The world changed in 2001 when Goldman Sachs economist Jim O’Neill coined a clever acronym for the hottest emerging markets of the day: Brazil, Russia, India and China.
For a decade, the so-called BRIC nations drove global growth and investment while the economies of the U.S., Japan and the European Union stagnated. BRIC now is cemented into the language of international business. Before retiring earlier this year, O’Neill was known on Wall Street as “Mr. BRIC.”
But economic expansion in the BRIC countries now is either maturing or running out of steam and interest and investment dollars are searching elsewhere for the Next Big Thing.
O’Neill came up with another acronym “MIST,” several years ago, shorthand for Mexico, Indonesia, South Korea and Turkey. But even though it is catchy, even O’Neill does not think the MIST countries can replace the giant evolving space that is China.
MIST symbolizes not the largest new markets, but the ones that are growing fastest.
“The reason Indonesia is one of the hot ones is we’re seeing almost a hockey stick of growth there over the next several years with investments,” says Joe McCabe, president-Automotive Compass, which partners with WardsAuto in producing the WardsAuto/AutomotiveCompass long-range global production forecast.
“The idea obviously is to always focus on where your next big investment is going to be,” McCabe says.
Not everyone has bought into the MIST acronym. For one, investment banks like to come up with their own clever abbreviations. Citigroup has the memorable CARBS, for the hottest commodities markets: Canada, Australia, Russia, Brazil and South Africa. There are countless others. Europe’s most distressed economies, Portugal, Ireland, Italy, Greece and Spain, even have their own unflattering nickname: PIIGS.
Some analysts find MIST too limited in scope. Goldman Sachs has an N-11 Equity Fund that includes the next big 11 emerging markets. The economies of the MIST nations make up about 75% of the value of the N-11 fund, but it also includes countries such as Nigeria, Pakistan, the Philippines and Vietnam.
Even though O’Neill is credited with coining MIST as well as BRIC, he told Bloomberg-BusinessWeek earlier this year that a dedicated MIST fund would be redundant with N-11.
From an automotive production standpoint, MIST will not come close to equaling the BRIC nations in the foreseeable future, a WardsAutoAutomotiveCompass forecast predicts.
China’s auto industry will continue to be a powerhouse, building additional volume equivalent to 35 new auto assembly plants by 2019. India will add production volume equivalent to 10 plants, while the U.S. adds the production equivalent of four plants during the same time period.
Indonesia will add just 540,000 units of annual production, equivalent to two assembly plants, by 2019, WardsAuto/AutomotiveCompass predicts. Mexico is forecast to add 1,100,000 units of production (equal to five new assembly plants) during the same period, putting it ahead of the U.S. and just slightly behind Brazil’s production growth. South Korea actually has a flat automotive production outlook from now through 2019, according to the WardsAuto/AutomotiveCompass long-range global production forecast.
“The short- and long-term story remains China, India and a few others, but mostly China,” says Global Production Analyst Haig Stoddard at a WardsAuto conference earlier this year.
In its attempt to create an automotive-centric successor to BRIC, The Boston Consulting Group has isolated 88 markets with new-vehicle sales that are projected to exceed 10,000 units by 2020. Its list of fast-growing vehicle-sales countries begins with Indonesia and South Korea, but also includes nations such as Iran, Thailand, Saudi Arabia, Argentina, South Africa and Malaysia in addition to Mexico and Turkey in its top 10. Resisting the urge to create yet another catchy acronym, it has tagged them simply the “Beyond BRIC” markets.
Lumped together, these markets are predicted to have strong growth and already are almost the equal of China’s 17 million-unit light-vehicle sales in 2012, BCG says.
The Trouble With BRIC Nations
As far as the auto industry is concerned, BRIC nations remain giant, crucial markets, but from a new-vehicle sales standpoint, the bloom is off the rose.
After steadily posting double-digit gains in the previous decades, China has gone from being an emerging market for autos in 2001 to the world’s largest today. As its market matures, it can’t sustain the gains it posted during much of the last decade. BCG predicts only 6% annual growth for the next seven years as China’s light-vehicle sales rise to 28 million in 2020 from 17 million in 2012.
Rising labor rates and high shipping costs to Western markets also are causing China to lose ground to Mexico on the production front.
