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Brazil’s Personal Care and Cosmetics Market: Transitioning from Physical to Digital?

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Brazil’s personal care and cosmetics market is skyrocketing with growing sales driven by a fashion-conscious and beauty-obsessed population. Brazil, the cosmetics industry veteran, is the third largest consumer of beauty products worldwide and relies heavily on traditional channels for distribution. Online retailing has made inroads into the personal care market in Brazil and is on a slow but steady growth trajectory with immense potential in the future.

Brazilian consumers have long exhibited strong interest in personal care and beauty products, mostly purchased through traditional distribution channels. Over the past couple of years, these consumers have gradually also begun shopping for beauty products online, however, they are still skeptical about payment security as well as delayed delivery and quality of products.

Brazil’s Personal Care and Cosmetics Market-1

 

 

Despite the obstacles, some online retailers — such as Natura, Men’s Market, and BelezaNaWeb — have stepped up to overcome hurdles and develop robust strategies to initiate online purchase of personal care products. After realizing potential of online retailing in the personal care and cosmetics segment, investors have started pouring in money in e-commerce websites to reap benefits.

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Personal care segment can benefit from numerous growth opportunities in the e-commerce market with consumers’ rising inclination towards special offers attracting them to shop online, beauty product segment’s growing share in the emerging online shopping market, m-commerce boosting online sales, etc. E-retailers should exploit these opportunities to penetrate the market and improve sales.

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EOS Perspective

While the e-commerce industry faces various obstacles, a robust online strategy along with a balanced eco-system — comprising fraud protection arrangement, better payment mechanism, developed infrastructure, as well as clear understanding of consumer behavior — is likely to improve e-commerce adoption and increase sales.

The market is slowly overcoming some of the hurdles — to combat logistics issue, government has started investing in air and shipping ports to facilitate parcel deliveries through these modes. This is likely to improve shipment timelines and consumers, as desired, can avail quick delivery of personal care products. Further, online retailers have started assessing consumer behavior and responded by improving shopping experience by re-designing websites, launching m-commerce applications for convenient mobile browsing, and implementing loyalty programs. The Brazilian government is working towards implementing stringent regulations to protect consumers against online frauds and formulating robust e-commerce policies.

Paving way into the Brazilian e-commerce market to sell personal care products has been challenging, however, with improvement initiatives slowly gaining momentum, the market is on an upswing to witness a stellar growth.

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Utility-scale Projects to Boost Thai Solar Market

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In July 2015, Federation of Thai Industries’ renewable energy division indicated that Thailand is expected to add about 1,200-1,500 MW of solar capacity in 2015, which would require about THB 90 billion (~US$2.5 billion) of investment. Most of this capacity is expected to be installed through utility-scale solar PV projects.

This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.

 

Market Overview

The development of solar market in Thailand can be traced back to 1993, when the solar PV installation was focused mainly on electrification of remote areas not connected to the grid. Between 1993 and 2011 a total of 1,756 systems, with a total solar power generation capacity of 3,905 kWp (output power achieved under full solar radiation conditions), were installed on schools, hospitals, community centers, military bases, national forests, and such other areas.

Thailand was one of the first Asian countries to pursue solar energy development by putting in place policy incentives. Introduction of feed-in premium or “adder” scheme for solar PV installations in 2006 attracted private investments in the sector (under the adder scheme, solar developers were offered premium/bonus in addition to basic electricity tariff, when selling electricity to power utilities).

The first commercial solar PV project was a 6 MW solar farm project, named Korat 1, built by SPCG which is now Thailand’s biggest solar power operator in terms of capacity. The project is located in Nakorn Ratchasima and has been operating since 2010. With continued support from Thai government and increasing participation of private investors, Thailand has become one of the fastest developing solar market in Southeast Asia. According to Thailand’s Ministry of Energy, by the end of December 2014, 294 solar farms had started selling 1.32 GW electricity to the grid, while 14 solar farms with total capacity of 296 MW had signed sales contracts but did not supply power yet.

This rapid development is largely attributable to Thai government’s support to solar PV industry to achieve its solar target: government of Thailand outlined a 10-year Alternative Energy Development Plan (AEDP: 2011-2021), with the aim to boost renewable energy output to account for 25% of the total energy consumption in Thailand by 2021. The target is to generate 13,927 MW of electricity from renewable sources by 2021, compared to 3,343 MW in mid-2013. Under AEDP, Thailand aims to achieve 3 GW of installed solar PV capacity by 2021.

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This appears to be a rather modest target considering that Thailand, being located in equatorial region, has abundant solar power potential. In 2012, Thailand Ministry of Energy – Department of Alternative Energy Development and Efficiency (DEDE) estimated country’s solar power potential at about 42,356 MW, with an average daily solar irradiation 18.2 Mega Joules per square meter (MJ/m2) per day. Northeastern region and certain areas in central region exhibit great potential for solar power generation.

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Key Growth Drivers

Commitment to develop a clean energy society

High dependence on natural gas for the country’s energy needs is affecting its energy mix. Natural gas has been Thailand’s primary source of energy for the past three decades. In 2014, 66.5% of country’s electrical power generation was fueled by natural gas. Moreover, country’s dependence on imported energy is high: Board of Investment of Thailand (BOI) indicated that about 67% of energy was purchased from overseas sources in 2012.

