BRIC 2020: What Will The BRICs Look Like in The Future?

Global Global Strategy Challenges Executable Solutions
BRIC 2020: What will the BRICs Look Like in the Future?
Corporate Platforms Competitive or Obsolete for Tomorrows World?
France Houdard Managing Director

france.houdard@exolus.com November 2013
Copyright 2013 Exolus. All rights reserved.. reserved. 0
BRIC OVERVIEW
Copyright 2013 Exolus. All rights reserved..
BRICs Today: Intersection of Leading Global GDP, Population, Resources

> USD3 trillion GDP > 100+ million people > 3 million sq km
3 million sq km
Indonesia Philippines Canada Australia US India China Brazil Russia Bangladesh Pakistan Nigeria
100 million People
Ethiopia Mexico Japan
Germany
France
Italy
United Kingdom
US$3 trillion GDP (PPP)
BRICs 2020: China & India Projected to be 1st & 3rd Largest Economies
2020 GDP*
GDP* PPP-adjusted
China 1
US 2 India 3
Japan 4
Russia 6
Brazil 7
$29.6 tr
$28.8 tr
$13.4 tr
$6.8 tr
$4.3 tr
$3.9 tr
GDP* PPP-adjusted
2012 GDP*
US 1
6,4 trillions China de $ 2
3,6 trillions India 3 de $
Japan 4
Russia 6
Brazil 7
$15.7 tr
$12.5 tr
$4.8 tr
$4.5 tr
$3.4 tr
$2.4 tr
Source: World Bank 3
BRICs 2020: Russia and Brazil have Highest Per Capita GDP of BRICs
World Ranking (2012): Russia
#55
Brazil
#75
China
#94
India
#126
2020 2012
Russia GDP per Capita

$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
US
Russia
Brazil
China
India
Source: IMF 4
Attractiveness (Past): BRICs Identified as a Top Investment Destination

BRICs Rank as Top 5 Investment Destinations in World
Top 14 Most Attractive Destinations for Future Investment
%
60
(2009 2011)
50
Percent of Responses
40
30
20
10
Source: World Investment Prospects 2009 - 2011
Foreign Direct Investment: China Leads BRICs, Rivals US for Investment

World Ranking (2012): US #1 Russia #8 Brazil #4 China #2 India #14
FDI Inflows by Country
350,000
US China* Russia Brazil
(2007 2012)
300,000
India
250,000
200,000
150,000
100,000
50,000
2007
2008
2009
2010
2011
2012
6
*China includes both Mainland China and Hong Kong
Source: World Investment Report 2013, UNCTAD
Attractiveness (Future): BRICs Still Identified as Top Investment Destination

Though Russia and Indonesia Switch for Top 5 Investment Destinations
Top 14 Most Attractive Destinations for Future Investment
%
60
(2013 2015)
50
Percent of Responses
40
30
20
10
Source: World Investment Report 2013, UNCTAD
Investment Drivers: What are the Key Drivers for your Offshoring Focus?
We Arrive at Countries for Offshoring by Eliminating those that do NOT have
M&A TARGETS: FAVORABLE LOCAL COMPANIES DRUG REWITH GREATER IMBURSEMENT THAN 5% MARKET LISTS SHARE SUITABLE JV PARTNERS COUNTRIES RECEPTIVE TO TAKE-OFF AGREEMENTS
Marketing
RELIABLE FIBER BACKBONE WITH MINIMAL LATENCY
LARGE MOLECULE EXPERIENCE
STRONG IPR PROTECTION
DIVERSE DISEASE POPULATION STRONG NATIONAL INNOVATION SYSTEM

R&D
Sales
Engineering
FAVORABLE TOLLMANUFACTURING TAX STRUCTURES MATURE INSURANCE PRODUCTS

Distribution
IT
HR
UNIVERSITIES SPECIALIZED IN METALURGY

LOCAL LANGUAGES WITH ACCENT NEUTRALIZATION POTENTIAL NON-HUMAN PRIMATE RESEARCH
F&A
Legal Sourcing
LOW TURNLOCAL ACCOUNTING OVER RATES HIGHCOST STANDARDS SIMILAR PRESSURE MINUS 60 C SHIPPING TO US GAAP NATURAL GAS LOGISTICS FINE CHEMICALS TRUNKLINES RELAXED NON -UNIONIZED INFRASTRUCTURE ENVIRONMENTAL SKILLED CHEAP LABOR REGULATIONS MACHINISTS 2 MILLION GALLONS OF WATER PER DAY Ro-Ro PORTS
Copyright 2013 Exolus. All rights reserved.. Source: Exolus 8
CARBON FIBER AEROSPACE UNINTERUPTABE POWER TECHNOLOGY
Production
GOOD INCENTIVES
Corporate Deployment Pattern (China): Companies Moving Up Value Chain

Value Chain Deployment: Production-> Sales -> R&D -> Back Office
Markets
Sales Engineering
Knowledge
Marketing
IT
HR
R&D
F&A Distribution
Legal Sourcing
Efficiency
Production
COST
1
Resources
9
The Future (China): 3rd Party Outsourcing of Core & Non-Core Processes
Contract Outsourcing: R&D (CRO/KPO) Sales (CSO) Manufacturing (CMO)
Markets
Sales Engineering
Knowledge
Marketing
IT
HR
R&D
F&A Distribution
Legal Sourcing
Production
5
Resources
10
Corporate Deployment Pattern (India): Direct Opposite that of China

Value Chain Deployment: Back Office > R&D -> Sales -> Production
Markets
Sales Engineering
Knowledge
Marketing
IT
HR
R&D
F&A Distribution
Legal Sourcing
Efficiency
Production
4
Resources
11
CHINA
12
Framework: What Does China Look Like from Space? At Night?

Why?
Source: NASA (United States National Aeronautics and Space Administration)
13
Framework: Structural Determinants of Chinas Economic Geography

67% Mountains, Deserts, Steppe 90% of 1.3 billion Population in EAST
Heilongjiang
Jilin Xinjiang Gansu Liaoning
Inner Mongolia
Hebei Ningxia Shanxi
Beijing Tianjin Shandong
Qinghai
Mountains
Tibet Sichuan Guizhou
Shaanxi
Henan Hubei Anhui
Jiangsu
Shanghai Zhejiang Fujian
Chongqing
People
Hunan Guangxi Guangdong
Jiangxi
Yunnan
14
Growth Trend: Fastest Growing Large Economy in World

Economy Doubles every 7 Years Tripled most Recently
China GDP (USD trillion)
9
USD (Real Market Rates)
Hosts OLYMPIC games
3x
3 China Opens to the World
Accepted full convertibility for current account transaction Eliminated its dual exchange rate
Admitted to WTO
Applied to join GATT
2x 2x
Source: IMF
15
Wealth Trend: Forward Trend in Exploding Middle Class

100 Million People Move into Middle Class Every 5 Years
Middle Class Income Bands for Urban Population
900
822
800 700 Urban Population (millions) 607 600 500 531 684 756
Urban Household Income (US$ PPP-Adjusted)

Global > US$107,800 Affluent US$3,800 - 107,800
99 90
53
400 300 200
170 355 461 525

Upper Middle Class US$21,501 53,900
239 255 157
100
0
106
73 35
2025F
Lower Middle Class US$13,500 21,500 Poor < US$13,500
2005
2010F
2015F
2020F
Upper Middle Class Lower Middle Class
Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007 ; MGI Consumer Demand 2008
16
Urbanization Trend: Forward Trend in Mass Migration into Cities

150 Million People Moved into Cities every 10 Years
Chinas Urban Population versus Rural Population
1,600
1.45 billion
1,400
1.2 billion
1.4 billion
1.3 billion
1,200
1 billion
624 705 782
Rural Population (million)
1,000
800
600 400 200 0 1985
833 822 684 531 381 245

23% 31% 1995 40% 2005 49% 2015
822
Urban Population (million)
57%
2025
Urbanization Rate
Source: World Urbanization Prospects 2007
17
Result: Emergence of 10+ Mega-Cities the Size of Countries

60 Million Population + World-Class Infrastructure
Mega-Clusters Mega-Corridors
Chinas Emerging MEGA-CITIES

Heilongjiang
Inner Mongolia
Qinghai
Mountains
Shaanxi
Henan Hubei Anhui
Jiangsu
Shanghai Zhejiang
Chongqing
Hunan Jiangxi Fujian
Yunnan
Guangxi Guangdong
18
Corporate Deployment Pattern (China): Companies Moving Up Value Chain

Value Chain Deployment: Production-> Sales -> R&D -> Back Office
Markets
Sales Engineering
Knowledge
Marketing
IT
HR
R&D
F&A Distribution
Legal Sourcing
Efficiency
Production
COST
1
Resources
19
1. Resource Seekers: Where do Supply Chain Functions Migrate?

