How Leading Indicators Keep You Ahead of the Curve in Emerging Markets

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How Leading Indicators
Keep You Ahead of the
Curve in Emerging Markets
A Complimentary Webinar from Aurora WDC
12:00 Noon Eastern /// Wednesday 8 June 2016
~ featuring ~
Joel Whitaker Derek Johnson

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Joel Whitaker
Joel Whitaker is Senior Vice President and Global Head of Research for Frontier Strategy Group. He is responsible for research
strategy, product innovation, thought leadership, and advising FSG’s most senior client executives. FSG researchers counsel
multinational executives on doing business in emerging markets around the world, providing economic forecasts, scenarios,
and management best practices for Latin America, Asia, Eastern Europe, the Middle East and Africa. Joel’s analysis has been
featured in The Wall Street Journal, The Financial Times, CNBC, Al Jazeera, and Harvard Business Review.
Throughout his career, Joel has provided research-driven guidance to senior decision-makers with international responsibility.
Prior to joining FSG, Joel was Head of Asia-Pacific Research for Corporate Executive Board (CEB), based in Singapore. In that
role, he advised C-level executives across Asia on talent management, compliance, and salesforce effectiveness practices.
Previously, Joel led CEB’s global research programs for leaders in information technology, R&D, strategic planning, and
corporate development.
Outside the private sector, Joel launched the Center of Innovation for Science, Technology and Peacebuilding at the US
Institute of Peace, a Washington, DC-based think tank focused on international conflict management. He serves on the
advisory board of TechChange, a startup that trains leaders to leverage technology for social change. Joel holds a BA in
Economics and Politics from Oberlin College, where he serves on the President’s Advisory Council.
Email: jwhitaker@frontierstrategygroup.com
The Intelligence Collaborative is the online learning and networking community powered by Aurora WDC, our clients, partners and
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How Leading Indicators Keep You Ahead of the Curve in Emerging Markets
Joel Whitaker, Global Head of Research

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Learning Objectives
1. Learn how to select and track leading indicators of the
drivers of your business
2. Understand which leading indicators are expected to
rise, fall, and experience volatility in the coming year
3. Adapt a short list of industry-relevant leading indicators
from agile companies in the consumer products, industrial,
and health-care sectors
5

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FSG’s research approach
Global Business Environment MNC Executive Workflows
• Emerging markets expertise
• On-the-ground insight
• Economic linkage analysis
• Proprietary data forecasts
• Implications for action
• Executive and expert network
• Global/local best practices
• Business outcomes

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A world of (downside) surprises
Growth forecasts have been steadily
GDP growth, % YOY (Solid bars indicate current forecasts (February 2016);
white bars indicate forecasts as of November 2014)
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Developing
APAC
SSA MENA US WEUR Developed
APAC
CEE LATAM
2015e 2016f

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Currency impacts on earnings are increasing
Translation loss by US and European MNCs
USD millions
$20 $57 $87
$938
$3,004
$20,274
$22,732
$4,186
$3,671 $4,099 $4,184
$5,830
$7,450
$3,913
$8,000
$20,180
$31,680
$19,490
$24,010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015

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How quickly has your company adapted to
the slowdown in emerging economies?
A. We have adapted quickly
to the changing external
environment
B. We were slow to make
necessary changes, but
we have caught up
C. We have largely failed to
adapt
D. We have not needed to
adapt, as our business has
not been very affected
E. Other

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High performance during execution phase requires
sustained market monitoring efforts
Unreliable Data
Untested assumptions2
1
Organizational Inertia3
Flawed market monitoring can damage
performance
Greatest causes of failed market monitoring
Difficult to make the linkages between changing
market conditions and company performance
Plan assumptions based on stable commodity prices,
rising Chinese demand, and successful adjustment
Failure to move quickly enough to react to a weaker
Brazil, liberalizing Cuba, and a reforming Argentina

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Adaptability is key to success during volatile times
Prime your organization to keep strategic plans on course
Strong
planning
Strong execution
Growth in
revenue,
profitability,
market share
Two bridging
qualities held by
sustainable
performers
1
High internal
alignment
Corporate
Country
Region
Resilience against
external surprises
Plan
Market
shifts
Regional organizations
with high alignment
and resilience are more
likely to exceed
expectations for
profitability and market
share, with a 99%
confidence level*
2
 Scenario Design
 Contingency
Planning
 Ownership

