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Laying the Groundwork: An Emerging Markets Overview

CMAG 42 at Cisco in San Jose March 5, 2009 Joe Gatto and Jeff Young joe.gatto@iprcorp.com | jeff.young@iprcorp.com International Planning & Research www.iprcorp.com. Laying the Groundwork: An Emerging Markets Overview. Agenda and Summary of Highlights. Market Characteristics

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Laying the Groundwork: An Emerging Markets Overview

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  1. CMAG 42 at Cisco in San Jose March 5, 2009 Joe Gatto and Jeff Young joe.gatto@iprcorp.com|jeff.young@iprcorp.com International Planning & Research www.iprcorp.com Laying the Groundwork: An Emerging Markets Overview

  2. Agenda and Summary of Highlights • Market Characteristics • Market characteristics and economic measures can be used to prioritize/rank the huge number of emerging markets. The BRIC are near the top, but others surface as well • Economic Updates • BRIC countries are all being impacted by the worldwide recession, but there are key differences that need to be comprehended in their assessment; these differences can be tracked with timely data available from a variety of country/international sources • Early Warning System • An early warning system “dashboard” with a common look and feel can help to summarize and make digestible the vast amount of country-level tracking data for those who need to know but don't have the time to take the deep dive • Beyond a “headlights” capability, statistical modeling of the relationship between IT spending and underlying economic conditions leads to better business planning • Appendix

  3. What Makes an Emerging Market? Growth Rate Sufficient Size Level of Economic Development Emerging Market ?

  4. Emerging Markets at a Glance: GDP Size of circle reflects size of economy in 2000 $USD at market rates China $2.4T Vietnam Ukraine Russia Romania 2000-2008 CAGR India Iran N Libya Egypt Malaysia Peru Czech Republic B Venezuela South Africa Turkey Argentina Chile Pakistan Algeria Colombia Hungary Brazil Indonesia Poland Thailand Saudi Arabia Philippines Mexico N = Nigeria B = Bangladesh GDP per Capita (2008) Source: IPR Worldwide Economics/Demographics Database

  5. Governance Indicators: Rule of Law Percentile Rank Based on 77 individual variables from 26 sources. Measures perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. Source: World Bank Governance Indicators

  6. Gini Coefficients Measure of income inequality. Coefficient of zero means that everyone in the country has exactly the same income; coefficient of 100 means that one person has all the income, and no one else in the country has any. Source: World Bank

  7. Cell Phone Subscribers vs. GDP Czech Republic Saudi Arabia Ukraine Russia Poland Hungary Romania Argentina South Africa Malaysia Venezuela Thailand Algeria Chile Turkey Libya Colombia Cell Phone Subscribers 100 Inhabitants (2007) Philippines Brazil Mexico Peru China Pakistan Iran Nigeria Egypt Indonesia Vietnam India Bangladesh GDP per Capita (2007) Source: International Telecommunications Union, IPR Worldwide Economics/Demographics Database

  8. Internet Users vs. GDP Malaysia Romania Czech Republic Poland Hungary Iran Chile Internet Users per 100 Inhabitants (2007) Peru Brazil Saudi Arabia Colombia Argentina Ukraine Russia Thailand Turkey Mexico Venezuela Vietnam China Egypt Pakistan Algeria India South Africa Philippines Nigeria Libya Indonesia Bangladesh GDP per Capita (2007) Sources: International Telecommunications Union, IPR Worldwide Economics/Demographics Database

  9. Emerging Markets Scorecard Rank in Parentheses

  10. Stock Market Index Performance 52-Week Change as of March 1, 2009: Local Currency Western Europe Saudi Arabia Thailand China Mexico Poland Russia Japan Brazil U.S. Turkey India Argentina Sources: bloomberg.com (Saudi Arabia - TASI), MSCI Barra (Others)

  11. Anatomy of a Meltdown Changes in Forecast of 2009 GDP Growth between September 2008 and February 2009 September Forecast 9.4% 9.4% September to October October to November November to December December to January January to February Forecast Reductions 7.4% February Forecast 6.7% 6.3% 5.8% 5.1% 4.1% 4.0% 4.0% 3.6% 2.1% 0.8% 0.6% 0.4% Thailand Saudi Arabia Brazil China India Poland Argentina Mexico Russia Turkey U.S. Western Europe Sources: IMF, IPR Japan

