Replies to post #1100 on The Rising Influence of Rising Affluence

[DewDiligence]

HNZ Acquires Chinese Soy-Sauce Maker for $165M

[#msg-50806342 is a good backgrounder on how HNZ is a beneficiary of The Global Demographic Tailwind.]

http://online.wsj.com/article/SB10001424052748704895204575320713046148480.html

›JUNE 21, 2010, 11:34 A.M. ET
By TESS STYNES

H.J. Heinz Co. agreed to acquire Chinese soy-sauce maker Foodstar from private-equity firm Transpac Industrial Holding Ltd., providing the food company entry into China's fast-growing soy-sauce market.

Heinz will pay $165 million cash when the deal closes, with a potential performance-based payout in 2014. The size of that potential payout wasn't disclosed.

Heinz and other food processors have been focusing on emerging markets for growth as sales slow in more established markets such as the U.S. and Britain. The maker of ketchup, baked beans and Classico pasta sauce expects the purchase will raise its annual sales in China to about $300 million.

Heinz President and Chief Executive William R. Johnson said the deal "is another important step in our strategy to accelerate growth in dynamic emerging markets like China, where Heinz is already well positioned with our growing infant nutrition business and Long Fong, a leading brand of frozen dim sum."

Emerging markets, including China, generated about 30% of Heinz's sales growth and 15% of total sales in the fiscal year ended April 28. The company expects emerging markets to generate as much as 25% of sales by 2016.

Guangzhou-based Foodstar, which also produces fermented bean curd, a flavor-enhancer, has four factories and 2,500 employees in China, with a new manufacturing plant under construction in Shanghai. According to Heinz, China's retail soy-sauce market is growing 7% to 8% a year.

Heinz last month reported fiscal fourth-quarter earnings rose 9.9% and boosted its quarterly dividend citing growth prospects in emerging markets.‹

[DewDiligence]

AgBank IPO Raises $19-22B, Possibly Largest Ever

http://online.wsj.com/article/SB10001424052748704862404575350881947408868.html

›JULY 6, 2010, 12:58 P.M. ET
By ALISON TUDOR

HONG KONG—Agricultural Bank of China Ltd., the last of China's four big banks to go public, raised US$19.21 billion in Hong Kong and Shanghai and is still in the running to pull off the biggest initial public offering ever.

AgBank and its advisors set the price for the Hong Kong portion of its IPO at 3.20 Hong Kong dollars (41 U.S. cents) apiece, near the middle of the indicative range, people familiar with the matter said. In Shanghai, its shares were priced at 2.68 yuan (about 40 U.S. cents), at the top end of the range, they said.

That means China's fourth-largest lender by assets could raise $22.1 billion if both overallotment options are exercised, besting its peer, Industrial & Commercial Bank of China Ltd. ICBC's $21.9 billion IPO in 2006 is the world's largest to date.

The ability to execute the deal despite rocky markets illustrates investors' faith in China's growth story. Global investors view Chinese banks as one of the best ways to gain exposure to the world's fastest-growing major economy. It also highlights China's growing importance on international capital markets.

During the past decade, the country's top lenders have turned to global markets to become more market-oriented, to improve transparency and disclosure, and to fortify their capital bases.

"AgBank, once listed, can benchmark itself much more easily against global peers. The market imposes discipline," said Hweejan Ng, a Singapore-based analyst who covers Chinese banks at U.S. asset manager T. Rowe Price Group Inc.

Even so, the offering falls short of its US$23 billion target, which in turn was well below the $30 billion top amount that the bank was pushing to raise just weeks ago.

AgBank's price in Hong Kong amounts to about 1.6 times book value, the people said. That places it below ICBC and China Construction Bank Corp., which both trade about two times book value, but above the 1.5 times for Bank of China Ltd .

The Hong Kong shares had an indicative price range of HK$2.88 to HK$3.48 a share. AgBank sold 25.4 billion of these so-called H shares, totalling HK$81.28 billion, or US$10.43 billion. That is equal to 8% of its enlarged share capital, before any use of the overallotment option.‹

[DewDiligence]

China Passes US in Energy Consumption

[The US still leads China by about 2x in total consumption of oil, specifically, and by about 5x in energy consumption of all forms per capita.]

http://online.wsj.com/article/SB10001424052748703720504575376712353150310.html

›JULY 19, 2010, 7:42 A.M. ET
By SPENCER SWARTZ

Powered by years of rapid economic growth, China is now the world's biggest energy consumer, knocking the U.S. off a perch it held for more than a century, according to new data from the International Energy Agency.

The Paris-based agency, whose forecasts are generally regarded as bellwether indicators for the energy industry, said China devoured a total of 2,252 million tons of oil equivalent last year, or about 4% more than the U.S., which burned through 2,170 million tons of oil equivalent. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear, coal, natural gas and renewable sources such as hydropower.

To be sure, the global recession hit the U.S. more severely than China and hurt American industrial activity and energy use. Nonethless, China's total energy consumption has clocked annual double-digit growth rates for many years, driven by the country's big industrial base. Highlighting how quickly its energy demand has increased, China's total energy consumption was just half the size of the U.S. 10 years ago.

"The fact that China overtook the U.S. as the world's largest energy consumer symbolizes the start of a new age in the history of energy"," IEA chief economist Fatih Birol said in an interview. The U.S. had been the biggest overall energy consumer since the early 1900s, he said. The IEA is an energy adviser to most of the world's biggest economies.

China's voracious energy demand helps explain why the country—which gets most of its electricity from coal, the dirtiest of fossil fuel resources—passed the U.S. in 2007 as the world's largest emitter of carbon dioxide emissions and other greenhouse gases.

The U.S. is still by far the biggest energy consumer per capita, with the average American burning five times as much energy annually compared with the average Chinese citizen, said Mr. Birol, who has been in his current role for six years.

Prior to the recession, China had been expected to become the biggest energy consumer in about five years, but the economic malaise and energy efficiency programs in the U.S. had brought forward the date of that superlative, Mr. Birol said.

The U.S. is still the biggest oil consumer by a wide margin, going through on average roughly 19 million barrels a day—with China at a distant second at about 9.2 million barrels a day. But many oil analysts believe U.S. crude demand has peaked or is unlikely to grow very much in coming years because of improved energy efficiency and more stringent vehicle fuel-efficiency regulations.

The decreased energy "intensity" of the U.S. economy is a key reason investors, such as General Electric Co., have increasingly looked to China as a driver of future growth. Mr. Birol said China requires total energy investments of some $4 trillion over the next 20 years to keep feeding its economy and avoid power blackouts and fuel shortages.

Mr. Birol, previously an economist at the Organization of Petroleum Exporting Countries, said China is expected to build over the next 15 years some 1,000 gigawatts of new power generation capacity. That is about the total amount of electricity generation capacity in the U.S. currently and the construction of all those gigawatts occurred over several decades. "This demonstrates the major growth we are talking about" in energy demand and capacity growth in China, Mr. Birol said.‹

[DewDiligence]

Four Reasons to Believe in Brazil

http://www.economist.com/blogs/newsbook/2010/07/brazils_prospects

›Jul 26th 2010

When, in 2001, Goldman Sachs dreamt up the acronym BRIC for the largest emerging economies, the country that most people said did not belong in the group was Brazil. Today, the leading candidate for exclusion is Russia. But some prominent observers are still sceptical about Brazil’s prospects. A notable example is Martin Wolf, the chief economics commentator of the Financial Times, who recently (and very reasonably) pointed out that Brazil’s share of world output has actually fallen over the past 15 years, from 3.1% in 1995 to 2.9% in 2009 at purchasing-power parity. “Brazil cannot become as big a player in the world as the two Asian giants”, China and India, Mr Wolf concludes.

At a recent meeting with a group of investors in Hong Kong, Rubens Ricupero offered an intriguing counterargument. A long-serving and respected Brazilian diplomat, Mr Ricupero was the secretary-general of the United Nations Conference on Trade and Development from 1995 to 2004. Although he has links to the opposition to Brazil’s ruling Workers’ Party—he previously served as finance minister in the government of a rival party—his analysis is not party-political. “For the first time in its history,” he argues, Brazil is enjoying “propitious conditions in four areas that used to pose serious limitations to growth.” They are:

• Commodities. Commodity production used to be regarded as either a curse or, at best, something countries ought to diversify away from as quickly as possible (which Brazil itself did in the 1970s). But over the next fifty years, Mr Ricupero notes, half the expected increase in the world population will come from eight countries, of which only one—America—is not sucking in commodities at an exponential rate of increase. The others are China, India, Pakistan, Nigeria, Bangladesh, Ethiopia and Congo. China alone will account for 40% of the additional demand for meat worldwide, he points out. This demand will remain strong partly because of rising population and partly because of urbanisation, which increases demand for industrial commodities (like iron ore to make steel) and meat (because urbanisation changes eating habits). Brazil is already a large iron-ore producer [VALE is the world’s largest iron-ore producer], and has transformed itself into an agricultural powerhouse over the past 10 years, becoming the first tropical country to join the ranks of the dominant temperate-climate food exporters such as America and the European Union. It is well-placed to benefit from the emerging markets’ commodity boom.

• Petroleum. Mr Ricupero argues that the success of the Brazilian state oil company, Petrobras, in offshore oil exploration has transformed Brazilian energy. “Although no precise and final estimates can be made yet of the [so-called] pre-salt oil reserves potential of the Santos Basin,” he says, “all serious indications point to the high likelihood that Brazil is poised to become at least a medium-sized net oil-exporting country.” New oil and gas deposits far away from the volatile Middle East should increase Brazil’s strategic importance, as well as improving its balance-of-payments position [duh].

• Demography. Brazil is reaping a big demographic dividend. In 1964, its fertility rate (the average number of children a woman can expect to have during her lifetime) was 6.2. It fell to 2.5 in 1996, and is now below replacement level, at 1.8, one of the sharpest drops in the world. The result has been a collapse in the dependency ratio—the number of children and old people dependent on each working-age adult. As recently as the 1990s, that ratio was 90 to 100 (ie, there were 90 dependents, mostly children, for each for every 100 Brazilians of working age). It is now 48 to 100. Thanks to this, Brazil no longer has to build schools, hospitals, universities and other social institutions helter-skelter to keep pace with population growth. Eventually, the ratio will creep back up as today’s workforce enters retirement, but such problems remain decades ahead. In the meantime, Brazil can pay more attention to the quality rather than the quantity of its social spending, which should, in theory, improve the population’s education, health, and work skills.

• Urbanisation. Urbanisation both encourages economic growth and accompanies it. But it also causes problems. “Many of the worst contemporary problems in Brazil,” Mr Ricupero says, such as “lack of educational and health facilities, poor public transportation, marginalisation and criminality, stem from [an] inability to cope with internal migrations in an orderly and planned way.” That is now changing, he argues. The waves of migrants out of the countryside and into the cities have more or less finished. Brazil is now largely an urban country: about four-fifths of the population lives in cities. “For Brazil,” he concludes, “the period of frantic and chaotic growth of big cities that is now taking place in Asia and Africa is already a thing of the past.”

Mr Ricupero is relatively cautious about the conclusion. “The four sets of conditions outlined above,” he says “are by no means sure guarantees of automatic success.” He admits Brazil has fallen behind in infrastructure, for example, and says that, if it had the sort of infrastructure you see in Costa Rica and Chile (the two best examples in Latin America), economic growth would be about two percentage points higher per year. On the other hand, Brazil also has some other advantages: unlike China, Russia and India, it is at peace with its neighbours (all 10 of them). Whether you think all this really amounts to a rejoinder to Mr Wolf is a matter of doubt. Brazil might still remain a relatively small player in the world. Still Mr Ricupero’s points are, at least, actually happening (not things expected in future), can be measured in concrete terms and are long-term (they should continue for decades). Who knows? Perhaps they might even be right.‹

[DewDiligence]

China’s Hollow ‘Straddling Bus’ Carries 1,200 Passengers

[It takes up two lanes of traffic and runs on electricity and solar power. Click on the link below to see a rendering of the vehicle.]

http://www.nytimes.com/2010/08/18/business/global/18bus.html

›August 18, 2010
By BETTINA WASSENER and ANDREA DENG

HONG KONG — What do you do if your roads are congested and polluted? Try designing a vehicle that takes up no road space. And make it partly solar powered.

A company in the southern Chinese town of Shenzhen has done just that. To address the country’s problems with traffic and air quality, Shenzhen Huashi Future Parking Equipment has developed a decidedly odd-looking, extra-wide and extra-tall vehicle that can carry up to 1,200 passengers.

Though it is called the “straddling bus,” Huashi’s invention resembles a train in many respects — but it requires neither elevated tracks nor extensive tunneling. Its passenger compartment spans the width of two traffic lanes and sits high above the road surface, on a pair of fencelike stilts that leave the road clear for ordinary cars to pass underneath. It runs along a fixed route.

Huashi Future Parking’s outsize invention — six meters, or about 20 feet, wide — is to be powered by a combination of municipal electricity and solar power derived from panels mounted on the roofs of the vehicles and at bus stops.

A pilot project for the vehicle is in the works in Beijing, and several other Chinese cities have shown interest.

The company says the vehicle — which will travel at an average speed of 40 kilometers an hour, or about 25 m.p.h. — could reduce traffic jams by 25 to 30 percent on main routes.

The straddling bus could replace up to 40 conventional buses, potentially saving the 860 tons of fuel that 40 buses would consume annually, and preventing 2,640 tons of carbon emissions, said Youzhou Song, the vehicle’s designer.

“I had the idea when I was doing research on the road for the designs of innovative parking slots for bikes and cars,” Mr. Song, who founded the company with several partners in 2009, said by phone last week. “I saw the traffic jams and wondered if it’s possible to make buses high up in the air as well.”

The design highlights a range of issues that have come with China’s explosive economic growth.

The nation’s urban population has expanded rapidly in recent years. In a report last year, the consulting firm McKinsey estimated that an additional 350 million people — more than the population of the United States — would move to [China’s] cities by 2015. More than 220 cities will have more than one million people. By comparison, Europe has 35 such cities now.

All this has caused a vast need for urban infrastructure, with McKinsey estimating that 170 new mass transit systems could be built in China by 2025.

At the same time, rising affluence has caused the number of cars — and traffic jams — to soar [#msg-51490876].

China is the world’s largest polluter, and Beijing is eager to reduce carbon emissions. The authorities have been pushing solar power and fuel-efficient transportation.

Huashi’s invention appears to have received a preliminary seal of approval from Beijing. The capital’s Mentougou district is testing the technology and plans to start building nine kilometers of route at the end of this year. If the test is successful, about 116 miles would be put in place.

“Mr. Song’s design is in line with our concept of green transportation and our vision of the future. We hope to start the construction and operation as soon as possible,” said Wenbo Zhang, head of the science and technology commission of Mentougou district, though he added that the necessary approvals would take time and investment.

Shijiazhuang, in Hebei Province, and Wuhu, in Anhui Province, have also applied to obtain financing for straddling bus systems, Mr. Song said, while Luzhou in Sichuan Province has shown interest.

The vehicles will be built by the China South Locomotive and Rolling Stock Corporation starting at the end of this month, Mr. Song said.

The cost of construction — 50 million renminbi, or $7.4 million, for one bus and about 25 miles of route facilities — is roughly one-tenth what it costs to build a subway of the same length, he said.‹

[DewDiligence]

Abbott Looks to India for Shot in Arm

[#msg-50473238 is a must-read companion piece.]

http://online.wsj.com/article/SB10001424052748704540904575451760938636760.html

›India's market leader in medicines will soon be based near Lake Michigan

AUGUST 26, 2010
By JONATHAN D. ROCKOFF

Abbott Laboratories will hold the biggest share of India's pharmaceuticals market, about 7%, when the company closes as early as next month on a $3.7 billion takeover of the drugs business of Piramal Healthcare Ltd. After committing more than $10 billion since February on such deals, Abbott Chief Executive Miles White said he has assembled a business in fast-growing countries that the company will count on for a big part of its growth.

"Where do you think the growth in the world is going to come from?" Mr. White asked during an interview at his suburban Chicago office, a few miles from Lake Michigan. "Would you bet on the U.S.? Would you bet on Western Europe? It's going to come from emerging markets."

Not long ago, many health-care giants like Abbott all but ignored the developing world and focused almost exclusively on the big U.S. and European markets for sales and growth. But struggles to replace aging product pipelines, generic competition and cost-conscious government and commercial payers have stalled growth on their home turf.

Now, the fast-growing emerging-market economies are much more attractive. Expanding middle classes in such countries as Brazil, South Korea and Turkey are not only spending more on health care, but their rising affluence has contributed to increasing rates of diabetes, heart disease and other conditions that once had been limited to developed markets. Some governments, notably China's, are beginning to provide insurance to pay for health care.

Abbott and its rivals face challenges building a lucrative emerging markets business. Critics said Abbott overpaid to catapult past Cipla Ltd., Daiichi Sankyo Co.'s Ranbaxy Laboratories and GlaxoSmithKline PLC into the No. 1 position in India. Abbott must also learn to make profits without charging Western-level prices that India's new middle class still can't afford.

Yet drug makers can still command a price premium for respected brands in emerging markets, and costs are much lower than in the U.S. Last year, drug sales in 17 "pharmerging markets" were $126 billion, up from $42.7 billion in 2000, IMS Health said. Sales in the countries are growing three times as fast as in developed markets, and should account for 70% of global growth over the next five years, according to Credit Suisse.

The result is a kind of pharmaceuticals gold rush in Asia, Eastern Europe and South America. Mr. White said he was one of several Big Pharma executives to pay a visit to Mumbai last summer in the hunt for potential partners or takeover targets. Companies including Daiichi Sankyo and Sanofi-Aventis SA have spent a total of $6 billion in India in the past two years on health-care acquisitions, according to PricewaterhouseCoopers LLP.

Meantime, big drug makers like Pfizer Inc. and Glaxo are selling some branded treatments to emerging-market customers at lower-than-Western prices, and they are licensing therapies from local firms in order to build portfolios of affordable products. Merck & Co., which said last month it is negotiating a marketing agreement with the Chinese firm Sinopharm Group Co., says it expects a quarter of its drug and vaccine revenue to come from emerging markets by 2013, up from 17% currently.

"Clearly the emerging markets will be a significant factor in determining the winners and the losers in the pharmaceutical industry over the next decade," Kenneth Frazier, Merck's president, told investors in May.

India is a compelling battleground. PricewaterhouseCoopers says pharmaceutical sales will triple to $30 billion by 2020, compared with $11 billion last year. To capture some of the market, drug makers must adopt a different business model than the one they're used to, said Peter Tollman, of Boston Consulting Group. The impact of lower prices needs to be offset by their taking advantage of lower manufacturing, distribution and marketing costs.

Patients, doctors and pharmacists are brand-conscious. By volume, so-called branded generics account for 90% of drug sales in India, said Sujay Shetty, India pharma leader at PricewaterhouseCoopers. That's a daunting hurdle for companies seeking to break into the market with new products.

Abbott's presence in India dates back a century, when a Chicago pharmacist who founded the company added an outpost there. More recently, Mr. White sought to expand in the country in 2001, through the acquisition of Knoll Pharmaceuticals, which provided such branded generics as the thyroid medicine Synthroid and the antacid Digene that are now popular in India.

But size matters in emerging markets, said Mr. White, who began eyeing an expansion five years ago. In 2007, Abbott held a board meeting in Shanghai so Mr. White could get the company's directors and managers focused on developing countries. Later, he hired McKinsey & Co. for advice on how to become a leader in five high-growth countries, including China and India. The consultants told him it would take 10 years unless he acquired companies, he recalled.

But he lost out on the bidding for one early target, a Chinese nutritional products company that would have given Abbott a strong foothold in China.

"I looked at India and said, 'We're not going to let what happened to us in China happen in India,"' he said.

The result: Just this year alone, Abbott obtained branded generic drugs in a $6.6 billion acquisition of the drug unit of Belgium's Solvay SA; it licensed at least 24 medicines from Indian firm Zydus Cadila; and in May, it agreed to acquire Piramal's drug business, which brought 6,000 sales representatives and 350 brands and trademarks, including such well known names in India as the anti-infective Omnatax and the topical steroid Lobate.

Not all of the companies that Abbott has acquired are in India. But these companies have products that are on the market in India or are suitable for sale there, as well as in other fast-growing markets.

Mr. White rejects criticism that he overpaid for Piramal, saying it was an opportunity to become the leader of a "cornerstone market."

For now, no other deals are planned. "We have the pieces. Now we just have to execute."

Abbott expects $8 billion in sales, about 20% of its total, from emerging markets this year, with a target of exceeding $14 billion over the next five years.‹

[DewDiligence]

Big Pharma Seeks Big Returns in China:

#msg-54773617

This is a good read even for investors not especially interested in healthcare stocks

[DewDiligence]

Stricter Rules on ‘Similares’ Lure Pharma to Brazil

[Brazil is perhaps the “purest” pharmaceutical market among any of the world’s major countries in the sense that almost all drugs are paid for by users rather than government or other third parties. The expanding middle class has created a robust market for branded generics, which has been the impetus for recent deals by such companies as SNY and PFE (#msg-36917487, #msg-55730816).

The main thrust of this article — that Brazil is phasing out the use of low-quality generic drugs that are paradoxically called “similares” — was noted in #msg-48743492.]

http://www.ft.com/cms/s/0/b16ac1e0-edfe-11df-8616-00144feab49a.html

›By Andrew Jack
November 14 2010 23:31

Three decades after they quit Brazil, western pharmaceutical companies are rushing back to expand and make acquisitions, just as domestic groups begin to consolidate and spread abroad.