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What kind of indicators in your key markets provide the
earliest, most predictive signal for your ability to hit annual
targets?
A. Macroeconomic data
B. Industry-level data
C. Channel data
D. Internal data
E. Other

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The data you want isn’t always the most reliable in emerging
markets
0%
10%
20%
30%
40%
50%
60%
70%
80%
0% 20% 40% 60% 80% 100%
High quality data
Addressable market size
Market share
Competitive intelligence
Macroeconomic data
Customer satisfaction
Customer preferences
Distribution/channel partner financials
Regulatory information
Survey of FSG clients on quality and importance of
data sources in emerging markets
Highimportancedata
Market data considered highly important by MNC regional executives is
usually of low quality

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Economic drivers point to slower growth in 2017-18
Strong dollar
Abundant capital flows
Lower energy prices
Slowing
emerging markets
economic growth

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The Fed will continue to increase interest rates as growth in
the US cements
The US Fed will move forward with additional rate hikes as the job
market reaches full employment and inflation starts to accelerate
-4
-2
0
2
4
6
8
10
12
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015e
Real GDP Growth, %YOY
Fed funds rate, average
Unemployment rate, average
Inflation rate
0.3
0.5
0.9
1.9
3.0
3.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2014 2015 2016 2017 2018 Long
Term
FED funds rate, end-of-year median forecast
Dec '15 FOMC Meeting
Mar '16 FOMC Meeting

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Energy fundamentals point to low prices
• Slowing global growth
• Strong dollar
• OPEC politics
• Fracking technology
• Low interest rates
Political supply
disruptions
Supply heavily outweighs demand
2016f 2017f 2018f
FSG oil price projections (Brent) US$ 30-35 US$ 40 US$ 55-60
20
30
40
50
60
70
80
90
100
110
120
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Oil prices per barrel
Brent WTI

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Oil prices lead in different directions
International oil prices have dropped dramatically
over the last 18 months …
… and this shift has played
out differently across APAC
Positive Impact
Mixed Impact
Negative Impact

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Economic drivers will persist
Strong dollar
Abundant capital flows
Lower energy prices
Slowing
emerging markets
economic growth
Government
spending
Monetary
policy
normalization

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Include leading indicator analysis into your tracking process
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Leading Indicator Business Performance
3 month leading
relationship
1.0% increase in
leading indicator
3.0%
increase in
sales
When the
leading
indicator
changes
course….
…. You can make adjustments to inventory,
production, and execution to keep your
business ahead of the game
Verify the leading indicators for your business to get a head start on how your
business will track against targets and assumptions

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Healthcare leading indicators for China:
Market opportunity driven by social safety net
Market potential will continue to improve as China becomes a pivotal market
for healthcare companies
Relaxed FDI restrictions
Aging demographics
Health insurance expansion
(urban/rural)
1
2
3
Healthcare performance drivers
0
2
4
6
8
10
12
14
16
18
2011 2012 2013 2014e 2015e 2016f 2017f 2018f
Real healthcare spending, % YOY

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Healthcare leading indicators for Russia:
Market conditions driven by forex and oil prices
Healthcare spending will be slow to reverse decline, while companies must manage currency and
regulatory pressures
Government pressure to localize
production
Currency impacting pricing and
partners
Government spending cuts, esp. in
regions
1
2
3
Healthcare performance drivers
-8
-6
-4
-2
0
2
4
6
8
10
2011 2012 2013 2014e 2015e 2016f 2017f 2018f
Real healthcare expenditure, % YOY

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Connect leading indicators analysis to key business drivers
PC HARDWARE SALES, % YOY
KEY LEADING INDICATORS
OF PC HARDWARE SALES
LEADING INDICATOR FORECASTS INDUSTRY IMPACT
2013-2015
average
2016f
2017-2020f 2013-2015
average
2016f 2017f H2 2016f H1 2017f
12% 5% 4%
Private consumption, %YOY 3.9% -1% 1.5%
LCU:USD, Real %YOY 2.3% 20% 5%
Industry-level data sets are often available
with a long lag, making them significantly
less useful for market monitoring purposes
The increased dependence on more high-level indicators in
emerging market does put greater focus on ensuring that these
indicators are, in fact, leading indicators for performance
Leading indicators must be easier to track, and offer enough lead times for
executives to track monthly and quarterly changes

