deploying Upstream R&D Functions
Evolving Technology Innovation Clusters
Jammu / Kashmir
Himachal
Pradesh

Punjab

Haryana Uttarakhand
New Delhi
Sikkim

Noida
Rajasthan

Uttar Pradesh

Madhya Pradesh

Gujarat

Arunachal
Pradesh

Chhattisgarh

Assam
Bihar

Meghalaya

Jharkhand
West Bengal
Kolkata

Tripura

Mizoram

Maharashtra

Pune

Hyderabad
Karnataka

Andhra Pradesh

Bangalore
Tamil Nadu
Kerala



46

2. Knowledge Seekers: Automotive Deploying Upstream R&D Functions
Evolving Automotive Innovation Clusters
Jammu / Kashmir
Himachal
Pradesh

Punjab

Haryana Uttarakhand
New Delhi

Arunachal
Pradesh

Sikkim
Rajasthan

Uttar Pradesh

Madhya Pradesh

Gujarat

Chhattisgarh
Mumbai

Assam
Bihar

Meghalaya

Jharkhand
West Bengal
Kolkata

Tripura

Mizoram

Maharashtra

Hyderabad
Karnataka

Andhra Pradesh

Bangalore
Chennai
Tamil Nadu
Kerala



47

2. Knowledge Seekers: Chemical-Based Deploying Upstream R&D Functions
Evolving Chemical Innovation Clusters
Jammu / Kashmir
Himachal
Pradesh

Punjab

Haryana Uttarakhand
New Delhi

Arunachal
Pradesh

Sikkim
Rajasthan

Gurgaon
Uttar Pradesh

Madhya Pradesh

Gujarat

Chhattisgarh

Vadodara

Assam
Bihar

Meghalaya

Jharkhand
West Bengal
Kolkata

Tripura

Mizoram

Maharashtra
Mumbai
Pune

Hyderabad
Karnataka

Andhra Pradesh

Bangalore
Tamil Nadu
Kerala



48

3. Market Seekers: Significant Income Stratification across India
Wealth Bands Emerging across Country
India Per Capita GDP

Per Capita GDP
(USD, PPP-Adjusted)

(USD, PPP-Adjusted)

Jammu/Kashmir

> 5,600
4,200 – 5,600

Himachal
Pradesh

2,800 – 4,200

Punjab
Haryana

1,400 – 2,800
0 – 1,400

Uttarakhand
Arunachal Pradesh

New Delhi
Uttar Pradesh

Rajasthan

Sikkim
Bihar

Gujarat

Jharkhand
West Bengal

Madhya Pradesh

Assam
Meghalaya
Tripura

Nagaland
Manipur
Mizoram

Chhattisgarh
Orissa

Maharashtra

Andhra Pradesh
Goa
Karnataka
Tamil Nadu
Kerala


Source: Ministry of Statistics and Programme Implementation: CIA World Factbook; Exolus Research

49

3. Market Seekers: Car Sales Proxy for Directional Market Sizing?
Car Penetration Highest in India Risking Steeply
India
Russia
Brazil
China


Car Penetration in India

700

60

600

50

500

40

400
30
300
20
200
10
100
0
0
2010

2020


2030

2040

2050

Sources: Association of European Business; Autostat;; Other

50

3. Market Seekers: To be World’s 9th Largest Pharma Market by 2015
(USD billion)

2000

2005

2010

2015F Top 9

USA

150

USA

262

USA

441

USA

524

Japan

58

Japan

65

Japan

75

China

103

Germany

17

Germany

24

Germany

48

Japan

85

France

17

France

21

France

39

Germany

55

UK

11

UK

16

China

34

Brazil

47

Italy

11

Italy

15

UK

32

France

44

China

6.8

China

13

Italy

28

UK

36

Brazil

6.7

Brazil

10

Brazil

24

Italy

31

Canada

6.3

Canada

10

Canada

22

Russia

30

Spain

6.2

Spain

9.8

Spain

21

India

28

Copyright © 2013 Exolus. All rights reserved.. Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus

51

4. Resource Seekers: But can India’s Infrastructure Support Production?
India‟s Major Investment in Transportation Infrastructure
Srinagar