In the 1980s, many multinationals left, driven out by high inflation, tough price controls, and weak intellectual property rules [not to mention a military dictatorship].

They signed distribution deals with local companies, but also saw market share taken by “similares” – drugs containing ingredients similar to original products but often without rigorous testing to demonstrate they are identical in composition and effect.

Now the environment has changed. Since the mid 1990s, patent rules and regulatory requirements for generic drugs have become stricter.

A tougher attitude by Anvisa, the national drug regulator, has imposed “bioequivalence” measures; while new auditing requirements are reducing the discretionary ability of pharmacies to sell prescription drugs or substitutes over the counter.

Such measures are likely further to reduce the scope for similares by 2013, as a clearer distinction between patented and generic products – already familiar in the west – emerges.

The changes are luring western companies back, just as growth in their established more developed markets is slowing and they see the need to expand geographically to maintain momentum.

While sales are coming largely without any reimbursement from state or private health insurance, the rapid growth in the middle class – and the increasing number of pharmacies to meet demand – is stoking expansion that has turned the country into the eighth-largest drug market in the world by sales.

With the authorities keen to encourage domestic production, Novo Nordisk was an early mover with its purchase in 2001 of Biobrás, a large insulin production plant outside São Paulo.

A more eye-catching recent buying spree began last year when Sanofi-Aventis of France acquired Medley [#msg-36917487], boosting its portfolio of over-the-counter and branded products to complement its own innovative and “mature” offerings.

Last month, Pfizer of the US bought 40 per cent of Teuto, another generics business [#msg-55730816]; and other US, European and Japanese companies are studying the market closely.

Some have so far held back from acquisitions, but are investing internally: AstraZeneca, for example, is gearing up for the launch of a series of products combining its own drugs with others that are already off-patent.

Meanwhile, national groups have not been dormant. Aché, a family-owned group and one of Brazil’s largest branded generics producers, has made smaller domestic acquisitions, and was considering buying Medley.

It has also begun forging alliances across Latin America, while its rival Eurofarma earlier this year bought Laboratorios Gautier in Uruguay, as the groups seek economies of scale in manufacturing and sales across the region.

Even Farmaguinhos, the state-owned drug company, has been co-operating with Mozambique.

Domestic research and development still remains in its infancy, although government research units such as the Butantan Institute in São Paulo and Oswaldo Cruz in Rio de Janeiro are involved in international scientific collaborations and technology transfer.

The question is whether their commercial peers will be able to take up the slack before they are acquired by western groups keen to return to Brazil.

--
SIDEBAR: List of best-selling drugs gives picture of nation’s health worries

Brazil’s list of top-selling drugs reveals much about national preferences and the state of the healthcare sector alike.

Two “lifestyle” drugs – Viagra and Cialis for erectile dysfunction – are among the leading 10 products sold, outstripping their popularity in many other countries, according to data from IMS, the healthcare consultancy.

The more familiar high-ranking presence of Lipitor and Crestor to lower cholesterol and Diovan to reduce blood pressure highlight how far infectious diseases have been displaced as a heavy healthcare burden. Their place has been taken by chronic “lifestyle” conditions – only too familiar in western countries – that affect the wealthier but ageing population.

Other patented drugs that would typically be among the top-sellers in many countries are absent. That reflects restricted access in Brazil to more costly innovative therapies, because few drugs are reimbursed by the state or even private insurers. Most are bought “out-of-pocket” by patients.

The best-selling product on the IMS list is Dorflex, an over-the-counter muscle relaxant and painkiller; Neosaldina, a similar product, and paracetamol, are also among the top 10.

The first two both contain metamizole, which is not used in other countries, including the US, where it was banned long ago because of a rare side effect called agranulocytosis – where the body does not make enough white blood cells.

Sanofi-Aventis, which makes Dorflex, stresses that Latin American regulators have reviewed the drug and considered the benefits outweigh the risks.

Not that the IMS numbers are perfect. Like those in other emerging markets, the data cannot always pick up the nuances of a fragmented system that includes substantial over-the-counter sales of drugs which are officially available on prescription only.‹

[DewDiligence]

China’s Web Takes On a Luxury Look

http://online.wsj.com/article/SB10001424052748703865004575648312069857150.html

›DECEMBER 2, 2010
By LAURIE BURKITT

BEIJING—Searching for wealthy customers beyond China's urban areas, luxury-goods makers are opening shop in a new location: the Chinese Internet.

Emporio Armani led the way, opening online sales last week through its own website in one of world's fastest growing markets for luxury brands.

"This is a strategic move that will open up luxury to the entire nation," said Federico Marchetti, founder and chief executive of Milan-based YOOX SpA, which created the site for the Giorgio Armani SpA label. Mr. Marchetti said at a news conference that YOOX plans in the next year to open Chinese sites for three or four clients he didn't name. Dolce & Gabbana Srl, Ermenegildo Zegna Holditalia Spa and Valentino SpA are among the e-commerce company's 23 clients.

Other companies—including PPR SA's Gucci, Burberry Group PLC and Italian shoemaker Tod's SpA—say they also have plans to cash in on China's exploding population of online shoppers.

The decision by high-end brands to sell their handbags and clothing directly to Chinese shoppers via the Internet marks an attempt to push deeper into a nation with consumers eager to mark their new wealth by buying flashy labels.

Luxury goods have been available for several years on the Chinese Web. But that generally has been through middlemen who offer an array of brands, many of them out-of-season, rather than directly from the labels. Western sites are available to Chinese shoppers only to a limited degree, in part because not all company sites offer shipping to China. Also, steep Chinese import duties discourage buying from vendors' overseas sites.

Competition between luxury retailers in major eastern cities such as Beijing and Shanghai is intensifying. Meanwhile, new wealth is being created fastest in central and western China, where the economy has been boosted by government infrastructure spending [#msg-57188901].

Fashion giants have scurried in the past year to open stores in China's lesser known cities, such as Hohhot, in Inner Mongolia, and Kunming, in Yunnan province, where few Western retail outlets had ventured before and mom-and-pop shops dominate the landscape.

Hinterland customers make up nearly 60% of the 15,000 to 20,000 people who buy designer labels each month from Wooha, a Beijing-based luxury e-tailer that started in 2006, said company founder Corey Lien. Distant customers also tend to spend more than shoppers in bigger cities, who have more physical stores to choose from. Wooha said customers in Yunnan province spend an average of 3,865 yuan ($580) per purchase compared with 1,836 yuan for customers in Beijing. While Wooha's inventory comes directly from fashion companies, such as Gucci, Steve Madden, and Miu Miu, only 30% of its stock is from the current season.

China is the world's second-largest market for luxury brands when counting purchases by Chinese consumers world-wide and is set to overtake Japan for No. 1 in a few years, according to consulting firm Bain & Co. Chinese sales of luxury products surged 20% to €9.2 billion ($12.1 billion) last year, Bain said.

And Chinese shoppers have embraced the Internet. E-commerce sales in China jumped to 134.2 billion yuan ($20.1 billion) in the third quarter, doubling from a year earlier, according to research firm Analysys International.

But many luxury brands are reluctant to sell through general retail websites for fear of poor quality control and consumer support. The labels also worry they will erode brand value by selling in an environment where consumers typically go to find deep discounts. China's largest e-commerce site by number of transactions, Alibaba Group's Taobao.com, says it drew $30 billion in transactions last year, largely by undercutting brick-and-mortar retailers on prices.

"The Web offers major opportunities but also comes with big risks for this sector," said Yuval Atsmon, an associate principal at consultant McKinsey & Co. in Shanghai. "Many have been reluctant to rush in."

YOOX offers customer-support services—online and by phone—as well as next-day delivery. Each item also is tagged with a radio-frequency identification microchip that allows YOOX to track the product from a Shanghai warehouse to the consumer.

Han Xin, a human-resources manager for a state-owned insurance company in Suzhou, 66 miles west of Shanghai, said she is thrilled that luxury items are hitting the Internet. She can't wait for Chanel, her favorite brand, to go online, says Ms. Han, 30 years old.

"I'll be the first to try online shopping because I assume they'll have a wider selection than the physical stores and they'll probably be cheaper too," she said. She may be disappointed on the last point, since Armani and other companies say they plan to sell their products online in China at full price.

The opportunities e-commerce presents in China are too great to ignore. An estimated 80% of online shoppers are less than 45 years old, compared with 30% in the U.S., according to Forrester Research.

"We think we can create a place where the Internet will mean beauty and extravagance, not just discount," said Mr. Marchetti, of YOOX.‹

[DewDiligence]

Nigeria’s Growing Middle Class Makes Transition from Buses to Used Cars

http://online.wsj.com/article/SB10001424052748704515904576076622892749928.html

›JANUARY 18, 2011
By WILL CONNORS

LAGOS, Nigeria—In a dust-blown lot, Moeshack Alele approaches a cluster of sport-utility vehicles, not quite ready to spend five years of his savings and borrow from family for a used car.

But along comes dealer Udeagha Oliver saying Nissan Pathfinders have "been selling like crayfish" (the local equivalent for hot cakes).

Mr. Alele, a judicial clerk, agrees to pay $12,000 for a 2003 model from the U.S. and takes off to get the cash. Though shipping, tax and customs have pushed the price well higher than it would be in the U.S., in Lagos this is a deal.

Mr. Alele is typical of Nigeria's new consumers, eager to find alternatives to perilous minibuses and motorcycle taxis by purchasing their own cars.

The World Bank predicts the number of middle-class Africans, those whose incomes exceed their basic needs, will rise to 43 million by 2030 from 13 million in 2000. That growth extends to Nigeria, the continent's most populous nation and a budding economic powerhouse.

But in a nation where per capita income is about $2,700 a year, most Nigerians still opt for used cars, making the same sort of transition from subsistence earning to consumer spending that plays out across Africa's developing economies.

In Nigeria, even pre-owned cars take on the gloss of status symbol and have developed nicknames. The 2000 Honda Accord is widely known as "Baby Boy." The flashy 2003 Accord earned the sobriquet "End of Discussion." Then came the redesigned, equally impressive 2007 Accord: "The Discussion Continues."

Imports of small, inexpensive new cars from India and China have increased in several African countries in recent years, mainly in South Africa. But in Nigeria these companies are only starting to enter the market. China's Chery Automobile Co. has five showrooms in Nigeria, and China's Geely Automobile Holdings Ltd. and India's Tata Motors Ltd. also have begun selling cars here. Nigerian used-car dealers say they expect new cars from China to be serious competition within five years but that used cars from the U.S. still dominate the market.

Used-car figures aren't officially tracked, but the Nigeria unit of the Toyota Motor Corp. estimates that 155,000 used cars of all makes were imported into the country in 2008. That's about twice what new-car sales were before the financial crisis socked sales in 2009, according to research firm Business Monitor International Ltd.

"In the last several years we have seen a dramatic increase in opportunity from West Africa…and I don't see that trend reversing," says Dan Oscarson a vice president for Illinois-based Insurance Auto Auctions, which sells damaged cars at auctions to U.S. and international buyers. He declines to provide sales figures.

But major car makers that sell new cars in Nigeria have stayed away from selling previously owned vehicles. "Eventually, we expect to be involved in the used-car market, but there's a lot of wheeling and dealing there," says C.K. Thampy, the managing director of Toyota Nigeria Ltd. "A lot of it is possible only in informal channels.…We can't play ball with those guys."

That suits used-cars dealers like Metche Nnadiekwe. He is president of the dealers association at the Berger Auto Market, a sprawling complex of some 30,000 cars considered by dealers as the biggest used-car market in West Africa. Clad in a blue-striped shirt and black Stetson, Mr. Nnadiekwe says there are around 5,000 dealers at Berger market, where the most successful dealers sell about 60 to 80 vehicles a month. "The high and mighty come, but regular people also come to buy cars and get on the road," he says.

Most of the cars come from dealers in Texas and New Jersey, with whom Nigerian dealers have built up relationships. A shortage of used cars in the U.S. during the recession wasn't a problem in Nigeria, in part because it coincided with a drop in demand here and because most of the cars sold here are older and in worse condition than what sell in the U.S.

About 50,000 vehicles valued above $2,000 were exported to Nigeria from the U.S. in 2008, based on various official sources compiled by Export Trader. The Toronto-based vehicle-export company says exports dropped sharply in 2009 because of the global recession and other factors but have started creeping up.

"Nigerians mainly import low-end, eight- to 10-year-old vehicles valued below $5,000," says Vadym Kozub, director of development for Export Trader. He says flooded, damaged and stolen cars often are imported, but that the Nigerian government and U.S. and Canadian organizations have taken steps to make the process more transparent.

Mr. Nnadiekwe and other Nigerian dealers acknowledge that many of the cars they buy from auctions have damage but deny that vehicles are stolen.

Prices at the Berger market are widely considered among the lowest in the country. But buying there can be exhausting.

On a recent visit, a woman carrying a large orange purse combs the lots selling counterfeit license plates to car buyers eager to avoid the bureaucratic hurdles of legitimate car registration. Young salesmen seeking buyers dart between vehicles parked on every inch of available space.

Under a highway overpass, dealer Patrick Landfree grabs a prospective customer by the elbow and drags him across three lots, past a lunch counter's row of stockpots and across an open sewer to put him in a 2003 Toyota 4Runner.

The customer, orthopedist Michael Obikamye, notices a crack in the windshield.

"Oh that's a small thing, a minor problem," Mr. Landfree explains. "Some kids threw a rock from the overpass."

The doctor appears skeptical and moves to a 2003 Toyota Highlander with California plates and U.S. Marine Corps sticker.

"The Berger market is like a cattle market," says Richard Shittu, who once dealt in used cars but now sells only new vehicles, from Toyota, Nissan Motor Co., Honda Motor Co. and Kia Motors Corp. "It's too hectic. You need a lot of hustlers and hagglers. It's a headache."

When Mr. Alele, the judicial clerk, returns to the market after withdrawing cash, he plunks down $12,000 for his Pathfinder. It's more than he wanted to spend—he makes about $600 a month—but he has little choice.

"I would have taken something smaller, but the roads are so bad in my area," Mr. Alele says. "I need something that can gallop over the potholes."‹

[DewDiligence]

Emerging Markets Boost L’Oréal Profit

http://online.wsj.com/article/SB10001424052748704132204576136383959549642.html

›FEBRUARY 10, 2011, 4:23 P.M. ET
By CHRISTINA PASSARIELLO

PARIS—Millions of new customers from countries like China, India and Brazil helped propel French cosmetics giant L'Oréal SA's profit 25% higher last year, underscoring the importance of new markets for consumer-goods groups.

The company "succeeded in opening up new areas for growth and profitability, which are also paving the way for the future," said L'Oréal Chairman Sir Lindsay Owen-Jones, who is stepping down next month. L'Oréal aims to gain one billion new consumers by 2020, double its current clientele.

L'Oréal, home to iconic brands such as Maybelline and Lancôme, said net profit came to €2.24 billion ($3.08 billion) last year, up from €1.79 billion in 2009. Sales in 2010 jumped 12% to €19.5 billion.

In a sign of the importance of new frontiers, sales in China surpassed €1 billion last year, making it the third-largest market for L'Oréal after the U.S. and France. Sales in Asia increased 23%, while sales in Latin America were up 33%.

American and European consumer-goods companies such as L'Oréal, Procter & Gamble Co. and Nestlé SA are increasingly looking to Asia and Latin America for the bulk of their growth—a phenomenon that increased with the consumer-spending slump in the U.S. and Europe during the economic downturn.

That shift has fundamentally changed how companies do business, from the conception to the packaging and advertising of products. For instance, L'Oréal developed a men's skin-care line in India, which it has now rolled out to other countries.

Yet consumer spending has recovered even in countries hit hard by the economic crisis. L'Oréal's sales in the U.S. and Canada grew 13%, driven in part by a weaker euro. In Western Europe, sales increased 2.6%.

The outlook, however, is souring for L'Oréal and its competitors. Rising commodity costs are putting pressure on margins, and analysts question how able companies are to pass along the increase to consumers.

L'Oréal's expectations for this year are conservative: it says only that sales and profit should grow in 2011, contrasting with bullish double-digit targets in recent years.‹

[DewDiligence]

The Tide Is Turning at Procter & Gamble—Maybe

[I took the liberty of adding the word “maybe” to the title because untimely calls of a “turn” in PG’s stock by professional analysts have been many. In fact, aside from a few minutes during “flash crash” last May, PG has traded more like a bond rather than a stock during the recent bull market; in other words, it’s been a laggard. Although it’s hardly an exciting name, I do think PG is a beneficiary of The Global Demographic Tailwind and investor will be rewarded in due course for owning it.]

http://online.barrons.com/article/SB50001424052970204395804576162691815918976.html

›FEBRUARY 23, 2011
By JOHANNA BENNETT

A rallying U.S. stock market has left shares of Procter & Gamble in the dust.

Mired at just over $64 a share, P&G (ticker: PG) has been dead money over the last 12 months, making it the second-weakest performing household-products company in the Standard & Poor's 500 index.

To be sure, the consumer products giant, famed for brands such as Tide, Charmin, Crest and Pampers, faces serious challenges, namely high commodity costs and weak demand in the U.S., its home market.

But emerging markets could be the salvation for this company. And though P&G has come late to the game, it sees lots of room for growth in places like Brazil and India.

Add to that cost cuts, price hikes, new products and a rebounding U.S. market, and P&G could finally breathe life back into sales and earnings, as well as its stock price.

At more than 15 times forward earnings, the shares aren't a screaming bargain [but the valuation got a little more attractive in the few days since this article was penned]. But with investors pocketing a 3% dividend yield along the way, P&G could return more than 20% over the next 12 months.

"This is not a valuation call," says Dara Mohsenian, a Morgan Stanley analyst who upgraded P&G earlier this month to an Overweight rating. "This is a blue-chip company that has struggled, but looking forward, I see results improving, and if that happens, you'll see the multiple move up."

Others also seem optimistic.

Last week, Javier Escalante, a Weeden & Co. analyst, launched coverage with a Buy rating. Meanwhile, Abby Joseph Cohen, a Goldman Sachs investment strategist, touted P&G during last month's meeting of the Barron's Roundtable.

With annual sales of roughly $79 billion, P&G is the world's largest consumer-products company, competing with Unilever (UN), Colgate-Palmolive (CL), Clorox (CLX) and others to sell laundry detergent, shampoo, toothbrushes, razors and face cream in dozens of countries.

The company gets 66% of its revenue from developed countries, with the U.S. alone pitching in roughly one-third of total revenue.

For generations, the company focused on boosting U.S. and European sales, pushing only selectively into emerging markets. Today, developing countries generate 34% of sales [yes, 100% minus 66% is 34%—thanks for confirming that, LOL].

But business here and in Western Europe remain tepid thanks to the recession, when many consumers switched to cheaper-priced goods.

Hopes for a recovery and a long history of dividend hikes led Barrons.com to weigh in favorably on the stock several times over the last two years, calls that now seem premature.

Wall Street sees earnings falling for the second consecutive year during the fiscal year slated to end in June 2011, dropping 3% to $3.98 a share.

P&G, however, now faces easier comparisons. It's launched new products, boosted its marketing budget, rolled back promotions and plans to raise some prices soon, including on Duracell batteries.

Consumers remain willing to splurge on premium products, such as Gillette's Fusion ProGlide razors. And fewer shoppers are trading down, says Morgan Stanley's Mohsenian.

P&G, meanwhile, is getting serious about emerging markets, especially India and Brazil, areas where it has traditionally lagged.

The shift has been "spectacular," says Weeden's Escalante, noting that a decade ago, developing countries generated 20% of P&G's sales. By 2020, the company sees that figure approaching 50%.

Morgan Stanley's Mohsenian sees sales in emerging markets growing as much as 10% annually over the next five years.

And during that same time period, P&G's earnings per share could grow at a similar pace, according to Thomson Reuters.

During the fiscal year slated to end in June 2012, the company is expected to earn $4.37 a share. [This is the Street consensus, not PG’s own guidance.]

"P&G needs to show it can accelerate earnings growth and emerging markets is going to be the most significant contributor," says Douglas Lane, an analyst with Jefferies & Co.

Investors will have to pay up a bit for that growth.

At 15.3 times projected earnings over the next four quarters, P&G changes hands at a 10% premium to the broader market. Still, the stock trades below its five-year average.

Of course, turnaround stories are notoriously risky.

The company's size makes growth difficult. Efforts to break into Brazil and India could fail. With 62% of sales generated outside the U.S., currency risk is always a concern.

Still, for P&G, the tide may finally have turned in its favor.‹

[DewDiligence]

This TED video (about 10 minutes) is apropos to The Global Demographic Tailwind and is entertaining, albeit somewhat slanted:

http://www.ted.com/talks/hans_rosling_and_the_magic_washing_machine.html

Thanks to ‘Denny Schlesinger’ on TMF for this find.

[DewDiligence]

More Factoids re The Global Demographic Tailwind



Source: IBM Investor Day (8-Mar-2011)

[DewDiligence]

For Many Chinese, New Wealth Means a New Face

http://www.nytimes.com/2011/04/24/world/asia/24beijing.html

›April 24, 2011
By SHARON LaFRANIERE

BEIJING — Even in a blue-striped hospital bathrobe, her face wiped clean of makeup and marked with purple lines by her surgeon, the young woman who called herself Devil embodied an image of beauty widely admired in China: large, luminous eyes, a delicate nose and softly sculpted cheekbones.

But her jaw line? Too square for her liking. So the 22-year-old television reporter recently traveled from a coastal province to a private hospital in downtown Beijing to have it reshaped — for about $6,000. Her boyfriend, a 29-year-old businessman wearing designer eyeglasses, picked up the bill.