Low Cost Bands + Emerging Mega-Cities
Wage Bands / Mega-City Overlay
(Normalized to Highest Wages)
Heilongjiang
Wage Bands Mega-Cluster Mega-Corridors
Inner Mongolia
Qinghai
Mountains
Shaanxi
Henan Hubei Anhui
Jiangsu
1
Zhejiang
Shanghai
Chongqing
Yunnan
Guangxi Guangdong
20
1. Resource Seekers: Major Automotive Investment Across Span of China

Worlds #1 Consumer Worlds #1 Producer
China Automotive Production
VW: Audi, Jetta, Bora, Golf Mazda: M6 Toyota: Land Cruiser BMW: 3 Series and 5 Series GM: GL8 GM:Chevrolet (Epica, Sail, Aveo, Lova)
Hyundai: Sonata, Elantra
GM: Wuling
Changchun Shenyang Beijing Tianjin Yantai Qingdao Yancheng Wuhu Nanjing Shanghai
Daimler-Chrysler: MercedesBenz, Cherokee, Jeep

Mitsubishi: Pajero, Outlander Toyota: Vios, Corolla, Crown Daihatsu: Charade
Wuhan Zhengzhou
Kia: Pride, Accent, Optima Fiat: Iveco Ford VW: Santana, Passat, Polo, Gol, Touran GM: Buick Regal, Royaum,Lacrosse, Excelle, Cadillac Chery: Fulwin,Cowin,Easter,QQ,A5,V5 Geely: Haoqing, Meirie, Uliou, Maple
Nissan: Paladin, pickup Toyota: Terios, Prado Suzuki: Alto, Swift, Gazelle Isuzu: F-Series, N-Series Ford: Fiesta, Mondeo Mitsubishi: Pajero GM: Spark, Wuling Mazda: Premacy, Familia
Chengdu Nanchang Taizhou Chongqing Changsha Fuzhou Liuzhou Guangzhou
Nissan: Teana
Hainan
Peugeot-Citroen: Fukang, Elysee, Xsara, Peugeot, Picasso Honda: CR-V
Honda: Accord, Fit, Odyssey Nissan: Bluebird, Sunny
Soueast: Lioncel, Delica, Freeca, Soveran Daimler Chrysler: Spinter Vito/Viano Ford: Transit
Toyota: Camry
Sources: Company Websites, Publically Available Information
21
1. Resource Seekers: Major Cost Savings through Production & Sourcing

Is it POSSIBLE for a Companys Economy to Surpass that of Countries?
Company
China Sourcing
$27 billion
China Trading Partners: Imports from China

(Annual Volume in USD billions)
U.S.
$18 billion
$10 billion
Hong Kong Japan South Korea
$8.5 billion
Germany Netherlands
$5.5 billion Wal-Mart $2.6 billion Singapore Taiwan $2.5 billion Dell Russia
7th Place
10th Place
$2.2 billion
0
$1.8 billion
50
100
150
200
250
22
2. Market Seekers: Where are the Market Opportunities?

Low Cost Bands + Emerging Mega-Cities + High-Income Geographies
Per Capita Annual Income (USD, PPP-Adjusted)
Per Capita Income / Wage Band Overlay

Heilongjiang
> 40,000
30,000 - 40,000
25,000 - 30,000 20,000 -25,000 17,500 - 20,000 0 - 17,500 Wage Bands
Xinjiang Gansu Liaoning
Jilin
Inner Mongolia
1Beijing
Tianjin Shandong
Mega-Cities
Mega-Corridors
Qinghai Shaanxi Tibet Sichuan
Henan Hubei Anhui
Jiangsu
1
Zhejiang
Shanghai
Chongqing
Hunan Guizhou
Jiangxi
Fujian
Yunnan
Guangxi Guangdong
23
2. Market Seekers: Per Capita Disposable Income Growing 6% Per Annum

Per Capita Disposable Income Growing at Average 6% Per Annum
China
Russia Brazil
Disposable Income Per Capita (USD per annum)

80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
India
Source: GS Global ECS Research
24
2. Market-Seekers: Car Sales Proxy for Directional Market Sizing?

Car Penetration Highest in China Risking Steeply
China India Russia Brazil
Car Penetration in BRIC (units per 1,000 people)

180 160 140
Car Penetration in China (units per 1,000 people)
700
600
500
120 100 80
400
300
60
200
40 20 0
100
0 2010 2020 2030 2040 2050
Sources: Association of European Business; Autostat;; Other
25
2. Market-Seekers: To be Worlds 2th Largest Pharma Market by 2015

USD28 billion Market by 2015 9th in World Pharmaceutical Market Size Country Ranking
(USD billion)
2000
USA Japan Germany France UK Italy China Brazil Canada Spain 150 58 17 17 11 11 6.8 6.7 6.3 6.2 USA Japan
2005
262 65 24 21 16 15 13 10 10 9.8 USA Japan
2010
441 75 48 39 34 32 28 24 22 21 USA China Japan
2015F
524 103 85 55 47 44 36 31 30 28
Germany France UK Italy China Brazil Canada Spain
Germany France China UK Italy Brazil Canada Spain
Germany Brazil France UK Italy Russia India
Copyright 2013 Exolus. All rights reserved.. Sources: IMS; GSK, Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets JMCP; Monitor Analysis; Exolus 26
2. Market Seekers: Spending Growth Sustained Through Global Crisis

Sustained Retail Sales Growth Huge Shift in Discretionary Spend
Retail Sales Growth
Personal Expenditure
3.5
3.1
3
100% 90 80
1 2 4 11 9 7 16
Transport & Communications
Health Care Consumer Goods Education Home Appliances
15.2% Growth (2012)
2.5 USD Trillions
1.8
2
70 60 50 40
10 4
9
12
6
16 8
1.5
Housing
Clothing
0.7
30 20
54
31
Food
0.4
0.5
10
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0 1990 2011
Source: China National Bureau of Statistics
27
3. Knowledge Seekers: Where are Key Nodes for R&D Functions?

