Insider Business Club: emerging markets

What are the implications of emerging markets for UK businesses?

Ian Coleman, head of emerging markets at PricewaterhouseCoopers

The way that people look at emerging markets has clearly been changing over the
last few years. If one is talking in the context of UK companies and you go back
a few years, I think people looked at the emerging markets as a source of cheap
labour. The opportunities were first conceived around supply chain, reducing
costs and then we obviously saw a trend for the service industries to look at
outsourcing solutions in certain parts of the emerging markets.

What is beginning to change is that people are looking at emerging markets as
potential consumer markets in their own right. The opportunities are now
increasingly in those areas where people are looking to sell product into those
markets as end consumer markets. Those are the things that are driving the
agendas in a lot of the corporates.

The final thing that I think is probably worth mentioning, which I often
believe is rather forgotten, is the view of emerging markets as a competitive
force. There are a lot of companies that are looking to move into more developed
markets where they can exploit perhaps their low-cost production capabilities,
exploit distribution and brandings ­ in exactly the way that has just been
described ­ to attack our local markets.

For domestic UK businesses, if one looks back over a longer period at, for
example, the textile industry, there may have been those who said, well we are
not affected, it has nothing to do with us, but in fact the competitive threat
arising from emerging markets pretty much destroyed the UK textile industry.

What is the talent and potential like in emerging markets?

Tony Osude, head of business partnerships at the ACCA

I think one of the issues organisations face both in indigenous as well as
foreign organisations is trying to create a level of consistency in its skills

If we look at accountants in particular, I know the Big Four are having
particular difficulties in trying to recruit and retain accountants particularly
in China and the surrounding region.

One of the things that they will do to develop them is put them through the
ACCA qualification. But trying to replicate the service concept of the Big Four
that is a little bit more difficult.

One of the things that we are doing from next year is building on this
concept of professionalism and trying to push that out, not just in a Western
sense, but in a global sense and all the things it stands for, particularly some
of the values and competence. We also need to engender much more than simply
technical skills. There is a great deal of reliance and a lot of focus on
technical proficiency.

Other skills have now become equally, or more important, such as
interpersonal skills, leadership and so on, particularly for the indigenous

Recently, we have seen the numbers of people going to study in the US drop,
mainly because of their visa restrictions. This has clearly benefited the UK, as
we have seen our percentage of students studying for our qualification in the UK
(foreign students) rise from 40% to 50%, which is fantastic for us because
obviously those people will eventually go ahead with the qualifications and
ultimately add to the infrastructure developments of those countries.

What needs to be done to ensure investments in regions such as China are

Ben Schmittzehe, chief executive of Schmittzehe and Partners

The first thing is to determine not just the short- term strategy when it
comes to emerging markets, but the more medium and long term as well.

For example, you may be looking to manufacture in China, perhaps for
re-export to Asian markets and then back to Europe, but in the more medium to
longer term you are considering sales into the domestic market.

The next thing, of course, is to try and understand what part of China we are
talking about. These markets are not homogenous and so within China for example
you have more than 30 different areas with very different cultures, languages
and taste.

The next thing is to try and figure out whether any partnerships are
required, looking at the tax regulations as well as the legal regulations. In a
country such as China there are a number of business vehicles which can be used
to do that, and that is very much dictated by what you want to do.

What particular sector you are in, for example, is very important. In China,
there is an investment catalogue. This catalogue basically tells you, first of
all, if you can invest or not, whether you can invest directly or only through
joint ventures. You can get an idea of the business vehicle and perhaps start to
get an idea of what particular parts of China are most relevant.

I think one of the other issues is partly driven by the fact that a lot of
the UK economy is related to financial services, professional services and so
on. These are sectors which historically have been particularly restricted in
markets such as China, but interestingly that is changing.

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