  12. Spotlight on…China GDP, CPI and Industrial Production Expressed as Change vs. Year-Ago Largest Export Markets Exports = 35% of GDP (2008) GDP Annual Forecast GDP Quarterly History Source: China National Bureau of Statistics Source: IPR WW Economics/Demographics Database Source: CIA World Factbook (2008) Consumer Price Index Industrial Production Source: China National Bureau of Statistics Source: China National Bureau of Statistics

  13. Spotlight on…India GDP, CPI and Industrial Production Expressed as Change vs. Year-Ago Largest Export Markets Exports = 14% of GDP (2008) GDP Annual Forecast GDP Quarterly History Source :India National Informatics Centre Source: IPR WW Economics/Demographics Database Source: CIA World Factbook (2008) Consumer Price Index Industrial Production Source: CSO- India Source: CSO - India

  14. Spotlight on…Russia GDP, CPI and Industrial Production Expressed as Change vs. Year-Ago Largest Export Markets Exports = 27% of GDP (2008) GDP Annual Forecast GDP Quarterly History Netherlands Source: Russian Federation on Statistics Source: IPR WW Economics/Demographics Database Source: CIA World Factbook (2008) Consumer Price Index Industrial Production Source: Russian Federation on Statistics Source: Russian Federation on Statistics

  15. Spotlight on…Brazil GDP, CPI and Industrial Production Expressed as Change vs. Year-Ago Largest Export Markets Exports = 12% of GDP (2008) GDP Annual Forecast GDP Quarterly History Source: Brazilian Institute of Geography and Statistics Source: IPR WW Economics/Demographics Database Source: CIA World Factbook (2008) Industrial Production Consumer Price Index Source: Brazilian Institute of Geography and Statistics Source: Brazilian Institute of Geography and Statistics

  16. Spotlight on…United States GDP, CPI and Industrial Production Expressed as Change vs. Year-Ago Largest Export Markets Exports = 10% of GDP (2008) GDP Annual Forecast GDP Quarterly History Source: U.S. Bureau of Economic Analysis Source: IPR WW Economics/Demographics Database Source: CIA World Factbook (2008) Consumer Price Index Industrial Production Source: U.S. Bureau of Labor Statistics Source: U.S. Federal Reserve

  17. Decomposing Changes in U.S. GDP • GDP increased by $109B in 1H08 but declined by $219B in 2H08 – a swing of $328B • Net exports accounted for almost all the gain in GDP for 1H08, but were practically flat in 2H08 • Contraction in economy for 2H08 due to collapse in final private domestic demand (primarily personal consumption and non-residential investment), which dropped even more than GDP • Residential investment was actually less of a drag in 2H08 (-$37B) than it was in 1H08 (-$42B) • Involuntary inventory buildup contributed to economic output in 2H08 (after being a drag in 1H08) but as this unwinds in 1H09 it will further depress GDP

  18. Early Warning SystemsFor Mature and Emerging Markets • Early Warning Systems (EWS) provide “market alerts” and “headlights” capabilities that anticipate likely changes in market growth dynamics and enable responses “ahead of the curve” • EWS provide surveillance and monitoring of key high-frequency economic and market-related leading indicators expected to most accurately reflect the market landscape in the short-term • EWS focus on identifying and tracking the key high-frequency economic and market-related series determined to be the most robust indicators of future growth in both mature and emerging markets • One advantage of leveraging the high-frequency economic and market-related leading indicators is that they are generally publicly available and published well before data sources which cover the technology markets • Once a subset of key indicators is identified, predictive modeling techniques can be employed to quantify the relationships between the high-frequency leading indicators and historical market growth to assess the likely impacts of changes in the indicators on market growth over the next several quarters • Monthly EWS “market alerts” reports provide country-specific “dashboards” that focus on the most important high-frequency leading indicators so that the growth dynamics of the relevant markets can be visually monitored and evaluated • EWS also generally enable “headlights” capabilities that identify the likely implications of recent movements in the leading indicators on existing market growth forecasts