“As demand for electricity rises in Thailand, we believe that solar PV will play an increasingly important role in our energy mix, thanks to our country’s abundant solar resources.” – Mr. Soonchai Kumnoonsate, the Governor of Electricity Generating Authority of Thailand, 2014

Furthermore, Thailand encourages clean and environment friendly technologies in order to meet its obligations under Kyoto Protocol to reduce carbon emissions. Thailand is focusing on development of renewable energy sector, including solar PV, to strengthen country’s energy security.

Government incentives

Thai government provides several incentives to support the development of solar PV sector in the country

  • Financial Incentives

 

Thailand introduced adder program in 2006 to encourage participation of private sector in solar power generation. Approved projects received a premium of THB 8/kWh (~US$0.224/kWh) in addition to basic electricity tariff for a duration of ten years. The cost of adder payments was passed directly on to the end-consumers in the form of higher electricity bills. Considering the impact on end-consumers, in 2010, the premium was reduced to THB 6.5/kWh (~US$0.182/kWh). In 2010, the government temporarily stopped approving new projects under the scheme due to over subscription.

In 2013, Thailand introduced Feed-in Tariff (FiT) for rooftop solar PV projects and community ground-mounted solar PV projects.

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These financial incentives are not only expected to yield good returns on investment in solar projects, but they are also likely to help to reduce payback period. Thai Photovoltaic Industry Association (TPVA) estimates that the payback period in case of rooftop solar ranges from 7 to 10 years depending upon the size of the solar project, while in case of community ground-mounted solar projects, the payback period is 8 years for 1 MWp solar project and 7 years for 5 MWp solar project.

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  • Fiscal Incentives

 

Thailand Board of Investment actively promotes investment in renewable energy sector, including solar PV through several fiscal incentives:

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  • Financial Support

 

Besides incentives, the government also extends financial support for development of solar projects. The Energy Conservation Promotion Act 1992 (ENCON Act) established the ENCON Fund, which is Thailand’s primary source of public finance for renewable energy investment incentives and subsidies. A part of ENCON fund is allocated to revolving fund that offers low-interest loans for renewable energy projects (including solar projects) in cooperation with eleven banks in Thailand. DEDE developed ESCO (Energy Service Companies) fund in 2008, under the financial support from ENCON fund, to extend support in the form of venture capital funding, equity investment, equipment leasing, carbon credit facility, technical assistance, and credit guarantee facility.

Government’s constructive measures have helped to create conducive business environment for solar investors and developers.

Challenges

Regulatory uncertainty and loopholes in policy framework have affected investor’s confidence

A major difficulty with the adder scheme, introduced in 2006, was that the project approvals far exceeded the completed projects. Projects of over 2,000 MW were awarded under the scheme, but only about 800 MW solar capacity was installed at the end of November 2013. There were many speculative rather than realizable project applications, as there was no set timeline recommended or mandated for the completion of the proposed project after receiving approval under the adder scheme. This led government to introduce corrective measures such as termination provisions. In 2009, the government also introduced bid bonds in the form of security deposits of THB 200/kW (~US$5.6/kW) for project size greater than 100 kW. The security deposit was introduced to discourage those applicants who had intentions of revising and reselling power purchase agreements (PPAs) for a profit. Furthermore, the approval of new applications under the adder scheme was stopped in 2010.

Such frequent changes in policy framework have resulted in reduced investor confidence. Moreover, lack of transparency in the process of approval of the proposed solar projects raises concerns whether the scrutiny mechanisms are fair and independent of business interests. These issues may continue to have a negative impact the growth of solar PV development in Thailand.

 

Poor governance and inadequate planning stall community ground-mounted solar projects

With announcement of FiT for community ground-mounted solar projects, government planned to install 800 MW of combined solar capacity by the end of 2014, by installing one MW per village in Thailand. Financing was to be provided by a government bank, either Government Savings Bank or Bank for Agriculture and Agricultural Cooperatives. However, the scheme could not be implemented as it faced issues in raising the required finance for the projects due to political crisis in the country. In 2014, following the ouster of the last government under Prime Minister Yingluck Shinawatra in a coup, the military took control of the country. Amid uncertainties in the status of the interim government, the Government Savings Bank rejected the loan request of THB 48 billion (~US$1.34 billion) for community ground-mounted solar projects. In an effort to still achieve the proposed 800 MW target, community ground-mounted solar was transformed into Government and Agricultural Cooperative Program. Revised program encourages construction of solar farms with up to 5 MW in size in the form of public-private partnerships with the governmental sector or agricultural cooperatives. The proposed deadline for 800 MW quota under this program has been postponed to December 2015.

 

High up-front costs and insufficient FiT rate have impacted residential rooftop solar installations target

The Energy Regulatory Commission (ERC) of Thailand opened the first round of applications for residential rooftop solar PV FiT in October 2013 with a target to approve projects for total rooftop solar power generation of 100 MW. But the response was low, with only 33 MW of residential solar rooftop projects approved.