Russia, once one of the world’s fastest-growing automotive markets, is being dragged down by Europe’s stubborn economic malaise. Falling gas and oil prices also have put the brakes on Russia’s economy, which is heavily reliant on energy exports. BCG predicts just 4% annual sales growth through 2020, rising from 3 million to 4 million units.
Brazil’s promise also is fading. After a decade of encouraging growth its economy has stalled. BCG predicts light-vehicle sales there to rise 5% annually, growing from 4 million to 5 million units during the next seven years.
India has the strongest near-term growth outlook for the BRIC nations, but still is a disappointment following the sky-high hopes of the last decade. Rising inflation, high interest rates and infrastructure problems now are putting a serious crimp in the giant nation’s potential.
Yasheng Huang, a professor of global economics and management at MIT’s Sloan School of Management and a contributor to the new book: “Reimagining India: Unlocking the Potential of Asia’s Next Superpower,” argues India has depended too much on the rise of its information-technology and software industry. Huang says India needs to develop its manufacturing and services sectors, which requires labor-market reforms and significant investments in both education and social services.
But this will be no easy task. One of India’s most ambitious manufacturing efforts, building the Tata Nano ultra-low-cost car, has flopped. Launched with great fanfare in 2009 as the world’s cheapest car, the Nano has been rejected by consumers who were expected to trade up from the country’s legion of motorbikes.
BCG predicts light-vehicle sales will increase 10% annually through 2020, but that translates into an increase of just 4 million sales annually by 2020 for a nation of almost 1.3 billion.
These downgraded expectations for the BRIC countries put more pressure on the mature auto-producing regions of the U.S., EU and Japan, which are expecting to see puny 2% yearly increases in domestic sales through 2020, or in the case of Japan, 1% negative growth.
With the BRICs expected to provide a smaller-than-expected bounty, automakers and suppliers have to start behaving like fishermen struggling to survive and throw their nets ever wider and deeper to find results.
General Motors recently spent $150 million refurbishing a long-mothballed plant in Jakarta, Indonesia, to produce Chevrolet’s B-size Spin multipurpose vehicle.
“Last year, we sold about 4.5 million Chevrolets around the world,” Tim E. Lee, GM vice president-global manufacturing and president-International Operations, said last May at the inauguration of the auto maker’s resurrected facility.
“We’re the fastest-growing brand in the world, and to support that kind of growth we have to expand our production facilities – and so we have chosen to locate here.”
The new Spin MPV, launched in March in Thailand, is “the perfect vehicle for us to produce in Indonesia,” Lee added. “We will do big numbers in Indonesia this year, I'm very confident of that.”
Last Frontier Lies Ahead
But even expanding in the relatively familiar territories of Indonesia, Mexico, South Korea and Turkey will not be enough.
BCG says automakers can’t ignore Northern Africa and even currently forbidden markets such as Iran. These represent “the last frontier” for automotive industry growth and will account for 20% of global new-vehicle sales through 2020.
BCG’s 88 Beyond BRIC markets promise a cumulative growth rate of 5% to 6%, from 15 million units last year to 21 million deliveries in 2020. This forecast includes 1,539,000 deliveries in Iran by decade’s end.
Ultimately MIST, Beyond BRIC or whatever you want to call it will not be a replacement but a much-needed supplement to the waning promise of BRIC and the even more sluggish markets of the U.S., EU and Japan.
Even bold expansion will be no guarantee of success. Individual automakers still may find growth in shrinking markets or failure in surging ones.
Hyundai already is well established in the BRIC and most of the MIST nations. Strong sales have made it perennially stressed for capacity in recent years. The South Korean automaker now is hoping to squeeze every last drop of production out of each plant and raise the value of its products rather than adding volume and bricks and mortar.
“You really have to look down the road and if we think we can meet our organic growth with our existing capacity and raise our brand, then we won’t need a new factory,” says global spokesman Frank Ahrens.
“Honestly (looking at expansion into new markets) is a process that never stops. Even though we have no plans, there are people constantly evaluating countries.”
Mexico, additional plants in China or Southeast Asia, all offer potential Ahrens says, but Brazil, which is supposed to be slowing down, “turned out to be better than we thought.”