“I am not nervous at all,” said Devil (the English first name she chose for herself, and the only one she would reveal) as she awaited surgery at Evercare Aikang hospital in downtown Beijing. “I will look more sophisticated and exquisite.”

The breathtaking pace of transformation for upwardly mobile Chinese — from bicycles to cars, village to city, housebound holidays to ski vacations — now extends to faces. In just a decade, cosmetic and plastic surgery has become the fourth most popular way to spend discretionary income in China, according to Ma Xiaowei, China’s vice health minister. Only houses, cars and travel rank higher, he said.

No official figures exist, but the International Society of Aesthetic Plastic Surgery estimated in 2009 that China ranked third, behind the United States and Brazil, with more than two million operations annually. And the number of operations is doubling every year, Mr. Ma said at a conference organized by the Health Ministry in November.

“We must recognize that plastic and cosmetic surgery has now become a common service, aimed at the masses,” he said.

Face-lifts and wrinkle-removal treatments are in vogue, just as in the West. But at Evercare, which runs a chain of cosmetic-surgery hospitals in China, two-fifths of patients are in their 20s, said Li Bin, the general manager and one of the founders.

Nationally, the most requested surgeries have nothing to do with age: The No. 1 operation is designed to make eyes appear larger by adding a crease in the eyelid, forming what is called a double eyelid, said Zhao Zhenmin, secretary general of the government-run Chinese Association of Plastics and Aesthetics.

The second most popular operation raises the bridge of the nose to make it more prominent — the opposite of the typical nose job in the West. Third is the reshaping of the jaw to make it narrower and longer, he said.

The youthful patients include job applicants hoping to enhance their prospects in the work force, teenagers who received cosmetic surgery as a high school graduation present and even middle school students, most of whom want eye jobs, surgeons say.

China’s regulatory system, by all accounts, has not kept up. At the conference in Beijing in November, Mr. Ma, the vice health minister, said the situation “can even be called neglect.”

Out of 11 clinics and hospitals offering cosmetic or plastic surgery that were inspected late last year, he said, fewer than half met national standards. Employees lacked professional credentials, he said; equipment and materials were subpar. Beauty parlors are flagrant violators, illegally administering Botox injections and performing eyelid surgery.

Mr. Ma likened the industry to a medical “disaster zone,” with frequent accidents. His point was underscored when a 24-year-old former contestant on the Chinese reality show “Super Girl” died after her windpipe filled with blood during an operation to reshape her jaw in Hubei Province.

Health officials demanded an inquiry. But Mr. Zhao, who also serves as the vice director of Beijing’s government-run Plastic and Cosmetic Surgery Hospital, said it was impossible to gather evidence because the body was quickly cremated — a common practice in China when hospitals privately settle malpractice claims.

“Personally speaking, I think this is pretty despicable,” he said. “We need to get to the bottom of such cases in order to protect people in the future.”

The shortcomings of China’s medical system are hardly limited to cosmetic and plastic surgery. But the industry now generates an estimated $2.3 billion in revenue, and the government has begun to take note. Officials say new regulations will probably be issued this year.

One implicit goal is to halt the flow of Chinese patients to better-established hospitals in South Korea. Mr. Ma estimates that Chinese make up 30 percent of cosmetic surgery patients in Seoul.

For now, many beauty salons, like one downtown Beijing branch of a major chain, are capitalizing on the lack of oversight. One recent afternoon, a 62-year-old woman in a white coat who described herself as an internist said she could summon a doctor who could give a visitor double eyelids in 20 minutes about $180, a fraction of the standard hospital fee.

“Immediately you will look different,” she said.

“Strictly speaking, this thing is not allowed,” she added. “But why do we have it? Because many people want to look good and find the price of the procedure too high and they can’t afford it.”

Of two dozen Beijing beauty salons contacted by phone, 15 said they offered either double-eyelid surgery or Botox injections or both, along with manicures, pedicures and facials.

At the other end of the spectrum is Evercare’s Aikang hospital, with a grand piano in the lobby, an underground tunnel for patients who want privacy and surgeons like Dr. Wang Jiguang, who has performed thousands of operations. Patients younger than 19 are told to return when they are old enough to make a decision about a permanent change to their looks.

Mr. Li of Evercare, a 46-year-old former government journalist, said the typical procedure cost between about $1,500 and $3,000. Having renovated one part of their face, many patients find the lure of more work irresistible. Between 30 to 40 percent return, he said.

Chen Xiaomeng, a petite 25-year-old, said her double-eyelid surgery two months ago made her look less sleepy — an effect she once tried to achieve by using thin strips of clear tape, available at 7-Elevens throughout Beijing. Now she is considering a nose job.

She made no effort to hide her operation from her colleagues at a Beijing advertising and entertainment agency or from her friends, five of whom have undergone the same procedure.

“Cosmetic surgery is now accepted in practically every household,” she said cheerily as she picked at her lunch. “It is not a big deal any more.”

Not everyone is so open. Down the hall from Devil’s V.I.P. suite, a Chinese military officer had secretly arranged an operation that cost about $9,000 to reshape her 23-year-old daughter’s jaw. First the officer told her husband that their daughter was traveling with friends. Then she called him from the hospital and asked him to deliver chicken soup to help the daughter’s sore throat. The father found the girl in bed with a heavily bandaged jaw and a swollen face, barely able to speak.

“She looked very pretty before, but now Chinese want to be perfect,” said the mother, who refused to give her name. “If she had my jaw,” she added, “I wouldn’t have allowed her to have this operation.”

After a classmate had her jaw reshaped, the mother said, her daughter pleaded for the operation until finally she gave in.

A 23-year-old bank employee from Harbin in northeastern China said she deliberated for a week before she underwent a $15,000 operation to reshape her cheekbones and jaw line. Her other thought, she said, had been to open a Starbucks with her savings.

“It was a snap decision,” she said, seated on her hospital bed, her face swathed in bandages. “I was curious to see what I would look like.”

Her family had no idea. Asked how she would explain her new face to them, she paused before replying, “I am right now trying to figure that out.”‹

[DewDiligence]

A New Class of Consumers Grows in Africa

[According to one definition, 34% of the continent’s population, more than 300M people, are now considered members of the middle class.]

http://online.wsj.com/article/SB10001424052748703703304576296663397991894.html

›MAY 2, 2011
By PETER WONACOTT

JOHANNESBURG—Sustained economic growth in Africa has produced for the first time a broad middle class, one that cuts across the continent and is on par with the size of the middle classes in the billion-person emerging markets of China and India.

The rise of a middle class in the world's poorest continent is a dramatic marker for the global economy. At a time when the U.S., Europe and Japan are struggling to grow, Africa is beginning to beckon as a consumer of what other nations produce, thanks in part to a young population more upwardly mobile than ever before.

Over the past decade, the number of middle-class consumers in Africa has expanded more than 60% to 313 million, according to a new report from the African Development Bank Group. The study—one of the first efforts to document the contours of Africa's emerging consumer class—brings into focus a potentially huge and enticing frontier market for global investors.

In the past few years, multinational appliance makers, telecommunications companies and retailers have piled into the continent in search of these consumers who, while still relatively poor, now have money in their pockets to spend, according to Mthuli Ncube, chief economist at African Development Bank Group, the parent of the funding arm.

"They are creating demand, and it's driving growth," he said.

Last year, the continent's 313 million-person middle class—those who spend between $2 and $20 a day—comprised about 34% of the population. Its number rivals that of the middle classes in China and India, according to the study, which was reviewed by The Wall Street Journal. A decade earlier, the number was 196 million, it said.

Poverty remains a predominant feature of Africa. Some 61% of Africa's one billion people live on less than $2 a day, according to the bank. While many are getting more education and migrating from farms to better-paying jobs in cities, Africa's population growth has undercut any dramatic reduction in poverty. The report estimates 21% of Africans earn only enough to spend $2 to $4 a day, leaving about 180 million people vulnerable to economic shocks that could knock them out of this new middle class.

Massive disparities persist. About 100,000 of the richest Africans had a collective net worth totaling 60% of the continent's gross domestic product, according to the report, citing 2008 figures.

Still, Africa's emerging middle class, and the accompanying consumer demand, is seen as an increasingly powerful economic engine, one that can complement the continent's traditional reliance on agricultural, energy and mineral production and exports. About 21% of Africans are firmly entrenched in the new middle class, spending between $4 and $20 a day, the report said.

The bank's report acknowledges that its broad grouping of Africa's middle class includes the lower rungs of the income ladder. A stricter definition of spending $4 to $20 a day, it says, would yield a middle-class population of 120 million. Others have been even more conservative. A 2010 report from the Organization for Economic Cooperation and Development, which sets the bar for a global middle class at daily expenditures between $10 and $100, estimated a middle class of 32 million in sub-Saharan Africa, which excludes North African countries.

The African Development Bank study, though, argues that its grouping includes genuine consumers—those living above subsistence level and spending money on nonessential goods. In a separate report last year, McKinsey & Co. estimated that the number of African middle-income consumers exceeds the figure for India.

These new consumers are credited with cushioning Africa from the recent global economic crisis. The International Monetary Fund projects that sub-Saharan Africa, a collection of 47 countries, will grow 5.5% this year and 6% in 2012.

Documenting their numbers and consumption habits across different countries presented a challenge. Given scant official statistics, bank researchers mined information from airlines for travel, auto dealerships for car purchases, and a company that sells SIM cards to analyze mobile-phone consumers. They looked at school enrollments and noticed a rising number of Africans opting for private education, another indication of a robust new middle class.

The data paint a picture of a continent on the move, thanks to more open markets and a greater degree of political stability. New jobs—instrumental in China's and India's growth and urbanization—are spurring migration to cities and Africa's wealthier countries [see the chart in #msg-56438958].

Jossam Mass, a 32-year-old dressmaker from Malawi, moved to South Africa five years ago. Now his shop in Johannesburg's Oriental Plaza is benefiting directly from the new consumer class. On a good day, he says, he sees 15 women who need tailor-made dresses for weddings or functions. Last week he produced 30 suits and shirts for the groomsmen of one wedding. "They do have money to spend," Mr. Mass says of his customers. "And they sure like to spend it."

The continent's prospects have proved alluring for Wal-Mart Stores Inc., which has agreed to pay roughly $2.4 billion to buy 51% of South Africa's Massmart Holdings Ltd., with plans to use the discount retailer as a foothold for continental expansion. Yum Brands Inc. recently said it wants to double its KFC outlets in the next few years to 1,200. In South Africa, Google Inc. and Microsoft Corp. are behind efforts to fund local entrepreneurs, with the hope that seeding African technology firms will grow their own businesses.

Nestlé SA is opening a new factory in the Democratic Republic of the Congo, a central African nation repeatedly roiled by rebel insurgencies. Still, the number of people who can afford the Swiss food giant's sachets of coffee and other price-sensitive products is on the rise.

"The potential is huge, but the business also has to be sustainable," says Pierre Trouilhat, regional director for Nestlé based in Kenya. "The growth is now there."

Still, some worry that U.S. businesses, in general, may be overlooking the opportunity. Europeans, Indians and Chinese often have proved more willing to dive into new African markets.

Donald H. Gips, U.S. ambassador to South Africa, noted in a recent editorial in South African newspaper Business Day that Africa is now nearly as urbanized as China. That combination of urbanization and economic growth has been a boon for telecom companies—Africa now has more mobile-phone subscribers than the entire U.S. population. "Yes, there are risks to doing business in Africa," he wrote. "However, here in Africa, right now,... the rewards could be as vast as the continent itself."

The new consumers are people like Andrew Mafundo. The 35-year-old Ugandan advertising executive says he now carries a Toshiba laptop and a BlackBerry smartphone. He drives a Toyota Rav4 and is building a five-bedroom home in Kampala, the capital.

But the risks can't be ignored. A series of violent elections in some of the continent's biggest markets, for instance, threatens to reverse nascent economic gains for millions of Africans. On Friday, more than a dozen people were shot in Uganda when security forces fired live rounds at protesters in Kampala, following the arrest of the country's main opposition leader. Those protests are targeting President Yoweri Museveni, who has been in power for 25 years and was recently re-elected.

Earlier this month, voters in Nigeria, the continent's second-largest economy after South Africa, rioted, burned and bombed buildings in violence that left hundreds dead. The violence underlines the necessity of ensuring growth is accompanied with efforts to improve administration and increase official transparency, says Johannes Zutt, the World Bank country director in Kenya. "Africa's prosperity depends on getting governance right," he says.

South Africa shows the potential upside. After white-minority rule gave way to a multiracial democracy in 1994, a black middle class has emerged. The country continues to deal with racial tensions, high unemployment and patchy public services, but a new generation of consumers is changing the economy. That phenomenon has surprised even those who are now a part of it, such as Itumeleng Mamabolo, a 28-year-old clinical psychologist in Johannesburg, who just returned from his first overseas vacation, in Thailand. "I haven't grown up with the luxury of having access to money and travel," he says. "So it's a bit surreal."‹

[DewDiligence]

GM Bets Big on Rural China

http://online.wsj.com/article/SB10001424052748704740204576272291963926476.html

›Success of Microvans Prompts Push to Manufacture Other No-Frills Vehicles for Emerging Consumers

By NORIHIKO SHIROUZU
May 12, 2011

HUANGZHONG VILLAGE, China—Farmer Zhang Zuoming and his extended family's growing fleet of microvans in this dusty village in China's far west explains why General Motors Co. is rushing to recalibrate its China strategy.

As a decade-long boom in car sales along the prosperous coast eases, inland villages like this one have become the new sales frontier for GM and other foreign auto makers.

Huangzhong villagers are part of a larger swath of people in less developed parts of China becoming rich enough to buy a no-frills car. Their growing demand for cheap yet sturdy vehicles is at the heart of GM's strategy to double its sales in China to around five million units by 2015 from about 2.35 million in 2010.

Roughly half of all the vehicles that GM sells in China are Wuling microvans, made by a company in which GM has a 44% stake. The other primary partner in the venture is SAIC Motor Corp., GM's main joint venture partner in China, which owns 50%. The rest is owned by a local company in southern China where SAIC GM Wuling Automobile Co. is based.

Wuling is now scouting for a location to build a third manufacturing complex to meet explosive demand. With GM's help, the Wuling joint venture also launched a second low-cost brand called Baojun (which means "treasured horse") last year. Its first product, a sedan called the Baojun 630, was recently unveiled at the Shanghai auto show.

GM estimates that the market for low-cost cars in China already amounts to six million vehicles a year—bigger than major auto markets such as France and Japan. It is dominated by local companies including Zhejiang Geely Holding Group and Chery Automobile Co.

"The decade of 2000 to 2010 was an era marked by very dramatic growth on the coast. But real growth is going to happen now more toward the interior of the country," says Wuling Executive Vice President Matthew Tsien, a 28-year GM veteran who has been sent into China to improve Wuling's performance.

Four years ago, Mr. Zhang lost his supplementary factory job as his employer for nearly two decades folded after failing to meet government environmental standards.

The 2,000-yuan-a-year job—about $310—wasn't high-paying, but the 41-year-old didn't want to go back to his 500-yuan-a-year life as a full-time wheat farmer. The decision he made in 2007, to buy a $4,500 Wuling microvan, with government subsidies, transformed his life.

Today he drives his workhorse van, and a second Wuling model he added in 2008, to haul goods. He brings home 50,000 yuan a year and has used the new wealth to remodel his house and take his father and other relatives to Beijing for sightseeing. Mr. Zhang, his brothers and nephews in Huangzhong, 15 miles outside Xining, capital of the far-Western province of Qinghai, have since bought four more Wuling vans. Other villagers have followed suit.

"My whole family needs to eat, and we totally count on these Wuling vans," Mr. Zhang says in his living room, gesturing toward one of the Wulings parked outside his house. "This has brought real happiness and joy around here." He was able to buy his second Wuling with a windfall profit he made when the government paid him compensation for some of his land it annexed to build a power plant.

According to an estimate by U.S. consulting firm Alix Partners, the number of households in China with annual income of more than 60,000 yuan—a level deemed sufficient for a family to buy a no-frills car—is estimated to nearly double over the next four years to 65.6 million.

Since 2002, GM has been working with Wuling, a relatively unknown producer of microvans in Liuzhou, an industrial hub in the poor southern province of Guangxi. The move has paid off handsomely. Wuling has seen its sales surge nearly eight fold since 2002 to 1.15 million microvans last year.

As sales growth slows in big cities on China's eastern seaboard—in part because of traffic-fighting restrictions on car sales and market saturation—GM and SAIC are making fresh moves to penetrate inland regions.

GM's Mr. Tsien says the site for the new Wuling plant the joint venture is thinking about building most likely would be sited in an inland province like Sichuan. He says Wuling has already been adding capacity since late last year to the existing plants, a move that will boost the company's overall capacity to 1.3 million vehicles a year this year.

GM and SAIC are so sure of the new Baojun brand's potential in inland Chinese cities, that they are ready to build an all-new factory dedicated to the vehicle in Liuzhou with capacity to produce 400,000 a year. The plant will start production by the end of 2012.

"There's a massive market for people who want affordable vehicles," said Kevin Wale, head of GM's China operations.

GM faces competition. A joint venture between Nissan Motor Co. and Dongfeng Motor Group Co., for example, has announced plans to launch a China-only brand, Qichen, which is due to start selling its own no-frills cars in 2012.

Wuling began building mini farm trucks in the 1960s and entered a segment that has come to be known as "mini commercial vehicles," or microvans, in the mid-1980s with technological assistance from Japan's Mitsubishi Motors Corp. and Daihatsu Motor Co. SAIC invested in Wuling in 2001, and GM did so the following year.

Since 2002, GM and SAIC helped Wuling improve what were spartan workhorse vehicles used primarily by farmers and small shop owners. They provided technology and made them more reliable and durable for the pot-holed roads they travel along.

For a swelling tide of households in China who are now wealthy enough to buy cars, boxy Wuling vans come with bare-bone features. Some have one airbag as an option, and navigation systems are not offered at all. CD players, air-conditioning, power windows and power locks are all optional features.

When GM first bought its stake in Wuling, the brand sold 147,000 vehicles that year and "was struggling to be profitable," Mr. Tsien says. It was an important investment for GM, but within the company it was hardly noticed.

"If somebody were to mention [Wuling], I would not have known what it was, and I worked for GM," he says. "So clearly our significance has increased."

Wuling is fast evolving into a centerpiece of GM's global strategy, as demand for its thrifty vans takes off.

Another satisfied customer is Ba Peijun, who runs a small meat-delivery service in a rural village called Gongmazhuang outside the central Chinese city of Zhengzhou. The 48-year-old villager's business began taking off after he bought a Wuling van in 2004 for 36,500 yuan with loans from his sister and friends.

"Wuling van quality is really great. It is sturdy, seldom needs repair," Mr. Ba said. "It can haul more cargo—more or less double what I was able to carry on my old van. It's of great help to my business." By 2008, thanks in part to the new van, Mr. Ba was able to save enough money to start a second business—a pancake restaurant. He has since bought a second car, a VW Santana.

So many villagers in Gongmazhuang have purchased Wuling vans that people around the place often refer to it as Wuling Village.‹

[DewDiligence]

Upwardly Mobile Nannies Move Into Brazilian Middle Class

http://www.nytimes.com/2011/05/20/world/americas/20brazil.html

›By ALEXEI BARRIONUEVO
May 20, 2011

SÃO PAULO, Brazil — In a decade working as a nanny, Andreia Soares finally clambered up the ladder into Brazil’s middle class.

With the money she saved, she bought a two-bedroom apartment with granite kitchen countertops and a small veranda, a house for her mother, a plot of land for her brother and a Louis Vuitton purse from Paris that she proudly pulls from a closet.

Later this year, with her monthly salary of $3,100, which she earns caring for a 10-month-old girl in an upscale neighborhood, she plans to buy a $39,000 car — in cash.

“I have always had this dream of buying a house and a car,” said Ms. Soares, 39. “Today that dream is closer than ever for nannies.”

While she has done better than many of her counterparts, Ms. Soares is part of a nanny revolution that is shattering the colonial stereotype of inexpensive but dedicated domestic help in Latin America.

As their expectations for a better quality of life rise, nannies are increasingly seeking to work for the very wealthy and becoming less affordable for many middle-class families. The shift is causing ripples of class tension, posing a nettlesome problem in a society in which more women are entering the work force without the sort of elaborate system of day care that exists in some industrialized nations.

Fading fast are the days when white-frocked nannies worked for a menial salary, with only two days off every 15 days. Better-qualified nannies are refusing to work weekends and are demanding salaries that are two to four times what they were paid just five years ago. A growing number are refusing to sleep over or are leaving the field, choosing jobs that allow more time for a private life, according to parents, nannies and directors of nanny placement agencies.

The income of domestic employees in Brazil, including nannies and maids, rose 34 percent from 2003 to 2009 — more than twice the average increase for all of Brazil’s active workers — said Marcelo Neri, an economist at the Getúlio Vargas Foundation. At the same time, he said, the working hours of domestic employees fell by 5 percent to 36.2 hours a week.

“Today, what I need from a nanny job is different than before,” said Ieda Barreto, 32. Seven years ago, she was making about $400 a month and had only 24 hours off every Thursday, making it tough to hold onto a boyfriend. Today she expects to make almost $1,900 working Monday to Friday, and she charges an additional $250 to work weekends.

“I am looking for quality of life,” Ms. Barreto said. “I value myself much more than I did before.”

The rising expectations reflect the growth of Brazil’s middle class, which rose to nearly 55 percent of the population in 2010 from 37 percent in 2003, Dr. Neri said.

Today, “Brazil is becoming like the United States,” where hourly paid housekeepers are more common than sleep-over nannies, said Jacqueline Szwarc, a psychologist who was picking up her children outside a private school in São Paulo. “The salaries have gotten very high, and the search for domestic help has become very difficult.”