R of R&D Seeks Universities D Seeks Markets & Production
R&D Centers (# Operations) > 10 > 50 > 150 Wage Bands Mega-Cluster Mega-Corridors
Gansu Xinjiang Liaoning Jilin
Research & Development Centers

(Number of Operations in Select Cities)
Heilongjiang
Inner Mongolia
Beijing Tianjin
Qinghai
Shandong
Mountains
Shaanxi
Henan Hubei Anhui
Jiangsu
1
Zhejiang
Shanghai
Chongqing
Yunnan
Guangxi Guangdong
Source: UNCTAD, WIR
28
3. Knowledge Seekers: Big Pharma Migrating R&D Functions to China

Costs
R&D Centers (# Operations) > 10 > 50 > 150 Wage Bands Mega-Cities Mega-Corridors
Gansu Xinjiang Liaoning Jilin
Disease Diversity
R&D
Clinical Trials
Research & Development Centers

(Number of Operations in Select Cities)
Heilongjiang
Inner Mongolia
Qinghai Shaanxi Tibet Sichuan Hubei Henan
Jiangsu
Anhui Zhejiang Shanghai
Chongqing
Hunan Guizhou Jiangxi Fujian
Yunnan
Guangxi Guangdong
Source: UNCTAD, WIR
29
4. Efficiency Seekers: Seeking Efficiencies through Shared Service Centers

Efficiencies Economies of Scale Knowledge Sharing Standardization
Shared Service Centers / Mega-City Overlay
Shared Services Wage Bands Mega-Clusters Mega-Corridors
Heilongjiang
Inner Mongolia
Beijing Tianjin
Qinghai
Shandong
Mountains
Shaanxi
Henan Hubei Anhui
Jiangsu
1
Zhejiang
Shanghai
Chongqing
Yunnan
Guangxi Guangdong
Source: KPMG A new Dawn: Chinas Emerging Role in Global Outsourcing, 2009
30
5. The Future (China): 3rd Party Outsourcing of Core & Non-Core Processes
Contract Outsourcing: R&D (CRO/KPO) Sales (CSO) Manufacturing (CMO)
Markets
Sales Engineering
Knowledge
Marketing
IT
HR
R&D
F&A Distribution
Legal Sourcing
Production
5
Resources
31
5. China Future: Virtual Integration Contract Outsourcing Core Functions

Global Virtual Integration Models Even Big-Pharma LEAP-FROGGING Generations
CSO Cases
Chinas CRO Market
Boehringer Ingelheim
First Big Pharma to have entrusted a sole distributor for all of its products in China: Sinopharm. Sinopharm is Chinas largest pharmaceutical distributor by sales and the only China distributor to cover the entire PRC. Boehringer Ingelheims sales spiked upward by 45% from 2006 to 2007; Sinopharm saw an annual growth rate of 32%.
14
12
10
Pfizer
CRO Cases
6
Outsources to Wuxi PharmaTech: synthetic chemistry, parallel medicinal chemistry, and bio-analytical services. It also has a 3-year CRO contract with Wuxi PharmaTech to provide services in the areas of: in-vitro Absorption, Distribution, Metabolism and Excretion (ADME) services.
GSK
Outsources to Shanghai Institute of Materia Medica (SIMM) chemistry requirements.
0 2006 2007 2008 2009e 2010e 2011e
AstraZeneca
Invested USD14 million in Wuxi Pharma Tech for the synthesis of 150,000 compounds.
Preclinical Development
Clinical Development
Sources: Goldman Sachs: Healthcare Services: CROs, December 2007; Exolus Research
32
The Future: Where Pareto-Optimal Envelopes for Deployment Concentration?

Intersection of Wealth + Production + R&D Hubs + Mega-Cities
Per Capita Income / Wage Band Overlay

Heilongjiang
> 40,000
30,000 - 40,000
25,000 - 30,000 20,000 -25,000 17,500 - 20,000 0 - 17,500 Wage Bands
Xinjiang Gansu Liaoning
Jilin
Inner Mongolia
1Beijing
Tianjin Shandong
Mega-Cities
Mega-Corridors Innovation Hub Optimal Envelope
Tibet Sichuan Qinghai Shaanxi
Henan Hubei Anhui
Jiangsu
1
Zhejiang
Shanghai
Chongqing
Hunan Guizhou
Jiangxi
Fujian
Yunnan
Guangxi Guangdong
33
INDIA
34
Framework: What Does India Look Like from Space? At Night?

Why?
35
Framework: Structural Determinants of Indias Economic Geography

High Population Density across most of Country
A-Cities Highest Population and FDI
Jammu / Kashmir Himachal Pradesh Arunachal Pradesh Assam Bihar Meghalaya Tripura Mizoram
Punjab
Haryana Uttarakhand New Delhi Sikkim
Rajasthan
Uttar Pradesh
Gujarat
Madhya Pradesh
Mumbai
People
Maharashtra Hyderabad Karnataka Bangalore Andhra Pradesh
Chhattisgarh
Jharkhand West Bengal Kolkata
Chennai Tamil Nadu Kerala
36
Growth Trend: A Historical Growth Leader Among Giant Countries

Economy Doubled every 8 Years
5 4.5
4
World Banks Country Strategy (2009-2012)
India GDP (PPP adjusted)
3.5
3 USD tr
Bilateral Cooperation with European Union
2x
2.5
India Opens to World
1.5
Microchip Revolution.
2x
2x
0.5
Source: World Bank, EIU
37
Wealth Trend: Forward Trend in Exploding Middle Class

50 Million People Move into Cities every 10 Years
Middle Class Income Bands for Urban Household
140 Urban Household Income ( US $ - PPP - Adjusted )
120
Urban Population (millions)
8 100 31 80
Global >= US$ 22,158
Upper Middle Class US$ 11,079 - 22,158
60 43 58 40 6 20 27 0 1985 1995 2005 20 12 23 41 25 14

Poor <= US$ 4,431 Lower Middle Class US$ 4,431 11,079
8
2015
5 2025
Upper Middle Class Lower Middle Class
Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007 ; MGI Consumer Demand 2008
38
Urbanization Trend: Forward Trend in Mass Migration into Cities

> 100 Million People Move into Middle Class Every 10 Years
Indias Urban Population Rural Population
1600
1.5 billion
1400 1200
1.04 billion
1.3 billion
1.2 billion
1000 800
880
0.86 billion
Rural Population (million)
847
815 750 600 636 400 200 Urban Population (million)
220
0 1991
290
2001
340
465
590
2008
2020
2030
Source: World Urbanization Prospects 2007
39
Result: Emergence of 7 A-Cities (Concentrated Population and FDI)

Indias Strengthening A-Cities
Srinagar
Golden Quadrilateral North-South Corridor East-West Corridor
Jammu Pathankot Ludhiana Chandigarh New Delhi Jaipur Agra Lucknow Guwahati
Ahmedabad Rajkot Vadodara Porbandar Surat Mumbai
Gwalior Kanpur Allahabad Kota Varanasi Udaipur Kota Gandhinagar Kolkata Nagpur Cuttack Baleshwar Bhubaneshwar Hyderabad Vijayawada Chennai
Silchar
Pune
Vishakapatnam
Bangalore Coimbatore Kochi Madurai
Source: Exolus Research
40
Corporate Deployment Pattern (India): Direct Opposite that of China

Value Chain Deployment: Back Office > R&D -> Sales -> Production
Markets
Sales Engineering
Knowledge
Marketing
IT
HR
R&D
F&A Distribution
Legal Sourcing
Efficiency
Production
4
Resources
41
1. Efficiency Seekers: India Global Leader in BPO / ITO

Success in BPO Leads to Oversubscription of Key Cities
Leading BPO Cities Next Tier BPO Cities Chandigarh Delhi Noida Faridabad Gurgaon Jaipur Lucknow
Ahmedabad Vadodara
Indore Nagpur
Kolkata Bhubaneswar
Mumbai Pune
Hyderabad
Visakhapatnam
Mangalore Coimbatore Kochi Trivandrum
Bangalore
Chennai Tiruchirappalli Madurai
Source: NASSCOM 42
1. Efficiency Seekers: Explosive Growth Projected through 2020

