keywordsCable & Wireless
If business success is a voyage of discovery into new and uncharted territories, why does Europe appear slow to get on board?
Date: Mon, 11/23/2009 - 19:49 Source: Cable & Wireless press department
From Ferdinand Magellan to Christopher Columbus and Captain James Cook, the Europeans have a long and established record of profiting from exploration, discovery and expansion, often in the face of less than auspicious prospects. However, if the results from recent research conducted on behalf of Cable&Wireless Worldwide proves correct, this tradition has all but died out in the business world. With economists, analysts and industry reports concluding that emerging economies are now healthier than developed markets and better equipped to lead the world out of the recession, they remain largely overlooked by European businesses looking to expand and grow profits.
Although they did not escape wholeheartedly unscathed by last year’s global economic downturn, the lack of significant personal or corporate debt often characteristic of the developed West, meant that the emerging markets were not hit as hard by the subprime wave. This, it is believed, puts them in a much stronger position to recover sooner than their traditionally stronger peers. This hypothesis is borne out by HSBC’s recent emerging markets index which concluded that the manufacturing and services output has recovered quicker and to a higher level than developed economies since the financial crisis last year. As an almost direct result, spending on infrastructure in these regions is also increasing, with countries such as China and India investing significant amounts in expanding existing infrastructure whereas more developed markets are scrimping to replace older, in-country build outs.
Long-term trends in economic, social and cultural development have long been dictated by the introduction of new ‘drivers’. During the industrial revolution, drivers or technology enablers, such as steam power, oil, the motor vehicle, and plastics sustained long-term periods of innovation and growth. Their 21st century counterparts all result from information and communication technology (ICT), including telecommunication, computing and broadcasting. Solid connectivity infrastructure is pivotal for all three, and essential if emerging markets are to deliver on positive forecasts.
We have already seen how investment in increased connectivity has contributed to economic growth and development in four of the most developed emerging markets; Brazil, Russia, India and China. Encouraged by this success, multinational companies (MNC) based in the developed world are now increasingly comfortable looking towards emerging markets as launch pads for new innovation. In addition, the absence of legacy infrastructure in emerging markets allows for the adoption of digital networked economies far quicker than established markets.
The wealth of positive predictions mean that, as our own research demonstrated, the majority (68%) of MNCs based in North America or Europe increasingly look favourably towards emerging markets as appealing business prospects. So why then, do they appear hesitant to begin mass investment and expansion into these regions?
Ironically, given the rising infrastructure spend in these countries, businesses are hesitant to make a firm commitment to expansion due to increasingly outdated perceptions about many of the emerging market territories’ ability to foster international commerce. We can take Africa as a key example of this. As part of our research, we spoke with more than 300 multinational companies earlier this year. Of these 81 percent expressed a desire to expand into South Africa and 61 percent into Sub-Saharan Africa by mid-2011. Half of these however, were reluctant to make the move due to concerns about the perceived lack of infrastructure in the region.
Companies such as Cable&Wireless Worldwide have long invested heavily in getting high-speed, high-capacity and cost effective telecom networks into these regions and today, the infrastructure in these markets is much more advanced than businesses are giving it credit for.
Nowhere is this more pertinent that when looking at the African continent. For example, we deployed our first cables in the region in 1890 and others have followed in the following years. This investment is continuing today and within the next two years around five more undersea cable networks connecting the continent to the rest of the world are due to come into operation, including the recently announced, West Africa Cable System (WACS).
This project will provide a high-speed fibre optic network that will link more than 13 countries in Southern and Western Africa to Europe with faster and more cost effective connectivity. It will also provide an independent solution to the private systems currently planned and will build on the existing telecoms capability in the region, increasing the combined international bandwidth capacity into sub-Saharan Africa by 120 times by the end of 2011.
The telecoms sector is rapidly proving itself to be the key that unlocks the potential of this vast continent and yet European businesses continue to drag their heels, particularly in comparison to their Asian counterparts. Where you might expect to see North American and European businesses forming the first wave of investment, we are currently seeing the majority of traffic coming into African directly from Asia. An observation that was very much backed up by our research which showed that approximately 60% of the companies surveyed from Asia Pacific were more informed about emerging territories such as the Middle East or Africa and more hungry to grow in the region than North America or Europe. Nearly 70% of Asia Pacific respondents mentioned that they expect to set up operations in the Gulf States and South Africa in the next 18 months and about 60% of the companies also said that they would consider opening up offices in North Africa and Sub-Saharan Africa in the same timescale.
A vast number of Asian, and particularly Chinese, companies are helping to build Africa’s infrastructure, from energy and transport to telecoms, as well as investing in electronics and automotive assembly. All of which are needed to respond to the demands of a growing middle class, requiring ever higher numbers of services and goods. Africa also has a relatively untapped, high potential workforce. Countries such as Ghana, where the population is highly educated and has strong English skills, could be a veritable goldmine in terms of employment potential.
Much as they did back in the 16th century, emerging territories present huge opportunities for European businesses and, in the same way, the investment they then deliver to the chosen market can be equally significant and beneficial. The lack of understanding or appreciation of just how quickly emerging markets are catching up, and in some cases outstripping Western infrastructure, means that businesses that continue to sit on the fence risk missing out on the modern day ‘bounty’ of huge opportunities and financial rewards.