  19. EWS Market Alerts Country Dashboard: US Computers & Peripheral Equipment Investment

  20. EWS Market Alerts Country Dashboard: US Computers & Peripheral Equipment Investment

  21. US Headlights: Predictive Model ForecastsComputers & Peripheral Equipment

  22. EWSMarket AlertsCountry Dashboard: Brazil Office Machinery & Data Processing Equipment Although GDP is an important indicator of growth, for Brazil Office Machinery & Data Processing Equipment the relationship is only moderate

  23. EWS Market AlertsCountry Dashboard: Brazil Office Machinery & Data Processing Equipment This indicator signaled a significant slowdown in Brazil Office Machinery & Data Processing Equipment growth was on the horizon in the third quarter of 2008

  24. EWS Market AlertsCountry Dashboard: Brazil Office Machinery & Data Processing Equipment For the BRIC countries, US and other G-7 series are often better indicators of technology market growth than country-specific ones

  25. EWSMarket AlertsCountry Dashboard: Brazil Office Machinery & Data Processing Equipment Indicators that have shown a strong negative relationship to technology growth are also valuable to monitor

  26. EWS Market AlertsCountry Dashboard: Brazil Office Machinery & Data Processing Equipment For the BRIC countries, US and other G-7 series are often better indicators of technology market growth than country-specific ones

  27. Brazil Headlights: Predictive Model ForecastsOffice Machinery & Data Processing Equipment

  28. EWS Market AlertsCountry Dashboard: China High-Technology Product Exports As far back as early in the second quarter of 2008 , this indicator foreshadowed that a significant slowdown in China High-Technology Product Exports was on the horizon

  29. EWS Market AlertsCountry Dashboard: China High-Technology Product Exports This indicator foreshadowed that a significant slowdown in China High-Technology Product Exports was on the horizon in the second quarter of 2008

  30. EWS Market AlertsCountry Dashboard: China High-Technology Product Exports For the BRIC countries, US and other G-7 series are often better indicators of technology market growth than country-specific ones

  31. China Headlights: Predictive Model ForecastsHigh-Technology Product Exports

  32. EWS Market AlertsCountry Dashboard: India Total Desktop PC Shipments

  33. EWS Market AlertsCountry Dashboard: India Total Desktop PC Shipments For the BRIC countries, US and other G-7 series are often better indicators of technology market growth than country-specific ones

  34. India Headlights: Predictive Model ForecastTotal Desktop PC Shipments

  35. EWS Market AlertsCountry Dashboard: Russia Total Information & Communications Technology Spending

  36. EWS Market AlertsCountry Dashboard: Russia Total Information & Communications Technology Spending For Russia, EMU and Euro Area series are often better indicators of technology market growth than country-specific ones

  37. Russia Headlights: Predictive Model ForecastsTotal Information & Communications Technology Spending

  38. Appendices • Supplemental Market Characteristics • Supplemental EWS Dashboards

  39. Employment Mix by Industry (2008) 499M 777M 37M 24M 90M 44M 15M 70M 15M 7M 154M Employment Gov / Ed Personal / Social Svcs Fin / Real Est / Ins / Bus Svcs Wholesale / Retail Trade Transportation / Comm / Utilities Manufacturing Ag / Mining / Construction Source: IPR Worldwide Economics/Demographics Database

  40. Business Employment by Enterprise Size (2008) 21% 24% 41% 34% 34% 24% 42% 42% 44% 42% 60% % White Collar 1000+ 100-999 1-99 Source: IPR Worldwide Economics/Demographics Database

  41. FX Trends: U.S. Dollars per Currency Unit Change from August 2008 to February 2009 – Monthly Averages Saudi Arabia China Brazil India Turkey Mexico Russia Poland Thailand Argentina Source: oanda.com

  42. EWS Market AlertsCountry Dashboard: China High-Technology Product Exports

  43. EWS Market AlertsCountry Dashboard: India Total Desktop PC Shipments

  44. EWS Market AlertsCountry Dashboard: Russia Total Information & Communications Technology Spending

  45. EWS Market AlertsCountry Dashboard: Russia Total Information & Communications Technology Spending For Russia, EMU and Euro Area series are often better indicators of technology market growth than country-specific ones

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