Executives in Davos said they remained committed to tapping into
rising middle classes from Shanghai to Lagos, but some are pulling
back and redeploying resources in particularly difficult, low-margin
"It was a gold rush. Now the gold rush is over," said Jeff Joerres,
chief executive of staffing company Manpower Group <MAN.N>, whose
clients include many top international firms.
"In the past, regardless of industry and regardless of product, you
just ran to those emerging markets because there was an arbitrage
opportunity. Now there's a much more sanguine decision-making
The new mood follows a marked shift in the balance between the
world's main engines of economic growth that will see developed
economies, led by the United States, regaining their role as the
central driver of global output in 2014.
Emerging markets will still grow at a faster clip than developed
markets this year but the difference in growth rates will be the
lowest since 2002.
The World Bank last week raised its forecast for global growth for
the first time in three years, to 3.2 percent in 2014 from 2.4
percent in 2013. But it cut forecasts for developing countries to
5.3 percent for 2014, from 5.6 percent predicted in June.
The balance between emerging and developed economies is a central
topic at this week's World Economic Forum annual meeting in the
Swiss Alps, as highlighted by a session on Thursday entitled "BRICS
in Midlife Crisis?"
Growth rates for Brazil, Russia, India and China are half their
pre-financial crisis levels — and companies are taking a hard look
at alternatives beyond the "big four".
The Middle East and Indonesia were highlighted as hot-spots for
online growth by Yahoo <YHOO.O> CEO Marissa Mayer, while Marriott
International <MAR.O> boss Arne Sorenson said his group was opening
a new hotel in Rwanda.
However, a top executive at a U.S. tech company, who did not want to
be identified, said his firm was having an especially tough time in
Brazil, with big uncertainties also in Russia, leading the company
to look at deploying resources elsewhere.
In fact 60 percent of firms now expect to shift investment away from
the BRICs towards other more rapidly growing markets, according to
an Accenture survey of more than 1,000 executives.
"It's getting tougher and more competitive and some companies will
find that they haven't got the right strategy in certain places,"
said Mark Spelman, Accenture's strategy head.
"There may be some that will pull out, but we will continue to see
more investment at the same time."
From autos to soap to whisky, multinational companies have been
increasing their exposure to emerging markets dramatically in recent
Europe's top 505 companies generated a third of their sales in
emerging markets in 2013, or 2.8 times more than in 1997, according
to Morgan Stanley. But the curve from here is set to flatten.
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"You should expect that line to go sideways for a while, but I don't
think it will fall materially," said Morgan Stanley strategist
"Companies will perhaps focus a bit more on opportunities in
developed markets — for example, a European chemical company might
want to relocate some assets in the U.S. to take advantage of low
In a few cases, companies are heading for the exit or scrapping
certain product lines in some emerging markets.
Cosmetics maker Revlon <REV.N> said at the end of December it would
leave China, where sales have been falling, and French rival L'Oreal
<OREP.PA> has stopped selling its Garnier beauty products in the
In India, too, difficult market conditions have prompted frustrated
foreign companies in sectors ranging from telecoms to retail to curb
The majority of firms, however, view current weakness in emerging
markets as a strategic hazard that will not seriously derail
planning assumptions based on solid long-term demographics.
"Since emerging markets are developing day by day, sometimes they
may go down and sometimes they may go up. We should not be so much
influenced by short-term trends or phenomena," said Toshiba <6502.T>
chairman Atsutoshi Nishida.
Consumer goods giant Unilever <ULVR.L> <UNc.AS>, which now generates
well over half its sales in emerging markets, also says it not going
to be deflected by tough times in Brazil, India and Indonesia.
That approach makes sound sense in the eyes of Martin Sorrell, head
of advertising agency WPP <WPP.L>, who is a long-term bull of
"Having emerging markets exposure was an advantage with analysts and
financial markets a year ago and now it's a disadvantage, which is
ludicrous. Whatever happens, these markets are the future," he said.
Indeed, a glance at the world's biggest cities suggests
international companies ignore the mega-trend towards developing
nations at their peril.
Only one of the world's 10 biggest conurbations now lies in North
America or Europe, according to consultancy Demographia — and New
York's position at No.8 looks precarious given the far faster pace
of growth of cities in Asia and Africa.
(Additional reporting by Alessandra
Galloni and Paul Carrel; editing by Mark Heinrich)
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