“In Thailand, 99% of the households that joined the solar feed-in tariff program are from the high-income segment. There has never been any inquiry or interest from customers in the middle-income household bracket.” – Dr. Dusit Krea-Ngam, Chairman of TPVA, September 2014

Subsequently, second round of applications was opened in February 2015, but applications for only 21.3 MW were received by May 2015. This low interest was partially attributed to higher than expected costs of developing power from solar energy in residential segment. In a media article released in May 2015, ERC Commissioner, Viraphol Jirapraditkul, emphasized that many people deem the FiT incentive insufficient as compared with the high investment required for installation of residential solar systems. Installation of solar rooftop systems involve high upfront cost, which is around THB 400,000 (~US$11,200) for a typical 5 kW solar PV system for residential usage in Thailand. This is a huge amount to shell out at once for people from middle income segment in Thailand. Hence, solar rooftop installation might remain a privilege only with higher income population in Thailand, unless third-party financing structures evolve to ease the need of out-of-pocket investment on installation of solar rooftop systems.

Opportunities

Developing solar market in Thailand offers ample opportunities for know-how and equipment producers from abroad

According to BOI, by first quarter of 2014, Thailand had only three companies manufacturing solar cells and modules using imported wafers, and another four assembling imported cells into modules. Local industry lacks expertise and competence to compete with the quality of solar PV modules from Germany or the USA, or with the price of solar PV modules from China. Thailand imports most of the equipment used in solar projects as the domestic supply does not meet the needs of expanding solar market. This could possibly create an unrest among domestic solar PV module industry, but as solar energy is high on Thai government’s agenda, imports of solar PV modules is likely to continue. Leading solar module producers from China, Japan, Taiwan, and Germany have already been able to tap considerable market in Thailand. Following is the list of some of the international companies whose solar PV modules have been installed in Thailand.

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Leading engineering, procurement and construction (EPC) companies see emerging market opportunity in Thailand

Solar developers in Thailand have been increasingly hiring leading international EPC firms owing to their experience and technical know-how. With push to realize the solar projects that have been approved for the FiT, a number of international EPC and project development firms have been able to rope in contracts to develop solar PV plants in Thailand. In October 2013, Conergy, a Germany-based EPC company having a joint venture with local company Annex Power, indicated to have a 20% market share in Thailand. The company has developed 70 MW with a further 100 MW in pipeline. Juwi, another Germany-based company, also has a strong presence in Thailand and it is developing 61 MW capacity solar PV projects. In 2014, Sharp, a Japanese company, signed EPC contract to construct a 52 MW solar PV plant in Thailand for Thai company Serm Sang Palang Ngan (SSP). Chinese EPC service providers, such as Anwell Technology and Yingli have also gained EPC contracts for development of solar projects in Thailand.

 

EOS Perspective

While rooftop solar market faces many challenges, the growth of Thai solar market is expected to be driven by utility-scale solar projects

Despite abundant potential for solar power generation, Thailand has set modest targets for solar PV development. In 2013, the share of solar power in Thailand’s total electricity generation (168,478 GWh) was only 0.553%. Under AEDP, Thai government targets only 3 GW of solar PV installation by 2021, though the country has the solar potential of around 42 GW.

Thai solar market is expected to exhibit high growth in the short term, owing to the uptake in utility-scale solar projects, till the government’s target for utility-scale solar PV installation is achieved. Government have approved PPAs for around 1 GW utility-scale solar projects in 2015. Thailand’s rapidly growing utility-scale solar market presents manifold opportunities for international solar companies with adequate experience and expertise.

Utility-scale solar PV installations accounted for 98.73% of grid-connected solar power in 2013, while expansion of the rooftop solar segment is still limited. In particular, development of residential rooftop solar market in Thailand has been sluggish and it will need more promotion and better incentives to shape up. The turnaround of solar rooftop market will largely depend on development of third-party financing structures to set up solar rooftop systems. Property developers have found unique business opportunity amidst challenging rooftop solar market. For instance, Prinsiri Plc, a Thai property developer, plans to invest in and install solar cells and other equipment for customers at its housing projects. The company will earn from electricity sold to the Metropolitan Electricity Authority (which supplies electricity to the Bangkok region) and as an incentive to home buyers, the company will not charge any common-area fees from them (common area is the area in the building that is available for use by all owners and tenants; common-area fees is the amount charged by the developer for upkeep and maintenance of common area). In June 2015, another Thai property developer, Sena Development PCL, signed a partnership deal with US-based First Solar and private equity firm Confidence Capital to develop a solar rooftop business in Thailand. Such business models, if successful, might change the scenario for Thai rooftop solar market. Moreover, it is yet to be seen whether public-private partnerships would be successful in achieving community ground-mounted solar targets.

The solar market in the country is currently witnessing interesting times. Utility-scale solar PV projects in Thailand are expected to drive the capacity build in 2015-2016, while further development of the Thai solar market is likely to depend on effective implementation of rooftop and community ground-mounted solar PV projects.

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Intermodal Transportation Picks Up Steam

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Intermodal transportation is emerging as a popular mode of transporting cargo owing to its economic and environmental benefits. While companies preferred over-the-road (OTR) transportation as it offered higher flexibility, a significant surge in freight rail infrastructure (especially across the USA and Europe) and a decline in availability of OTR drivers have led to several companies shifting to intermodal shipping. However, intermodal transportation has its own share of challenges, which, if not addressed effectively, can severely impact the entity’s operations.

