Slow moving opportunities in fast paced markets


As each August rolls around, Ti’s focus shifts to emerging markets as work gets underway on the Emerging Markets Logistics Index, sponsored by Agility. Taking in data and primary evidence across market size and growth, business environment compatibility and connectedness of infrastructure, for the last decade the Index has provided one of the most complete and detailed looks at the development of and demand for logistics services in emerging markets across the globe.

A theme which often comes up in discussion of emerging markets is the rise of consumer demand as middle classes expand. There are a number of nuanced drivers of this rise. Some are very direct and some are more abstract, but they all focus around two central points – increased buying power of consumers, and easier to access to those consumers.

On the increased buying power-side, we’re used to seeing the development of skills and better levels of education as indicators of a rising middle class. As skills develop and opportunities become available, many countries and business have been able to move up the value chain. It’s a well-worn path.

On the easier access-side, often cited examples of development include better and more widespread internet connectivity, allowing for increased productivity and the development of e-commerce, for example, as well as infrastructure development. A less direct increased access driver is a business environment which makes it easier for domestic and foreign businesses to establish operations, employ local populations, and invest in the development of their business. The Middle East has a number of markets that have performed superbly in this regard, with the UAE, for example, consistently topping the market compatibility ranking of the Agility Emerging Markets Logistics Index for the last decade.

It’s easy, though, to overlook the length of time it takes for markets to fundamentally address the underlying drivers that promote such benefits. While it’s hugely significant that vast swathes of the global population are seeing their incomes rise, there is a wide variation in the pace at which markets are able to move the income levels of populations into areas which create significant and sustainable opportunities for logistics service providers.

A piece of research from the OECD is highly relevant in this regard. In assessing income mobility across generations, the OECD found that across member nations it takes an average 4.5 generations for a low-income family (defined as the bottom 10% of earners) to approach the mean income in their societies. The shortest number of generations for the shift to occur (2) can be found in Denmark, and it’s perhaps unsurprising that the other top spots are made up of developed nations (indeed, Scandinavia takes all top 4 spots, with 3 generations needed to bridge the gap in Finland, Norway and Sweden).

Income Mobility Across Generations

Source: OECD

 

So far as emerging markets go, the results are less than optimistic. At 6 generations, Chile and Argentina perform best, while China and India (7), Brazil (9) and Colombia (11) point to the scale of the challenges faced to promote the poorest member of their societies into the types of social grouping that is so often cited as the major attraction of emerging markets – the middle class.

While the research only addresses a small and specific section of society, with other groupings likely to take less time to approach mean salary level, the implication is clear – this is not a quick fix, it requires coherent and ongoing policy to change the situation, and that it will take longer than many perhaps expect. In 2018, we’re far removed from an era of opportunistic speculation in emerging markets, and as we move towards another edition of the Agility Emerging Markets Index, this research is a timely reminder that even some of the fastest paced markets in the world move at generational speed.

Source: Transport Intelligence August 9, 2018

Author: Nick Bailey

GSCi

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