Golden Quadrilateral
North-South Corridor
East-West Corridor

Jammu
Pathankot
Ludhiana
Chandigarh
New Delhi
Jaipur

Agra

Guwahati

Lucknow

Gwalior Kanpur
Allahabad
Kota
Varanasi
Udaipur Kota
Gandhinagar

Ahmedabad
Rajkot Vadodara
Porbandar
Surat
Mumbai

Silchar
Kolkata

Nagpur

Cuttack

Baleshwar
Bhubaneshwar

Pune
Hyderabad

Vishakapatnam

Vijayawada
Chennai

Bangalore
Coimbatore
Kochi


Madurai

Source: Exolus Research

52

4. Resource Seekers: Big Pharma Production Deploying to India
Biotechnology and Biopharmaceutical Production Clusters

Cities within cluster: Baroda, Ankleshwar
Ahmedabad,

Srinagar
Jammu
Pathankot

Cities within cluster: Manesar, Jammu, Baddi,
Pantnagar

Ludhiana
Chandigarh
New Delhi
Jaipur

Agra

Guwahati

Lucknow

Cities within cluster: Goa, Mumbai,
daman, Nasik, Thane, Aurangabad

Ahmedabad
Rajkot
Porbandar

Gwalior Kanpur
Allahabad
Kota
Varanasi
Udaipur
Gandhinagar
Vadodara
Surat

Mumbai

Silchar
Kolkata

Nagpur

Cuttack

Baleshwar
Bhubaneshwar

Pune
Hyderabad

Vishakapatnam

Cities within cluster: Bangalore, Chennai

Vijayawada
Mangalore
Chennai

Bangalore
Coimbatore
Kochi


Madurai

Sources: All Publically Available Information, Company Websites

53

4. Resource Seekers: Technology Production Deploying to India
Technology Hardware Production Clusters

Cities within cluster:
Kolkata

Srinagar
Jammu
Pathankot

Cities within cluster: Baddi,
Mansear

Ludhiana
Chandigarh
New Delhi
Jaipur

Agra

Guwahati

Lucknow

Ahmedabad
Rajkot
Porbandar

Gwalior Kanpur
Allahabad
Kota
Varanasi
Udaipur
Gandhinagar
Vadodara
Surat

Silchar

Kolkata
Nagpur

Mumbai

Cuttack

Baleshwar

Cities within cluster: Bangalore,
Chennai

Bhubaneshwar

Pune

Cities within cluster: Pune,
Hyderabad

Hyderabad

Vishakapatnam

Vijayawada
Mangalore

Chennai

Bangalore
Coimbatore
Kochi


Madurai


54

4. Resource Seekers: Automotive Production Deployed to India
Automotive Production Clusters
New Delhi, Gurgaon, Noida, Ghaziabad,
Ludhiana, Haridwar

Srinagar
Jammu
Pathankot
Ludhiana
Chandigarh
New Delhi
Cities within cluster: Baroda,
Halol, Mumbai, Pune, Nasik,
Aurangabad

Jaipur

Agra

Guwahati

Lucknow

Ahmedabad
Rajkot
Porbandar

Gwalior Kanpur
Allahabad
Kota
Varanasi
Udaipur
Gandhinagar
Vadodara
Surat

Mumbai

Silchar
Kolkata

Nagpur

Cuttack

Kolkata

Baleshwar
Bhubaneshwar

Pune
Hyderabad
Vijayawada

Vishakapatnam

Cities within cluster: Bangalore,
Chennai, Hosur

Mangalore
Chennai

Bangalore
Coimbatore
Kochi


Madurai


55

The Future: Where Pareto-Optimal Envelopes for Deployment Concentration?
Intersection of Wealth + Production Clusters + R&D Hubs + A-Cities
Per Capita GDP
Per Capita GDP
(USD, PPP-Adjusted)


(USD, PPP-Adjusted)
> 5,600

Jammu / Kashmir

> 5,600

4,200 – 5,600

4,200 – 5,600
2,800 – 4,200

Himachal Pradesh
Uttarakhand
Punjab
Haryana

2,800– 2,800
– 4,200
1,400
1,400 – 2,800
0 – 1,400
0 – 1,400

Arunachal Pradesh

New Delhi
Noida
Gurgaon
Uttar Pradesh

Rajasthan

Sikkim
Assam
Bihar

Innovation Hub

Meghalaya

Optimal Envelopes

Jharkhand
Gujarat

Madhya Pradesh
Chhattisgarh

Tripura

Nagaland
Manipur
Mizoram

West Bengal

Orissa

Maharashtra

Andhra Pradesh
Goa
Karnataka
Tamil Nadu
Kerala


Source: Ministry of Statistics and Programme Implementation: CIA World Factbook; Exolus Research

56

BRAZIL


57

Framework: What Does Brazil look Like from Space? At Night?
Why?