The supply of nannies has thinned as some have sought other work in the expanding job market, driving up salaries for those who stay in the field, economists, nannies and nanny agency directors said. Many remaining nannies are taking courses to become better qualified and to help them find work in wealthier homes, where they can charge much more.

While some mothers embrace the changes as good for Brazil’s development, many are up in arms. Once isolated, nannies now trade information about the market and working conditions through e-mail, blogs and social networks.

“It’s a mafia,” said Ms. Szwarc, 44, adding that she has been lucky to hold onto the same nanny for 10 years.

Six years ago, Evanice dos Santos, a former nanny turned blogger, had no Internet access and caught up with fellow nannies at a São Paulo athletic club where her employers were members. Now married, she has dedicated herself to helping nanny friends online “find a better path” toward more money and better hours.

Some well-paid nannies in São Paulo are employing nannies of their own. Ms. Soares said nanny friends earning more than $4,300 a month were paying less-qualified nannies a little over $900 a month to baby-sit for their own children.

Like a growing number of parents, Rafaella Toledo brought in her nanny from Paraguay, and parents said nannies from Peru were also arriving in São Paulo. “The situation is terrible,” Ms. Toledo said. “Now that I am pregnant I am going to look for someone that isn’t a nanny, because nannies think they are on another level now.”

Michelle Tchernobilsky, 29, has changed nannies about 10 times in the past year, searching for someone affordable yet qualified enough to care for her 10-month-old son. Cutting the nanny from her budget is not an option for Ms. Tchernobilsky, a public relations manager, but neither is paying a salary that she considers exorbitant. “We are hostages,” she said.

Marilia Toledo, the owner of the Masa nanny agency, said the market in São Paulo, South America’s largest city, had become a “war” between demanding nannies and parents trying to hold back nanny inflation. “Things are changing too quickly and abruptly,” said Ms. Toledo, who has owned the agency for 20 years. “No one was prepared for this.”

Among the top requests she receives, she says, is for a nanny who has never worked in São Paulo because they are “more humble.”

Ms. Toledo and some economists are skeptical about how long the revolution can last. Dr. Neri said Brazilians still had low education levels: an average of seven years of study for adults older than 25. Rodrigo Constantino, an economist at Graphus Capital, said a lack of investment in education in Brazil would prevent many domestic workers from finding other, better-paying work, and incessant salary demands could stoke inflation.

“Brazil is riding this wave, and each class is moving up the ladder,” Mr. Constantino said. “The problem I see is how this is going to be sustainable.”

Still, nannies like Ms. Soares are investing in themselves. It began nine years ago when she took a nursing course. She followed up two years later with specialized nanny courses at a so-called baby-sitting center. Next year she plans to take English lessons.

“People in our field are starting to get more qualifications and they are looking for families with more money to pay them,” Ms. Soares said. “Because of that, a lot of women are losing their nannies.”

After a two-year stint working as a nanny in New York, she found her way last year to the home of Fernanda Parodi, a lawyer married to a chief executive in São Paulo. Ms. Parodi says she has no complaints about Ms. Soares’s salary, though she is counseling her to buy a cheaper car.

“I don’t ever want her to leave,” said Ms. Parodi, 38, who is considering promoting her to personal assistant.

Where some mothers see a debilitating revolution, she sees social progress. “If Brazil wants to move beyond a third-world country, then it needs to allow everyone to participate in the growth,” Ms. Parodi said. “It’s the price you pay for progress.”‹

[DewDiligence]

The Rising Influence of Rising Affluence

The article’s full text is in #msg-51490876.

(This post allows the above article to go into one of the yellow sticky slots at the top of the message board, circumventing iHub’s rule that posts placed in a yellow sticky must be <48 hours old.)

[DewDiligence]

Exxon Feeds Asia’s Need for Diapers, Polyester Clothes, and Softer Bumpers

[XOM’s chemicals division would be the second-largest chemicals company in the world by profits if it were a standalone business. The new petrochemicals plant in Singapore is the company’s largest ever.]

http://online.wsj.com/article/SB10001424052702303654804576347672499196238.html

›By RUSSELL GOLD
June 1, 2011

Exxon Mobil Corp. is nearing completion of one of the biggest projects in its corporate history—a giant expansion of a petrochemical facility in Singapore—in a big bet that Asian consumers will have a long-term demand for diapers and dent-resistant auto bumpers.

The Texas-based oil giant is best known for supplying the world with crude, natural gas and gasoline. But it is increasingly focused on expanding its chemical production, most recently with the multibillion-dollar expansion in Singapore. The company won't disclose the precise amount it is spending on the project.

Often forgotten inside the gargantuan company, Exxon's chemical division is enormous. It generated a division-record $1.52 billion in operating income during the first quarter. If it were a stand-alone company, it would be the second-largest chemical company in the world, by profit, trailing only BASF AG of Germany.

It is about to get even bigger. The Singapore expansion—which an Exxon executive earlier this year called "one of the largest projects ever executed" by the 141-year-old company—will boost Exxon's output of chemicals used to make plastics and other staples of modern life by more than 11%. Singapore will become Exxon's largest refining-and-petrochemical complex, bigger even than Baytown, Texas, which held that distinction for decades.

Exxon is bulking up on chemicals, analysts say, in part because this business is becoming more profitable. Historically, investments in its upstream business—finding and developing oil and gas—has yielded a better return than investments in chemicals. But that is starting to change. In 2010, Exxon's chemical unit generated better returns on capital—segment income divided by capital investment—than the upstream division for the first time since 1998. And in recent quarters, chemicals returns have routinely beat Exxon's refinery segment, typically a cash cow.

Exxon may also have run up against its practical limit on upstream investment, which is expected to draw $25 billion to $30 billion this year. "Even with its vast resources, Exxon only has so many people to run these operations," says Phil Weiss, an energy analyst with Argus Research. "They can't increase investment without having people to run the projects."

For Exxon, making more chemicals is a way to tap into the globe's largest emerging market. "At bottom, Singapore was a bet on China," says Stephen D. Pryor, president of Exxon's chemical division. He expects demand for petrochemicals to grow by 5% a year over the next decade; two-thirds of that growth will occur in Asia and half in China.

Not all chemical companies share this Asia-centric approach. Dow Chemical Co. and Chevron Phillips Chemical Company LLC, a joint venture of Chevron Corp. and ConocoPhillips, both said in recent weeks they are considering building world-scale chemical plants along the U.S. Gulf Coast aimed at the Western Hemisphere. "Dow believes that demand growth in the Americas will be robust enough to consume additional production," said spokesman Greg Baldwin.

There is another key difference between Exxon and other chemical makers. The Dow and Chevron plants are being built to take advantage of the newly abundant, low-cost ethane and propane being produced as byproducts by companies drilling natural gas and oil from shale rock. The facilities will produce ethylene, which is used to make plastic bottles and other products.

In contrast, Exxon built the Singapore facility to run off a wide range of feedstocks—petroleum byproducts that are changed into chemical products by using catalysts, heat and pressure. The facility will be able to process hundreds of different liquid feedstocks such as ethane and heavy oils, up from 80 before the expansion, said Exxon spokeswoman Karen Matusic.

Exxon will use complex software to determine how to maximize output from the expanded complex, switching production priorities on a daily basis to generate more gasoline, ethylene or other products.

Exxon plans to integrate its petrochemical facilities in Singapore with its adjacent refinery, a critical reason for building in Singapore. Thirty pipes will carry refinery byproducts to the chemical plant, and 20 pipes will carry leftover materials, such as heavy oils, in the other direction to be reused in the refining process. "Absolutely nothing goes to waste," he says.

Building in this flexibility requires additional upfront capital costs, say analysts, but Exxon believes it will generate higher returns. "It is a belief, based on our history, that flexibility will pay," said Mr. Pryor, the chemical-division president.

From Singapore, Exxon will attempt to sate Asia's growing demand for all things plastic: polyester clothing, water bottles, surgical masks and more. It has already begun priming the market for a new chemical product that Mr. Pryor says helps diapers feel like cloth, but retains the benefits of elastic, stretchable plastic. This polymer will also be used in automobile bumpers to make them more dent-resistant.

China's per-capita spending by households grew by 10% last year, according to statistics compiled by Barclays Capital.

Exxon's Mr. Pryor said he prefers to be expanding near the biggest markets. "World-wide, primary petrochemicals will grow. ... And the big driver will be Asia," he says.‹

[DewDiligence]

This blogger has evidently been reading this board:

http://seekingalpha.com/article/272649-rising-global-prosperity-to-drive-stocks-higher

:- )

[DewDiligence]

Brazil’s Shoppers Score Top Ranking

[Thanks to elmatador on SI for this find.]

http://blogs.ft.com/beyond-brics/2011/06/07/it%E2%80%99s-official-brazilians-are-the-world%E2%80%99s-best-shoppers/

›June 7, 2011
by Samantha Pearson

According to AT Kearney’s 2011 Global Retail Development Index, Brazil now ranks as the most attractive of 30 emerging market countries for retailers, knocking China off the top spot. That’s not bad considering Brazil was so unattractive in 2004 it didn’t even make it on to the management consultant’s list.

“The past eight years of center-left government has resulted in a staggering 40 percent increase in GDP per capita, and a growing and more affluent middle class has resulted in increased consumption,” AT Kearney said.

“Most investors view Brazil as a relatively stable market compared to other developing economies, with a pro-business government that welcomes foreign investment.”

That optimism seems to be shared by the industry itself. Household appliance retailer Magazine Luiza, shoe store chain Arrezo, and drugstore Droga Raia have all held IPOs in the past six months.

Thirty new shopping centres are expected to open next year in Brazil, after 25 openings this year.

But for all the excitement and promise of Brazil, few global brands have yet managed to make a big impact on the country.

In São Paulo’s shopping centres, for example, Spanish clothing retailer Zara enjoys a near monopoly over non-Brazilian women’s clothing.

High import taxes, bureaucracy and complex labour laws mean the reality of doing business for foreigners in Brazil is not always so attractive.

While the country is no. 1 for its retail potential, it’s worth remembering that the World Bank’s Doing Business Index ranks the country below Yemen, Rwanda and Russia in 127th place [ouch!]‹

[DewDiligence]

In China, Women Begin Splurging

http://online.wsj.com/article/SB10001424052748703864204576315291406475666.html

›JUNE 13, 2011
By LAURIE BURKITT

BEIJING—Italian jeweler Bulgari SpA and sports-car maker Maserati SpA have succeeded in China largely by portraying themselves as the ultimate male status symbols.

But the two recently joined a growing number of luxury brands in China that have revamped their marketing tactics to also appeal to self-made female entrepreneurs, a rapidly emerging market segment that also wants high-end baubles and toys.

Maserati has been hosting private cocktail parties with Giorgio Armani's cosmetics line and the Italian lingerie company La Perla to court newly rich female drivers in China. Thirty percent of the 400 cars Maserati sold in China last year were bought by women, compared with just 7% in 2005, according to the company. Maserati says the proportion of its Chinese drivers who are women dwarfs the ratio in the European and U.S. markets, where only 2% to 5% are women.

"Many people are inclined to believe that gentlemen are generously purchasing luxury gifts for women in China, but our observation is that the great majority [of the buyers] are women who have achieved great success in their business and are now rewarding themselves with the finer things in life," says Christian Gobber, managing director of Maserati China.

Women accounted for more than half of China's estimated $15 billion in luxury sales in 2010, according to a survey by consultancy McKinsey & Co. That compares with 45% in 2008, when McKinsey conducted its previous survey. The average female luxury consumer in China also spent 22% more in 2010 than in 2008, while men spent only 10% more.

Rome-based Bulgari boosted its advertising in female-targeted magazines to 22 million yuan, or $3.3 million, in 2010, from a mere 106,000 yuan a year earlier, according to Beijing-based ad agency Charm Communications. Bulgari was recently acquired by LVMH Moët Hennessy Louis Vuitton SA.

China's luxury market—expected to become the world's largest by 2020—has been driven by men for the past decade. As they bought gifts for business associates, men spurred the growth in China of Swiss watchmakers, jewelry stores like Cartier and other luxury-goods purveyors like Louis Vuitton and Gucci, a unit of PPR SA. And while they often bought gifts for women, they were the ones making the luxury purchases.

Now that women have emerged as a growing force, brands that traditionally appeal to women are making a bigger push. The British company Burberry Group PLC and the French brand Chloé, owned by the Swiss luxury group Cie. Financier Richemont SA, are hosting more private sneak-peak viewings of their new fashion collections to give Chinese women an early glimpse of coming trends.

Women feel more pressure than men to stay up to date with fashion, says Yuval Atsmon, a principal at McKinsey, adding that Chinese shoppers are increasing their spending on ready-to-wear clothing, and the majority of those shoppers are women.

In two years, China will become Chloé's biggest market because of the rise of female shoppers, says president and chief executive Geoffroy de-la-Bourdonnaye. "Women in this country are becoming more independent, more career-oriented, and more powerful in the market," he says.

Many retailers are experimenting with new tactics online, where women are more likely to shop than men and where they often influence purchases by others via comments on blogs and social-networking sites, according to McKinsey.

Chanel invited Chinese artist Zhou Yi to attend its Paris fashion show in March, hoping she would plug the brand to her following of nearly 3,000 fashion types on Sina Weibo, a Chinese Twitter-like microblogging service. (She did.)

Givenchy, part of the LVMH empire, launched its own Weibo account in January and is using it to connect with female followers and announce the arrival of new products, such as Nightingale leather bags, which sell for 16,000 to 32,000 yuan. "Women want more ways to experience the brand—to touch and feel and interact," says Wilfred Koo, Givenchy's president of China, Asia Pacific.

The rapid growth in the world's No. 2 economy has fueled job opportunities and earnings potential for both sexes. Each year, 76% of China's female college graduates aspire to management positions, compared with 52% of their U.S. counterparts, according to the New York-based Center for Work-Life Policy.

China is home to 11 of the world's 20 richest self-made women, and it boasts 153 female yuan billionaires (around $150 million), according to the Hurun Report, a Shanghai-based firm.

Consumers like Sun Ningning, a sales manager at GlaxoSmithKline PLC, are the bull's-eye. The 32-year-old Beijing native recently bought a 12,600 yuan leather handbag as a gift for herself. The tan Chloé purse cost her around 15% more than her monthly salary.

"There's just something about buying luxury that makes me feel happy," says Miss Sun. "I can't really explain it."‹

[DewDiligence]

Sway of the Wealthy Remains Strong in Brazil’s Cities

http://www.ft.com/cms/s/0/ed85ed9e-95ba-11e0-8f82-00144feab49a.html

According to Cushman & Wakefield, the property consultancy, office space in downtown Rio de Janeiro is now the most expensive in the Americas, beating even midtown Manhattan after prices in Brazil’s former capital jumped 47 per cent in 2010. The Economist magazine found earlier this year that executive pay was higher in São Paulo than anywhere else in the world.

Brazil manages to pay world-beating prices for its property and professionals, despite having a gross domestic product per capita that is less than one-fifth the size of that of the US. The current high value of the Brazilian real exaggerates the effect, but it is this same phenomenon that makes the country’s rich such capable consumers of international luxury items.

[DewDiligence]

… Jaguar Land Rover, as the [Tata Motors] unit is now known, began showcasing its newest and smallest model, the $44,000 Range Rover Evoque, at motor shows around the world… The car's relatively small size makes it ideal for the congested roads of China, whose auto boom is driving Tata. Demand for luxury cars there ballooned to more than 750,000 units last year, and could more than double by 2015, as more of the nation's huge population becomes affluent.

The "luxury-car market in China is red-hot, and profit margins of BMW or Jaguar Land Rover are far higher in China than in any other market in the world," says Michael Dunne, a veteran auto analyst with Dunne & Co. in Hong Kong. "In China, the propensity to spend on cars goes way beyond function. Affluent Chinese are buying cars principally to project their social status, not just as a mode of transport. Over 90% of the people buying luxury cars in China are paying cash."

http://online.barrons.com/article/SB50001424053111903937204576375460327084194.html

[DewDiligence]

Nestlé Shows Taste for Chinese Treats

http://online.wsj.com/article/SB10001424052702303678704576438601999980390.html

›JULY 12, 2011
By LAURIE BURKITT

BEIJING—Nestlé SA's US$1.7 billion offer for Chinese candy maker Hsu Fu Chi International Ltd. marks an effort by the Swiss foods company to gain on rivals in a fast-growing market by tapping directly into local tastes.

Nestlé plans to buy 60% of Hsu Fu Chi, the companies said Monday, in a deal that values the Singapore-listed company at 3.5 billion Singapore dollars (US$2.87 billion). If completed, the acquisition would be one of the largest foreign takeovers of a Chinese company and would give Nestlé control of the second-biggest confectionery company in China, after Mars Inc.

The bid is part of a broader push by Nestlé, maker of brands such as Nescafe, Kit Kat and Purina, to increase its sales from emerging markets to make up nearly half of the company's total within a decade from about one-third now.

Annual sales in China's confectionery market—including chocolate, candies and gum—climbed 63% to more than US$9.2 billion from 2005 to 2010, according to research firm Euromonitor. Chinese candy consumption per person is still small, and analysts see bigger growth ahead as a wealthier population develops a bigger sweet tooth. China's 1.34 billion people ate 13.7 million metric tons of candy last year, slightly more than half the 26.8 million tons eaten by the 310 million people in the U.S.

Foreign candy makers have targeted China for years, but the Hsu Fu Chi deal would move Nestlé into less-familiar territory: Chinese confections. Hsu Fu Chi's sweets includes cookies with flavors like sweet onion and cucumber, and ping-pong-ball-size cups of hawthorn- or lychee-flavored gelatin custard slurped up by Chinese children.

Nestlé offered to pay S$4.35 a share (US$3.56) for a 43.5% stake in Hsu Fu Chi. If that succeeds, Nestlé then would seek another 16.5% from members of the founding Hsu family, who still own a significant stake, and who would indirectly hold the remaining 40%.

Hsu Fu Chi's shares, trading of which had been suspended since July 4 amid news of the Nestlé talks, resumed trading Monday and rose above the offer price to S$4.40. That indicated that some investors see the possibility of a higher offer.

The Hsu Fu Chi bid reflects wider efforts by global consumer-goods companies to tailor their product portfolios better to Chinese tastes. Kraft Foods Inc. last year started selling green-tea flavored Oreos. McDonald's Corp. offers a red-bean ice-cream sundae.

Nestlé in April bought a 60% stake in China's Yinlu Food Groups Co., which makes peanut-flavored drinks and canned rice porridge. Nestle's main confectionery product in China is a chocolate-covered wafer bar called Crispy Shark. Sales of Crispy Shark have roughly doubled in the past five years, according to Euromonitor.

In addition to filling Nestlé's cupboard with more local products, the Hsu Fu Chi deal also would open up nationwide distribution channels, said Torsten Stocker, a Hong Kong analyst for Cambridge, Mass., consulting firm Monitor Group. Nestlé has been looking for ways to reach lower-income consumers by expanding distribution to mom-and-pop shops in emerging markets. Hsu Fu Chi directly distributes to around 16,000 retail outlets, according to the company's website.

The deal "is a major short-cut to growth," Mr. Stocker said.

Analysts differed in assessing the deal, which they valued at about 16 times Hsu Fu Chi's core earnings last year.

The deal is subject to regulatory approval, including from antitrust authorities at China's Commerce Ministry. The ministry didn't respond to a request for comment. Chinese regulators in 2009 rejected a US$2.4 billion bid by Coca-Cola Co. to buy drinks maker China Huiyuan Juice Group Ltd., a deal that at the time would have been the biggest foreign takeover in China.

If Nestlé's bid is successful, the company said it would delist Hsu Fu Chi from the Singapore Exchange.

The confections market is fragmented in China, with several big domestic players, such as state-owned Shanghai-based Bright Food (Group) Co., known in part for its popular White Rabbit chewy milk candies.

Hsu Fu Chi, founded in 1992 and based in southern China's Guangdong province, had 4.2% of China's candy market in 2009, the latest year for which Euromonitor has data. That placed it in a tie for second place with Perfetti Van Melle SpA of Italy, maker of Mentos. Hsu Fu Chi reported a profit of 602 million yuan (US$93.1 million) on revenue of 4.3 billion yuan in the year through June 2010.

Mars, which entered China in 1993, had 15.5% of the candy market in 2009. It took decades to build that No. 1 position. The company's best-selling candy bar in the U.S., Snickers, was relatively unknown to Chinese consumers until Mars ran a major marketing campaign to sponsor the 2008 Beijing Olympics.

Many companies have had to go to greater lengths in China than they do in other markets, altering the sizes of their products to sell at prices that most Chinese can afford, and changing packaging to make smaller products look bigger, said Max Magni, head of the consumer practice at consulting firm McKinsey & Co. Greater China.‹

[DewDiligence]

Kao Sees Need to Step Up in China

http://online.wsj.com/article/SB10001424052702304584404576441493689407896.html

›JULY 12, 2011, 4:58 P.M. ET
By MARIKO SANCHANTA And HIROYUKI KACHI

TOKYO—Admitting that Kao Corp. hasn't been aggressive enough in China, the chief executive of the big Japanese consumer-products group said his main focus is to expand the company's Chinese presence and better than triple sales in the country to ¥100 billion, or more than $1 billion, within five years.

Kao, known for such brands as the Jergens, Bioré and Molton Brown skin-care lines, has lagged far behind global rivals Procter & Gamble Co. and Unilever in the world's fastest-growing market for consumer products.

"We have to change our tactics in China," CEO Motoki Ozaki said in an interview Tuesday.

