Alain-Marie CarronAlain-Marie CarronDirector, SECORDirector, SECORAlain-Marie CarronAlain-Marie CarronDirector, SECORDirector, SECOR

Facing Asian Facing Asian Competition… Competition… and othersand others

Facing Asian Facing Asian Competition… Competition… and othersand others

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Europe, America and the Rise of the Rest…

We are witnessing the third tectonic powershift over the last 500 years The rise of Europe

XVth century and Renaissance XIXth century onward Science & technology, commerce & capitalism, agricultural & industrial revolution:

prolonged political dominance of western nations The rise of the USA

More powerful nation since imperial Rome World dominance since the collapse of the USSR

The rise of the Rest Asia, Russia, part of South America, parts of Africa and the Middle East

The Post American World. Fared Zakaria. 2008

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9.7

7.6 7.3

6.2

5.1

2.92.6 2.3

Emerging Countries Grow Faster

GDP Average Annual Growth Rate(in %; 2001-2006)

China Vietnam India Brazil CanadaRussia Thailand Mexico

Source: SECOR Analysis; United Nations Statistics Division

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90%78%

10% 22%

2000 2007

95%81%

19%5%

2000 2007

Their enterprises get bigger

Market Capitalizationby number of companies

Market CapitalizationIn Total Value

Gross MarginIn 2006

Net MarginIn 2006

Mondialisation 2.0, Ernst & Young, May 2008

Emerging Economies

Developed Economies

Within the 1000 biggest companies in the world

Developing Countries

Developed Countries

25%

14%

16%

8%

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Emerging blue chips

Li & Fung

Hong KongMrkt cap: 93.31 B

CEMEX

Mexico# 1 cement

EMBRAER

Brazil#1 regional jets

HAIER

Hong Kong#3 refrigerators

HON HAI

Taiwan# 1 electronic parts

HYUNDAI

Korea#1 shipbuilding

INFOSYS

India# 2 IT services

LENOVO

China#3 computers

SASOL

S. Africa#1 synthetic fuel

TMSMC

Taiwan#1 chip founder

YUE YEN

China#1 athletic shoes

CIMC

China#1 marine containers

POSCO

Korea# 4 steel maker

RELIANCE

India# 2 polyster fiber

SAMSUNG

Korea#1 flat screens

BYD

China#1 iron, #2 maganese

ZTE

ChinaMrkt cap: 93.31 B

M&M

IndiaMrkt cap: 93.31 B

Goodbaby

China# 1 strollers

Pearlriver Piano

China# 1 pianos

JOHNSON ELECTRIC

Hong Kong#1 micromotors

RANBAXI

India#2 or #3 generic

drugs

CVRD

Brazil#1 iron, #2 maganese

TENARIS

Argentina#1 seamless steel

pipes

The Emerging Market Century, Antoine van Agtmael

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They take a bigger part of our markets

PARTNER 1990 2000 2001 2002 2003 2004

Japan 5.2 14.5 16.6 18.3 19.7 20.8

United States 3.1 8.6 9.3 11.1 12.5 13.8

Korea 2.1 8.1 9.5 11.6 12.4 13.4

Australia 2.7 7.9 9.0 10.3 11.3 13.0

EU 15 2.5 6.2 6.8 7.7 9.1 10.7

Canada 1.0 3.2 3.7 4.6 5.5 6.8

Russia* 1.6 2.1 3.9 5.7 5.7 6.3

Turkey 1.1 2.4 2.3 2.7 3.9 4.8

China’s market share in various large-scale economies(as a percentage of total imports of the economy at issue)

Note: * For Russia, the percentage indicated for 1990 actually corresponds to 1996.

Sources: United Nations Merchandise Trade Database (COMTRADE); data on the EU drawn from OECD World Trade Statistics (2006).

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A demographic map of the world

North America never looked so slim…

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Demography is a weapon of mass construction

You want cheaper products, you come to us China + India + Brazil + Russia + Mexico =

more than 3 billion Europe + USA + Japan = 827millions

…or a potential for destruction? Africa : 1,7 billion in 2040?

THE POWER OF DEMOGRAPHY YESTERDAY: MORE WORKERS / TOMORROW: MORE BRAINS

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More brains, good and cheap

China: 2nd investor in R&D in the world (136b in 2006)

Asia : from 15% to 32 % of R&D world investment in 4 years

30 000 young Chinese will get an MBA in 2008 (1998 = 0)

300 000 new engineers each year in China, 400 000 in India (USA = 70 000)

Large multinational companies create scores of research centers in China and India

SHORTAGE OF TALENTS? IN 10 TO 15 YEARS FROM NOW, INTELLIGENCE WILL BE A COMMODITY

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The main engine of growth : hunger

Hunger for revenge or compensation 1820: English merchants control Bengal and fix

the price for cotton : good for Manchester, but 12 M Bengalis die

1842: « Unequal » treaty of Nanking, lead to Opium War

Vietnam wars: France 1945-1954, USA 1956-1975

Hunger, for food and comfort 3 billion people or more in the emerging

countries want to eat, to work, to reach a «western style» way of life

SHALL WE BE PREPARED TO RESIST A REVERSE COLONIZATION PROCESS?

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Chinese Competition Is Changing in nature

CIMC is a good example (China International Marine Containers)

How the worst in class became the NO1 global container manufacturer Through cost and innovation

strategies

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Learn, Improve, Disrupt

Find a competitor’s weak link and break it Standard containers, economies of scale, acquisitions

Blend new technologies and low costs Refrigerated containers, steel vs. aluminium, economies of scale

Offer variety + new technologies + mass production + low prices Tank containers and special containers

At each stage, invest in R&D at very little cost Folding containers

Dragons at your door, Ming Zen & Peter Williamson, 2007

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The List Is Getting Longer

Mass production variety and innovation

Build on the brand and technological innovation

Turn a niche market into a mass market

Brazil beauty, cosmetics

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The Cost/Innovation Method

Mass productionMass productionLow

SalariesLow

Salaries

R&DR&D

InnovationInnovation

VarietyVariety

Low G&ALow G&A

A New Competition

Model

A New Competition

Model

NicheNiche

The FilterThe Filter

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Their advantages that we cannot duplicate

1 billion 300 millionHuge Market

3 to 4 times less... and relatively low paid

Roughly 300 000 new engineers a year

A lot of well-trained brainpower…

Up to 30 times cheaperVery low salaries

300 million rural dwellers want to move to a city

An enormous labour pool

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Their strong points (looks familiar?)

Technological Innovation

Research & Development

Make of a niche product a mass product

Variety (at small price)

Economies of scale

Brands (coming soon)

Money is not really a problem

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Why this competition will increase

1. Demographic pressure They need to give work to their growing population

2. Fierce local competition High level of entrepreneurship leads to overcapacity

3. Natural need to grow To get richer and because it’s safer to be big than small

4. They have the capacity Talents, capital, hunger

They start from zero, with hundred years of frustration to overcome. We are overfed and a little short on motivation

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China in the crystal ball of experts

Twice the US GDP in 2050 PriceWaterHouse Coopers (Sept 2006): the GDP of China will be 130%

of the US GDP in 2025

KPMG: China will be ahead of US in FDI in 5 years

China buying the world Currency reserves: close to 2000 billions US$

Sovereign fund - China Investment corporation - 200 bUS$ to spend First quarter of 2008: Chinese companies have spent 19.34 b US$ in

acquisition abroad (+ 353% compared to same period last year)

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Let’s think out of the egg !

Thank You!