Over the last 20 years, what we’ve seen is that the emerging markets, people like China and India, have been catching up very rapidly with the advanced economies and we’ve really seen a power shift to the East. The centre of global economic gravity moving almost for the first time since the Industrial Revolution. The way we like to think about this at PwC is by contrasting the E7, which is the larger 7 emerging economies, so the 4 BRIC economies, plus Mexico, Indonesia, Turkey, against the G7, the established, advanced economies, the US, Japan, the big European economies. And what we’re seeing is that 20 years ago, the E7 were miles behind. Now, they’ve narrowed the gap considerably and by 2030 we actually think they’ll be relatively larger than the G7, in terms of the size of their economies. China will emerge as the biggest economy in the world. And all 7 of these economies will be in the top 12 economies in the world by 2030 by our estimates. So, it’s really a radical shift in the kind of league table of economies around the world.
Just take the G7 for example, Italy has not actually grown at all since the year 2000, it’s had various ups and downs in its economy, while Canada has grown by 30%. China has more or less tripled its GDP since the turn of the century whereas Mexico, also in the E7, has only grown by about a third. So there’s a huge variation in performance between these economies, and they are also very different in terms of their specific characteristics. We’ve seen that economies like China have been very good at absorbing technologies from the rest of the world but I think that increasingly they have to become innovators as well, and we’re seeing signs that they’re beginning to do that. But we do think that businesses should look beyond the BRICs, beyond the E7 for some of these broader opportunities. We’ve created this grouping called the F7, which is just the level below, in size, the E7 and the BRICs, and that includes Columbia and Peru, in Latin America, Nigeria and Morocco in Africa, and they include Vietnam, Bangladesh and the Philippines in Asia. Of course, there are still risks associated with these countries, you need to have a very clear understanding of the political and regulatory regime, and you need to be very smart about your entry strategy if you’re to make the most of them.
What we can see above all is that these emerging economies as they continue to develop over the next 10 – 15 years will become huge consumer markets. We’re already seeing that the middle class in Asia Pacific region is actually going to become bigger than the US and Europe combined by 2015, by 2030 it will move far ahead. So, there’s a whole range of opportunities there for business, and indeed for other organisations to exploit these huge new consumer markets.
Clearly there will be both winners and losers from the rise of these emerging economies. I think on the downside there will be some sectors that will face very tough competition from companies in these new emerging markets and they will have to adapt to that. Governments have an important role in trying to help businesses in the UK and other Western economies adapt to this new world order. At one level it is helping particularly small and medium sized companies to break into these new export markets, that could involve giving increased export finance, it could involve giving increased advice, just helping to open doors in those markets. It’s no longer quite so simple, it’s not just all about growth and GDP, it’s more about differentiation. It’s more about being aware of the nuances, the institutional differences, the regulatory differences, the differences in social perspectives in these economies, so you can’t just treat the emerging markets as a single block. You need to take a very differentiated approach. That’s what we do in the escape index, that’s what we do in our pioneer services, and it’s really what increasingly businesses and organisations need to do if they’re going to be successful in these emerging markets.
While the distinction between the E7 and G7 remains important, so are the divergences which are opening up within them. For example, Italy’s economy is the same size as it was in 2000 in real terms, whilst Canada’s has expanded by over 30%. China’s economy has tripled in size whilst Mexico’s has “only” grown by a third. But emerging markets still face challenges if they want to escape the middle income trap and catch up with advanced markets.