As shippers are looking to cut costs as well their carbon footprint, they are steadily shifting towards intermodal transportation. This is further boosted by countries investing heavily to improve their intermodal infrastructure. However, growing popularity of intermodal transportation has resulted in shortages in chassis equipment and severe traffic jams at ports and terminals, among other challenges. Companies that manage to overcome these challenges by better planning and use of technology can definitely reap savings offered by this mode of transportation.

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EOS Perspective

The question regarding intermodality is not of a yes or no, but more of a ‘how much’. While intermodal transportation offers several benefits over OTR, it is very critical for companies to assess the extent to which intermodality can work for them. Moreover, given the improvements in infrastructure and technology, companies that currently feel that intermodal does not work them, should not dismiss it once and for all, but should continue to re-evaluate the situation every six-monthly to annually.

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Emerging Markets Take Vehicle Safety Standards Seriously (At least on Paper)!

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The article was first published in Automotive World’s Q3 2015 Megatrends Magazine

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Across emerging and frontier markets, most car buyers have generally focused on pricing, maintenance cost, and fuel economy, thereby ignoring the very important aspect of safety. The governments in these countries have also not given due importance to this aspect, as basic safety features such as air bags and ABS are not compulsory as per regulations. Taking advantage of this nonchalance of both customers and governments, OEMs have for long compromised on safety features, which are a critical part of all cars sold in developed markets.

In recent years, however, with customers becoming more aware and global safety organizations cajoling for higher safety standards, some emerging countries have introduced increased safety measures, which in turn will require significant changes in the cars sold by leading OEMs. While this is expected to affect the bottom-line of OEMs in these price-sensitive markets, not abiding to the changing environment is likely to prove equally costly, if not in the immediate term, but surely over the medium-to-long term.

Existing Safety Standards

Among the key emerging and frontier markets, vehicle safety standards in South Korea match the levels in Europe, while China has also shown immense progress in adopting the standard safety requirements in automobiles. But other developing countries, such as Mexico, India, and Brazil, lie far behind. As per current car safety standards, Mr. David Ward, Secretary General, GNCAP (Global New Car Assessment Programme) rates China-7, Brazil-5, and India-3 on a scale of 10. “This rating is based on three key factors – the state of legislation, level of penetration of different technologies in the market place, and consumer awareness levels.” However, with India and Brazil initiating the implementation of several safety-standards in recent months, they are likely to match global standards at least for crash testing. Crash prevention, on the other hands, continues to be a long term goal.

It was a big blow to India, when GNCAP conducted tests on some of its most popular entry-level variants (Maruti Suzuki Alto 800, Hyundai i10, Ford Figo, Volkswagen Polo, Tata Nano, Maruti Swift, and Datsun Go) and awarded zero-star adult-protection rating to all of them. This, in addition to having the highest number of road fatalities globally, instigated the government to commit to introducing regulations for mandatory safety standards. As per new regulations, by October 2017, all new cars will be required to pass frontal and side crash tests, whereas the deadline for new versions of existing models would be extended to October 2019. To pass this test, cars will need to have reasonable body shell strength and be equipped with airbags and other standard safety features. For conducting the test, the government plans to develop two crash test facilities, which are expected to come online in 2015/2016. In addition, the authorities plan to launch its own NCAP. India is also creating a vehicle recall policy, which will encompass testing for manufacturing defects. However, this legislation is yet to be passed.

As safety standards gain priority in India, it is a cause of concern for car manufacturers in the country, which have for long focused on only pricing and fuel efficiency in the market. From the manufacturing infrastructure and technology front, OEMs may not require many changes to adapt to these proposed changes in safety standards. This is primarily because most car models do offer basic safety features (such as airbags and ABS) in their higher variants and they also use India as major export hub for their cars destined for Europe and the US. However, this will definitely erode a fraction of the bottom-line for car manufacturers as India is an extremely price sensitive market. Moreover, a large portion of the audience in the country is not very mature and still does not put a high value to the safety factor, thereby restricting the price tag carmakers can attach for these features.

“The first reaction of the OEMs is that they are not very happy, since it will make their cars more expensive. But in the longer term, they will adapt to it as they have done in other countries. People will become aware and ask for safety. OEMs focus will be to meet the safety standards at affordable prices. For example, child support restraints are not made in India and are imported. OEMs can ask the government for concessions on these imports.” says Rohit Baluja, Director, Institute of Road Traffic Education, India.

Several leading OEMs have criticized the government’s call to boost safety standards in India. An engineer working with a leading car manufacturer in India stated, “At this moment, there are no talks about any changes being introduced to the body. These matters are handled at a very strategic level. Nothing has been discussed on this aspect as of now. In India, safety can’t really become a USP right now. Price is and will continue to remain the main selling point. If we talk about metro cities, the demand for frontal airbags has increased. So yes safety has become more important. But this is the case in metro cities only.”

It also seems that the government has succumbed to pressure from the OEMs and has softened down several of the safety standards. As per the regulations, India will be following China’s footsteps and introducing crash testing at a speed of 56km/hour instead of 64km/hour, which is followed globally (while China started testing at 56km/hour in 2006, it also increased its speed from 56km/hour to 64km/hour in 2011). Moreover, the authorities plan to conduct only ‘head impact’ tests for Indian pedestrians against the ‘head and leg impact’ norms adopted by Euro NCAP. It has further slashed the requirement for the use of child dummies for some side impact tests, which is a global standard. Decisions regarding mandatory safety belt alarm, child alert alarm, pre-tensioners, and airbags are also pending.

