Next 11 (N-11) Countries – An introduction to the Future of Exports

By Haris Bailas

I was reading recently in Bruegel, a European think tank specializing in economics, that by 2020 the exports of euro area’s 3 largest economies (FR, DE, IT) to emerging markets will be increasing more and more. What is more, China will have become the Number 1 exporting market of Germany, raising the question whether the euro area will still satisfy the most basic of Optimal Currency Area (OCA) criteria – increasing trade between its members.

In this rapidly changing external environment, regardless of which will be the measures that the euro area members need to take (now or in 5-6 years), I consider essential for all export oriented companies to create “buffers” and minimize exposure risks.

Opening new markets and establishing your presence in the economies that will be playing a leading role in the 21st century, will not only minimize risks and build sustainability for your company. Most importantly, will create the basis for future growth, offer you the opportunity for a future high market share in these markets and help you gain a precious competitive advantage against competitors – experience in these markets.

With Jim Oneil’s BRIC countries becoming a trend that has been heard and evaluated more and more lately, in this paper my scope is to introduce you the Next Eleven, which are mooted as the BRIC successors. N-11 are eleven countries (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea, and Vietnam) that share similar high potential features of future development. These countries may easily be (or already are) the future Exports targets for some companies. Allow me to further justify.

Common Growth Potential traits of N-11
All N-11 share a highly important trait that is their fast growing populations along with their extensive industrial capacity/potential. Assessing these characteristics macroeconomically, would mean only economic growth for the upcoming years for these countries. Furthermore, these aspects direct local consumer markets’ demand to progression and the development of business opportunities for both local and international firms. Domestic demand in N-11 countries is the largest contributor to their GDP, creating opportunities for local players to increase more and more their earnings. Only Korea and Turkey out of all the N-11 countries have shown also significant increase in exports and as a result a higher contribution of Exports in the countries’ GDP. At this point it is important also to mention that the global credit crisis and its aftershock have produced more damage to the major developed economies than to N-11 countries.

Another very important aspect in these “rural” countries is the growing urbanization, which will certainly support economic growth. The need for higher levels of Energy and higher mobility, will force the increase of construction and adoption of new Technologies. Proof is the 3 digits growth of cell phones sales in these countries over the past 5 years.

As a final point, we need to emphasize on the level of education and human capital that has shown evidences of significant improvement in N-11. Life expectancy among the N-11 today is at approx. 65 years, nearly a decade below developed countries’ average. The projections show that life expectancy rates in the N-11 will meet the ones of developed countries by mid-century, with health spending to rise significantly.

Roughly, one might say that all major industries are expected to further grow in the N-11 countries, making them a highly attractive market for exports. In fact, I would like to challenge every reader to travel at any of these countries’ capitals, in order to understand and most important to feel what economic growth looks like.

Risks in N-11 countries
Having evaluated and mentioned 4 out of 5 GES (Growth Environment Score) determinants above (Macroeconomic stability and conditions, Technological capabilities, Human capital), I would like to focus more in the fifth factor, the political situation and stability in N-11. Certainly all these countries share a higher political maturity in comparison to their past and have re-adjust many policies towards openness in trade and investment policies. Nevertheless, in comparison to developed economies political conditions differ and may be considered by many as a risk.

Unfortunately, political risk cannot be determined by financial ratios or variables and is more based on qualitative criteria. A recent example is Egypt, which was one of the Top countries in GES overall criteria, but with the recent protests of 2012-13 has fallen behind many countries. Political risk is of course not only connected to riots or changes in a country’s regime may be also an important piece of new legislation. Out of all the N-11 countries, only Mexico, Vietnam, Iran and South Korea may be considered as “more stable”. Ongoing political instability in Pakistan and Bangladesh, the activities of terrorist groups in Indonesia, the Philippines, Nigeria and Turkey can have a big impact on a country’s economic environment and companies’ perceptions on investing in any country.