IT-BPO Growth Rate @ 11.9% CAGR
India IT-BPO Projected Growth
(2010 2020F) 250
225 bn
Export Domestic
200
USD Billion
150 175
111 bn
100
73.1 bn
88 50 50.1 50 23 0 2010 2014 2020 23
Source: NASSCOM 43
1. Efficiency Seekers: and Drives Emergence of 25 New Cities for BPO

New 2nd and 3rd Cities roughly 28% Cheaper than 1st Tier Cities
A-Cities Highest Population and FDI Srinagar Leading BPO Cities Next Tier BPO cities Ludhiana Chandigarh Delhi Noida Faridabad Gurgaon Jaipur Gangtok Lucknow Kanpur Guwahati Siliguri Durgapur Kolkata Raipur Bhubaneswar Visakhapatnam Patna Varanasi Shimla Dehradun
Follower Cities Aspirant Cities
Ahmedabad Vadodara
Gwalior Allahabad Indore Bhopal
Ranchi
Surat
Nashik Mumbai Pune
Nagpur Aurangabad
Hyderabad
Hubli-Dharwad Bangalore Vijayawada Chennai Pondicherry
Goa
Mangalore Mysore Coimbatore Kochi
Salem Tiruchirappalli Madurai
Trivandrum
Source: NASSCOM
44
2. Knowledge Seekers: Big Pharma Deploying R&D Functions to India

Evolving Biopharmaceutical Innovation Clusters
Jammu / Kashmir Himachal Pradesh Arunachal Pradesh Assam Bihar Meghalaya Tripura Manipur
Punjab New Delhi Rajasthan
Haryana Uttarakhand New Delhi Sikkim Gurgaon Uttar Pradesh
Gujarat
Madhya Pradesh Chhattisgarh Maharashtra
Jharkhand West Bengal Kolkata Orissa
Mizoram
Mumbai Thane Pune Hyderabad Karnataka Bangalore Tamil Nadu Kerala Andhra Pradesh
Goa
Source: Centre for International Trade in Technology of IIFT, Companies Website
45
2. Knowledge Seekers: Technology Deploying Upstream R&D Functions

Evolving Technology Innovation Clusters
Punjab
Haryana Uttarakhand New Delhi Noida Sikkim
Rajasthan
Uttar Pradesh
Gujarat
Madhya Pradesh Chhattisgarh Maharashtra
Pune
Hyderabad
Karnataka Bangalore Tamil Nadu Kerala Andhra Pradesh
46
2. Knowledge Seekers: Automotive Deploying Upstream R&D Functions

Evolving Automotive Innovation Clusters
Punjab
Rajasthan
Uttar Pradesh
Gujarat
Madhya Pradesh Chhattisgarh
Mumbai
Maharashtra
Hyderabad Karnataka Bangalore Chennai Tamil Nadu Kerala Andhra Pradesh
47
2. Knowledge Seekers: Chemical-Based Deploying Upstream R&D Functions

Evolving Chemical Innovation Clusters
Punjab
Rajasthan
Gurgaon Uttar Pradesh
Gujarat Vadodara
Madhya Pradesh Chhattisgarh
Maharashtra Mumbai Pune Hyderabad Karnataka Bangalore Tamil Nadu Kerala Andhra Pradesh
48
3. Market Seekers: Significant Income Stratification across India

Wealth Bands Emerging across Country
Per Capita GDP (USD, PPP-Adjusted)
India Per Capita GDP

Jammu/Kashmir
(USD, PPP-Adjusted)
> 5,600 4,200 5,600 2,800 4,200 1,400 2,800 0 1,400

Rajasthan Himachal Pradesh
Punjab Haryana
Uttarakhand Arunachal Pradesh Sikkim Bihar Jharkhand West Bengal Chhattisgarh Assam Meghalaya Tripura Nagaland Manipur Mizoram
New Delhi Uttar Pradesh
Gujarat
Madhya Pradesh
Maharashtra
Orissa
Andhra Pradesh Goa Karnataka Tamil Nadu Kerala
Source: Ministry of Statistics and Programme Implementation: CIA World Factbook; Exolus Research
49
3. Market Seekers: Car Sales Proxy for Directional Market Sizing?

Car Penetration Highest in India Risking Steeply
India Russia Brazil China

60
Car Penetration in India (units per 1,000 people)
700
600
50
500
40
400 30 300 20 200 10 100 0 0 2010 2020 2030 2040 2050
Sources: Association of European Business; Autostat;; Other
50
3. Market Seekers: To be Worlds 9th Largest Pharma Market by 2015

USD28 billion Market by 2015 10th in World Pharmaceutical Market Size Country Ranking
(USD billion)
2000
USA Japan Germany France UK Italy China Brazil Canada Spain 150 58 17 17 11 11 6.8 6.7 6.3 6.2 USA Japan
2005
262 65 24 21 16 15 13 10 10 9.8 USA Japan
2010
441 75 48 39 34 32 28 24 22 21
2015F Top 9
USA China Japan Germany Brazil France UK Italy Russia India 524 103 85 55 47 44 36 31 30 28
Germany France UK Italy China Brazil Canada Spain
Germany France China UK Italy Brazil Canada Spain
Copyright 2013 Exolus. All rights reserved.. Sources: IMS; GSK, Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets JMCP; Monitor Analysis; Exolus
51
4. Resource Seekers: But can Indias Infrastructure Support Production?

Indias Major Investment in Transportation Infrastructure
Srinagar
Golden Quadrilateral North-South Corridor East-West Corridor
Jammu Pathankot Ludhiana Chandigarh New Delhi Jaipur Agra Lucknow Guwahati
Ahmedabad Rajkot Vadodara Porbandar Surat Mumbai
Gwalior Kanpur Allahabad Kota Varanasi Udaipur Kota Gandhinagar Kolkata Nagpur Cuttack Baleshwar Bhubaneshwar Hyderabad Vijayawada Chennai
Silchar
Pune
Vishakapatnam
Bangalore Coimbatore Kochi Madurai
Source: Exolus Research
52
4. Resource Seekers: Big Pharma Production Deploying to India

Biotechnology and Biopharmaceutical Production Clusters
Srinagar Jammu Pathankot Ludhiana Chandigarh New Delhi Jaipur Agra
Cities within cluster: Baroda, Ankleshwar Ahmedabad,
Cities within cluster: Manesar, Jammu, Baddi, Pantnagar
Cities within cluster: Goa, Mumbai, daman, Nasik, Thane, Aurangabad
Ahmedabad Rajkot Porbandar
Gwalior Kanpur Allahabad Kota Varanasi Udaipur Gandhinagar Vadodara Surat
Lucknow
Guwahati
Silchar Kolkata
Nagpur
Cuttack
Baleshwar Bhubaneshwar
Mumbai
Pune Hyderabad Vijayawada
Vishakapatnam
Cities within cluster: Bangalore, Chennai
Mangalore Bangalore Coimbatore Kochi Madurai Chennai
Sources: All Publically Available Information, Company Websites
53
4. Resource Seekers: Technology Production Deploying to India

Technology Hardware Production Clusters
Srinagar
Cities within cluster: Baddi, Mansear
Cities within cluster: Kolkata
Jammu Pathankot Ludhiana Chandigarh New Delhi Jaipur Agra
Lucknow
Guwahati
Silchar
Kolkata
Nagpur Cuttack Baleshwar Bhubaneshwar
Cities within cluster: Bangalore, Chennai
Mumbai
Cities within cluster: Pune, Hyderabad
Pune
Hyderabad Vijayawada Mangalore Bangalore Coimbatore Kochi Madurai Vishakapatnam
Chennai
54
4. Resource Seekers: Automotive Production Deployed to India

Automotive Production Clusters
Srinagar Jammu Pathankot Ludhiana Chandigarh New Delhi
Cities within cluster: Baroda, Halol, Mumbai, Pune, Nasik, Aurangabad Cities within cluster: New Delhi, Gurgaon, Noida, Ghaziabad, Ludhiana, Haridwar
Jaipur
Agra
Lucknow
Guwahati
Silchar Kolkata
Cities within cluster: Kolkata
Nagpur
Cuttack
Baleshwar Bhubaneshwar
Mumbai
Pune Hyderabad Vijayawada
Vishakapatnam
Cities within cluster: Bangalore, Chennai, Hosur
Mangalore Bangalore Coimbatore Kochi Madurai Chennai
55
The Future: Where Pareto-Optimal Envelopes for Deployment Concentration?