While several leading OEMs, have not been very supportive of the Indian government’s decision of mandatory crash tests, the ones which have preemptively incorporated these features in their cars have been the winners. Toyota, which made airbags mandatory in all its models in October 2014 in India, has seen sales surge by 34% between October 2014 and April 2015. Volkswagen, which also made airbags a standard feature in all its Polo hatchbacks, has seen the sales of its entry-level variant rise, since the decision was made in February 2014. Post its poor performance in the crash test held by GNAP, Nissan Motors has also worked on strengthening the body shell of its Datsun Go by using higher-grade steel (having a tensile level of 520 mega pascal compared with the earlier 320 mega pascal) and adding side beams on both sides to enhance the strength and rigidity of the vehicles.

Thus the way forward definitely begins with OEMs embracing the introduced changes. It is not incorrect to say that the consumers continue to be price sensitive, but that is because they are not well informed about safety. Thus, to see an actual shift towards safety, both the government and car manufacturers have to work together in changing the mindset of the consumer and promoting vehicle safety as an equally important factor in purchase decisions.

“It’s a shared responsibility of government and manufacturers to inform the consumers and move the market forward. Our project of testing cars has also helped build awareness and get media attention. We will do more testing end this year and get results beginning next year. The combination of government action on regulation, the response of individual manufacturers and the work done by NCAP will improve the whole situation in India.” says Mr. Ward of GNCAP

Brazil has a similar story, where the cheapest models of few most selling cars, such as Volkswagen Gol Trend, Fiat Palio, Chevrolet Celta, Ford KA, Peugeot 207, and Fiat Novo Uno, received only 1 star when crash tested by Latin-NCAP. Moreover, Chinese car, Geely was awarded zero stars in a similar test. This was underpinned by the absence of basic safety features such as airbags, lack of body reinforcements, lower-quality steel, weaker weld spots to support the vehicles, and outdated designs of car platforms. As a result of this, the Brazilian government mandated air bags and anti brake locking systems on all cars in 2014. Like India, this regulation faced much criticism from automakers and was at the verge of being postponed as it leads to an increase in the prices of basic models and also results in a layover of several employees in the case of few models being discontinued. However, the government pushed ahead with the regulations as decided, but offered lower import tariffs for key safety equipment to subdue the expected price rise.

In addition, the government is considering making electronic stability control a standard in all cars; however, it is still in the future. Moreover, the government plans to launch a US$50 million independent crash test center by 2017. While the center is expected to run as a government body, OEMs may provide part of the funding for its operation and even use the center; this raises concerns regarding the autonomous working of the lab. Moreover, since the regulations lack a ‘conformity of production’ clause (which requires automobile safety performance to be spot checked for the entire time the model is produced), the car models are only required to meet the crash test requirements once. Companies can also send a car of their choosing. These factors further may compromise on the credibility of the testing.

The Case of China

Unlike India and Brazil, the upgradations in China’s vehicle safety standards are stemmed from the country’s CNAP (China’s New Car Assessment Programme) initiatives. While the Chinese government has only mandated the use of seat belts and frontal airbags, the number of airbags in vehicles in China is reaching the same level as in Europe and the US. This is primarily due to the aggressive promotion of CNCAP’s safety assessment by the Chinese government, which has encouraged the country’s population to value car safety as an important aspect. “We undertake a lot of promotional initiatives such as advertisement and highway hoardings to promote safety features among consumers. This has really helped in making consumers aware regarding the importance of safety.” says Mr. Guo from CNAP. Furthermore, CNCAP has upgraded its test protocols to match its European counterpart and is expected to be at par with their standards by 2018. CNCAP has also started focusing on accident research and plans to include a test for pedestrian protection in future vehicles. It has also been considering including test scenarios for automatic emergency braking systems that will further help mitigate pedestrian collisions.

Even in case of China, the pricing of the vehicles increased with the addition of safety features but the entire price is not passed down to the consumers, especially in the base-level cars.

However, one of the key reasons why China has upped its vehicle safety standards is to build a good reputation for exports. As Chinese cars gain traction due to competitive pricing and design, they suffer a poor reputation when it comes to quality. Thus, they have consciously increased focus on safety norms to meet global standards. While they are on the right lines, they still have a long way to go in achieving global standards with regards to safety.

Safety-Standard Levels across the Major Emerging Automotive Markets

Safety-Standard Levels across the Major Emerging Automotive Markets

Thus, as safety-standards improve across emerging markets, the onus now lies on OEMs to adapt to these changes. While this will definitely impact the bottom line of the companies, it also presents an opportunity for the carmakers to gain a strong market foothold by offering these safety-features at a minimal pricing. Moreover, although these changes are happening primarily in India and Brazil right now, companies must be prepared for similar regulations to come in Mexico and other Latin American countries in the coming years.

Apart from crash testing standards, there are a lot of talks going on regarding crash prevention technology, the most important being electronic stability control (ESC). While, this has already become a standard in several countries, such as Australia, Canada, EU, Israel, Japan, South Korea, the Russian Federation, Turkey, and the USA, the Global NCAP is working towards making ESC a mandate in all cars manufactured by 2020. “Our overall priority is to ensure that all passenger cars, irrespective of where they are produced, must have the appropriate minimum crash test standards and the most important crash prevention technology (i.e. ESC) by 2020. To achieve this, the most important countries to act are China, India, and Brazil.” states Mr. Ward. With crash test standards becoming a ‘standard’ also among key emerging markets, the introduction of ESC also does not seem far from reality. In fact, Brazil and China have already begun considering making it mandatory. The OEMs that anticipate this and work towards it will have an advantage.

