Mini-Project 3

Analysis of what it is coming in the investment world


Dear managers,

I have been thinking for about a month on how we can be more innovative and creative in the way we are investing the money of our clients. Since I am in this company, it is easy to see that the business is going well and everybody is happy. Therefore, as a broker who is always looking for innovation and creativity, I looked at new trends in the economy of the world and there is an important conclusion that we have to realize. The time when Eastern countries, Japan, China, and India, will lead the world is not that far. Right now the way these countries are improving in term of how they think is sensational. For example, if you look at China and India, they are the fastest-growing economies. The desire of both countries to strike partnership between each other and with other countries is evident. As investors, we need to take advantage of that. Most of the brokers in the Western part of the world think that China and India can not collaborate, they can just compete. But this is changing and China and India are more likely to work together in certain fields. China is getting so specialized in manufacturing and infrastructure. As for India, it is specialized in services and information technology. I think we must be creative thinker and forecast the possibility that a lot of Occidental companies will go (if it is not already done) in the East to start business there and get competitive advantage over their competitors. We must concentrate our efforts on finding these companies because they will have an edge in terms of innovation. For example 3M and Unilever, two companies that installed divisions in China and India are already seeing the benefits. Right now, foreign companies get red-carpet treatment from the governments of China and India. We have to keep an eye on that 21st century trend.

Also an important aspect is that both countries have a growing appetite for natural resources such as oil, coal, and iron ore. Therefore, I really think natural resources will be a field where investments will be profitable for the next 10 or 15 years. These two countries together count for almost half of the world’s population, they will need those resources. Researches show that China will become the largest and India the third-largest economies in terms of purchasing power. In 2016, both countries together will account for around 40% of the world trade. This means that companies in Europe and North America will have to supply a tremendous amount of products. Once again, we need to be aware of that and make the right choice in the companies we pick. I think that companies with an international division that are creative and not scared of challenges will succeed in the next 10 years. There is also the possibility of investing in a company that is from China or India because economists think that bilateral trade could reach $50 billions by 2010. It is quite a huge amount of money and this is why I suggest that investment companies should send people in these countries to find the right company to invest in. The opportunity is there, we have to use it. Another advantage for companies to do business in these countries is the human capital. For example, in China the labour is very cheap. Companies have an incentive to go there because they reduce labour cost. At the same time, companies can turn toward India for design and develop products. Indian workers have talent to market and for service products.

Another situation in China right now is the fact that there are over 350 millions smokers. This amount is increasing by more than 3 million a year. Also the amount of non-smokers in China affected by passive smoking was 540 million as of 2007. What these numbers mean is that about two-thirds of the Chinese population either smokes or is affected by those who do. More than one millions Chinese die of smoking-related illnesses every year and this number could reach three million by 2050. This situation brings investors to think about how we can profit from that. If you look at it, for sure tobacco companies will profit from this situation, but drugs companies also because more people are getting sick due to the smoke. You can also search for companies that will try to eliminate smoking and replace this habit by something else. We certainly have to keep this situation in mind and take the right decision about it. I mean the rational one.

In India, there are the software and service companies that are really good, but in the near future we need to look at industrial companies. Government thinks about huge urbanization plans. They want to build a tremendous amount of buildings and streets. Therefore, we can forecast that construction companies, cast-iron companies, asphalt companies and engineers companies will have a nice future. They will also need a lot of natural resources.

Now, if we do not want to miss the boat of the 21st century we really have to look at Japan. This country is the second-best economy in the world and offers an incredible amount of opportunities. Investors need to be aware of what is going on in this country. One major aspect of Japan that is almost ignored is its highly competitive domestic market for consumer goods. Because it is so competitive, cycles of products are really short. In that case, it is more important to search for companies with good implementation strategies and with a strong innovation department. Companies in Japan are good for investment. Japan offers rich and unparalleled ideas and insights for both product development as well as the field of marketing and communication. Applied to their home markets, these ideas and insights could provide foreign companies with significant competitive advantage. In the 21st century, it is a must to look at Japanese companies. Japan seems to be already adjusted to the 21st century. They are good to develop and adjust products for specific target groups. They develop products for newly emerging lifestyles. They develop products that consumers have been waiting for. They create campaigns that cut through the clutter. They make sure customers are truly satisfied and they use technological innovation to gain competitive edge. It is all that we want as investors. Communication, marketing, commodity good and electronic companies are great fields to look at. But a situation that we have to take care is the fact that Japan’s society is aging fast and by 2025, more than 30% of the population are going to be 65 or older. So the Japanese seniors are the most affluent market because they spend large sums on education, recreation, transport and communication. They will also consume a lot more drugs too. It is important to be aware of that, because Japanese companies are putting a lot of efforts to address the needs of this consumer’s group. Mobile phone companies (huge field of business in Japan) are especially designing phone for senior citizens. Technology companies are creating robot dolls to keep company to people living alone. Also, there are the car companies that are making efforts to allow safe driving by seniors. These are facts for Japan, but this reality is also coming in Western countries. The Japanese companies will have a competitive hedge when the Western baby-boomer generation will retire and need all these products. Another important point that American companies need to know if they want to do business in Japan is the fact that women are choosing the freedom of life as working singletons over marriage and motherhood, and are exerting their independence through consumption, therefore they buy a lot of items. In the 21st century, women will be an important target market in Japan. We can look at American and Japanese companies that are trying to reach women. One of the most interesting points is that Japanese care a lot about the environment. Their approach to environmental awareness is not focused on consuming less (as for example in Germany) but on embracing an environment-focused lifestyle based on consuming more and different products such as a washing machine working without water, furniture that can grow plants in, and a kitchen which includes space to cultivate vegetables and herbs. Thus, sustainable and socially responsible companies will be the place to invest our money. To summarize, Japan is the leader for electronics. New products and gadgets appear on a daily basis, especially in mobile technology, where Japan is several years ahead of the US and Europe.

Finally, I really think that as investors, we need to go back in front of our computer screen and reflect on how we can change our strategies to include the Eastern countries. The coming together of China and India puts at a disadvantage many companies, especially from the West, that refuse to react to this trend. They will not be able to generate the synergies that their Chinese and India rivals can. If they lose share in those two markets, they are given China and India’s size. China and India will be market leaders for many years. For Japan, the reality is already at our door. They are so powerful. We just need to be creative and innovative thinkers and take advantage of the opportunities in front of us. By making rational and socially responsible selection of companies, our future will be even better!!

Have a good day and for any questions E-mail me,

Benoit Arsenault