58

Framework: Structural Determinants of Brazil’s Economic Geography …
West Largely Uninhabitable

…

80% Population in East

Manaus

Fortaleza

Amazon Forest

Recife

Salvador

Belo Horizonte

Sao Paulo

Rio De Janeiro

Curitiba

Porto Alegre


59

Growth Trend: Growth in Brazil’s Economy
IMF Projected Growth Rate at 6% for Next 2 Years
Brazil GDP (PPP Adjusted)
(USD, trillion)

Host Olympics
(2016)
Host World Cup
(2014)

IMF Forecast

3.0

2.5

2.0

2x

1.5

Actual

USD trillion

Global Financial Crisis


2015 f

2014 f

2013 f

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1.0

Source: World Bank, IMF

60

Wealth Trend: Brazil has 2nd Highest GDP per Capita of BRIC Countries
Brazil GDP per Capita:

USD 5,700 (2009)

…

USD8,800 (2020)
2020
2012

Brazil GDP per Capita

$15,000

$12,000

$9,000

$6,000

$3,000

$0

Brazil

Russia

China

India
Source: ERSUSDA

61

Jan-92
Jul-92
Jan-93
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13

Commodity Price Trend: Economy Impacted by Commodity Prices
Brazil Commodity Rich – A Leader in Fuels and Foods

250

Commodity Price Index
Fuel and Non-Fuel
1992 - 2013



200

150

100

50

0

Source: IMF
62

Resources: Global Power in Natural Resources, Energy Production
World‟s Second Fuel Ethanol Producer

…

4th Largest Timber Producer

World Ethanol Production
(33% share, 2009)

ETHANOL

USA
Brazil

World’s …

EU

 2nd fuel ethanol producer

China

 First (#1) fuel ethanol exporter

Canada

Thailand

Colombia
India

33 %

Australia
Other

TIMBER

Top 10 Timber Producers
(7.1% share, 2003)

World’s …

United States
India
China
Brazil

 4th timber producer

Canada
Russia
Indonesia
Ethiopia

7.1%

Congo
Nigeria


Source: Renewable Fuels Association

63

Resources: A Global Power in Agriculture – Soybeans, Coffee, Beef
World‟s Largest (#1) Green Coffee Producer
SOYBEANS

…

2nd Soybeans Producer

World Soybeans Production
(26% share, 2008)

World’s …

United States
Brazil
Argentina

China
India

 2nd soybeans producer

Paraguay

 Largest (#1) soybeans exporter

Bolivia

Canada

Uruguay
Ukraine
Indonesia
Russia

26%
COFFEE

Other

World Green Coffee Production
(36% share, 2008)

World’s …
 Leading (#1) coffee producer
 Leading (#1) coffee exporter

Brazil
Vietnam
Colombia
Indonesia

36%

Peru
Ethiopia
Mexico
India
Guatemala
Uganda
Honduras
Costa Rica
Phillipines


Source: Food and Agriculture Organization, International Coffee Organization

64

Resources: Rich in Mineral Resources – Iron Ore, Manganese, Gold
World‟s 3rd Largest Iron Producer

…

3rd Largest Manganese Reserves
World Iron Production
(13% share, 2009)

IRON

China
Australia
Brazil
India
Russia
Ukraine
South Africa
Iran
Canada
United States
Kazakhstan
Sweden
Venezuela
Mexico
Mauritania
Other

World’s …
 3rd largest iron producer
 4th largest iron reserves

13 %
MANGANESE

World Manganese Reserves
(17 % share, 2009)

World’s …
 6th

17%

Australia
Brazil
China
Gabon

largest manganese producer

 3rd largest manganese reserves

India
Mexico
South Africa
Ukraine
Other
countries


Source: US Geological Survey

65

Result: Emergence of A/B-Cities (Concentrated Population and FDI)
Brazil‟s Strengthening A/B Cities

B-Cities – Mid-High Population and FDI

Manaus

Fortaleza

Amazon Forest

Recife

Salvador
Belo Horizonte

Sao Paulo

Rio De Janeiro

Curitiba

World’s 5th Largest Country
Energy Independent, 45% Green
World’s 3rd Largest Food Exporter

Highly Advanced Economy
Porto Alegre

Aircraft, Automobiles, Petrochem
Agribusiness & Natural Resources
66

Brazil Investment Pattern: Market Led Deployment to Brazil
Value Chain Deployment: Sales > Production -> R&D -> Shared Services

1

Markets

3
Sales

Marketing

Knowledge

Engineering

IT

HR

F&A

R&D

Legal

Distribution

Sourcing

4

Efficiency

Production

COST

2

Resources
67

1. Market Seekers: Where are Optimal Market/Resource Envelopes?
Intersection of Natural Resources (West)
(USD, PPP-Adjusted)