While it has taken several key emerging and frontier automotive markets time to realise the importance of vehicle safety, both for drivers and passengers, and for other people on roads, it is a welcome change with governments introducing several policy measures in recent months to bring about this change. The implementation of regulations and the variation in standards that exists across these markets is a cause of concern, and aspects that OEMs might use to their advantage by bypassing certain global standards. It is important that consumers also make it a point to make safety a priority when purchasing a vehicle, which would force OEMs to ensure that global standards are also followed in emerging and frontier markets. Brazil, China, India must lead the way, and demonstrate that it is possible to make safety a standard, so that OEMs follow this as a standard operating procedure across other emerging and frontier markets.

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Consumer Goods in Sub-Saharan Africa: Think Local, Act Local.

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Sub-Saharan Africa’s strong GDP growth, growing middle-class, and fast urbanization have attracted many investors and foreign retailers to the region in recent years. There is no doubt that the region’s demographics offer massive opportunities for consumer goods industry. But, a closer look at the ground reality and recent experiences from multinational companies operating in the region reveals the magnitude of challenges that need to be carefully assessed.

Sub-Saharan Africa’s (SSA) recent growth, expanding middle class, rapid urbanization, and growing household incomes have made it a promising market for the consumer goods industry. In recent years, several reports and industry experts have labeled the region as the ‘next big thing’ with massive potential. Although there is no denying that the growth outlook and market opportunities in the region are promising, there are considerable challenges that firms have to assess and overcome in order to succeed in these frontier markets.

Reality Checks

“… we have realized the middle class here in the region is extremely small and it is not really growing.” – Cornel Krummenach, Chief Executive equatorial Africa region, Nestle (June 2015)


Industry Challenges

“If you look at how difficult it can be in Africa to move goods across a border, the fees and expenditure involved, the red tape, and the lack of suppliers for supermarkets, it’s discouraging.” – Boris Planer, Chief Economist, Planet Retail (March 2014)

Beyond the well-known infrastructure challenges, one of the more overwhelming challenges for consumer companies is to gain a complete understanding of the highly fragmented retail industry. As retailers and consumers remain widely scattered, effective route-to-market and distribution becomes a daunting task. In addition, the complex procedures, and bureaucratic obstacles result in supply disruptions and higher operating costs. For instance, Shoprite, a leading regional retailer, spends nearly US$ 20,000 weekly on import permits to transport goods for its stores in Zambia alone. In Nigeria, Shoprite keeps a warehouse full of flour, while PZ Cussons keeps up to three months of stock in Nigerian factories to ensure a constant supply.


How to Succeed

“To operate successfully beyond our home border we had to learn to trade over vast distances,” he explains. “We had to invest heavily in supply chains, information technology capabilities and international sourcing skills, as trading in Africa is still logistically difficult.” – Whitey Basson, CEO, Shoprite Group


The famous song ‘Africa’s not for sissies’ holds so true for the region’s consumer goods industry. As SSA is a culturally diverse region with its heterogeneous consumer goods market, retailers need to think local and act local. They need to develop a comprehensive understanding of consumers, their spending behavior, and shopping habits. As traditional retailing will continue to hold significant market share for quite some time, succeeding in SSA’s consumer goods markets will be challenging. The key for retailers is to assess the various challenges against the market opportunities. Companies will have to be agile to respond to sudden industry changes, at the same time flexible in tailoring their strategies as per needs of the evolving market.

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1) African Development Bank in 2011 estimated middle-class population in SSA to be over 300 million and defined “middle-class” as individuals earning between US$4 and US$20 a day. Standard Chartered Bank in its 2014 report projected the middle class in 11 major SSA economies to be around 15 million and estimated this figure to surpass 40 million by 2030. Standard Chartered Bank defined “middle class” as those earning between US$8,500 and US$42,000 a year.

2) Coca-Cola designed an innovative distribution model for African markets where bottlers deliver directly to distribution centers, who in turn deliver to retailers. This resulted in win-win situation for all as everybody in the supply chain ecosystem earns profit. Shoprite Group’s growth is heavily linked to its central distribution model that helped the firm to improve customer services and ensure smooth supply across the region.

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In May 2013, in our article ‘Africa is Ready For You. Are You Ready For Africa?‘, we also discussed six aspects that companies must consider when planning their Africa strategy and offerings.

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Flying LATAM Skies on a Low Cost Carrier: Dream or Reality?

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With 600 million population, Latin America still remains highly unexploited by low cost carriers (LCC). The region is dominated by only six homegrown low cost airlines, which makes it a promising growth market for discount carriers. With growing middle class, flourishing trade and commerce, and appetite for travel, Latin America is destined to become a discount air travel hub. However, even with such substantial opportunities, LATAM region is yet to overcome the hovering hurdles standing in its way to fulfill its potential as a dynamic market for low cost airlines.