What is most important, when exporting to N-11 countries, is to understand the structure of the state and negotiate/deal with the right authorities. This action may boost the sustainability of your company and future profits. A successful export manager is the one that conceives the pillars and balances of power in the countries, so as to protect the future presence of his company.

Lastly, according to some analyses, long-term risks to the advancement of N-11 towards developed countries’ economic levels comprise to slowing oil production for those that are oil exporters, inflation, external debt and government deficit. I would like to add though, once an exporting company sets foot in a market of N-11, it should be targeting a niche segment for the beginning and low profits. Building the foundation for the future is the demanded outcome and above mentioned risks may be controlled.

Making a selection out of the N-11

The categorization of N-11 may be performed in many ways. Most common, is the categorization according to the industrialization, which has been performed in each country, thus to the development of their economies. Some N-11 countries have higher industrial capacity and are establishing the export of heavy manufactured or refined products, while others are still principally dependent on primary exports, with some industrial capacity. Obviously, the second group of economies has lower standards of living than the first one.

Taking into consideration this characteristic, but also the drawbacks and current situation each country is facing, I have categorized N-11 into 3 focus groups; according to the priority I would show to evaluate penetration in each country and export one organizations’ products. Keep in mind that although N-11 countries are high potential markets to evaluate exporting products, still there are ones that stand out.

1St - Primary Focus – Indonesia, Mexico, Turkey, S.Korea
2nd - Secondary Focus - Pakistan, Philippines, Vietnam
3rd - Under Further Evaluation – Bangladesh, Egypt, Iran, Nigeria

1st Group 

Turkey
Next to Europe (in proximity and business mentality), with Imports increasing more and more over the past years, public debt still at low levels, the most stable government in the last 100 years and a continuous GDP growth, what may final persuade you is a simple visit to Istanbul - where from the 1st moment you may witness the construction orgy that is taking place.

Indonesia
The world's fourth most populous nation and the planet's largest archipelago. This country has had its first direct presidential election in 2004 and has made probably the most significant changes to its regulatory framework to encourage economic growth. Its capital-Jakarta is the 2nd biggest city in the world – 26 million. A country that in 2012, edged out India to emerge as second fastest G-20 major economy just behind China.

Mexico
The highest GDP among N-11, with low inflation, a strong labor force and low unemployment rate, next to US and a rapidly emerging up-to-date industrial and service sector, with cumulative private ownership. More than 90% of Mexican trade is made under free trade agreements (FTA) with more than 40 countries, including European Union. Mexico is a paradise for investments.

S.Korea
South Korea depends on exports, with high quality products such as electronics, textiles, ships, automobiles, and steel, being some of its most significant items. It was one of the countries that avoid recession during the global financial crisis. Keep in mind that this country has almost no natural resources and is always suffering from overpopulation. The Miracle on the Han River continues to exist….

2nd Group - Pakistan, Philippines, Vietnam

I have grouped these 3 countries because they certainly have potential of becoming important export markets, but right now they have low potential. They are growing economies, where only a small part of the population has the potential to buy “imported” goods in general. Target to a niche segment into these countries, invest into the future, position correctly your brand and do not expect high earnings.

In 10 years from now your current decision to participate in these countries, will pay off.

3rd Group

All of the countries included in this group could be your organization’s future biggest exporting market. Still there are some risks in each country, which I personally consider rather high and would shift my focus to 1st or 2nd group.

• Egypt :A high Public Dept and a continuously evolving uncertain political situation 
• Iran : Decreasing GDP, high Inflation, and economy mainly based on Oil 
• Nigeria :High “unjustifiable” unemployment rate, high involvement of China as an export partner 
• Bangladesh :Consider it as a 2nd Group country, that has even less potential and you may target into an even smaller niche market.

In the following table, I have included some macro-economic indicators of all N-11 (in comparison to GR, USA and DE), which will help you understand better the figures and status of each country. 

I would appreciate to receive your comments and thoughts at my personal e-mail harisisbailas@hotmail.com