…

A/B Cities

…

People (East)

Per Capita GDP / A/B-City Overlay

> 14,500
10,000 – 14,500

Roraima

7,500 - 10,000

Amapa

5,500 -7,500
0 – 5,500

Para

A-Cities

Amazonas

Maranhao

Rio Grande do Norte
Paraiba
Pernambuco

Ceara

S-Cities
Piaui
Acre

Alagoas
Sergipe

Tocantins

Rondonia

Bahia

Mato Grosso
Goias

Minas Gerais

Mato Grosso
do Sul

Espirito Santo
Sao Paulo
Rio De Janeiro

Parana

Rio Grande
do Sul


Santa Catarina

Source: Brazilian Institute of Geography and Statistics

68

1. Market Seekers: Per Capita Disposable Income in Tandem with China
Brazil

(USD per annum)

Russia
China

80,000

India

70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2000

2005


2010

2015

2020

2025

2030

2035

2040

2045

2050


69

1. Market Seekers: To be World’s 5th Largest Pharma Market by 2015

(2000 – 2015f - USD billion)

2000 Top 8

2005 Top 8

2010 Top 8

2015F Top 5

USA

150

USA

262

USA

441

USA

524

Japan

58

Japan

65

Japan

75

China

103

Germany

17

Germany

24

Germany

48

Japan

85

France

17

France

21

France

39

Germany

55

UK

11

UK

16

China

34

Brazil

47

Italy

11

Italy

15

UK

32

France

44

China

6.8

China

13

Italy

28

UK

36

Brazil

6.7

Brazil

10

Brazil

24

Italy

31

Canada

6.3

Canada

10

Canada

22

Russia

30

Spain

6.2

Spain

9.8

Spain

21

India

28

Copyright © 2013 Exolus. All rights reserved.. Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus

70

1. Market Seekers: Proxy for Directional Market Sizing?
Car Penetration Predicted to Surpass Russia in 2040
Brazil
Russia
China
India


Car Penetration in Brazil

700

300

600

250

500
200
400
150
300
100
200
50
100
0

0
2010

2020


2030

2040

2050

Sources: GS Global ECS Research, Other

71

1. Market Seekers: High Spending Growth Resumes after Global Crisis
Accelerated Growth through 1990‟s

Retail Sales Growth

900
800
700

USD Million

600
500

400
300
200
100

2003

2004


2005

2006

2007

2008

2009

2010

2011

2012

2013F

Source: EIU, Planet Retail

72

2. Resource Seekers: Where are other Key Investment Nodes?
Car Investment Proxy for Investment Destinations?
Brazil Automotive Production

S-Cities – Mid-High Population and FDI

Manaus

Fortaleza

Recife

Salvador
Belo Horizonte

Sao Paulo

Rio De Janeiro

Curitiba
Porto Alegre


73

2. Resource Seekers: Where are other Key Investment Nodes?
Car Investment Proxy for Investment Destinations?
Brazil Automotive Production

Manaus

Fortaleza

OEMs

Recife

Suppliers

Salvador

OEMs
Goianis

Belo Horizonte

Suppliers
Sao Paulo
OEMs
Suppliers


Rio De Janeiro
OEMs

Curitiba
Suppliers
Porto Alegre

74

2. Resource Seekers: Sao Paulo State Immense, Larger than the UK
Sao Paulo State (248,209 km sq) larger than United Kingdom (243,610 km sq)

Sao Paulo (State)

United Kingdom (Country)

(248,209 km sq)

(243,610 km sq)

Sao Paulo City
Sao Paulo State


Sources: Publically Available Information

75

2. Resource Seekers: Management Sourced in Sao Paulo, Labor Local
Sao Paulo Brazil‟s Leading Foreign Investment Destination
Sao Paulo State
(248,209 km sq)

Campinas

Osasco


São Paulo

San Jose dos Campos

Mauá
Sao Bernardo do Campo


76

2. Resource Seekers: Rio State Immense, as Large as Countries
Rio de Janeiro State (43,696 km sq) roughly same size Switzerland

Rio de Janeiro (State)

Switzerland (Country)

(43,696 km sq)

(41,285 km sq)

Rio de Janeiro City
Rio de Janeiro State



77

2. Resource Seekers: Management Sourced in Rio, Labor Local
Rio de Janeiro Region a Leading Investment Destination for Oil and Gas Sector
Rio de Janeiro State
(43,696 km sq)



78

3. Knowledge Seekers: Where are Leading R&D Investment Nodes?
Innovation clusters
Focus Areas
Electronics
Life sciences
Sao Luis
Fortaleza