Intersection of Wealth + Production Clusters + R&D Hubs + A-Cities
Per Capita GDP Per Capita GDP (USD, PPP-Adjusted)
(USD, PPP-Adjusted) > 5,600

Jammu / Kashmir
> 5,600
4,200 5,600
2,800 4,200 1,400 2,800 1,400 2,800 0 1,400 0 1,400
2,800 4,200 Himachal Pradesh Uttarakhand Punjab Haryana New Delhi Noida Gurgaon Uttar Pradesh Arunachal Pradesh
4,200 5,600
Sikkim
Assam Bihar Meghalaya Jharkhand Tripura West Bengal Nagaland Manipur Mizoram
Rajasthan
Innovation Hub Optimal Envelopes

Gujarat Madhya Pradesh Chhattisgarh Maharashtra
Orissa
Andhra Pradesh Goa Karnataka Tamil Nadu Kerala
Source: Ministry of Statistics and Programme Implementation: CIA World Factbook; Exolus Research
56
BRAZIL
57
Framework: What Does Brazil look Like from Space? At Night?

Why?
58
Framework: Structural Determinants of Brazils Economic Geography

West Largely Uninhabitable 80% Population in East
Manaus
Amazon Forest
Fortaleza
Recife
Salvador
Belo Horizonte Rio De Janeiro
Sao Paulo Curitiba
Porto Alegre
59
Growth Trend: Growth in Brazils Economy

IMF Projected Growth Rate at 6% for Next 2 Years
Brazil GDP (PPP Adjusted) (USD, trillion)
3.0
Host Olympics (2016) Host World Cup (2014)
2.5
Global Financial Crisis
USD trillion
2.0
1.5
2x
1.0
2002
1995
1996
1997
1998
1999
2000
2001
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 f
2014 f
2015 f
60
Source: World Bank, IMF
Actual
IMF Forecast
Wealth Trend: Brazil has 2nd Highest GDP per Capita of BRIC Countries
Brazil GDP per Capita: USD 5,700 (2009) USD8,800 (2020)
2020 2012
$15,000
Brazil GDP per Capita
$12,000
$9,000
$6,000
$3,000
$0
Brazil
Russia
China
India
Source: ERSUSDA 61
50
100
150
200
250
Commodity Price Trend: Economy Impacted by Commodity Prices
Brazil Commodity Rich A Leader in Fuels and Foods
Commodity Price Index Fuel and Non-Fuel 1992 - 2013

Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
Source: IMF 62
Resources: Global Power in Natural Resources, Energy Production

Worlds Second Fuel Ethanol Producer
ETHANOL
4th Largest Timber Producer

USA Brazil EU
World Ethanol Production (33% share, 2009)
Worlds
2nd fuel ethanol producer First (#1) fuel ethanol exporter
China
Thailand Canada Colombia
33 %
India Australia Other
TIMBER
Top 10 Timber Producers (7.1% share, 2003)
United States India China Brazil
Worlds
4th timber producer
Canada Russia Indonesia Ethiopia
7.1%
Congo Nigeria
Source: Renewable Fuels Association
63
Resources: A Global Power in Agriculture Soybeans, Coffee, Beef

Worlds Largest (#1) Green Coffee Producer
SOYBEANS
2nd Soybeans Producer

United States Brazil Argentina
World Soybeans Production (26% share, 2008)
Worlds
2nd soybeans producer Largest (#1) soybeans exporter
China
India Paraguay Canada Bolivia Uruguay Ukraine Indonesia
26%
COFFEE
Russia Other
Brazil Vietnam Colombia Indonesia
World Green Coffee Production (36% share, 2008)
Worlds
Leading (#1) coffee producer Leading (#1) coffee exporter
36%
Peru Ethiopia Mexico India Guatemala Uganda Honduras Costa Rica Phillipines
Source: Food and Agriculture Organization, International Coffee Organization
64
Resources: Rich in Mineral Resources Iron Ore, Manganese, Gold

Worlds 3rd Largest Iron Producer
IRON
3rd Largest Manganese Reserves

World Iron Production (13% share, 2009)
China Australia Brazil India Russia Ukraine South Africa Iran Canada United States Kazakhstan Sweden Venezuela Mexico Mauritania Other
Worlds
3rd largest iron producer 4th largest iron reserves
13 %
MANGANESE
World Manganese Reserves (17 % share, 2009)
Australia Brazil China Gabon
Worlds
6th largest manganese producer
17%
India Mexico South Africa Ukraine Other countries
3rd largest manganese reserves
Source: US Geological Survey
65
Result: Emergence of A/B-Cities (Concentrated Population and FDI)

Brazils Strengthening A/B Cities
A-Cities Highest Population and FDI B-Cities Mid-High Population and FDI
Manaus
Amazon Forest
Fortaleza
Recife
Salvador
Belo Horizonte
Sao Paulo
Rio De Janeiro
Curitiba
Worlds 5th Largest Country Energy Independent, 45% Green Worlds 3rd Largest Food Exporter
Highly Advanced Economy

Porto Alegre
Aircraft, Automobiles, Petrochem Agribusiness & Natural Resources

66
Brazil Investment Pattern: Market Led Deployment to Brazil

Value Chain Deployment: Sales > Production -> R&D -> Shared Services
Markets
Sales Engineering
Knowledge
Marketing
IT
HR
R&D
F&A Distribution
Legal Sourcing
Efficiency
Production
COST
2
Resources
67
1. Market Seekers: Where are Optimal Market/Resource Envelopes?

Intersection of Natural Resources (West)
A/B Cities
People (East)
Per Capita GDP / A/B-City Overlay

Roraima Amapa
> 14,500 10,000 14,500 7,500 - 10,000 5,500 -7,500 0 5,500 A-Cities S-Cities
Piaui Acre Rondonia Mato Grosso Goias Mato Grosso do Sul Sao Paulo Parana Rio De Janeiro Tocantins Bahia Amazonas Para Maranhao Ceara Rio Grande do Norte Paraiba Pernambuco Alagoas Sergipe
Minas Gerais Espirito Santo
Rio Grande do Sul
Santa Catarina
Source: Brazilian Institute of Geography and Statistics
68
1. Market Seekers: Per Capita Disposable Income in Tandem with China

Brazil

80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Russia China India
69
1. Market Seekers: To be Worlds 5th Largest Pharma Market by 2015

USD47 billion Market by 2015 5th in World
Pharmaceutical Market Size Country Ranking

(2000 2015f - USD billion)
2000 Top 8
USA Japan Germany France UK Italy China Brazil Canada Spain 150 58 17 17 11 11 6.8 6.7 6.3 6.2
2005 Top 8
USA Japan Germany France UK Italy China Brazil Canada Spain 262 65 24 21 16 15 13 10 10 9.8
2010 Top 8
USA Japan Germany France China UK Italy Brazil Canada Spain 441 75 48 39 34 32 28 24 22 21
2015F Top 5
USA China Japan Germany Brazil France UK Italy Russia India 524 103 85 55 47 44 36 31 30 28
Copyright 2013 Exolus. All rights reserved.. Sources: IMS; GSK, Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets JMCP; Monitor Analysis; Exolus
70
1. Market Seekers: Proxy for Directional Market Sizing?