Some regions housing emerging economies such as South East Asia have grown to accommodate 22 low cost airlines while Latin America is stalled with only six — Azul, Gol, Interjet, Volaris, VivaAerobus, and VivaColumbia. Currently, travelers flying across only Brazil, Columbia, and Mexico have the privilege to book their tickets with a low fare airline. Other potential markets such as Argentina, Chile, Ecuador, Peru, and Venezuela remain unexplored by LCCs with minuscule penetration or complete absence of any discount carriers. Some of the roadblocks hindering LCC development in the region include high costs of operation, government bureaucracy, economic headwinds, etc.


Obstacles faced by new entrants and existing LCCs in LATAM
LATAM Low-cost Airlines


Is there any growth prospect for LCCs in Latin America?

The emerging Latin American countries offer an array of opportunities for low cost airline industry, leading to new LCCs slowly starting to enter the market with recent example including the Southwest Airlines, an American low cost carrier, which in March 2015, started operating flights between Costa Rica and Baltimore (USA).

Currently, Latin American travelers typically opt for long haul buses, which are an economically viable, yet time-consuming option, to travel long distances. However, the advent of LCCs in the region could completely change the landscape for time and money conscious travelers. The LCCs could offer cost effective travel in a much shorter time.

New emerging customers

The burgeoning demand for air travel is increasingly accompanied with favorable conditions such as the growing middle class and signs of recovery in GDP growth, which collectively are likely to push low cost airlines’ growth in the near future. Presently, the middle class represents about 34% of the population in Latin America, approximately 200 million people, and is likely to grow resulting in higher demand for no frills airlines. The growing middle class, possessing the required financial means, is likely to push intra-regional travelling, as these people will want to travel for tourism and work. This section of the population is prone to consider travel options that are more expensive but less time consuming than long haul buses, but would still not be able to afford mainline airlines fares. Hence, they would prefer flying with a low cost airline.

As in 2015, the Latin American economy is forecast to show signs of recovery from years of slow GDP growth, the overall economic growth in the region is likely to increase investments in the LCC market and put higher disposable income in hands of the middle class population. This might lead to higher spending on vacation, thus, pushing the interest in LCCs. Economic growth is likely to pick up in countries such as Mexico, Chile, Colombia, Brazil, and Panama. In 2015, Brazil is forecast to grow at 1.4% from 0.3% in 2014. Chile is expected to rebound witnessing a 3.3% GDP growth in 2015 after slowing to 1.9% in 2014. Mexico’s GDP growth is likely to accelerate from 2.4% in 2014 to 3.5% in 2015.


Cost cutting and revenue generation

LCCs are seeking opportunities to reduce cost of operation and generate more revenue. For ticket reservation, LCCs are switching to direct sources (airline website) or metasearch engine (a search tool that takes input data from other search engines to produce its own results) instead of relying on Online Travel Agencies (OTA) such as Despegar, which sell various airline tickets. While the OTAs are perceived as a convenient platform for travelers to compare prices and book airline tickets, they seek a healthy cut from airline ticket sales. Switching to direct sources or metasearch engines could help LCCs cut intermediaries and boost profits.

Airlines are trying to drive revenues by selling ancillaries such as luggage, seats, hotel services, etc. by driving traffic to their own website. VivaColombia and VivaAerobus have refused to pay OTAs and have started distributing tickets through metasearch engine, Escapar, while Volaris has switched to Kayak (a US-based metasearch engine).

Further, airlines are focusing on international route expansion — particularly to the USA — to earn higher passenger yield (average earning of an airline generated by transporting passengers) and to take advantage of the growing international travel demand. In 2015, airlines such as Volaris, VivaAerobus, and Gol plan to bolster international network breadth. In H1 2015, Volaris increased international capacity by 33% and its traffic grew by 28%. By the end of 2015, Azul plans to start flights between Guarulhos (Brazil) and Orlando (USA) as well as Belo Horizonte (Brazil) and Orlando.


Despite the setbacks, jetting across Latin America on a low cost airline does seem like a reality in the foreseeable future

Presently, the low cost airline market in Latin America faces various challenges such as high cost of operation, currency depreciation, and regulatory hurdles. However, with new airlines starting to slowly enter the market, growing middle class pushing the demand for LCCs, and higher forecast GDP growth resulting in more disposable income in hands of people, the future of low cost airlines seems rather bright.

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Central America And Caribbean: Rising Stars In Investment Landscape

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Since 2010, less frequently discussed Central American and Caribbean countries such as Costa Rica, Panama, and Nicaragua have started to attract significant investment limelight. Effective government initiatives, complemented with availability of young and qualified labor as well as advantageous geographical location are helping these countries attract an increasing number of investments in various industries with each passing year. However, certain challenges continue to hamper these countries in realizing their full investment potential. Therefore, there exists a lingering need to take actions against such challenges and further bolster investment scenarios.

Costa Rica, Panama, Guatemala, Nicaragua, and Dominican Republic are emerging as attractive investment destinations in the Central American and Caribbean region. Their promising investment landscapes are reflected in estimated investment growth rates and net FDIs, amongst other investment parameters.

Government initiatives play a critical role in encouraging both domestic and foreign investors to establish and expand their operations in an assortment of industries, but certain challenges, for instance corruption, poor infrastructure, and weak legal system are plaguing the investment environments.