Foreign companies have dominated China's market for beauty and personal-care products as rising incomes have spurred the country's consumers to trade up. P&G leads China in sales of beauty-care products, with 26 billion yuan ($4 billion) in the country last year, according to Euromonitor International. Kao's China sales were ¥30 billion ($374 million) in the fiscal year through this March.

"The situation has dramatically changed recently" in emerging markets such as China, Indonesia and Vietnam, where the middle-class populations are increasing steadily, Mr. Ozaki said. "There is an increasing chance that we can cash in on our technology. This has prompted us to embark on a major offensive in the Chinese market."

He said Kao plans to introduce more products that cater specifically to the Chinese market, in part by hiring and promoting more Chinese people in managerial positions.

Kao, which sells laundry detergent, diapers and cosmetics in China, is building its second plant in China to make paper-based personal-care products, including diapers. The Anhui-province plant, west of Shanghai, is slated to go online next year.

"Kao's overseas business is a bit of a mishmash and a disappointment," said James Moon, an analyst at BNP Paribas in Tokyo, who has a "sell" rating on the company. "They only recently started the diaper business in China; they don't produce anything there yet. Only about 1% of their sales come from China, and this is from their detergents. It seems to me they are very late and they may have missed the boat."

Japanese companies have been pushing to globalize and expand existing foreign operations to contend with an aging population, moves that became more pressing since the March 11 earthquake and tsunami disrupted production.

Kao aims to boost its portion of sales from overseas to 50% by fiscal 2020 from 26% now.

Mr. Ozaki said acquiring a U.S. or European hair-care or cosmetics maker would be a way to achieve that goal. "We cannot find [mergers and acquisitions] targets in Asia that help complement our business in terms of brand, technology and sales network," he said. Kao has annual free cash flow of ¥100 billion and sufficient credit to raise ¥400 billion to ¥500 billion in bank loans, if necessary, Mr. Ozaki said.

Kao's last big acquisition was in 2006, with the purchase of Japan's Kanebo Cosmetics for ¥410 billion. The deal made Kao the second-largest cosmetics maker in Japan by sales, after Shiseido Co. But sales have slumped as the domestic market has shrunk.

"What we didn't anticipate is how the domestic market would be affected," especially by the global financial crisis that began in 2008, Mr. Ozaki said.

Kao's net profit rose 15% to ¥46.74 billion in the fiscal year through March, marking the first increase in six years. Sales edged up 0.2% to ¥1.187 trillion, the first gain in three years.‹

[DewDiligence]

When China's online luxury shoppers click to spend more than $4,000 on a Maison Martin Margiela leather jacket or over $3,000 for an Alexander McQueen dress on fashion website, thecorner.com.cn, they will have an option the company doesn't make available to any other customers around the world.

FedEx Corp. delivery men will wait on the doorsteps of Chinese consumers while they inspect their purchases, try them on for size, and decide if the products are worthy of keeping or sending back.

Luxury Internet-retail company Yoox Group SpA and FedEx custom designed the service, which will start up in September to accompany the launch of thecorner.com.cn, Yoox's online designer fashion store.

Yoox, based in Milan, is aiming to appeal to China's high-end buyers, who are driving the world's fastest-growing luxury market and are getting accustomed to being pampered each time they open their wallets.

http://online.wsj.com/article/SB10001424053111903520204576484051686655360.html

[DewDiligence]

Multinationals Find New Markets in Indonesia

[Although not mentioned in this article, HNZ is especially prominent in Indonesia.]

http://online.wsj.com/article/SB10001424052702304793504576432090397556856.html

›AUGUST 4, 2011
By ERIC BELLMAN

JAKARTA, Indonesia—High food and commodity prices have hobbled poor consumers and triggered riots in emerging markets this year. But in commodity-driven economies like Indonesia, the rising prices are lifting millions of farmers and miners out of poverty—and creating opportunities for global companies.

Rubber tappers, cocoa pickers, coal miners and other rural laborers have in some cases seen their incomes more than triple in the past three years, making the workers wealthier than some city residents and putting them on the radar of such multinational consumer-goods makers as Honda Motor Co. and Unilever PLC.

Zulfan Effendi, a 36-year-old palm-oil farmer from the western island of Sumatra, says he used to struggle to make ends meet. But in two years, prices have doubled for palm oil, which is used in everything from chocolate to ethanol. That has let him add rooms to his house and fill them with luxuries he once couldn't afford, like a Samsung flat-screen TV. The money he spends on groceries has tripled.

"My life is much better," he says. "I used to just have a small plantation and big debt. But now the debt is gone, and I've been able to double the size of my fields."

The trend is causing companies to change how they price, produce and promote their products, reaching further outside of the companies' traditional strongholds.

Honda now bases its Indonesia sales projections in part on prices for products such as palm oil and cocoa. The Japanese company is pitching to miners and plantation workers by using promotional caravans that put on festivals in rural areas, complete with dancers, folk singers and the company's latest motorcycles and scooters.

Honda motorcycle sales in the first half were up more than 25% from a year earlier, says Johannes Loman, executive vice president of PT Astra Honda Motor, which sells Honda motorcycles and scooters in Indonesia. "Sales move with the prices of palm oil, cocoa, rubber and coal," he says. "The prices are higher than they were a year ago, so we are expecting growth will increase."

Brazil, Thailand, Malaysia and other lower- and middle-income countries also are seeing spending power rise in rural areas. Although commodity prices are off their peaks this year, they remain high.

Of course, many of Asia's poorest people are hurt by food inflation if they aren't involved in commodities-related businesses. The Asian Development Bank projects that 64 million people in Asia could be pushed below the poverty line as food prices take a bigger bite. In Indonesia, food and fuel subsidies have helped offset some of the pain.

But Indonesia's economy has been expanding at an average of close to 6% a year for the past four years, helped by soaring prices for its natural resources. That growth has spread beyond the urban centers of Java and Bali to far-flung spots across the 17,000-island archipelago, including the coal mines of Kalimantan, the palm-oil and rubber plantations of Sumatra and the clove, cocoa and coconut farms of Sulawesi.

In the 10 years to 2009, the size of Indonesia's middle class more than doubled to 93 million people, according to the Asian Development Bank. Nomura Research projected that Indonesia's middle class could expand to more than 150 million people in the next four years.

Anglo-Dutch consumer-goods maker Unilever says that while Java has accounted for the vast majority of the company's Indonesia sales for decades, the other islands soon will constitute about half.

"Rural areas are getting richer from plantations and natural resources," says Maurits Lalisang, president director of PT Unilever Indonesia. "The money is spreading."

Indonesia's second-largest supermarket chain, PT Matahari Putra Prima, plans to quintuple its number of stores, setting up on the eastern islands of Ambon and Irian Jaya. Sales have jumped at new stores in small cities as farm families arrived in trucks to buy TV sets, clothes and cellphones.

The company's army of sales assistants have to explain the differences in cosmetics and hair products to rural consumers used to the limited selection at mom-and-pop stores in villages.

"It is spreading all over the islands," says Carmelito Regalado, president of the company's food business. "Everyone is getting a piece of the growth."

Hoping for a foothold in the wider Indonesian market, big international retailers including French supermarket chain Groupe Casino and U.S.-based Wal-Mart Stores Inc. earlier this year were considering buying a stake in Matahari. Wal-Mart declined to comment for this article.

PT XL Axiata, Indonesia's third-largest mobile-phone company, says it has been surprised by the surge in subscribers when it opens cellular towers near plantations and mines.

Residents in such areas have "got more money than the lower-end subscriber in the city, and they spend four to five times more on calls," says Chief Executive Hasnul Suhaimi.

Bornardo Sitompul, 36, says he is happy he left a job working in an electronics factory to tend his family's farm on Sumatra. Surging prices for his fields' rubber and coffee beans have helped him fix his simple home and buy a TV set and a refrigerator. He awaits the delivery of his third motorcycle to his home, which is more than 300 miles from the closest big city.

"My life is much better as farmer," he says. "You used to rarely see any motorcycles in my village and now I am going to have three."‹

[DewDiligence]

Multinationals Woo India’s ‘Slumdog’ Consumers

http://www.cnbc.com/id/44268464

›28 Aug 2011
By: Neerja Pawha Jetley

Danny Boyle’s 2009 multi-Oscar winning film Slumdog Millionaire riveted audiences with its story about hunger, deprivation, striving and achievement in India. Now two years later, the same story is capturing the imagination of marketers in corporate boardrooms around the world.

At the center of this tale is the Indian consumer who earns between $2 and $5 a day, lives in an urban slum or in the 600,000 villages of India. He is value-conscious, wants to improve his lot and dreams big for his children.

He might not have continuous supply of water or electricity in his home, but he has access to television and smartphones. He is, to borrow the title from Boyle’s film, India’s slumdog consumer, whose collective spending power is estimated to be a whopping $50 billion.

Multinational companies like Pepsico, Intel, Nokia, GlaxoSmithKline, and Indian firms like Godrej & Boyce and the Tata group are rushing to meet the needs of these bottom-of-the pyramid consumers. They are innovating, inventing and customizing products to satisfy their appetite for food, technology, finance and more.

"Considering that 90 percent of these consumers stay in villages, live in their own homes, grow their staple food and get free water and electricity under rural welfare schemes, they spend almost 100 percent of their income on discretionary items,” Pradeep Kashyap, founder of MART, a consultancy firm that monitors rural consumption in India, told CNBC.

“This makes them the largest and the fastest growing market for soaps, toothpastes, colas, cookies, phones, bicycles and more," he said.

According to India's National Council of Applied Economic Research (NCAER) there are approximately 350 million people in the country earning between $2 and $5 a day.

By 2020 India's slumdog consumers are expected to grow to 500 million while moving up the value chain to earn between $2 and $12 per day, according to NCAER, making them an even more attractive consumer segment.

The sheer size of this market makes it difficult for consumer companies to ignore. Nestle is promoting Maggie noodles at four rupees or 9 cent a packet in Dharavi, one of Asia's largest slums. GSK is offering a health drink Asha at $1.9 for a 500 gm packet and biscuits at 10 cents in rural India.

Coca-cola has launched Vitingo, an orange flavored drink in India priced at 5 cents. PepsiCo is test marketing an iron-fortified snack under the brand Lehar Iron Chusti priced at 4 cents and a glucose drink that will cost 10 cents.

“The Lehar Iron Chusti brand is addressing the over-riding concern of this consumer segment to prevent any loss of income owing to poor health. We have a pipeline of innovative products to penetrate this consumer segment and deepen the market. And the price points reflect the pockets of the consumer we are targeting,” Geetu Verma, Vice President, Innovation, at Pepsico India, told CNBC.

Not just food companies, telecom companies are also echoing the same sentiment. Nokia is offering a $30 phone in India that allows a family of up to five members to share the phone, each with a separate number. This effectively reduces the cost of the phone for each family member to $6.

“Smartphones have taken the intimidation out of technology," R. Sivakumar, Intel's Managing Director for Marketing, South Asia, said. In the past two years his company has held 500 computer fairs in remote semi-urban towns in India, which have been attended by up to 1,000 low-income consumers.

“The typical profile would be a family of four with teenage children. Surprisingly, it is not the price points that matter to this consumer as much as the potential of the product or computing solution to change his life,” Sivakumar said.

The list of companies getting into this space just goes on. Godrej & Boyce last year launched a refrigerator called ChotuKool (Small Cooler) that costs $69, weighs less than 10 pounds, works on battery and is not dependent on continuous power. Tata Chemicals has launched Swach, or Pure, a water purifier that cost $11 that does not need running water. You can pass stored water through it and it has a filtration process for cleaning it.

This innovation is not just limited to consumer discretionary items. Vijay Govindarajan, a Professor at the Tuck School of Business at Dartmouth, recently concluded a global competition that asked participants to send in designs for a 225 square feet home that would cost no more than $1.33 per square feet. "More than any other place in the world, Mumbai needs innovations like these," he was quoted as saying in the Indian media.

India's bottom-of-the pyramid consumers have finally found favor with marketers who have long concentrated on tapping the middle and upper middle classes.

Says Kashyap, “Ten years ago, there may have been an odd company interested in catering to the bottom-of-the-pile consumers in urban slums or rural areas of India. Today not a week passes when there is no foreign consumer company representative in my office wanting to explore and understand the dynamics of this consumer segment for products and services.”‹

[DewDiligence]

A New Class of Consumers Grows in Africa (part deux)

[Please see #msg-62635130, #msg-63987921, and #msg-58974892 for related stories.]

http://online.wsj.com/article/SB10001424052970204002304576627162908367154.html

›OCTOBER 13, 2011
By PATRICK MCGROARTY

JOHANNESBURG—Africa's middle class will triple to more than one billion people in the next half-century, but that still won't suffice to close the gap between the continent and Asia's new economic powers, a report from the African Development Bank says.

The report combines a bright outlook on growth—it predicts gross domestic product growth in the period of more than 5% a year for Africa, which has been a rare source of consistent growth amid the recent market turmoil—with stark warnings about a region at a pivotal point.

The continent's leaders must seize that momentum to avoid slipping into irrelevancy in the global economy, said Mthuli Ncube, the African Development Bank's chief economist. "Certain challenges need to be overcome for this dynamic continent to prosper," Mr. Ncube said in an interview Wednesday.

Industry is emerging too slowly, says the report—to be released Thursday—and Africa's small farms aren't equipped to make the shift to more commercial forms of agriculture. Meanwhile, an overdependence on natural resources—minerals and oil—leaves Africa vulnerable to turbulent commodity markets.

Building on the bank's earlier research, the report predicts Africa's middle class will continue an expansion that has captured the attention of multinationals. The number of Africans earning between $4 and $20 a day will balloon from 355 million people today—a number on par with China and India. That might seem low for inhabitants of many developed countries, but the bank says it is a level at which Africans can spend a bit on products or entertainment beyond the bare necessities of food and shelter.

By 2060, that number is expected to grow to as many as 1.1 billion, or about 42% of the continent's population by that year.

Relying on its own statistical research and data from other sources such as the World Bank, the bank produced upper-limit and lower-limit economic estimates to carry its projections so far into the future. Good governance, Mr. Ncube said, will likely push growth rates and development toward the upper end of the forecast—5.8%—while policy failures could result in worse results.

Not everyone believes Africa's middle class market is so large. The Organization for Economic Cooperation and Development estimates that there were 32 million middle-class consumers in Africa last year, or just 2% of the population. It defined those consumers as people who spent between $10 and $100 a day.

The World Bank makes yet another projection of 43 million middle class Africans by 2030.

Regardless, foreign companies see a new generation of consumers worth pursuing. In June, Wal-Mart Stores Inc. closed a $2.4 billion deal to acquire a majority stake in Massmart Holdings Ltd., with an eye to using the South African retailer as a springboard for the continent. That same month, Ford Motor Co. said it was planning to spend $500 million to expand engine production for its Ranger trucks at a factory near Pretoria. Yum Brands Inc. is planning to double its number of KFC restaurants in Africa by 2014.

Despite making the case for a big and fast-growing middle class, the African Development Bank says poverty is entrenched. By 2060, those living on less than $1.25 a day will still account for a third of Africa's population, down from 44% today. But because Africa's overall population will be nearly three times as large, the number of poor people will increase, it said. That mix complicates Africa's aspirations of prosperity.

The bank estimates Africa would need to grow faster than 7% a year to create enough jobs to lift more people into the middle class a feat China and India have accomplished in the past two decades.

The continent also needs to attract more global manufacturers. Many are looking to move out of China as costs rise, but executives complain that African transport and labor prices are already high—while skills don't measure up to those found in Asia.

"When China and India were developing, they were extremely low cost," said Charles Brewer, the package delivery service DHL's managing director for sub-Saharan Africa. By comparison, he said, "Africa has very high costs and very low productivity levels."

The bank blames Africa's education system. By 2060, 74% of Africans will be of working age, compared to 39% today. But there aren't enough universities or vocational schools to train those potential workers.

One area of optimism is the prospects for trade, both within Africa and with increasingly dynamic developing partners elsewhere. In the next 50 years Africa's most important trading partners will shift from the U.S. and Europe to "south-south" partnerships in the developing world, particularly in Asia. Just 27% of African exports will go to the U.S. and the European Union in 2060, compared to more than half today. And China alone will receive 25% of African exports, up from around 5% today.

"Developing countries have already become major players in global trade," the report says. "By 2060 they will dominate it."

Trade between African countries will also increase as infrastructure and regulations are harmonized across borders, the bank said. By 2060 governments will need to move beyond free-trade agreements to real integration of licensing, border control and visas, particularly small and landlocked countries that would be otherwise isolated from the global marketplace.

Boosting trade between countries is critical to cushion exporters from volatile demand for their commodities outside Africa, and in creating opportunities on the world's youngest continent for tens of millions of additional job-seekers. Without that integration and improvements in education, and agricultural reform, "the continent is likely to be overwhelmed by the challenges it faces," the report said. But decisive action could reap "significant improvements in the lives...of millions of Africans."‹

[DewDiligence]

Brazil’s Nouveau Rich Boost Sales of Luxury Purveyors

http://blogs.ft.com/beyond-brics/2011/11/11/irresistible-pull-of-brazils-new-money/

›November 11, 2011
by Andrew Downie

“Recession? What recession?” asked Suzy Menkes, fashion editor of the International Herald Tribune at the newspaper’s annual Hot Luxury conference in São Paulo this week. “You don’t see too many closed stores (here) as you see in Europe and America.”

Brazil’s rich are getting richer. The country has 155,400 “dollar” millionaires and is 11th on the world’s rich list, ahead of Russia, India, Spain and Mexico, according to the 2011 World Wealth Report by Capgemini and Merrill Lynch Global Wealth Management.

The country’s economy has been booming for years and sailed through the storm of 2008-09 relatively unscathed. It grew by 7.5 per cent in 2010 and is expected to grow by 3.5 per cent this year, much more than the US or Europe.

Sales in the luxury goods market are expected to reach $12bn this year, a 33 per cent rise on 2010, said Carlos Ferreirinha of MCF Consultoria e Conhecimento, a luxury consultancy in São Paulo. “I don’t think there is any chance of us not having expressive growth over the next 10 years,” he says.

Brazil’s millionaires tend to be younger and richer than those in other countries and spend freely. They live for today, are often spoilt rotten, and have little notion of saving – partly because Brazil’s history of hyperinflation meant saving was a risky business.

“The sense of immediate consumption is extremely present here,” says Massimo Mazza, a consumer goods and luxury specialist at McKinsey in São Paulo. “Many of the new rich guys who are 30, 40, 50 years old, they remember hyperinflation when they couldn’t save money so when they have money they want to spend it and have fun and live life. Allied to this is a desire to be exclusive, to show off.”

High end retailers are eager for a slice of the pie. Gucci, dressmaker Diane von Furstenberg, and Christian Louboutin, whose red soled and impossibly high heeled shoes can cost several thousand dollars, have opened shops here recently and plan to open more. Louboutin said he decided to open his first store in São Paulo in 2009 because so many Brazilian clients in the US pestered him. “I realized I had a lot of Brazilian customers because when I did signings in New York they kept telling me I should open a store in Brazil,” he says.

“When you hear that 50 or 100 times you start to believe it makes sense and it really did make sense.”

It makes sense because retailers are making money. They charge vastly more for their goods in São Paulo than they do in Paris, Sydney or Moscow. Brazil’s high taxes are one reason; big mark-ups are another. Yet high prices don’t deter shoppers willing to pay for the pleasure of having something exclusive – and for Brazilian service.

“Designer labels are often cheaper abroad, much cheaper,” said Vera Lopes, head of the Brazilian chapter of the Luxury Marketing Council. “So why buy here? Because they want it when they want it and because they like Brazilian service. If they are treated well then they won’t go overseas to shop.”

All this exerts and irresistible pull. The IHT’s conference attracted several hundred delegates from around the world, each paying £2,495. Like their customers, they seemed to enjoy shelling out.

“The emerging markets are not only sources of revenue but sources of new ideas,” said Nizan Guanaes, a Brazilian advertising executive. “We [used to be] a source of problems. [Now] we are players, we are big guys, we are opportunities. So bet on us.”‹

[DewDiligence]

Poverty Rates Fall Sharply In Latin America

http://online.wsj.com/article/SB10001424052970204012004577070794204414210.html

›DECEMBER 1, 2011
By DAVID LUHNOW

MEXICO CITY—While the U.S. and Europe struggle with weak economic growth, poverty rates in Latin America have fallen sharply in the past 20 years thanks to rising household incomes, the United Nations reported.

From 1990 to 2010, the poverty rate in Latin America dropped by 17 percentage points to 31.4% from 48.4%, according to the U.N. Economic Commission for Latin America and the Caribbean.

The region has also made strides in reducing its notorious income inequality mostly thanks to a more equitable distribution of labor income as well as government cash transfer programs for the needy, the agency said in its annual review of the region.

"Poverty and inequality continue to decline in the region, which is good news, particularly in the midst of an international economic crisis," said Alicia Barcena, head of the agency, in a statement.

In absolute terms, the region still has 174 million inhabitants who live in poverty, but that is well below the peak of 225 million in 2002, the agency said.

Several factors help to explain the fast decline in poverty. Governments managed to stabilize their economies after the 1980s "lost decade" of debt crises and inflation—a period more extreme than what Europe is suffering with its current crisis. That allowed countries to spend less on servicing debt and more on social spending.

Many nations like Mexico also opened to trade, which helped to lower prices for consumers. Others, like Argentina, Venezuela and Brazil, benefitted from rising commodity prices in products including oil, iron ore and soybeans. Lastly, fertility rates dropped everywhere, meaning the region has fewer babies and more working-age citizens.