Information technology
Telecommunication

Manaus

Health
Microelectronics
Recife

Nuclear energy
Aeronautics
Oil technology

Salvador
Belo Horizonte

Santa Rita de Sapucai

Agriculture
Bioenergy

Vitoria

Rio De Janeiro
Sao Jose de Campos
San Paulo
Londrina
Campinas
Curitiba
Sao Leopoldo

Florianopolis

Porto Alegre


Sources: Kirsten Bound, “Brazil the Natural Knowledge Economy”; Isabel Bortagaray, “Innovation Clusters in Latin America”

79

3. Knowledge Seekers: Largest Aerospace Cluster in S. Hemisphere
Anchor:

Embraer – World‟s 3rd Largest Aircraft Manufacturer

Lacit

Aerolane

Lima & Bonfá

Solutions & Design

Winnstal

Aeroarte

Avionics

Engineering

UTEC

Akaer

Lane Design

Tecplas

Pan-Metal

Brascopter

Flight Solutions

VBJ Engenharia

Friuli

Embrasim

Flight Technologies

Vectra Technology

Globo Usinagem

EQE

GMP Marcatto

Rastreal

Ambra Solutions

ESRA

Gyrofly

TKA

Geometra BTE

Finetornos

Lanmar

Mikro-Stamp

Mectron

Giovanni Passarella

Marcatto

Phoenix Serviç Aeronáuticos
os

Inbra-Aerospace

Grauna Aerospace

Massucato

Winnproject Fibraforte Eng.


Sources: DECOMI, “Brazilian Aerospace Cluster, Believing in Great Ideas”

80

3. Knowledge Seekers: Global Leader in Green Energy - Biomass, Hydro
Installed Green Energy:

Brazil 45%

…

OECD Average 7%

…

World 12%

Primary Energy Supply*
Green 45%

Green 8%

Green 12%

100%
90%
80%

Geo/Sol/Wind

70%

Hydro

60%

Biomass
Nuclear

50%

Gas
40%

Oil

30%

Coal

20%
10%
0%

Brazil

OECD

World

*For Year 2008

Source: International Energy Agency, Brazil Ministry of Mines and Energy

81

RUSSIA


82

Framework: What Does World’s Largest Country Look Like from Space?
Why?



83

Framework: Structural Determinants of Russia’s Economic Geography …
80% Population in West … East Largely Uninhabitable
Russia Map

People

17,075,400 km2

Permafrost
& Plains

… 1/8th World’s Land Area

…

10 time Zones
84

Growth Trend: Growth in Russia’s Economy
Economy Doubled in 7 Years („01 – „08) … IMF Forecasts Rapid Growth to 2015
Will host
Olympic games

Russia GDP
(USD trillion, PPP-adjusted))

3.0

IMF Forecast

2.8

2.6
2.4

2.0
1.8

2x

Actual

USD trillion

2.2

1.6
1.4
1.2


2015 f

2014 f

2013 f

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1.0

Source: IMF

85

Wealth Trend: Russia to have Highest GDP per Capita among BRIC’s
Russia GDP per Capita:

USD 6,200 (2009)

…

USD10,000 (2020)
2020

Russia GDP per Capita

$10,000

2009

$8,000

$6,000

$4,000

$2,000

$0

Russia

Brazil

China

India
Source: ERSUSDA

86

Jan-92
Jul-92
Jan-93
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13

Commodity Price Trend: Economy Impacted by Commodity Prices
Russia Commodity Rich – A Leader in Fuels and Metals

250

Commodity Price Index
Fuel and Non-Fuel
1992 - 2013



200

150

100

50

0

Source: IMF
87

Resources: World’s Leading Energy Superpower – Oil and Gas
World‟s Largest (#1) Oil Producer
OIL

…

World‟s Largest (#1) Gas Producer
World Oil Producers
(12.9% share, 2009)

World’s …

12.9%

Russia
Saudi Arabia
USA
Iran
China

 Largest (#1) oil producer

Canada

 2nd largest oil exporter

Venezuela

 8th

Mexico

Iraq
Kuwait

largest oil reserves

UAE
Norway
Other

World Gas Reserves
(23.7% share, 2009)

GAS

World’s …

23.7%

Russia
Iran
Qatar
Saudi Arabia

 Largest (#1) gas producer

Turkmenistan
USA

 Leading (#1) natural gas exporter

UAE
Venezuela
Nigeria

 Largest (#1) natural gas reserves

Algeria
Indonesia
Iraq
Other


Source: BP Statistical Review of World Energy 2010

88

Resources: World’s Leading Energy Superpower – Mineral Fuels
World‟s 2nd Largest Coal Reserves