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Case: leading indicators for tractor sales
One geography, two product lines
Actuals
Predicted Values
95% confidence interval
LARGE TRACTOR MARKET SIZING
We found that 1 year lagged values of loans for agricultural
production and the price of wheat together are good
predictors of over-100hp tractor production
SMALL TRACTOR MARKET SIZING
We found that 1 year lagged values of corn yield, government
expenditure on agriculture, and tractor exports together are
good predictors of under-100hp tractor production

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Incorporate leading indicators into your management
dashboards
TIME PERIOD
Internal Targets Leading Indicator Analysis
Target Expected Actual Misalignment Leading indicator Expected Actual Misalignment
Revenue growth,
% YOY
7.5% 7.1%
Somewhat
below target
Personal disposable
income, % YOY
3.4% -0,2%
Consumer spending has
declined significantly as
government is pushing
through unexpected austerity
measures, including tax
increases
Market share, % total 12% 13.7% On track
Margin performance,
% total
5% 2%
Well-below target,
must discuss
Inflation,% YOY 2% 1.8%
Official inflation figures have
remained low, though input
costs have increased with
higher than expected inflation
LCU/USD, % YOY 10% 12.3%
FX depreciation has come in
higher than projected
Grow sales of new product
lines, % of total sales
4% 6%
Performing much better
than expected
Import demand by
industry, %YOY
5% 6%
Industrial imports, a strong
leading indicator for new
product sales performance, is
performing above track
Hire new sales members
for corporate sales
5 2
Well below target, may need
to revise H2 targets
Unemployment rate,
% of total
5.6% 5.2%
Labor market conditions are
somewhat tighter than
expected, may need to
increase salary offers by more
Consistent tracking of leading external metrics are essential to effectively
monitoring your key markets and ensuring alignment

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Best dashboards highlight changes in leading indicators

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How often does your executive team pull up to evaluate
external economic conditions?
A. Weekly
B. Monthly
C. Quarterly
D. Twice a year
E. Annual

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Cadence matters: Best-in-class business reviews test
assumptions and track risks
Incorporate periodic assumptions and risk reviews
into your traditional business reviews
Q1
Q2
Q3
Q4

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Economic indicators:
China linkages cause global ripples
Two of the country’s major growth engines have slowed
GDP by expenditure (trillions of RMB in 2000 terms)
-20
-10
0
10
20
30
40
50
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Government spending Consumer spending
Gross domestic investment Exports of goods and services
Imports of goods and services
Further trade expansion
limited due to slowdown in
international markets
Investment activity cannot
sustain long term growth due
to diminishing returns
Domestic consumption will
only increase once major
reforms take hold

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The impact of a sharp slowdown in China would vary
significantly across Asia’s regions
South Asia: India and the
countries surrounding it
are shielded
Southeast Asia: ASEAN’s
heavy reliance on trade
leaves it exposed to a sharp
slowdown in China
ANZ: Australia’s heavy
dependence on
commodity exports to
China leaves it exposed
East Asia: S Korea and Japan
both depend heavily on
Chinese exports, though the
former is more exposed
because of its greater reliance
on exports generally

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Political indicators:
How does political risk affect business?
Threat of social
unrest
Disruption of
social contract
Political change
Regulatory
change
Economic
change
Security
change

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Angola
Benin
Botswana
Burkina Faso
Burundi
[CELLR
ANGE][CELLRA…
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRAN…
[CELLRAN…
[CELLRANGE]
[CELL…
[CELLRANGE]
[CELL…
[CELLRANGE]
[CELL…
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CEL…
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLR…
[CELLRA…
[CELLR
ANGE][CELLRA…
[CELLRA…
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
-3%
-1%
1%
3%
5%
7%
9%
30 35 40 45 50 55 60 65 70 75 80
Focus on resilient and fast-growing markets
FSG’s resilience to external shock index
Three-yearaverageGDPgrowth2016–2018
Resilience to external shocks
High growth,
low resilience
Low growth,
low resilience
Low growth,
high resilience
High growth,
high resilience
Bubble size = 2018 nominal GDP, US$ billions