"Macroeconomic stability, opening to trade, less debt, and better demographics have all come together," said Luis de la Calle, a former Mexican trade official who recently wrote a book about the rise of the Mexican middle class called "Clasemediero."

While some countries measure poverty differently, making comparisons difficult, some nations clearly had more success in reducing poverty than others. From 2001 to 2009, Brazil cut its poverty rate to 24.9% from 37.5%, while Peru cut its poverty rate to 34.8% from 54.7%. Mexico, meanwhile, had a much more modest reduction to 34.8% poverty in 2008 from 39.4% in 2001.

Latin America still has a long way to go in development. The region is still the world's most unequal and has too many barriers to social and economic mobility for the poor, the agency said. Its educational system is largely broken and economists say a sudden reverse in commodity prices could hurt some countries like Argentina, Brazil and Venezuela very hard.‹

[DewDiligence]

Brazilians Fly 5,000 Miles for a Shopping Spree

http://online.wsj.com/article/SB10001424052970204319004577088451763089084.html

›DECEMBER 21, 2011
By JOHN LYONS and PAULO TREVISANI

Ana Ligia Paladino traveled 5,000 miles from her home in southernmost Brazil last month to jostle for Black Friday bargains at Macy's in New York City. Waiting in line by 5 a.m., she soon notched her first buys in a planned 10-day shopping spree.

"It was a bagunça!" she recalled, using a Brazilian expression that means both mess and mayhem to describe the scene.

Brazilian shoppers are taking the U.S. by storm this holiday season, a welcome boost for U.S. retailers facing a sluggish economy. Armed with a strong currency, easier access to credit and abundant enthusiasm for shopping, Brazilians have quietly ousted richer nations, such as the U.K., as the biggest overseas spenders in key U.S. markets like New York City and Florida.

Some 700,000 Brazilians will visit New York City this year, more than twice the 2009 figure. That's fewer than the British and Canadian totals. But Brazilians still outspend all other countries in the city, including Canada, the U.K. and Italy, New York officials say. In 2010, Brazilian visitors spent a total of $1.63 billion in New York City, topping the $1.42 billion spent by travelers from the U.K., the $1.27 billion spent by Canadians and the $1.1 billion spent by Italians, according to the NYC & Co., the city's tourism board.

Meanwhile, Brazilians became Florida's most lucrative overseas shopper after Canadians by spending $1 billion in the first six months of the year, a 61% increase over last year and more than twice the second biggest spenders, the U.K.

"Brazilian shoppers are at the top of every retailer's list right now, and if not, they are at the top of their wish lists," said Fred Dixon, the senior vice president for tourism development at NYC & Co. The organization is lobbying Congress to speed the visa process for Brazilians, and eventually waive it all together, in hopes Brazilian spending will rise further.

Brazil isn't the only emerging market nation in U.S. retailers' sights. The number of Chinese visitors to the U.S. has quadrupled since 2003 to more than 800,000. Though that's still relatively few, considering the population of China, studies show that individual spending by Chinese visitors outpaces that of many Europeans.

The new global clout of the Brazilian shopper reflects the rise of Latin America's biggest economy, even as the U.S and Europe remain mired in economic gloom. A decade of currency stability and soaring commodity prices helped lift millions from poverty in the resource-rich nation. For many in Brazil's newly minted middle class, a U.S. shopping spree is an important rite of passage.

But the big reason Brazilians shop in the U.S. is because everything from Apple Inc. iPads to polo shirts cost half what they do back in Brazil. With high taxes, rising inflation and an overvalued currency—the real has appreciated by about 12% this year against the dollar— Brazil's relatively closed economy has become an expensive place to make or buy goods—not necessarily a good thing for long-term growth. Brazilians save so much buying in the U.S. rather than in Brazil that it often covers their U.S. airfare and hotel bills.

"You can find it all in Brazil, but at a much higher price," said Hélida Geber, a Brazilian on her first trip to the New York area. She was taking a breather from buying cosmetics, clothes and "gifts for everybody," including Apple iPods, handbags and watches at the Jersey Gardens mall in Elizabeth, N.J.

Located just a few minutes from Newark Airport, Jersey Gardens was described as the place "many visit even before checking in at their hotels" in an 84-page New York/Miami shopping guide that came free with a recent edition of Veja, a top Brazilian newsweekly.

Other shopping meccas include Sawgrass Mills outlet mall in Sunrise, Fla., which now features a Brazilian-style restaurant.

For many Brazilians, things in the U.S. appear so cheap it is hard not to buy everything in sight. Consider Vladimir Lúcio Martins's experience, a court clerk on vacation in the New York area last month with his family. A motorcyclist, Mr. Martins bought a Shoei helmet for $587, a quarter the cost in his hometown of Presidente Prudente, he said. He made repeat trips to T.J. Maxx and Marshalls stores in New Jersey. At a Costco in Clifton, N.J., he couldn't believe the $7 price of a can of Kraft Parmesan Cheese, a fraction of the Brazil cost. He bought it.

The Martinses total take filled nearly six 70-pound bags—their airline luggage limit.

But back in Brazil, not everyone thinks it's so great Brazilians travel all the way to the U.S. to buy everything from work clothes to cheese.

In December, Brazil said its economy unexpectedly stalled in the third quarter. The main reason: Commerce and manufacturing both shrank by 1% from the previous quarter.

Brazilian President Dilma Rousseff has sought all year to weaken Brazil's currency, to little avail. In recent months, the government announced several packages of incentives and other measures to make local manufacturing and retail more competitive. To pay for them, Brazil also set a 6% tax on overseas credit-card purchases.

So far little has worked. The currency has declined some, but remains up more than 25% from early 2009. Brazilians are on pace to spend 60% more overseas than last year, already a record. Along the way, visa processors at the U.S. consulate in Sao Paulo have become the world's busiest.

For now "a lot of our sales are concentrated on things you can't bring back on the plane, like cars and televisions," said Fabio Pina, an economist with the Brazil's Fecomercio retailers association. His daughter had just returned from purchasing a stroller and other infant gear in the U.S., he said.‹

[DewDiligence]

PARL soars 71% on PERF buyout:

http://finance.yahoo.com/news/Perfumania-Holdings-Inc-pz-1029614624.html?x=0

Increasing global affluence is bullish for fragrance companies.

[DewDiligence]

Birth Rate Plummets in Brazil

[Throughout recorded history, a declining birth rate has always been highly correlated with increasing affluence.]

http://www.washingtonpost.com/world/fertility-rate-plummets-in-brazil/2011/12/23/gIQAsOXWPP_story.html

›By Juan Forero
December 29, 2011

BATAN, Brazil — Priscila da Silva once asked her grandmother why she had 12 children, and the answer was simple: “Because I wanted to.”

These days, Silva, like many women in Brazil and the rest of Latin America, has other plans. At 24, she thinks about having one child, if that.

“The situation today is different, and raising a child is difficult,” said Silva, slicing tomatoes at a restaurant that she founded with four other women, only one of whom has planned a family of any size. “This is another time, and it’s not the same.”

Fertility rates have dropped in many parts of the world in recent decades, but something particularly remarkable happened to the once-prolific family across Latin America. From sprawling Mexico to tiny Ecuador to economically buoyant Chile, fertility rates plummeted, even though abortion is illegal, the Catholic Church opposes birth control and government-run family planning is rare.

A frenzied migration to the cities, the expansion of the female workforce, better health care and the example of the small, affluent families portrayed on the region’s wildly popular soap operas have contributed to a demographic shift that happened so fast it caught social scientists by surprise.

In 1960, women in Latin America had almost six children on average. By 2010, the rate had fallen to 2.3 children. [See below for the numbers in Brazil, specifically.]

“When I started out, the cutting-edge thing to do was to explain why people had lots of children,” said Joseph Potter, a demographer at the Population Research Center at the University of Texas, who began working in Latin America in the 1970s. “In fact, people were more disposed toward low fertility than we oh-so-sophisticated social scientists thought. .?.?. The idea that lots of children was the way to go went down the drain a lot earlier than we were prepared to realize.”

Brazil’s declining fertility rate has been particularly fascinating for demographers. This is a country of continental proportions whose population is an ethnic stew of almost 200 million. There is also a great gap between rich and poor, although millions have joined the middle class during Brazil’s recent economic expansion.

The country’s fertility rate has fallen from 6.15 children per woman in 1960 to less than 1.9 today. That is a lower rate than in any other Latin American country except Cuba, which has state-sponsored family planning and legalized abortion. It is also lower than the rate for the United States, which at 2 per woman is just enough for the population to replace itself.

Demographers were astonished that Brazil’s fertility rate fell almost uniformly from cosmopolitan Sao Paulo, with its tiny apartments and go-go economy, to Amazonian villages and the vast central farming belt.

“Brazil started coming down and had this big drop that amazed everybody, everywhere,” said Suzana Cavenaghi, a Brazilian census bureau demographer. “We wouldn’t expect that in a country that’s so diverse, with a lot of poverty in so many places and so unequal, economically speaking.”

Contributing factors

Cavenaghi said a confluence of factors accelerated the trend.

Women were empowered by a pro-democracy movement that rose up against a 1970s-era military dictatorship. That dictatorship, which wanted to populate Brazil’s remote areas, inadvertently contributed to fewer births by promoting industrialization. That led rural families to crowd into cities, where a brood of children could be a financial drain.

Cavenaghi said women began to look for means of birth control, easily obtained without a prescription. Doctors in the public health service provided sterilizations, which became common, and women sought out pills that induced abortions long before those pills became the subject of controversy in the United States.

“Women nowadays, they understand that they have to change their lives,” said Veronica Marques, communications director for Elas, a group that helps women start businesses across Brazil. “This idea of doing what she really wants to do, and having the power to do it, is the thing that has changed this country.”

Marques, who is 31 and married and who doesn’t have any children, said that for many Brazilian women, the top role model is the country’s first female president, Dilma Rousseff. She went from being a daring 1960s-era Marxist guerrilla to a brainy, no-nonsense technocrat. Now Rousseff, whose only child, a daughter, is a lawyer, leads the world’s sixth-largest economy.

And it is not hard to find young women, college-educated and climbing the ladder of success, who say they may do without children.

For instance, Elisangela Batista, 37, was a banker for 10 years and now does public relations work. “I have no intention of having children,” Batista said, adding that most of her friends have one child or none. “My priority has been other things: to study, to work.”

The aspirations of Brazilian women are underscored by a report issued this month by the Center for Work-Life Policy, a think tank in New York. The report, “The Battle for Female Talent in Brazil,” says that 59 percent of Brazilian women consider themselves “very ambitious” and that 80 percent of college-educated women aspire to upper-echelon positions. U.S. women were far less likely to give those responses.

The telenovela effect

The lives of Brazil’s career women are often reflected in the country’s elaborate soaps, or telenovelas, which numerous U.S. and Brazilian researchers say have been an important factor in the drop in Brazilian fertility. The protagonists may be perpetually anguished about lost love, but they inhabit an appealing, affluent, highflying world, whose distinguishing features include the small family.

“They are all young. They live well. They are comfortable. They are beautiful,” said Maria Immacolata Vassallo de Lopes, coordinator of the Center for the Study of the Telenovela in Sao Paulo. “Why do they need children?”

In real life, Brazil’s career women tend to be like Priscila da Silva and her four partners at the restaurant. One of the partners has three children, but the others are more like Jaqueline Ramos. Her grandmother had 19 children, but Ramos, 24, said she may not have any.

“It is too much work to have children,” she said, busily chopping cilantro.‹

[DewDiligence]

The New Pecking Order of China’s Art Market

http://online.wsj.com/article/SB10001424052970204124204577153370615259922.html

›JANUARY 13, 2012
By KELLY CROW

On the outskirts of Beijing in a private club house called Paradise, there is a large, windowless room where Yang Bin displays his collection of modern and contemporary art.

"Sit down and get ready," Mr. Yang recently told a few friends visiting from Taiwan. Grabbing a remote control, he turned to a set of wall panels that, with a click, began to slide apart. Each panel revealed a few of his recent acquisitions, from Chairman Mao-era portraits of revolutionaries to brightly colored abstracts by China's rising stars. As his friends applauded the slide-show, Mr. Yang grinned and lit a cigar.

The art market is being transformed by Chinese collectors willing to pay top dollar for everything from Ming vases to contemporary Chinese abstracts. In some cases, these works are outstripping prices paid for blue-chip Western artists like René Magritte and Clyfford Still.

Three of the 10 most expensive art works sold at auction last year were by Chinese artists, according to art-market analyst Artprice. Last year's priciest painting: "Eagle Standing on Pine Tree" (1946) by self-taught painter Qi Baishi. This delicate scroll rocketed ahead of colorful canvases by Pablo Picasso, Roy Lichtenstein and Andy Warhol when it sold for $65 million at auction house China Guardian in May. Overall, purchases by Chinese collectors accounted for roughly a fifth of Christie's global sales during the first half of last year; Sotheby's says mainland buyers also lifted its sales in Asia to nearly $960 million last year, up 47% from 2010.

Welcome to China's rollicking art world, a marketplace flush with wealthy entrepreneurs who are amassing art at a clip to rival any Russian oligarch. From Beijing to Chongqing, collectors are building private museums, opening galleries and embracing an exuberant art scene, even as China's economy shows early signs of a slowdown and many collectors elsewhere are buying more cautiously.

Mr. Yang, age 54 and one of Beijing's biggest car dealers, is emblematic of the new wave of Chinese collectors: Over the past decade, he has collected nearly 1,000 artworks by contemporary heavyweights like Chen Yifei, who paints women in romantic interiors, and Zhang Xiaogang, known for haunting family portraits. Mr. Yang's art choices are closely tracked by the region's top collectors and dealers. He has financed the opening of a pair of edgy art galleries in Beijing, one of which is managed by his wife, Yan Qing. Last year he began importing and reselling collectible wines like Bordeaux. (He keeps most of his own 30,000-bottle collection stored in a cellar outside town.)

The collectors in his broader circle include Qiao Zhibing, a nightclub owner based in Shanghai. Mr. Qiao is outfitting his four-story karaoke bar, Shanghai Night, with conceptual sculptures by Ai Weiwei, sleek photographs of Champagne-drinking partygoers by Yang Fudong and paintings of men in suits and smiling face masks by Zeng Fanzhi. Behind Mr. Qiao's cashier's desk looms Beijing artist Ji Dachun's large painting of an eyeball.

Another friend, Beijing hotelier Zhang Rui, has started decorating every room in his new Gallery Hotel with pieces borrowed from a gallery called Tang. He also has an 800-piece collection of his own. The hotel hasn't opened yet, in part because Mr. Zhang recently spent 18 months in detention for allegedly bribing a Party secretary. Mr. Zhang denies making any bribe but says he did pay a fine as a condition of his release last June, and he's now seeking the remaining building permits.

"It's not enough in China to be wildly wealthy," says Meg Maggio, director of Pékin Fine Arts, a Beijing gallery specializing in contemporary art. "For all these guys, it's about building a beautiful way of life—they want the nice objects, the good wine, the whole package."

Alan Lee, who runs Beijing gallery Asia Art Center, says one of his clients, a fitness-equipment manufacturer named Chang Chiu Dun, calls himself the "Cover Killer" because he "likes to buy artworks that have been on the covers of auction catalogs."

The downside, Mr. Lee says, is that this influx of newly wealthy collectors is fueling risky speculation on art, leading to price swings and heavy trading volumes for younger artists like the eyeball painter, Ji Dachun, whose lasting significance is still uncertain. Art advisory firm Artvest says Chinese investors have recently started at least eight art funds, which buy artworks with the aim of reselling them at a profit later. There are only about 20 similar funds elsewhere in the world.

China's gallery scene is similarly freewheeling, with collectors such as Mr. Yang sometimes serving as stakeholders or co-owners of galleries where they also shop. Such arrangements can spark potential conflicts of interest because the stakeholders might be able to leverage their position to claim the gallery's choicest pieces. Seven years ago Mr. Yang paid to help his wife open her contemporary art gallery, Aye, but he says he doesn't manage her artists or get first dibs on any work she shows there. He recently stepped back as a financing partner in another contemporary art gallery he founded three years ago, Eastation, in order to focus on his wine venture. He continues to buy art from both galleries.

Dealers and artists say it's unclear whether Mr. Yang is trying to build a museum-worthy collection or angling for the right moment to cash out. "China's market is still so new—it's hard for us to tell who's a collector and who's a speculator," says artist Zhang Xiaogang.

Mr. Yang isn't troubled by such ambiguity. "I can't say if investing in art is good or bad," he says, "but I know that without money, you can't make a market grow."

Etc.‹

[DewDiligence]

L’Oreal logs robust 4Q11 growth in emerging markets:

http://online.wsj.com/article/SB10001424052970204795304577221224149148182.html

Cosmetics sales in booming emerging markets such as Brazil and China are offsetting L'Oréal SA's slumping growth in Europe, the cosmetics giant said Monday, as it reported an 8.9% rise in profit.

…Like many consumer goods companies, L'Oréal has placed its bets on the rising middle classes in Asia, Africa and Latin America. Many of the billions of potential new consumers are being exposed to Western brands for the first time, and L'Oréal is in a race with competitors such as Procter & Gamble Inc. and Unilever to tap into their wallets.

[DewDiligence]

China Plans Major Expansion of Covered-Drug List

[Most multinational drug companies have seen robust sales growth in China as large increases in unit volume have exceeded reductions in pricing. Now, the pricing reductions may be leveling off and China’s list of essential drugs is expanding to include more branded drugs for specialty indications, both of which are are bullish for the pharma industry.]

http://www.bloomberg.com/news/print/2012-02-14/china-plans-to-expand-list-of-essential-medicines-health-minister-says.html

›By Bloomberg News
Feb 14, 2012

China plans to expand its list of essential drugs to 800 to cover diseases such as cancer this year, and prices for pharmaceuticals may fall further, Health Minister Chen Zhu said.

China, which in 2009 introduced the current roster of 307 drugs that are subsidized and purchased in bulk by provincial governments, may have 500 western products and as many as 300 traditional Chinese medicines on the new list, Chen said in Beijing yesterday.

The country implemented a series of drug price cuts last year and is introducing a nationwide system of procurement aimed at making essential medicines cheaper. Those plans raised concerns of global drugmakers such as Pfizer Inc. (PFE) and Merck & Co., seeking expansion in the world’s fastest-growing pharmaceuticals market. Prices of drugs have declined by an average of between 30 percent and 35 percent, according to Chen.

“I hope prices can come down a bit more,” Chen said at a briefing arranged by the World Health Organization. “But price is no longer the main issue, it’s quality,” he said, adding the ministry will focus on improving the assessment of the quality of drugs in the new tender system.

Cancer Lobby

Chen, a hematologist who received medical training in France, said one disease the government may cover is chronic myelogenous leukemia, a form of blood cancer, as patients’ lobby groups push for drugs used in its treatment to be included in the essential list.

“Drugs on our essential list today are mostly generics, but shortly I think pressure groups for some of the diseases such as cancer may ask for aid in some targeted therapies and we are considering that,” he said.

The country also wants to eliminate hospitals’ reliance on drug sales in the five years through 2015 to lower medical costs, according to the Ministry of Health.

China Business News reported Feb. 13, citing an unidentified person close to the Ministry of Commerce, that one plan being studied is for drug companies to manage pharmacies operated by public hospitals, benefiting China’s biggest drug distributors such as Sinopharm Group Co. and Shanghai Pharmaceutical Holding Co.

Chen said he doesn’t expect this to happen.

“The likelihood of removing pharmacies from public hospitals is not huge,” Chen told reporters after the briefing. “We need to ensure the quality of drugs. And currently pharmacies in hospitals are much more strictly managed than those in society.”

One way for hospital to offset losses from drug sales is to increase the amount they charge for services such as surgery, Chen said.

“Neurosurgery for example, which needs about 10 people -- doctors, surgeons, nurses, anestheticians -- to perform for a whole day, is charged at less than 2,000 yuan, which is ridiculous,” Chen said.‹

[DewDiligence]

Re: Mexico’s middle class

http://online.wsj.com/article/SB10001424052970203986604577257341514055760.html

In a recently released book, Mexico: A Middle Class Society, Mexican economist Luis de la Calle and Mexican political scientist Luis Rubio describe a nation where many politicians still think of the electorate as rural and poor but where consumption patterns reveal a trend toward urbanization and upward mobility. Judging by family incomes but also by things like housing rental and ownership, appliance purchases, Internet access and trips to the cinema, they argue that today the middle-class population is the majority in Mexico.

[DewDiligence]

PG moves headquarters of personal-care/beauty segment to Singapore:

http://online.wsj.com/article/SB10001424052702304070304577396053688081544.html

Procter & Gamble Co. said Thursday it would move its global beauty, skin, cosmetics and personal-care unit to Singapore from Cincinnati, according to an internal memo.

P&G is making the move since Asia is the fastest-growing beauty market in the world, the company said.

[DewDiligence]

WHO says number of global cancer cases will increase 75% between now and 2030:

http://in.reuters.com/article/2012/05/31/us-cancer-global-prediction-idINBRE84U1HM20120531

This is a consequence of not only the projected increase in global population, but also the increasing affluence in emerging markets, which will foster the adoption of Western lifestyles (#msg-51490876).

[DewDiligence]

Chasing China's Shoppers

[See #msg-66835915 and #msg-51490876 (including reply chain) for related stories.]

http://online.wsj.com/article/SB10001424052702303444204577460693377819420.html

›June 14, 2012, 1:39 p.m. ET
By LAURIE BURKITT And BOB DAVIS

QINGDAO, China—Shopping for a water heater at Jiangsu Five Star Appliance, first-time homeowner Zhong Lei listens intently as a salesman explains how a digital-control system makes taking a shower more comfortable.