Car Penetration Predicted to Surpass Russia in 2040
Brazil Russia China India

300
Car Penetration in Brazil (units per 1,000 people)
700
600
250
500 200 400 150 300 100 200 50 100 0 2010 2020 2030 2040 2050
Sources: GS Global ECS Research, Other
71
1. Market Seekers: High Spending Growth Resumes after Global Crisis

Accelerated Growth through 1990s
Retail Sales Growth
900 800 700 600

USD Million
500
400
300 200 100
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013F
Source: EIU, Planet Retail
72
2. Resource Seekers: Where are other Key Investment Nodes?

Car Investment Proxy for Investment Destinations?
Brazil Automotive Production
A-Cities Highest Population and FDI S-Cities Mid-High Population and FDI
Manaus
Fortaleza
Recife
Salvador
Belo Horizonte
Sao Paulo
Rio De Janeiro
Curitiba Porto Alegre
73
2. Resource Seekers: Where are other Key Investment Nodes?

Car Investment Proxy for Investment Destinations?
Brazil Automotive Production
Manaus
Fortaleza
Recife
OEMs
Suppliers OEMs Goianis Suppliers Sao Paulo OEMs Suppliers Rio De Janeiro OEMs
Salvador
Belo Horizonte
Curitiba Suppliers Porto Alegre
74
2. Resource Seekers: Sao Paulo State Immense, Larger than the UK

Sao Paulo State (248,209 km sq) larger than United Kingdom (243,610 km sq)
Sao Paulo (State)

(248,209 km sq)
United Kingdom (Country)

(243,610 km sq)
Sao Paulo City Sao Paulo State
Sources: Publically Available Information
75
2. Resource Seekers: Management Sourced in Sao Paulo, Labor Local

Sao Paulo Brazils Leading Foreign Investment Destination Sao Paulo State
(248,209 km sq)
Campinas
San Jose dos Campos Osasco So Paulo
Mau Sao Bernardo do Campo
76
2. Resource Seekers: Rio State Immense, as Large as Countries

Rio de Janeiro State (43,696 km sq) roughly same size Switzerland
Rio de Janeiro (State)

(43,696 km sq)
Switzerland (Country)
(41,285 km sq)
Rio de Janeiro City Rio de Janeiro State
77
2. Resource Seekers: Management Sourced in Rio, Labor Local

Rio de Janeiro Region a Leading Investment Destination for Oil and Gas Sector Rio de Janeiro State
(43,696 km sq)
78
3. Knowledge Seekers: Where are Leading R&D Investment Nodes?

Innovation clusters Focus Areas
Electronics Life sciences
Sao Luis Fortaleza Manaus
Information technology Telecommunication Health Microelectronics

Recife
Nuclear energy Aeronautics Oil technology
Salvador Belo Horizonte Vitoria
Agriculture Bioenergy
Santa Rita de Sapucai
Rio De Janeiro Sao Jose de Campos San Paulo Londrina Campinas Curitiba Sao Leopoldo Florianopolis
Porto Alegre
Sources: Kirsten Bound, Brazil the Natural Knowledge Economy; Isabel Bortagaray, Innovation Clusters in Latin America
79
3. Knowledge Seekers: Largest Aerospace Cluster in S. Hemisphere

Anchor: Embraer Worlds 3rd Largest Aircraft Manufacturer
Lacit Winnstal UTEC Pan-Metal Friuli Globo Usinagem Ambra Solutions Geometra BTE Mectron Inbra-Aerospace
Aerolane Aeroarte Akaer Brascopter Embrasim EQE ESRA Finetornos Giovanni Passarella Grauna Aerospace
Lima & Bonf Avionics Lane Design Flight Solutions Flight Technologies GMP Marcatto Gyrofly Lanmar
Solutions & Design Engineering Tecplas VBJ Engenharia Vectra Technology Rastreal TKA Mikro-Stamp Phoenix Servi os Aeronuticos Winnproject Fibraforte Eng.
Marcatto
Massucato
Sources: DECOMI, Brazilian Aerospace Cluster, Believing in Great Ideas
80
3. Knowledge Seekers: Global Leader in Green Energy - Biomass, Hydro

Installed Green Energy: Brazil 45% OECD Average 7% World 12%
Primary Energy Supply*

Green 45%
Green 8%
Green 12%
100% 90% 80% 70% 60% 50%
Geo/Sol/Wind Hydro Biomass Nuclear Gas Oil
40%
30%
Coal
20%
10% 0%
Brazil
OECD
World
*For Year 2008
Source: International Energy Agency, Brazil Ministry of Mines and Energy
81
RUSSIA
82
Framework: What Does Worlds Largest Country Look Like from Space?
Why?
83
Framework: Structural Determinants of Russias Economic Geography

80% Population in West East Largely Uninhabitable
Russia Map
People
Permafrost & Plains
17,075,400 km2
1/8th Worlds Land Area
10 time Zones
84
Growth Trend: Growth in Russias Economy

Economy Doubled in 7 Years (01 08) IMF Forecasts Rapid Growth to 2015
Russia GDP (USD trillion, PPP-adjusted))
Will host Olympic games
3.0
2.8 2.6 2.4 2.2 USD trillion 2.0 1.8 1.6 1.4 1.2 1.0
2x
2005
2000
2001
2002
2003
2004
2006
2007
2008
2009
2010
2011
2012
2013 f
2014 f
2015 f
Actual
85
Source: IMF
IMF Forecast
Wealth Trend: Russia to have Highest GDP per Capita among BRICs
Russia GDP per Capita: USD 6,200 (2009) USD10,000 (2020)
2020 $10,000
Russia GDP per Capita
2009
$8,000
$6,000
$4,000
$2,000
$0
Russia
Brazil
China
India
Source: ERSUSDA 86
50
100
150
200
250
Commodity Price Trend: Economy Impacted by Commodity Prices
Russia Commodity Rich A Leader in Fuels and Metals
Commodity Price Index Fuel and Non-Fuel 1992 - 2013

Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
Source: IMF 87
Resources: Worlds Leading Energy Superpower Oil and Gas

Worlds Largest (#1) Oil Producer
OIL
Worlds Largest (#1) Gas Producer

World Oil Producers (12.9% share, 2009)
Russia Saudi Arabia USA Iran China
Worlds
Largest (#1) oil producer 2nd largest oil exporter 8th largest oil reserves
12.9%
Canada Mexico Venezuela Iraq Kuwait UAE Norway Other
GAS
World Gas Reserves (23.7% share, 2009)
Russia Iran Qatar Saudi Arabia Turkmenistan USA UAE Venezuela Nigeria Algeria Indonesia Iraq Other
Worlds
Largest (#1) gas producer
23.7%
Leading (#1) natural gas exporter

Largest (#1) natural gas reserves
Source: BP Statistical Review of World Energy 2010
88
Resources: Worlds Leading Energy Superpower Mineral Fuels

Worlds 2nd Largest Coal Reserves
COAL
3rd Largest Uranium Reserves

World Coal Reserves (19% share, 2009)
Worlds
5th coal producer 3rd coal exporter
USA Russia China Australia India Ukraine Kazakhstan
2nd largest coal reserves
19%
URANIUM
South Africa Other

Australia Kazakhstan Russia
World Uranium Reserves (10% share, 2008)
Worlds
4th uranium producer
South Africa Canada USA Brazil
3rd largest uranium reserves
Namibia Niger Ukraine Jordan
10%
Uzbekistan Other
Source: BP Statistical Review of World Energy 2010, British Geological Survey
89
Resources: Worlds Leading Mineral Industry Iron and Steel