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Some markets are better prepared to weather the storm –
the case of Africa
Factors that favor
some markets over
others
 Political stability
 Quality of governance
 Economic
diversification
 Currency volatility
 Exposure to
commodity prices
 Export dependency
 Population size
 Education
FSG’s Resilience to External Shocks Index
Green and higher index numbers indicate greater resilience; red and lower
numbers indicate lower resilience
Mauritius 83.95 Gabon 58.70
Cape Verde 77.21 Togo 58.32
Botswana 74.17 Malawi 58.24
Nigeria 70.08 Mali 55.49
South Africa 69.92 Zambia 54.65
Namibia 69.88 Zimbabwe 54.52
Senegal 69.82 Madagascar 52.68
São Tomé & Príncipe 69.64 Guinea-Bissau 52.08
Seychelles 68.86 Liberia 51.58
Kenya 68.32 Sierra Leone 51.08
Uganda 66.87 Burundi 49.55
Ethiopia 64.77 Niger 48.08
Tanzania 64.57 Congo (DRC) 47.73
Lesotho 64.46 Congo 46.52
Eritrea 63.98 Mozambique 46.46
Benin 63.57 Burkina Faso 45.39
Swaziland 62.53 Equatorial Guinea 43.46
Gambia 61.48 Guinea 43.17
Côte d’Ivoire 60.92 Angola 41.84
Rwanda 59.66 Mauritania 41.51
Cameroon 59.07 Chad 40.81
Ghana 58.84 Central African Republic 30.66
Comoros 58.81

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Scenario analysis makes sense of a risky world
Multitude of risks too vast to track
Upside
Scenario
Base Case
Scenario
Downside
Scenario
A few scenarios/ specific signposts to track
Assess the risks that your business may confront and incorporate
them into your planning and monitoring processes

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FSG’s 2016 Events to Watch
Property
market collapse
in China
Schengen
border
disruption
China
rallies
around
the flag
Abrupt
protectionism
in Russia
Wave of
subsidy
cuts in
MENA
Eurozone
austerity
backlash
Pegs
under
pressure
Corruption
crackdown
in Latin
America
Cuba
achieves
monetary
unification
Financial
crisis in
Turkey
State
policy
paralysis in
India
Velocity
LikelihoodBubble size represents relative business impact

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How do you use scenarios in planning?
A. We use scenarios during our
periodic business reviews
B. We use scenarios to test
strategic planning assumptions
but not on any cadence
C. We only use scenarios for long-
term strategic planning
D. We don’t use scenarios
E. Other

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From recognition to action
Establish
urgency
Form a
powerful
guiding
coalition
Create a
Vision
Communicate
a vision
Empower
others
Create an
action
plan with
quick wins
Consolidate
improvements and
institutionalize
change
Change Management Steps
 Establish urgency
 Form a powerful guiding coalition
 Create a vision for change
 Communicate that vision to all necessary
stakeholders
 Empower and delegate necessary changes
 Create an action plan that incorporates
quick wins to establish momentum
 Consolidate improvements and
institutionalize changes into the market
monitoring and risk tracking processes
Change doesn’t just happen because you have made a decision and
communicated to key stakeholders
Change
Management

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L O N D O N
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London WC2A 1AL
Tel: +44 (0) 203 709 9385
S I N G A P O R E
9 Battery Road
11/F Straits Trading Building
Singapore 049910
Tel: +65 6422 7920
W A S H I N G T O N D C
1150 18th St, NW
Suite 350
Washington, DC 20036 USA
Tel: +1 202 741 1333
F S G A R O U N D T H E W O R L D
www.frontierstrategygroup.com @FrontierStrtGrp
L O N D O N
25 Southampton Buildings
London WC2A 1AL
Tel: +44 (0) 203 709 9385
S I N G A P O R E
9 Battery Road
11/F Straits Trading Building
Singapore 049910
Tel: +65 6422 7920
W A S H I N G T O N D C
1150 18th St, NW
Suite 350
Washington, DC 20036 USA
Tel: +1 202 741 1333

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Thank you!
Now how about a little Q&A?
Email: jwhitaker@frontierstrategygroup.com
Web: www.frontierstrategygroup.com
Twitter: @FrontierStrtGrp
The Intelligence Collaborative is the online learning and networking community powered by Aurora WDC, our clients, partners and
other friends and dedicated to exploring how to apply intelligence methods to solve real-world business problems.
Apply for a free 30-day trial membership at http://IntelCollab.com or learn more about Aurora WDC
at http://AuroraWDC.com. See you next time!

How Leading Indicators Keep You Ahead of the Curve in Emerging Markets

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