"We need to learn about all these features because our parents didn't have most of this stuff," Mr. Zhong, a 31-year-old military employee, explains later.

He buys the water heater—as well as a refrigerator, a washing machine and a $950 flat-screen television set.

Mr. Zhong's experience at the Best Buy Co. unit offers a glimpse inside China's evolving middle class.

China is counting on rising domestic demand from this rapidly growing segment. So, too, are Western exporters, faced with anemic growth in Europe and North America.

But China's middle class isn't Charleston's. Western companies have misjudged Chinese shoppers' priorities and clumsily tried to export U.S.-style stores.

"We were stupid and arrogant," says David Deno, who was Best Buy's Asia chief until recently.

But through trial and error, China has become a rare bright spot for Best Buy, which has been pummeled by slumping U.S. sales and racked by management turmoil culminating with the April resignation of its chief executive.

The company is betting that its Five Star subsidiary can make China the retailer's largest overseas market, one that could rival U.S. operations. Five Star has about 200 stores and by 2016 plans to add up to 500 more, targeting $4 billion in sales. Five Star declines to disclose last year's sales.

The potential buying power of China's middle class is vast. About 247 million Chinese, 18.2% of the population, qualify as middle class, meaning their households spend between $10 and $100 a day on average, according to Brookings Institution economist Homi Kharas.

If current patterns continue, the number will soar to 607 million by 2020, and spending by China's middle class will rival that of the U.S., after adjusting for inflation and purchasing power.

The trend has the potential to remake China. With export markets weakening in Europe and the U.S., economists say, Beijing needs to lift spending by its own middle class or risk that growth will slow sharply. Steady middle-class growth also could help China's trading partners, bolstering a market for computers, cars and trendy clothing, as well as for commodities such as copper, oil and cotton.

China already is the world's largest market for some middle-class emblems, including cars, personal computers and smartphones. And multinational companies show no signs of taking their feet off the gas. Whirlpool Corp. plans to boost distribution of fridges, washing machines and other appliances to China's inland cities. Coca-Cola Co. plans to invest $4 billion over the next three years.

"For fast-moving, everyday consumer goods, there are some broad megatrends that will continue to push demand forward, which are ongoing urbanization in China and then, of course, the related growth of the middle class," Hein Schumacher, the China chief for food maker H.J. Heinz Co., told analysts last month.

Nicolas Wang, Five Star's chief executive, says that when the company opened its first store in 2001, he didn't even know the Chinese term for middle class. It's no wonder; less than 3% of the population fit the description then, says Mr. Kharas, the Brookings economist.

But many retailers jumped in anyway. Some quickly prospered, such as Yum Brands Inc.'s KFC.

Mattel Inc., however, shut its Barbie stores in March of last year, after learning that Chinese parents wanted their girls to model themselves after studious children, not flirts.

Home Depot Inc. closed about half its stores here last year, finding scant interest among Chinese for do-it-yourself renovation oops]. Mattel says it will promote more educational toys in China. Home Depot is revamping its strategy.

Best Buy used a two-track approach. It bought an initial 75% stake in Five Star in 2006. It also opened nine Best Buy stores, figuring that Chinese shoppers would covet the same gadgets Americans did, like espresso machines and surround-sound home-entertainment systems.

But Chinese consumers are different. For one thing, they are poorer. Median household income in Chinese cities was about $13,400 in 2010, according to Moody's Analytics, about a quarter the U.S. figure.

The Chinese middle class also is at a different stage of development. Many Chinese want appliances and basic TV sets to fill their first apartments. Chinese on average also save more than 30% of household income, vastly more than Americans, and rarely use credit cards. And many Chinese shoppers expect to haggle over prices—a foreign concept for the U.S. company.

Last year, Best Buy shut its China outlets, figuring that opening U.S.-style stores had been a mistake, and focused exclusively on building the Five Star brand.

Five Star targets China's lesser-known cities, where some people are just beginning to develop consumer habits. About 70% of its customers are young families earning around 5,000 yuan, or roughly $800, a month and looking for products that a decade ago only the rich could afford.

The moment a customer starts browsing a big-ticket item, a Five Star sales clerk will offer the shopper cherry tomatoes, a cup of hot water to sip or some time in a massage chair. Later, the clerk will try to persuade the customer to buy the chair.

The chain also offers the services of "solution experts," who help customers sort through the conflicting claims of manufacturers' representatives who work in the stores, where goods are organized by manufacturer, rather than by product.

Five Star's experts give out their telephone numbers so customers can call at any time. The goal is to build a web of loyal shoppers through referrals, borrowing from a Chinese custom of relying on a network of trusted acquaintances for advice.

One Five Star shopping expert, Wang Bo, says he has been invited to a half-dozen customer weddings. "I earn their trust and give them the smile and service of an angel," he says.

Growing sophistication among some Chinese middle-class customers has led Five Star to upgrade in some cities. The Qingdao store has higher-priced electronics than older outlets—for example, cameras and high-definition video equipment for a first voyage overseas or a road trip across China.

With brighter lighting, additional seating and customer-assistance stations, the store in this port city of 8.4 million people also has more of the trappings of a stateside Best Buy.

Best Buy also is giving Five Star a few tips from the U.S. playbook. The subsidiary displays mobile phones, which Chinese consumers regularly upgrade, in the front of the store to draw traffic.

Five Star also is working to develop its own brand as a retailer, helping it to compete with larger, brand-conscious Chinese chains, such as Suning Appliance Co. and GOME Electrical Appliances Holding Ltd.

Following its parent's lead, Five Star opened a small research department last year to conduct consumer surveys. When it learned that some customers considered the chain stodgy, Five Star developed a new icon: cartoon characters that appear to be drawn by Hollywood animators.

Tan Peng and her fiancé, Hou Huimao, have a combined monthly income of 4,000 yuan. On a recent visit to Five Star's Qingdao outlet, they purchased a washing machine, a refrigerator and a flat-screen TV for their new two-bedroom apartment.

On their way out, the 28-year-olds stop to pore over an iPad but decide the time isn't right.

"We have to go to where we can get the best bargains," Ms. Tan says. "After all, we're not in the upper class."‹

[DewDiligence]

From today’s Cover story in Barron’s:

http://online.barrons.com/article/SB50001424053111904239304577574970933460292.html

China's relentless urbanization will induce more of its citizens to open their wallets. By 2020, about 850 million Chinese will live in urban areas, up from 650 million in 2010, says a McKinsey study. One in every five city-dwellers will be a first-generation migrant, and the range of goods catering to this urban sprawl makes brand choices a bigger individual statement. From Shanghai to Shenzhen, you are what you wear, where you shop, and what you drive.

Indeed, brands are the name of the game. See #msg-71084341 (including the embedded links at the bottom) and the chart in #msg-56438958 for related info.

[DewDiligence]

Good data for such companies as HNZ and PEP:

http://online.wsj.com/article/SB10000872396390444443504577602872706580532.html

Spending by China's urban households in the first half was up 12% from a year earlier. Spending growth by rural households was even stronger at 16%. The average household is still not spending much relative to its counterparts in the West. But with hundreds of millions of families increasing consumption, the aggregate amounts are significant [no kidding].

The main beneficiaries are sellers of everyday products like instant noodles, soft drinks and shampoo. Sales of food, beverage, and liquor in the first seven months of 2012 were up 17% from a year earlier. Sales of cosmetics were up 16%.

HNZ reports FY1Q13 results next week.

[DewDiligence]

World economics report by the US National Intelligence Council states the obvious:

http://www.nytimes.com/2012/12/11/world/china-to-be-no-1-economy-before-2030-study-says.html

One remarkable development it anticipates is a spreading affluence that leads to a larger global middle class that is better educated and has wider access to health care and communications technologies like the Internet and smartphones. “The growth of the global middle class constitutes a tectonic shift,” the study says, adding that billions of people will gain new individual power as they climb out of poverty.

“For the first time, a majority of the world’s population will not be impoverished, and the middle classes will be the most important social and economic sector in the vast majority of countries around the world.”

No kidding—that’s the premise for this message board.

[DewDiligence]

In Brazil's Favelas, a Middle Class Arises

http://www.businessweek.com/articles/2012-12-20/in-brazils-favelas-a-middle-class-arises

›By David Biller and Katerina Petroff
December 20, 2012

The night before appliance retailer Casas Bahia opened in Rio de Janeiro’s largest slum, resident Joana Darc de Morandi couldn’t sleep. Shopping list in hand, Joana was first in line to get in, seven hours before some 200 people began streaming through the store’s front door. “It’s very important for the neighborhood,” Morandi, 57, says of Rocinha, the slum where she lives. “Casas Bahia being here is a show. It’s beautiful. It means everything. You can find anything you need.”

Drawn by improved security, rising incomes, and a booming credit market, Brazil’s big retailers are opening shop in the favelas, the hillside shantytowns once viewed by most Brazilians as no-go areas. About 56 percent of the 12 million people who live in slums such as Rocinha were considered middle class in 2011, up from 29 percent in 2001, according to a study this year by Instituto Data Popular, a São Paulo-based research group. As reforms have taken hold over the last 10 years, the economy has created many more jobs than before, giving inhabitants of the favelas a chance to work. Unemployment in Brazil dropped to 5.3 percent in October, less than half the level a decade earlier. A stepped-up government aid program that paid the poor to keep their children in school, among other things, also boosted income. Today, Rio’s favelas have an economy worth 13 billion reais ($6.1 billion), according to the Data Popular study.

Casas Bahia’s Rocinha location sold 10 times more during its Nov. 6 opening than an average store takes in on a typical day. The chain will open its third favela location next year, says Roberto Fulcherberguer, vice president of Via Varejo, which operates the Casas Bahia brand. The company’s competitor, Ricardo Eletro, opened its first Rocinha store in October 2011.

A linchpin of the expansion has been Rio’s so-called pacification community policing strategy, Fulcherberguer says. Special forces last year took control of Rocinha and expelled or arrested drug gangs that controlled the slum of 69,000, which sprawls above the city’s wealthiest beachside neighborhoods, including Ipanema. Rocinha was the 28th favela to be pacified in Rio since 2008, and 12 more are scheduled to be occupied before the city hosts matches of the 2014 FIFA World Cup.

“We are already looking for properties, either to rent or to buy, in any community that has been pacified and where there is protection by police or the army,” Michael Klein, Via Varejo’s chairman, told reporters at the opening of the Rocinha store. “The more communities that are pacified, the more Casas Bahia stores we’ll have.” Sales in the first three quarters of 2012 from Via Varejo’s stores were up 9.1 percent from a year earlier, according to financial results released Oct. 31. The company expects 70 percent of its growth to come from Casas Bahia stores in the northeast, one of the country’s poorest regions, Fulcherberguer says.

A challenge for retailers could arise as more homes in the favelas are formally connected to the power grid. Utilities are working to turn families that tap illegally into the electrical system into regular customers. The problem is that legitimate electric power is much more expensive than illegally obtained power. Families that switch to normal electricity service may not be able to afford appliances that need a lot of power to run, says Marcelo Neri, an economist who studies poverty.

Morandi’s not concerned about having enough electricity to power the blender, mixer, fan, and coffeemaker she bought at Casas Bahia. She paid for her goods in two installments, which means she probably paid interest in the high double digits. That didn’t bother her either. Until recently she wanted to leave her favela; she’s changed her mind. “We were missing Casas Bahia, and now we’ve got that,” Morandi says. “Rocinha is marvelous.”

The bottom line: If the slums of Rio were a separate economy, they would have a GDP worth $6 billion—an attention-getting number for chain stores.‹

[DewDiligence]

This article from today’s Barron’s is a load of BS (IMO):

http://online.barrons.com/article/SB50001424052748704843204578249962366469982.html

Opposing opinions welcome.

[DewDiligence]

Big Pharma eyes Africa’s middle classes:

http://www.reuters.com/article/2013/02/12/us-bigpharma-africa-growth-idUSBRE91B0D620130212

The growth will be fuelled by increasing economic wealth and demand for treatments for chronic diseases in a more urban, middle-class population.

Non-communicable diseases - like heart disease, lung disorders, diabetes and cancer - are expected to account for 46 percent of all deaths in sub-Saharan Africa by 2030, up from 28 percent in 2008, according to the World Bank.

It is a major shift for the pharmaceutical industry, whose main role has been supplying drugs for infectious diseases such as malaria and HIV in Africa, often on a humanitarian basis.

See #msg-68025751 and #msg-62635130 for related stories.

[DewDiligence]

Automakers reallocate capital to emerging markets:

http://online.wsj.com/article/SB10001424127887324659404578501531496111220.html

Ford and other auto makers are scrambling to add plants in markets where auto sales are expanding rapidly and labor costs are low. In China, Ford is spending $5 billion to open four new plants with a joint-venture partner over the next several years. It also is expanding output in India, Thailand and Russia.

Many other auto makers are following the same path. General Motors Co. and Volkswagen AG are spending billions of dollars to add new plants in China. GM is closing a car assembly factory in Germany to reduce output in Europe.

… China has surpassed the U.S. as the world's largest car market by sales. In 2012, China produced 19 million vehicles, nine million more than the U.S. and more than twice the combined output of Germany, France and the U.K.

[DewDiligence]

TGTD factoids on US-China trade:

http://www.nytimes.com/2013/06/02/opinion/sunday/how-to-play-well-with-china.html

In 1985, trade between the countries [US and China] amounted to just $7.7 billion. By 2000, the total reached $116 billion, and in 2012, it surged to $536 billion…

[DewDiligence]

COTY falls 3% in first day of trading:

http://finance.yahoo.com/news/beauty-company-coty-falls-market-143403866.html

Shares of perfume and beauty products seller Coty Inc (COTY) fell more than 3 percent in their market debut on Thursday, taking the gloss off the third-largest U.S. IPO this year.

…The company gets most of its revenue from perfume brands including Calvin Klein, Davidoff and Playboy as well as those it sells under the names of celebrities such as Beyonce Knowles, Lady Gaga and Jennifer Lopez.

…Coty, founded in 1904 by Francois Coty in Paris, filed to go public in June 2012 after dropping a $10.7 billion takeover bid for larger peer Avon Products Inc (AVP)…

…analysts said Coty has let rivals such as Avon and Estée Lauder Cos Inc (EL.N) beat it to fast-growing markets in Asia and Latin America. While Coty has made a number of deals in recent years to expand into overseas markets such as China and bolster its skin-care offerings, its chief executive told Reuters that dealmaking was not essential.

…Coty did not receive any proceeds from the offering as all of the shares were sold by selling shareholders, including the billionaire Reimann family of Germany.

COTY ought to be a strong beneficiary of The Global Demographic Tailwind; however, there are company-specific problems starting with the fact that the dual-class common stock enables the three largest shareholders to have an overwhelming majority of the voting equity.

[DewDiligence]

The world today is witnessing its third great surge of middle-class growth. The first was brought about in the 19th century by the Industrial Revolution; the second surge came in the years following World War II. Both unfolded primarily in the United States and Europe.

The third seems likely to be the biggest and broadest. It has unfolded in China over the past decade but is rapidly spreading through Asia, Latin America and even Africa. Some predict that within two decades, a majority of the world's population will have middle-class means and desires—for education, cellphones, cars, [modern healthcare—Dew] and, most important, the ability to focus on something other than basic food and shelter. It is these millions of people whose hopes and frustrations will shape the future.

http://online.wsj.com/article/SB10001424127887323823004578593930221674720.html

[DewDiligence]

Factoid: Credit cards in Brazil can charge interest rates of up to 80%(!) per annum.

Related article in WSJ:
http://online.wsj.com/article/SB10001424052702304795804579097412611960306.html

[DewDiligence]

MDLZ—

http://online.wsj.com/article/SB10001424052702304441404579123462778166336.html

India's vast, growing middle class has the world's chocolate purveyors on a sugar high.

[DewDiligence]

Factoid: In 2011 there were 69 Cadillac dealerships in China; GM expects that figure to reach 200 by year-end (http://online.wsj.com/news/articles/SB10001424052702304682504579157571306527760 ).

[DewDiligence]

China is bullish on subways (underground mass transit, not the sandwich shops):

http://online.wsj.com/news/articles/SB10001424052702303482504579177830819719254

Twenty years ago, China's Communist Party leadership earmarked money for an expressway network modeled on the U.S. interstate highway system. A decade ago, they spent big on bullet trains.

As a fresh team of Chinese leaders gathers this week in Beijing to lay out broad economic goals, the effort to keep China moving has shifted underground, with dozens of cities spending billions of dollars on subway systems.

… party leaders indicate that metros are different: They create more sustainable growth by making cities more livable…

In the world's most extensive subway-development effort, at least 26 Chinese cities are constructing or expanding lines, according to the government's Transportation Technology Development and Planning Research Center.

…China's new leaders are increasingly focusing on urbanization, including smarter cities. From an increasingly prosperous citizenry, they face pressure to reduce air pollution, provide housing that is cheap but livable and to unlock consumer spending. Metros dovetail with these quality-of-life challenges because they provide an alternative to cars and add convenience to life at the edges of big cities.

According to the McKinsey consulting firm, China has enough large cities to justify having 100 subway systems, eventually.

[DewDiligence]

Mind-boggling stats re online shopping in China:

http://www.nytimes.com/2013/11/12/business/international/online-shopping-marathon-zooms-off-the-blocks-in-china.html

On Monday, China’s biggest online shopping company processed more than $5.75 billion [!] in its online payments system—a record for a single day anywhere in the world, surpassing by two and a half times the total for American retailers last year on so-called Cyber Monday.

…Alibaba reported Monday that it had 402 million unique visitors to its sites — more than a third of the adult population in China — and prepared 152 million parcels for shipping.

[DewDiligence]

Barron’s plugs QCOM as a play on The Global Demographic Tailwind:

http://online.barrons.com/article/SB50001424053111904253404579208012886245816.html

Qualcomm offers an attractive way to play the prevalence of mobile devices, without having to pick a winner in the Samsung-Apple battle. Smartphones are still a growing market; industry research firm IDC expects 1.7 billion smart phones to be sold in 2017, up from 724 million last year. IDC forecasts global shipments of smart-connected devices (including tablets) to total almost 1.6 billion in 2013, up 28% from 1.2 billion last year.

…"Come hell or high water they are collecting 3% of the price of virtually every handset sold in the world," says Josh Spencer, manager of the T. Rowe Price Global Technology fund. Qualcomm doesn't have to do anything Herculean. It just needs to continue to boost dividends and buybacks, and to grow at double-digit rates.

Comments?

[DewDiligence]

BSX has big plans in China and other BRIC countries:

http://online.wsj.com/news/articles/SB10001424052702304244904579276161249753896

Boston Scientific Corp. is boosting staff, opening surgeon-training centers and eyeing acquisitions in China as it aims to offset sluggish medical-device sales back home in the U.S.

…The company is aiming for annual sales increases of 30% in China over the next five years, said Mr. Wang… Boston Scientific plans to expand its 400-member China-based sales and marketing staff by 24% in the next year and will create products specifically for the Chinese market, zeroing in on increasing rates of heart failure, strokes and gastrointestinal problems in the country.

…Boston Scientific has outlined an ambitious strategy to more than double sales in the so-called BRIC nations of Brazil, Russia, India and China from roughly 4% of sales at the end of 2012 to 10% by the end of 2017. Chief Financial Officer Jeffrey Capello, who is leaving the company at the end of this year, has said that the Chinese market for drug-eluting stents—small devices used to prop open clogged heart arteries—is about $500 million annually, and growing at about 15% to 20% a year.

[DewDiligence]

Chinese car buyers keep on motoring:

http://online.wsj.com/news/articles/SB10001424052702304244904579278203989604922

Passenger car sales in China look set to expand 15% this year—twice the pace of 2012.

…To combat pollution, several big cities are restricting car purchases by driving up license-plate prices. The immediate effect is that some consumers are buying before the plate restrictions come into force. In the long term, these diktats probably are limited to a few places with pollution concerns, where the market is saturated anyway.

…Middle-class disposable incomes are busting through levels where owning a car makes sense. New highways roll out by the day. And having conquered richer coastal provinces, businesses are moving inland. Residents in lower-tier cities will purchase nearly 60% of China's new cars until 2020, says McKinsey.

[DewDiligence]

Tesla Motors Inc. (TSLA) is looking to develop a network of no-fee charging stations in China that would allow owners of its cars to travel long distances, such as between Beijing and Shanghai.

Diarmuid O'Connell, Tesla's vice president of corporate and business development, said the company has recently started taking steps to make the network a reality. He declined to say when the stations might be available.

http://online.wsj.com/news/articles/SB10001424052702304549504579320642277821448

[DewDiligence]

Great quote, apropos to this board:

“When times are great people smoke more. When times are difficult people smoke more. There are a lot of people in China to smoke more.”

—Adam Molai, chairman of Savanna Tobacco, a Zimbabwe cigarette maker

http://online.wsj.com/news/articles/SB10001424052702303743604579354791070747568

The rest of this WSJ article is a pretty good read too.

[DewDiligence]

Pithy quote apropos to The Global Demographic Tailwind:

“When times are great people smoke more. When times are difficult people smoke more. There are a lot of people in China to smoke more.”

—Adam Molai, chairman of Savanna Tobacco, a Zimbabwe cigarette maker

http://online.wsj.com/news/articles/SB10001424052702303743604579354791070747568

The rest of this WSJ article is a pretty good read too.

(Reposted from last week in order to place this in a yellow sticky slot.)