Worlds Largest (#1) Iron Reserves
IRON
4th Largest Steel Producer

World Iron Reserves (18% share, 2009)
Russia Australia Ukraine Brazil
Worlds
18 %
3rd pig iron producer Largest (#1) iron reserves
China
India
Kazakhstan Venezuela Sweden USA Iran Canada Other
RAW STEEL
World Raw Steel Production (5.5% share, 2009)
China Japan USA Russia Korea Germany Ukraine Brazil Italy
Worlds
4th raw steel producer 4th raw steel exporter
5.5%
France UK Other
Source: U.S. Geological Survey
90
Result: Emergence of A/B-Cities (Concentrated Population and FDI)

Investment Largely Concentrated in Moscow
Foreign Investment Concentration
Population (million) 10.3 6.6 4.7
City
Moscow City Moscow Region St Petersburg
Cumulative FDI (1999 2009) USD 45.8 bn USD 11.9 bn USD 5.0 bn
1.7
1.1
St. Petersburg Moscow Nizhny Novgorod Kazan Rostov Tolyatti Ufa Yekaterinburg
Leningrad Region
Omsk Krasnodar Chelyabinsk Kazan Tolyatti
USD 2.8 bn
USD 3.6 bn USD 3.3 bn USD 2.6 bn USD 1.7 bn USD 1.1 bn
0.6 1.1 1.1 0.7
Krasnodar
Chelyabinsk
Omsk Novosibirsk
1.3
1.3 1.1 1.4 1.0
Yekaterinburg
Nizhny Novgorod Rostov-on-Don Novosibirsk Ufa
USD 1.1 bn
USD 0.9 bn USD 0.9 bn USD 0.6 bn USD 0.5 bn
Source: Rosstat
91
Russia Investment Pattern: Market Led Deployment to Russia

Value Chain Deployment: Sales > Production -> R&D -> Shared Services
Markets
Sales Engineering
Knowledge
Marketing
IT
HR
R&D
F&A Distribution
Legal Sourcing
Efficiency
Production
COST
2
Resources
92
1. Revenue Seekers: Where are Optimal Market/Resource Envelopes?

Intersection of People (West)
Per Capita GDP (USD, PPP-Adjusted) > 20,000 15,000 - 20,000
A/B Cities
Natural Resources (East)
Per Capita GDP / A/B-City Overlay
10,000- 15,000
5,000 - 10,000 0 - 5,000 Arkhangelsk
Chukotka
A-Cities S-Cities
7
23 24
Murmansk
Magadan Karelia
21 Leningrad
Kamchatka
Arkhangelsk Sakha Komi Krasnoyarsk Sakhalin
Tver
15
Vologda
20
Yamalia 8 10 6 4 19 16 39 Kirov 17 12 14 42 41 40 Khantia-Mansia 34 Perm 18 2 37 5 38 36 Sverdlovsk 35 Rostov 33

3
31 25 27 28 29 26 30 32 Volgograd 43 22
Tyumen
11
Tomsk Irkutsk
9 45
Amur Buryatia
Zabaykalsk
Khabarovsk
46
Omsk Novosibirsk
Primorsky Tuva
44
Altai
Altai
7. Kaliningrad 8. Kaluga 9. Kemerovo 10. Kostroma 11. Kurgan 12. Kursk 13. Leningrad 14. Lipetsk 15. Moscow 16. Oryol 17. Ryazan 18 Tambov 19. Tula 20. Yaroslavl 21. Novgorod 22. Chelyabinsk 23. Pskov 24. Smolensk
1. Astrakhan 2. Belgorod 3. Bryansk 4. Vladimir 5. Voronezh 6. Ivanovo
25. Adygeya 26. Ingushetia 27. Karachay-Cherkessia 28 Kabardino-Balkaria 29 North Ossetia-Alania 30. Chechnya
31. Krasnodar 32. Stavropol 33. Bashkortostan 34. Udmurtia 35. Samara 36. Tatarstan
37. Penza 38. Ulyanovsk 39. Nizhny Novgorod 40. Mari El 41. Chuvashia 42. Mordovia
43. Kalmykia 44. Dagestan 45. Khakassia 46. Jewish AD
Source: UNDP, National Human Development Report in the Russian Federation 2010
93
1. Revenue Seekers: Russia leads BRICs in Per Capita Disposable Income

Russia

80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Brazil China India
94
1. Revenue Seekers: Car Sales Proxy for Directional Market Sizing?

Car Penetration Highest in Russia among the 4 BRIC Countries
Russia Brazil China India

350
Car Penetration in Russia (units per 1,000 people)
700
600
300
500
250
400
200
300
150
200
100
100
50
0 2010 2020 2030 2040 2050
Sources: Association of European Business; Autostat; Rosstat, GS Global ECS Research, Other
95
1. Revenue Seekers: To be Worlds 9th Largest Pharma Market by 2015

Russia to be USD30 billion Market (2015) 9th Largest in World
Pharmaceutical Market Size Country Ranking

(2000 2015f - USD billion)
2000
USA Japan Germany France UK Italy 150 58 17 17 11 11 USA Japan
2005
262 65 24 21 16 15 USA Japan
2010
441 75 48 39 34 32
2015F Top 9
USA China Japan Germany Brazil France 524 103 85 55 47 44
Germany France UK Italy
Germany France China UK
China
Brazil Canada Spain
6.8
6.7 6.3 6.2
China
Brazil Canada Spain
13
10 10 9.8
Italy
Brazil Canada Spain
28
24 22 21
UK
Italy Russia India
36
31 30 28
Copyright 2013 Exolus. All rights reserved.. Sources: IMS; GSK, Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets JMCP; Monitor Analysis; Exolus 96
1. Revenue Seekers: Spending Growth through Global Financial Crisis

Sales Growing at 21% CAGR
Retail Sales Growth
900 800 700 600

USD Million
500 400 300 200 100
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2015F
Source: EIU
97
1. Revenue Seekers: Where are Leading Direct Investment Nodes?

Top Foreign Investment Destinations in Western Part of Russia
Foreign Investment Concentration
Population (million) 10.3 6.6 4.7
City
Moscow City Moscow Region St Petersburg
Cumulative FDI (1999 2009) USD 45.8 bn USD 11.9 bn USD 5.0 bn
1.7
1.1
St. Petersburg Moscow Nizhny Novgorod Kazan Rostov Tolyatti Ufa Yekaterinburg
Leningrad Region
Omsk Krasnodar Chelyabinsk Kazan Tolyatti
USD 2.8 bn
USD 3.6 bn USD 3.3 bn USD 2.6 bn USD 1.7 bn USD 1.1 bn
0.6 1.1 1.1 0.7
Krasnodar
Chelyabinsk
Omsk Novosibirsk
1.3
1.3 1.1 1.4 1.0
Yekaterinburg
Nizhny Novgorod Rostov-on-Don Novosibirsk Ufa
USD 1.1 bn
USD 0.9 bn USD 0.9 bn USD 0.6 bn USD 0.5 bn
Source: Rosstat
98
2. Resource Seekers: Car Production Proxy for Production Nodes?