…

3rd Largest Uranium Reserves
World Coal Reserves
(19% share, 2009)

COAL

USA

World’s …

Russia

 5th coal producer

China

 3rd coal exporter

India

 2nd largest coal reserves

Kazakhstan

Australia

Ukraine

19%
World Uranium Reserves
(10% share, 2008)

URANIUM

South Africa
Other
Australia
Kazakhstan
Russia

World’s …

South Africa
Canada

 4th uranium producer

USA
Brazil
Namibia

 3rd largest uranium reserves

Niger
Ukraine
Jordan

10%

Uzbekistan
Other

Source: BP Statistical Review of World Energy 2010, British Geological Survey

89

Resources: World’s Leading Mineral Industry – Iron and Steel
World‟s Largest (#1) Iron Reserves

…

4th Largest Steel Producer
Russia

World Iron Reserves
(18% share, 2009)

IRON

Australia
Ukraine

World’s …

Brazil

18 %

China

 3rd pig iron producer

India
Kazakhstan

 Largest (#1) iron reserves

Venezuela
Sweden
USA
Iran
Canada
Other

RAW STEEL

World Raw Steel Production
(5.5% share, 2009)

China
Japan
USA

World’s …

Russia
Korea

 4th raw steel producer

Germany
Ukraine

 4th raw steel exporter

Brazil
Italy

5.5%

France
UK
Other


Source: U.S. Geological Survey

90

Result: Emergence of A/B-Cities (Concentrated Population and FDI)
Investment Largely Concentrated in Moscow


Foreign Investment Concentration


Population
(million)

City

Cumulative FDI
(1999 – 2009)

10.3

Chelyabinsk

USD 2.6 bn

Kazan

USD 1.7 bn

Tolyatti

USD 1.1 bn

Yekaterinburg

USD 1.1 bn

1.3

Nizhny Novgorod

USD 0.9 bn

Rostov-on-Don

USD 0.9 bn

Novosibirsk

USD 0.6 bn

1.0


USD 3.3 bn

1.3
Novosibirsk

Krasnodar

0.7

Omsk

USD 3.6 bn

1.1

Chelyabinsk

Omsk

0.6

Yekaterinburg

USD 2.8 bn

1.4

Krasnodar

Ufa

Leningrad Region

1.1

Tolyatti

USD 5.0 bn

1.1

Rostov

St Petersburg

1.1

Kazan

USD 11.9 bn

1.7

Nizhny Novgorod

Moscow Region

4.7

Moscow

USD 45.8 bn

6.6

St. Petersburg

Moscow City

Ufa

USD 0.5 bn

Source: Rosstat

91

Russia Investment Pattern: Market Led Deployment to Russia
Value Chain Deployment: Sales > Production -> R&D -> Shared Services

1

Markets

3
Sales

Marketing

Knowledge

Engineering

IT

HR

F&A

R&D

Legal

Distribution

Sourcing

4

Efficiency

Production

COST

2

Resources
92

1. Revenue Seekers: Where are Optimal Market/Resource Envelopes?
Intersection of People (West)
Per Capita GDP
(USD, PPP-Adjusted)

…

A/B Cities

…

Natural Resources (East)

Per Capita GDP / A/B-City Overlay

> 20,000
15,000 - 20,000
Chukotka

10,000- 15,000
5,000 - 10,000
Arkhangelsk

0 - 5,000

Murmansk

A-Cities
S-Cities

Kamchatka
Magadan

Karelia

7
23
24

21

Tver

Leningrad

Vologda
20

Arkhangelsk
Sakha
Komi

Krasnoyarsk

Yamalia
8
10
4 6 39
19
16
Kirov
17
12
14
42 41 40
Khantia-Mansia
34 Perm
18
2
37
5
38
36
Sverdlovsk
35
Rostov
33
15

3

Volgograd

31
25
27
28
29

32

26
30

1. Astrakhan
2. Belgorod
3. Bryansk
4. Vladimir
5. Voronezh
6. Ivanovo

43

22

Tyumen

11

1

Sakhalin

Amur

Tomsk

Omsk
Novosibirsk

Irkutsk

44


Primorsky

45

Altai
13. Leningrad
14. Lipetsk
15. Moscow
16. Oryol
17. Ryazan
18 Tambov

46

Zabaykalsk

9

Altai

7. Kaliningrad
8. Kaluga
9. Kemerovo
10. Kostroma
11. Kurgan
12. Kursk

Buryatia

Khabarovsk

19. Tula
20. Yaroslavl
21. Novgorod
22. Chelyabinsk
23. Pskov
24. Smolensk

Tuva
25. Adygeya
26. Ingushetia
27. Karachay-Cherkessia
28 Kabardino-Balkaria
29 North Ossetia-Alania
30. Chechnya