[DewDiligence]

SBUX, Dunkin’ benefiting from Asia’s coffee craze:

http://www.bostonglobe.com/news/world/2014/03/29/from-massachusetts-seoul-dunkin-donuts-finds-new-markets-coffee-craze-sweeps-asia/aykwWhGnFNjG85ahVxJIFL/story.html

[DewDiligence]

Multinationals gain traction in China’s automobile market:

http://www.nytimes.com/2014/04/09/business/international/chinas-embrace-of-foreign-cars.html

Now there are calls for protectionism, but from an unexpected direction: the biggest, most politically influential Chinese automakers.

Multinational corporations are steadily clawing market share from Chinese brands in their home market, as a succession of global brands have pushed their way into China.

…Chinese consumers increasingly favor American brands, which have a reputation for safety, youth and international flair. The domestic brands have tended to lag in surveys of initial quality and engineering, although they are starting to close the gap. In long-term reliability, they are far behind and falling even further.

Rising affluence has left consumers reluctant to accept cheaper, spartan models from domestic manufacturers. The domestic brands have been further hurt by poor crash test results for some Chinese-designed models…

[DewDiligence]

…for global auto makers, the Middle Kingdom is still the land of opportunity. Top executives of the world's largest auto makers spent Easter weekend at Beijing's big auto show pledging allegiance to the world's largest car market, outlining billions in new investments for factories and technical centers, and hawking new models tailored for the country's affluent young.

This year's Beijing show marked the official end of China's days as a developing market and the beginning of a new era in the world's largest car market.

It has been obvious for some time that China's major cities don't fit the developing-market label. Beijing's modern office towers, opulent hotels and all-day rush-hour traffic deliver a very passable imitation of Los Angeles, albeit with far worse smog. The Chinese capital's major thoroughfares teem with stretched Audis, BMWs and Mercedes-Benzes.

http://online.wsj.com/news/articles/SB10001424052702304788404579521510670705136

Great quote on Bejing’s mimicking of LA with worse smog, LOL.

[DewDiligence]

Alibaba IPO filing recites premise of this board:

http://www.nytimes.com/2014/05/08/technology/alibaba-bets-on-a-growing-chinese-economy-and-new-consumers.html

Instead of promising to disrupt an existing market, the Chinese e-commerce giant wants to do something far more straightforward, but potentially far more lucrative — insert itself at the center of a new, already expanding market being forged by powerful economic and cultural forces far beyond the company’s control. That new market is China itself, particularly its ascendant middle class and its growing appetite for spending rather than saving.

… “Our business benefits from the rising spending power of Chinese consumers,” the firm says in its [SEC] filing. The crux of Alibaba’s pitch to investors is that Chinese customers will begin to act much more like American customers. Today, much of the Chinese population doesn’t spend very much money compared with their counterparts in the West. Only about a third of China’s gross domestic product is made up of consumer spending, significantly lower than the consumption rate of other countries. By comparison, about two-thirds of the United States’ economy is made up of consumer spending.

…According to a recent report by McKinsey & Company, China’s middle class will continue to grow at a staggering pace well into the next decade. “The evolution of the middle class means that sophisticated and seasoned shoppers — those able and willing to pay a premium for quality and to consider discretionary goods and not just basic necessities — will soon emerge as the dominant force,” the report states.

The McKinsey researchers noted that in 2000, just 4 percent of urban Chinese households earned a middle-class wage. By 2022, the study predicted, more than 75 percent of urban households will have joined the ranks of the middle class, with income among that group twice as much as it is today.

[DewDiligence]

India’s new government is bullish for ‘TGDT’ investing theme:

http://www.nytimes.com/2014/05/17/world/asia/india-elections.html

NEW DELHI—Addressing a euphoric crowd Friday afternoon, Narendra Modi rallied the public to join him in taking on challenges of a vast scale. He has floated the idea of building “a hundred new cities,” of extending a high-speed rail network across the subcontinent… He has been inspired by China’s model of high-growth, top-down development.

Mr. Modi’s Hindu nationalist Bharatiya Janata Party won a historic mandate in the country’s general election on Friday, emerging with 282 of 543 parliamentary seats, more than enough to form a government without having to broker a post-election coalition.

…Voters are seeking immediate economic opportunities. The party has proposed pro-business legislation like the easing of labor and land-acquisition laws. Mr. Modi is drawn to large-scale building and infrastructure projects, which he pursues with a single-minded—critics say dictatorial—style.

…Friday’s enormous victory will give Mr. Modi “a much freer hand than the typical leader of such a large democracy,” Mr. Prasad said. The reasons Mr. Modi’s party succeeded in defeating the Indian National Congress, which has controlled India’s government for nearly all of its postcolonial history, will be studied for years. But they clearly reflect a rapid change in Indian society as urbanization and economic growth break down old voting patterns.

[DewDiligence]

Upscale dairies in India promise safer (and better-tasting) milk:

http://www.nytimes.com/2014/06/04/business/international/dairy-industrys-reputation-in-india-opens-door-for-upscale-farms.html

On a 26-acre farm a couple hours’ drive inland from Mumbai, hundreds of black-and-white Holstein-Friesian cows laze around, dining on seasonal greens and listening to a custom playlist of rap, pop, classical and even devotional music. They are treated to a routine medical checkup before heading to a “rotary milking parlor,” where their udders are gently squeezed, until the cows step away, at will. Within a day, the milk—never touched by human hands—is bottled and whisked away to hotels, restaurants and homes in nearby cities.

The dairy, Pride of Cows, is one of the largest players in the growing business of farm-to-table milk, part of India’s new crop of organic, fair-trade and artisanal food products.

…This new marketing approach targets an increasingly health-conscious and brand-savvy Indian consumer, a growing niche within an already swelling middle class that has the means to afford costlier products.

…The Food Safety and Standards Authority of India found in 2012 that nearly 70 percent of the milk samples it tested nationwide did not meet food safety standards. A majority of samples were diluted with water or contained impurities like urea, liquid formaldehyde and detergent solution.

Yuck!

[DewDiligence]

China allows foreign credit cards (maybe):

http://online.wsj.com/articles/china-to-open-domestic-bank-card-clearing-to-private-investors-1414582842

China is taking a step toward easing its grip on credit cards, potentially resolving a long-running trade dispute with the U.S. and allowing foreign companies such as Visa Inc., MasterCard Inc. and other electronic-payment processors to have a greater presence there.

…Currently, China UnionPay Co. has a near monopoly on processing and clearing yuan-denominated payments made by bank cards and credit cards. The state-controlled firm has close ties to China’s central bank.

[DewDiligence]

Global life expectancy increased 6 years since 1990:

http://www.wsj.com/articles/global-life-expectancy-increases-by-about-six-years-1418861100

The study was published Wednesday in the journal Lancet. It is part of an exhaustive analysis known as the Global Burden of Disease Study done by an international team of more than 700 researchers… The study analyzes yearly deaths from 240 different causes in 188 countries from 1990 to 2013.

This is pretty impressive considering the counter-trend described in #msg-108775644.

[DewDiligence]

WSJ interviews GE’s head of China operations:

http://www.wsj.com/articles/china-crackdown-set-to-benefit-ge-1419784222

In her new position, Ms. Duan, 44 years old, oversees the industrial conglomerate’s portfolio of fast-growing China operations, ranging from airline engines to energy infrastructure. She also continues to head GE’s health-care business in China, which makes equipment including body scanners and ultrasound machines.

Ms. Duan talked to The Wall Street Journal about how GE is adapting to a new era of growth and why the company is poised to benefit from the Chinese government’s crackdown on corruption.

Ms. Duan: China is going through some fundamental changes. The next decade or two or three will be very different. If you look at some of the challenges the country is facing, they’re very much lined up with where GE’s core competencies are.

Energy demand is going to continue to increase. Urbanization is going to continue. There will be more roads and more airports. There are definitely more people aging. Quality and affordable health care will be a big priority for the government.

The point here is that, our portfolio and our technologies, they are a good fit.

[DewDiligence]

AAPL gains smartphone share in China:

http://www.wsj.com/articles/apple-sells-74-5-million-iphones-over-holidays-1422394222

As Apple sells more iPhones than ever, it also is selling more expensive phones. The average selling price of the iPhone was $687 in the quarter compared with $637 in the year-ago period. The iPhone 6 Plus costs $100 more than Apple’s previous high-end model. Plus Apple also is enticing consumers to upgrade to more expensive models with greater memory.

Apple’s performance was especially impressive in China, where it surged to become the top smartphone manufacturer during the quarter, according to research firm Canalys.

[DewDiligence]

China cuts tariffs by 50% on clothes, cosmetics, and diapers to boost consumer spending:

http://www.wsj.com/articles/china-to-cut-tariffs-on-some-imported-consumer-goods-to-spur-spending-1432538808

[DewDiligence]

Chinese shoppers flock to internet:

http://www.wsj.com/articles/western-firms-caught-off-guard-as-chinese-shoppers-flock-to-web-1434274202

After enjoying nearly three decades of steady growth in its China business, Unilever PLC last year watched sales fall off a cliff. The maker of Dove soap, Lux shampoo and Comfort fabric softener warned in October of a 20% drop in its third-quarter China sales. The next quarter, the company announced another 20% fall.

Unilever blamed a slowing Chinese economy and a pullback by shoppers. But a close look at retailing trends in China suggests Unilever was also feeling the pain of the migration of hundreds of millions of Chinese consumers to online shopping.

Unilever wasn’t the only Western company overestimating brick-and-mortar. Swiss food company Nestlé SA has been burning instant coffee it couldn’t sell in stores. It recently told The Wall Street Journal it failed to fathom the extent of how quickly and broadly retail was changing in China.

…An estimated 461 million Chinese consumers, a third of the population, are now shopping online, up [tenfold] from 46 million in 2007…

[DewDiligence]

PG aimed too low with Pampers in China:

http://www.wsj.com/articles/p-g-tripped-up-by-its-assumptions-about-diapers-in-china-1439445897

Procter & Gamble…recently rolled out a line of premium diapers in China with a prominent new claim: “Made in Japan.”

The new Pampers with elastic waistbands and gold designs are the company’s latest attempt to catch a wave of demand for high-end consumables in China. So far, P&G is playing catch up. The consumer-goods giant may own the high-end diaper market in the U.S., but well-heeled Chinese parents in recent years have been gravitating to imported Japanese brands at the expense of Pampers, which have long been made locally to keep their costs down.

…The company’s pivot upward highlights a surprising development in one of the world’s most important markets: China’s consumers are proving increasingly willing to splurge—not just on $700 smartphones, but also on little luxuries like better diapers for their children.

[DewDiligence]

The rising influence of rising affluence—updated for the changes in China’s economy:

http://www.wsj.com/articles/winners-losers-in-chinas-upheaval-1440630969

Some of the strongest [multinational] corporate performers are targeting [China’s] newly affluent population that looks increasingly like the American middle class. They are spending for the first time on goodies like overseas travel, imported food and concert tickets. Demand for prime splurging products like Japanese diapers, Mexican avocados and Chilean salmon is surging, and it hasn’t been overturned by the crash in stocks—where average Chinese still have little invested.

Income is climbing for large segments of the population. Between 2005 and 2012, roughly 50 million urban households graduated into the middle class, which now numbers around 147 million households, roughly 49% of China’s urban population, according to the Boston Consulting Group. Those consumers started buying products like Dove shampoo from Unilever PLC and Crest toothpaste from Procter & Gamble Co. rather than local goods.

Now, the fastest shift is in households moving to the equivalent of upper-middle class, with monthly incomes between 12,000 yuan and 20,000 yuan ($1,868 to $3,114) and a taste for spas, organic food and vacations…

And higher-quality healthcare.

[DewDiligence]

China’s ‘11/11’ online-shopping extravaganza attracts multinationals with a fervor:

http://www.nytimes.com/2015/11/12/business/international/china-singles-day-shopping-alibaba.html

[DewDiligence]

Nigeria’s emerging middle class is hooked on shopping malls:

http://www.nytimes.com/2016/01/05/world/africa/nigeria-goes-to-the-mall.html

[DewDiligence]

Barron’s likes EPC as a ‘TGTD’ consumer play:

http://www.barrons.com/articles/edgewell-personal-care-could-have-40-upside-1462593836http://www.barrons.com/articles/edgewell-personal-care-could-have-40-upside-1462593836

One big opportunity for a potential acquirer lies in the shaving business, which is underexposed to emerging markets. In Brazil, for instance, the second-largest razor-and-blade market behind the U.S., Schick’s presence is small. Gillette has a market share of more than 80%.

If a big global player like Unilever or Colgate-Palmolive were to acquire Edgewell, it could drive growth by bringing scale and geographic reach to the business. Companywide, emerging markets account for…about 20% of sales.

[DewDiligence]

China’s consumers seek better rice cookers:

http://www.wsj.com/articles/as-exports-decline-china-looks-inward-for-growth-selling-made-in-china-goods-to-the-middle-class-1470238429

[DewDiligence]

For multinationals, Pakistan beckons…

https://www.wsj.com/articles/pakistans-middle-class-soars-as-stability-returns-1485945001

Although often overshadowed by giant neighbors India and China, Pakistan is the sixth most-populated country, with 200 million people. And now, major progress in the country’s security, economic and political environments have helped create the stability for a thriving middle class… 38% of the country is middle class, while a further 4% is upper class. That’s a combined 84 million people—roughly equivalent to the entire populations of Germany or Turkey.

…during the past three years, deaths from terrorist attacks have fallen by two-thirds, as the army battles jihadists. Economic growth reached an eight-year high of nearly 5% in the past financial year, and China has begun a multibillion-dollar infrastructure investment program. The Karachi stock market rose 46% last year and continues to soar.

[DewDiligence]

HDI seeks foreign markets:

https://www.wsj.com/articles/trump-puts-spotlight-on-harley-davidsons-overseas-sales-challenges-1488372741

President Donald Trump turned Harley-Davidson Inc. into a global trade issue in his address to Congress, saying barriers made it “very hard” for the Milwaukee motorcycle manufacturer to do business overseas.

It is hardly impossible, though, as the company’s recent push into international markets reveals. Harley-Davidson this year announced the goal of expanding its foreign business to 50% of annual volume, up from 38% currently. A decade ago, overseas sales accounted for 22% of Harley’s business.

At least two countries—India and Indonesia—currently impose import tariffs on Harley's motorcycles of 100% or more.

[DewDiligence]

Moody’s cuts China’s credit rating—first time since 1989:

https://www.wsj.com/articles/moodys-cuts-its-china-rating-citing-risks-from-rising-debt-1495590160

Moody’s Investors Service cut China’s sovereign credit rating for the first time in nearly three decades, citing expectations that the country’s financial strength will deteriorate in the coming years as debt keeps rising and the economy slows.

In a Wednesday statement, Moody’s said it downgraded China’s rating to A1 from Aa3, while changing its outlook to stable from negative… Moody’s now rates China’s credit alongside that of countries such as Japan, Saudi Arabia and Israel.

…The rise in debt, which started in earnest with a massive stimulus program during the 2008-2009 global financial crisis, has increasingly weighed on the world’s second-largest economy. Accommodative monetary policy and robust state spending over many years have also fueled excess production capacity in industries such as glass and steel, which has diverted funding to “zombie” companies rather than to promising firms in the real economy.

…Another ratings firm, Fitch Ratings, downgraded China’s debt in 2013 to A+, a rating that is on a par with Moody’s after the downgrade. S&P rates China’s debt at AA-, equivalent to a notch higher.

[DewDiligence]

Emerging markets lead the way in “mobile” medicine:

https://www.wsj.com/articles/silicon-valley-trails-in-medical-tech-1500845597

[DewDiligence]

The next billion smartphone users will be different:

https://www.wsj.com/articles/the-end-of-typing-the-internets-next-billion-users-will-use-video-and-voice-1502116070

A look at Megh Singh’s smartphone suggests how the next billion might determine a new set of winners and losers in tech.

Mr. Singh, 36, balances suitcases on his head in New Delhi, earning less than $8 a day as a porter in one of India’s biggest railway stations. He isn’t comfortable reading or using a keyboard. That doesn’t stop him from checking train schedules, messaging family and downloading movies. “We don’t know anything about emails or even how to send one,” said Mr. Singh, who went online only in the past year. “But we are enjoying the internet to the fullest.”

…Mr. Singh squatted under the station stairwell, whispering into his phone using speech recognition on the station’s free Wi-Fi… On his screen are some of the world’s most popular apps—Google’s search, Facebook Inc.’s WhatsApp—but also many that are unfamiliar in the developed world, including UC Browser, MX Player and SHAREit, that have been tailored for slow connections and skimpy data storage.

…Facebook’s WhatsApp messenger service says its top two markets are India and Brazil. It has become the first stop on the internet for many who have been using it instead of email or social media.

[DewDiligence]

UL acquires Korean skin-case company for $2.7B:

https://www.wsj.com/articles/unilever-to-buy-korean-skin-care-firm-for-2-7-billion-1506326238

[DewDiligence]

‘TGDT’ is evident in rural China:

https://www.nytimes.com/2017/12/01/business/china-rural-economy.html

…Han Youjun got into his silver delivery van and left this small town in eastern China. Within minutes, his van brimming with boxes of every size and shape, he was rumbling through rice paddies, down narrow village lanes and past modest farmhouses, deeper and deeper into China’s vast hinterland.

In the past, delivery drivers like Mr. Han would have had little reason to travel so far. China’s boom over the past four decades made its crowded metropolises wealthy. Much of the rest of the country, especially farming communities like those surrounding Liangduo, in the eastern province of Jiangsu, remained relatively poor.

But more and more, the benefits of China’s economic miracle are penetrating into smaller cities and countryside hamlets — as Mr. Han, a 32-year-old deliveryman for JD.com, an online retailer, knows all too well. The 70 packages crammed into his van that day were double the amount he usually hauled only 18 months earlier.

“The workdays have been getting longer,” he said.

[DewDiligence]

Disney-Fox deal is all about ‘TGDT’, says WSJ:

https://www.wsj.com/articles/disneys-fox-deal-is-bet-on-the-world-1513256974

Despite a global brand and some glitzy theme parks in Europe and Asia, Disney remains a quintessentially American company. After its deal with 21st Century Fox, Disney will be much more a citizen of the world.

…a host of other assets, totaling roughly $66.1 billion in enterprise value, were added to the table. These include Star India, a group of 58 channels carrying soap operas and cricket to 650 million Indian viewers, and the Fox International Channels, which reach across Europe, Latin America, Asia, and Africa. Together they will give Disney scope for vast international expansion.

[DewDiligence]

A colossal change in only six years...

...1.2 billion adults gained access to financial services between 2011 and last year, the World Bank said Thursday, as the internet and mobile phones increasingly connected far-flung communities to the global financial grid.

The share of the [worldwide] adult population with an account at a bank or mobile money provider grew to 69% in 2017 from 62% in 2014 and 51% in 2011…

https://blogs.wsj.com/economics/2018/04/19/how-more-than-a-billion-people-got-access-to-financial-services-in-less-than-a-decade

[swampboots]

Robotic farming and Amazon's holy transformative grip "whispered" here:

https://www.newyorker.com/magazine/2019/04/15/the-age-of-robot-farmers

[DewDiligence]

A counterargument to the premise of this message board:

https://www.wsj.com/articles/america-is-losing-the-chinese-shopper-11570852805

[DewDiligence]

MV.PA acquires TIF for $16.2B in largest-ever luxury-goods merger:

https://finance.yahoo.com/news/lvmh-buy-tiffany-16-billion-070258528.html

[DewDiligence]

Pandemics will become more frequent with increasing globalization and global affluence, according to WSJ op-ed:

https://www.wsj.com/articles/viral-outbreaks-once-rare-become-part-of-the-global-landscape-11583455309

[DewDiligence]

The Rising Influence of Rising Affluence—(10 years on):

https://www.wsj.com/articles/neither-coronavirus-nor-trade-tensions-can-stop-u-s-companies-push-into-china-11589880603

Relations between the U.S. and China are at their lowest point in decades, and the Covid-19 pandemic has rattled consumers the world over. U.S. companies and brands are doubling down on China anyway.

To understand why, look no further than the hundreds lined up around the block in central Shanghai, many of them defying coronavirus social-distancing advice, to get their hands on chicken sandwiches from Popeyes Louisiana Kitchen. Popeyes, the latest U.S. brand to plant its flag in China, opened on Friday, the first of 1,500 planned locations in China.

“Chinese people still like America and American brands,” said 18-year-old Oliver Kong, one of those waiting in line outside the new Popeyes. “McDonald’sis my favorite, but I’m excited to try something new.”

… From Popeyes to Walmart, Tesla [and] Exxon, companies are betting that the country’s long-term growth potential still outweighs the mounting case against further expansion—including geopolitical tensions and slowing growth.

While the pandemic has spurred businesses to rethink supply chains to reduce dependency on China, companies that are producing in China for Chinese customers are bulking up their local presence.

[DewDiligence]

China’s lifetime birth rate—>1.3:

https://www.nytimes.com/2021/05/11/world/asia/china-census-population-one-child-policy.html

On average, Chinese women are expected to have just 1.3 children each over the course of their lives. That would be one of the lowest fertility rates in the world.

… Last year, just 12 million babies were born in China, the lowest official number since 1961, as the country was emerging from a devastating famine.

Experts cautioned that the pandemic may have been a major factor, but births have now declined for four consecutive years.

Data are from China’s 2020 census.

[DewDiligence]

Re: Global trade as_a_proportion_of_the_global_economy

https://www.wsj.com/articles/globalization-changing-markets-trade-11673627929

World trade as a share of overall economic activity peaked at 61% in 2008, at the apex of China’s power, when a global financial crisis that started in the U.S. caused a worldwide recession. Trade has since receded to 57% of economic activity, according to World Bank data, still far greater than estimates of 31% on average during the 1970s, 36% during the 1980s or 40% in the 1990s.