Key emerging markets offer growth

24 October 2012

ISTANBUL: Brand owners could benefit from focusing on a core group of increasingly affluent emerging markets like Turkey, Indonesia and South Africa, a report by KPMG has suggested.

The advisory network argued Colombia, Indonesia, Vietnam, Turkey and South Africa, known as the CIVETS, may follow Brazil, Russia, India and China, or the BRICs, as key targets for companies.

Annual consumer expenditure is set to be $568bn in Turkey in 2012. Disposable income levels stood at $538bn in 2011, when the economy grew by 7.8%, second only to China on this metric.

The country's 75m population is young, and brand awareness is "strong". Competition, however, is also rising, with Diageo and Anheuser-Busch InBev, in the drinks sector, Nestlé, the food expert, and Tesco, the retailer, all investing locally.

Indonesia should see consumer spending expand by $1bn in 2012, to $490bn. Half of its 230m citizens are under 30 years old, and the middle class is likely to grow from 50m in 2012 to 150m by 2014.

Geographic, infrastructural and legal issues are among the main features of the trading climate, but Procter & Gamble and Unilever, the FMCG giants, and 7-Eleven, the retailer, are all making strides.

"Companies must understand the complexities of product distribution," said Thomas Thrasher, partner, KPMG in Indonesia. "The penetration of products and market perceptions can vary considerably. The population is far from homogeneous and you shouldn't treat the market in simplified demographic terms."

Turning to South Africa, total disposable income is expected to reach $240bn this year, and has been growing by around 5% per annum. The country also serves as a useful "gateway" to the rest of Africa.

Obstacles facing firms include an uncertain supply of raw materials, corruption and high unemployment. Despite this, foreign direct investment more than tripled to $4.5bn in 2011, with Walmart, the retailer taking a majority stake in domestic chain Massmart.

In Colombia, consumer spending should hit $219bn in 2012. Foreign investment achieved a new peak of $14.8bn in 2011, aided by business-friendly policies. On-going guerrilla violence is still a significant problem, however.

Shopper expenditure in Vietnam is pegged to come in at $87bn this year, up by over $20bn since 2008. While 70% of people live in rural areas, literacy rates are at 94%. Japanese companies have proved the most the enthusiastic entrants thus far.

"There will be a battle between local brand and channel owners for access to consumers," said KP Chong, head of markets at KPMG Vietnam. "Foreign entrants should understand exchange controls, restrictions in distribution channels and market segmentation to select business models and forms of market entry."

Data sourced from KPMG; additional content by Warc staff