Russia Already 5th Largest Consumer of Cars in Europe
A-Cities S-Cities
Isuzu Hyundai Nissan Ford Chevrolet GAZ
Russia Automotive Production
GM
Toyota Volvo KIA Moscow BMW Renault ZIL VW Rostov Krasnodar Tolyatti Kazan Ufa Yekaterinburg St. Petersburg
FIAT
Sollers
Great Wall ZMA KIA Lada Tata Motors Chelyabinsk Geely IVECO Paz Hyundai Tata Motors GM AVTOVAZ LADA
Skoda
Peugeot Citroen Mitsubishi
99
2. Resource Seekers: Moscow Region Immense, as Large as Countries

Moscow Region (45,900 km sq) larger than entire Switzerland (41,285 km sq)
Moscow Region
(45,900 km sq)
Switzerland (Country)
(41,285 km sq)
Moscow City Moscow Region
Sources: Publically Available Information 100
2. Resource Seekers: Management Sourced in Moscow City, Labor Local

Management-Labor Skill/Cost Drivers 70 100 km from Moscow City Moscow Region
(45,900 km sq)
Klinskiy
Dmitrovskiy Solnechnoaorskiy Mitishchinskiy
SergievoPosadskiy
Istrinskiy Ryzskiy
Balashikhinskiy
Odintsovskiy
Moscow City
Lenininskiy Ramenskiy
OrekhovoZuevskiy
Naro-Fominskiy
Eqorevskiy Chekhovskiy Stupinskiy Serpukhovskiy Kolomenskiy
Sources: Company Websites, All Publically Available Information 101
2. Resource Seekers: Leningrad Region even Larger, Size of Hungary

Leningrad Region (84,500 km sq) roughly same size as Hungary (93,030 km)
Leningrad Region
(84,500 km sq)
Hungary (Country)
(93,030 km sq)
St Petersburg City Leningrad Region
Sources: Publically Available Information 102
2. Resource Seekers: Management from St. Petersburg, Labor Local

Management-Labor Skill/Cost Drivers 30 60 km from St Petersburg City Leningrad Region
(84,500 km sq)
Vsevolzhsky
Viyborgskiy Primorskiy
Krasnoselskaya Lomonosov Pushkinsky
Koldinskiy Kirovski
Gatchina Tosnenski
Sources: All Publically Available Information, Company Websites 103
3. Knowledge Seekers: Focus on Strength in Science & Technology

Skolkovo Innovation Center USD2 billion over Next 3 Years
Signed Partnerships
Cisco Boeing Siemens Microsoft Nokia Intel Tata Nokia Siemens EADS Alstom Lukoil Rosatom
Under Negotiations
Industry Focus
Life Sciences Renewable Energies Aerospace Information Technology Telecommunications Nuclear Technology
ABBYY Novartis Honeywell DuPont Google Kodak Schlumberger Johnson & Johnson IM-TECH DOW Chemicals John Deere
Sources: All Publically Available Information, Company Websites, i-gorod Website 104
3. Knowledge Seekers: Strong Science and Engineering Focus in Education

Science & Engineering as % of all Graduates: 25% in Russia 15% in US
Engineering Degrees
Science and Engineering as Percentage of New Degrees

45% 40% 35%
Science Degrees
30%
25% 20% 15% 10% 5% 0%
China
Korea
Germany
Russia
Japan
UK
Italy
USA
Brazil
Sources: OECD Science, Technology and Industry outlook, 2010 105
Global Expansion Strategy & Cross-Border Investment Execution

(Greenfield, M&A, Joint Ventures, Outsourcing)
About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work with management teams in the development of their global expansion strategies, across the range of investment formats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies by providing program management across all phases of cross-border investment projects, from target searches and evaluations, through investment due diligence, tax-legal structuring and negotiations.
The founders of Exolus have spent the past two decades in the global service space and have direct experience operating in nearly all of the major investment destinations in the world (40+ countries). The team has served clients of all sizes, both public and private, on projects that ranged in investment size from USD10 million to greater than USD1 billion. We have served clients across all of the following industry segments: Life Sciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector.
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Disclaimer
In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our own contributions to the market of ideas. As well, we are always tremendously grateful for the many, often selfless, contributions that are availed in the process. The opinions represented herein were prepared for information purposes only, at the time of publication. The information represented herein is believed to be reliable, at the time of publication, and was obtained by various public sources also believed to be reliable. The opinions were considered to be accurate at the point of creation, and further, any views, forecasts, or estimates contained herein may be subject to change at anytime without notice. The opinions expressed or implied herein may not be the opinions of the author, also Exolus, or any associated affiliates. This report and the information contained herein collectively, is not offered as, and should not be regarded as, used or relied upon as advice on any matter. It shall not constitute or be construed as a recommendation or solicitation on behalf of the author, and no legal commitment or obligation shall arise by reason of this document. Thus, the reader shall make an independent assessment of opinions stated herein that shall not be considered a substitute for obtaining advise from the readers advisors. The author shall not accept responsibility, express or implied, with regards to the accuracy and completeness of the information herein, and the author shall not be liable whatsoever and howsoever arising in connection to this publication. The author shall not accept, and hereby disclaim, all responsibility and liability to all persons, entities, or organizations for all consequences arising out of any use or reliance on the whole or any part of this publication. This publication should not be reproduced or distributed without the authors consent and is not intended for distribution in any jurisdiction in which this would be prohibited.
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BRIC 2020: What Will The BRICs Look Like in The Future?

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BRIC 2020: What Will The BRICs Look Like in The Future?

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Global Global Strategy Challenges Executable Solutions

France Houdard Managing Director

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BRICs Today: Intersection of Leading Global GDP, Population, Resources

100 million People

Ethiopia Mexico Japan

US$3 trillion GDP (PPP)

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6,4 trillions China de $ 2

3,6 trillions India 3 de $

Russia GDP per Capita

Attractiveness (Past): BRICs Identified as a Top Investment Destination

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Source: World Investment Prospects 2009 - 2011

Foreign Direct Investment: China Leads BRICs, Rivals US for Investment

US China* Russia Brazil

*China includes both Mainland China and Hong Kong

Source: World Investment Report 2013, UNCTAD

Attractiveness (Future): BRICs Still Identified as Top Investment Destination

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Source: World Investment Report 2013, UNCTAD

RELIABLE FIBER BACKBONE WITH MINIMAL LATENCY

LARGE MOLECULE EXPERIENCE

STRONG IPR PROTECTION

DIVERSE DISEASE POPULATION STRONG NATIONAL INNOVATION SYSTEM

FAVORABLE TOLLMANUFACTURING TAX STRUCTURES MATURE INSURANCE PRODUCTS

UNIVERSITIES SPECIALIZED IN METALURGY

CARBON FIBER AEROSPACE UNINTERUPTABE POWER TECHNOLOGY

Corporate Deployment Pattern (China): Companies Moving Up Value Chain

Corporate Deployment Pattern (India): Direct Opposite that of China

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Framework: What Does China Look Like from Space? At Night?

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Source: NASA (United States National Aeronautics and Space Administration)

Framework: Structural Determinants of Chinas Economic Geography

Jilin Xinjiang Gansu Liaoning

Beijing Tianjin Shandong

Henan Hubei Anhui

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Growth Trend: Fastest Growing Large Economy in World

USD (Real Market Rates)

Hosts OLYMPIC games

3 China Opens to the World

Applied to join GATT

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Wealth Trend: Forward Trend in Exploding Middle Class

Urban Household Income (US$ PPP-Adjusted)

170 355 461 525

239 255 157

Lower Middle Class US$13,500 21,500 Poor < US$13,500

Upper Middle Class Lower Middle Class

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Urbanization Trend: Forward Trend in Mass Migration into Cities

Chinas Urban Population versus Rural Population

624 705 782

Rural Population (million)

833 822 684 531 381 245

Urban Population (million)

Source: World Urbanization Prospects 2007

Result: Emergence of 10+ Mega-Cities the Size of Countries

Chinas Emerging MEGA-CITIES

Jilin Xinjiang Gansu Liaoning

Beijing Tianjin Shandong

Henan Hubei Anhui

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Corporate Deployment Pattern (China): Companies Moving Up Value Chain