31. Krasnodar
32. Stavropol
33. Bashkortostan
34. Udmurtia
35. Samara
36. Tatarstan

37. Penza
38. Ulyanovsk
39. Nizhny Novgorod
40. Mari El
41. Chuvashia
42. Mordovia

43. Kalmykia
44. Dagestan
45. Khakassia
46. Jewish AD

Source: UNDP, “National Human Development Report in the Russian Federation 2010”

93

1. Revenue Seekers: Russia leads BRIC’s in Per Capita Disposable Income
Russia

(USD per annum)

Brazil
China

80,000

India

70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2000

2005


2010

2015

2020

2025

2030

2035

2040

2045

2050


94

1. Revenue Seekers: Car Sales Proxy for Directional Market Sizing?
Car Penetration Highest in Russia among the 4 BRIC Countries
Russia
Brazil
China
India


Car Penetration in Russia

700

350

600

300

500

250

400

200

300

150

200

100

50

100

0

0
2010

2020


2030

2040

2050

Sources: Association of European Business; Autostat; Rosstat, GS Global ECS Research, Other

95

1. Revenue Seekers: To be World’s 9th Largest Pharma Market by 2015
Russia to be USD30 billion Market (2015)

…

9th Largest in World

(2000 – 2015f - USD billion)

2000

2005

2010

2015F Top 9

USA

150

USA

262

USA

441

USA

524

Japan

58

Japan

65

Japan

75

China

103

Germany

17

Germany

24

Germany

48

Japan

85

France

17

France

21

France

39

Germany

55

UK

11

UK

16

China

34

Brazil

47

Italy

11

Italy

15

UK

32

France

44

China

6.8

China

13

Italy

28

UK

36

Brazil

6.7

Brazil

10

Brazil

24

Italy

31

Canada

6.3

Canada

10

Canada

22

Russia

30

Spain

6.2

Spain

9.8

Spain

21

India

28

Copyright © 2013 Exolus. All rights reserved.. Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus 96

1. Revenue Seekers: Spending Growth through Global Financial Crisis
Sales Growing at 21% CAGR

Retail Sales Growth

900
800
700

USD Million

600
500
400
300
200
100

2003

2004


2005

2006

2007

2008

2009

2010

2011

2012

2015F

Source: EIU

97

1. Revenue Seekers: Where are Leading Direct Investment Nodes?
Top Foreign Investment Destinations in Western Part of Russia


Foreign Investment Concentration


Population
(million)

City

Cumulative FDI
(1999 – 2009)

10.3

Chelyabinsk

USD 2.6 bn

Kazan

USD 1.7 bn

Tolyatti

USD 1.1 bn

Yekaterinburg

USD 1.1 bn

1.3

Nizhny Novgorod

USD 0.9 bn

Rostov-on-Don

USD 0.9 bn

Novosibirsk

USD 0.6 bn

1.0


USD 3.3 bn

1.3
Novosibirsk

Krasnodar

0.7

Omsk

USD 3.6 bn

1.1

Chelyabinsk

Omsk

0.6

Yekaterinburg

USD 2.8 bn

1.4

Krasnodar

Ufa

Leningrad Region

1.1

Tolyatti

USD 5.0 bn

1.1

Rostov

St Petersburg

1.1

Kazan

USD 11.9 bn

1.7

Nizhny Novgorod

Moscow Region

4.7

Moscow

USD 45.8 bn

6.6

St. Petersburg

Moscow City

Ufa

USD 0.5 bn

Source: Rosstat

98

2. Resource Seekers: Car Production Proxy for Production Nodes?
Russia Already 5th Largest Consumer of Cars in Europe
Russia Automotive Production

A-Cities
S-Cities

Isuzu
Hyundai

Chevrolet

Nissan

GAZ

Ford
FIAT

GM

Sollers

Toyota
Volvo

Great Wall

St. Petersburg

ZMA

KIA

KIA

Moscow
BMW

Lada

Renault

Kazan

ZIL
VW

Tolyatti

Ufa

Rostov

Yekaterinburg
Tata Motors
Chelyabinsk

Krasnodar

Skoda
Peugeot
Citroen
Mitsubishi


Geely
IVECO

Paz
Hyundai

GM – AVTOVAZ

Tata Motors

LADA


99

2. Resource Seekers: Moscow Region Immense, as Large as Countries
Moscow Region (45,900 km sq) larger than entire Switzerland (41,285 km sq)