Investment Parameters

Ranking


Government Initiatives

Government Initiatives


Investment Driven Industries
Investment Driven Industries


Challenges and Recommendations

1

2

3



Poor infrastructure, either at a general level or in terms of shortage of electricity is challenging Costa Rica, Guatemala, Nicaragua, and Dominican Republic. Since quality infrastructure is one of the critical pillars for various types of investments to operate profitably, effective steps need to be taken to prevent investments from being further hindered by this challenge. The affected countries should come together and synergistically utilize their resources through mutual agreements and infrastructure-oriented development projects.

Although, all of the five countries are presently experiencing relatively accelerated investment growth, they seem to not realize the opportunity cost being incurred from not taking sufficient actions to root out challenges faced by investors. Perhaps, only when total investment value growth starts becoming sluggish, these countries might recognize the importance of effectively implementing measures to overcome investor related risks.

by EOS Intelligence EOS Intelligence No Comments

Biofuels: From Crest to Trough?

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For the past decade biofuels have been contemplated as a sustainable source of energy that could alleviate global warming problems. The biofuel industry has experienced rapid growth driven by strong government support resulting in policy mandates and subsidies. However, the bucolic scenario of biofuels may soon be overshadowed considering the ecological toll on farm land and food crops from its production. The question still remains if we are ready to imperil food crops to grow energy crops.

The biofuel buzz sparked in the 2000s when several governments across the world offered subsidized ethanol and biodiesel to make it cost competitive with gasoline and diesel, and investors acquired lands to produce feedstock, particularly in emerging economies.

Biofuels are promoted as alternatives to fossil fuels, however, it seems that this green energy facade is impinging on our food and environment needs. Turning plants into fuel or electricity comes across as an inefficient strategy to meet the global energy demand. Irresponsible farming practices — to grow corn to suffice biofuel needs — in countries such as the USA are likely to result in adverse temperature and precipitation conditions due to climatic changes that will shrink corn and wheat yields in coming 10-20 years.

Biofuel development certainly creates employment opportunities in economies, improves vehicle performance, and reduces dependence on crude oil imports. However, this comes at the expense of higher food prices as biofuels compete with food production by using crops and lands. Moreover, biofuel production does not generally result in reduced greenhouse gases, as emissions still occur causing pollution.

Further, biofuels are less cost effective than fossil fuels. For example, biomass costs about 20% more than coal. Also, biofuels have lower energy content as compared with fossil fuels, which allows vehicles running on biofuels to travel shorter distances than on the same amount of fossil fuel. The energy content of biodiesel is approximately 90% of petroleum, while ethanol is 50% that of gasoline. Consequently, travelers would require higher amount of fuel, if running on biofuels, which will increase their expenditures. With the government laws supporting blending of ethanol in petroleum, motorists in the UK (for example) are likely to pay about £460 million annually due to higher fuel cost at pumps and lower energy content of biofuels.

While the disadvantages of biofuels has been widely known, in the past couple of years, bioethanol and biodiesel production has grown rapidly in several countries, supported by various policies and government subsidies. Currently, some of the leading biofuel producing countries include the USA, Brazil, and Argentina. It is interesting to look at the socio-economic and ecological impact of biofuel production on these countries.

Impact of Biofuels on Top Producing Countries
Biofuels


A Final Word

To choose biofuels over fossil fuels is like entering into a race between food versus fuel. Countries such as the USA use 40% of corn harvest for fuels — devoting farmlands to energy needs instead of feeding people. With crude oil extinction almost 10 million years away, it is quite inappropriate to contaminate environment to yield economic benefits from biofuels. Biofuels have not lived up to the expectation and have ceased to provide lower carbon footprint, as they cause indirect emissions by ruining the farming land and vegetation. At a time, when demand for land is likely to grow 70% by 2050 to meet global food demands, it is highly wasteful to use the same land to suffice energy needs.

In April 2015, Renewable Energy Directive of the EU announced a cap of 7% on the contribution of food crops in biofuel production. Such initiatives will help to sustain a balance in food supply chain. In order to establish appropriate carbon footprint accounting, the European Commission has approved indirect emissions to be considered as part of a holistic picture of biofuel harmful effects. Moreover, the European Commission is likely to prohibit the use of first generation biofuel post 2020.

So, what’s the alternative to biofuels, or at least another source of energy that is more sustainable?

A sustainable solution to the problem could be clean renewable fuels like cellulosic ethanol, which is manufactured from inedible parts of plants. Greenhouse gas emissions from cellulosic ethanol are 86% lower than from petroleum sources. Companies such as DuPont are investing to build bio-refineries to manufacture cellulosic ethanol. The refinery is located in Nevada, USA and will produce 30 million gallons of cellulosic ethanol annually after commencing operations in 2016. Other avenues such as energy efficient batteries, fuel cells, and solar and wind energy for powering vehicles and factories should also be pursued. Companies such as Tesla, a US-based automotive and energy storage company, have made groundbreaking progress in manufacturing low-cost solar powered batteries that discharge to generate electricity for homes, businesses, and utilities. Solar and wind energy investments are at an all-time high, both across advanced and emerging markets.

Perhaps, the need of the hour is for governments to look at diverse sources of renewable energy as a whole, and invest in a way that is most effective and sustainable for the economies and the environment. Clearly, biofuels (as was perhaps once expected) is not the ideal solution to global energy needs.

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