Moscow Region

Switzerland (Country)

(45,900 km sq)

(41,285 km sq)

Moscow City
Moscow Region


Sources: Publically Available Information 100

2. Resource Seekers: Management Sourced in Moscow City, Labor Local
Management-Labor Skill/Cost Drivers  70 – 100 km from Moscow City
Moscow Region
(45,900 km sq)

SergievoPosadskiy

Dmitrovskiy

Klinskiy

Solnechnoaorskiy
Mitishchinskiy
Istrinskiy
Ryzskiy

Odintsovskiy

Balashikhinskiy

Moscow
City
Lenininskiy

Ramenskiy

OrekhovoZuevskiy

Naro-Fominskiy
Eqor’evskiy
Chekhovskiy
Stupinskiy

Kolomenskiy

Serpukhovskiy


Sources: Company Websites, All Publically Available Information 101

2. Resource Seekers: Leningrad Region even Larger, Size of Hungary
Leningrad Region (84,500 km sq) roughly same size as Hungary (93,030 km)

Leningrad Region

Hungary (Country)

(84,500 km sq)

(93,030 km sq)

St Petersburg City
Leningrad Region


Sources: Publically Available Information 102

2. Resource Seekers: Management from St. Petersburg, Labor Local
Management-Labor Skill/Cost Drivers  30 – 60 km from St Petersburg City
Leningrad Region
(84,500 km sq)

Vsevolzhsky
Viyborgskiy
Primorskiy

Krasnosel’skaya
Lomonosov

Koldinskiy
Kirovski

Pushkinsky

Gatchina
Tosnenski


Sources: All Publically Available Information, Company Websites 103

3. Knowledge Seekers: Focus on Strength in Science & Technology
Skolkovo Innovation Center

…

USD2 billion over Next 3 Years

Under Negotiations

Signed Partnerships
Cisco
Boeing

Industry Focus

Siemens
Microsoft
Nokia
Intel

Life Sciences

EADS

Renewable Energies
Aerospace
Information Technology
Telecommunications

Rosatom


Honeywell

Google
Kodak
Schlumberger
Johnson & Johnson
IM-TECH

Alstom
Lukoil

Novartis

DuPont

Tata
Nokia Siemens

ABBYY

Nuclear Technology

DOW Chemicals
John Deere

Sources: All Publically Available Information, Company Websites, i-gorod Website 104

3. Knowledge Seekers: Strong Science and Engineering Focus in Education
Science & Engineering as % of all Graduates:

25% in Russia

…

15% in US
Engineering Degrees

Science and Engineering as Percentage of New Degrees

Science Degrees

45%
40%
35%

30%
25%
20%
15%
10%
5%
0%

China

Korea


Germany

Russia

Japan

UK

Italy

USA

Brazil

Sources: OECD Science, Technology and Industry outlook, 2010 105

Global Expansion Strategy &
Cross-Border Investment Execution
(Greenfield, M&A, Joint Ventures, Outsourcing)

About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work with
management teams in the development of their global expansion strategies, across the range of investment
formats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies by
providing program management across all phases of cross-border investment projects, from target searches
and evaluations, through investment due diligence, tax-legal structuring and negotiations.
The founders of Exolus have spent the past two decades in the global service space and have direct
experience operating in nearly all of the major investment destinations in the world (40+ countries). The team
has served clients of all sizes, both public and private, on projects that ranged in investment size from USD10
million to greater than USD1 billion. We have served clients across all of the following industry segments: Life
Sciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector.

Follow Exolus at: www.exolus.com
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Disclaimer
In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our own
contributions to the market of ideas. As well, we are always tremendously grateful for the many, often
selfless, contributions that are availed in the process.
The opinions represented herein were prepared for information purposes only, at the time of publication.
The information represented herein is believed to be reliable, at the time of publication, and was obtained by
various public sources also believed to be reliable. The opinions were considered to be accurate at the
point of creation, and further, any views, forecasts, or estimates contained herein may be subject to change
at anytime without notice. The opinions expressed or implied herein may not be the opinions of the author,
also Exolus, or any associated affiliates.
This report and the information contained herein collectively, is not offered as, and should not be regarded
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reason of this document. Thus, the reader shall make an independent assessment of opinion’s stated
herein that shall not be considered a substitute for obtaining advise from the readers’ advisors.
The author shall not accept responsibility, express or implied, with regards to the accuracy and
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