Last year, the number of visitors from Brazil, Russia, India and China increased by 6.4%, 7.1%, 13.0% and 28.2%, respectively. Is the Australian Tourism Industry prepared for this?

Here are some thoughts on how to attract the new BRIC Tourist:

Follow the money!

In the next decade, the tourism market for Chinese visitors alone is forecasted to be worth A$6 billion to Australia, with almost one million Chinese visitors forecast to visit Australia in 2020. The Chinese tourist contributes twice as much value as the Japanese, with total inbound economic value (TIEV) having increased on average by 17.1% per year for the past ten years (a contribution to the Australian economy of A$7,287 per person).

Indian tourists also spend on average more each day than other nationalities. The total inbound economic value of an Indian tourist has increased by 14.9% per year for the past ten years. Indian tourists spend, on average, $73 per night and $4,607 per visit. For the next decade, the TIEV for Indian tourists is forecast to grow 6.7% year on year, moving the Indian tourist from Australia’s ninth to our fifth most valuable inbound market.

In 2010, Russians spent $26.5 billion abroad. As the BRIC country with the highest GDP per capita and the lowest levels of debt, the Russians have high purchasing ability and a relatively large luxury consumer market which is predicted to reach the size of Germany’s by the end of this decade.

Education policies requiring Brazilian students to study English are fostering outbound education tourism. Australia is a popular destination for young Brazilians due to our outdoor way of life, beaches and cultural similarities. In addition, Brazilians devote a large portion of their income to discretionary spending and choose to live for the present!

Casting a Wider Net

Unlike in the past, when the tourism industry has relied on above-the-line advertising and travel agents to attract business, the number one source of information for one-third of Chinese, Indian and Russian tourists is the Internet. Even more compelling is the knowledge that, unlike western travellers who usually plan and book their travel many months in advance, Chinese tourists booked their flights within one month of their date of travel.

The importance of reaching potential BRIC customers via online promotional material and marketing campaigns will be a necessary competitive edge for all travel companies in the future.

However, traditional methods of marketing and search engine optimisation are of little significance for BRIC tourists, in particular the Chinese. As an example, the Chinese population’s most popular search engine is Baidu, the Chinese equivalent of Google.  It is therefore very important for the tourist industry to establish a presence in local popular Chinese search engines to attract the lucrative mainland Chinese market.

Revamping the Product

With such alluring growth figures, it is going to become even more important for all tourism companies to develop products that have direct appeal to the BRIC tourist. The BRIC tourist differs quite significantly from their stressed out Western counterparts in that they want to cover as much of Australia in as short a time as possible! A typical day may include a photo stop at Bondi Beach in the morning, followed by a bus trip to the Blue Mountains in the afternoon and then an evening at the casino. This contrasts with Western tourists who typically enjoy sunbathing and relaxing on the beach. With over one fifth of outbound Chinese tourists being labelled as ‘Self Challengers’, Australia is a popular destination for those attracted to adventurous pursuits, being pushed outside their comfort zone and those who are attracted to some of Australia’s more remote areas.

Recruitment

There are approximately 150,000 Chinese students studying at universities in Australia, almost 70,000 Indian students, 18,000 Brazilian students and 1,500 Russians, but very few of them successfully find work in Australian companies after they graduate. These students not only have valuable cross cultural and language skills, but also Australian knowledge, experience and qualifications and possibly even high level connections in their home country. With the limited time available until their visa expires, many students are forced to return home if they cannot find suitable employment in the short period available, and this results in a loss of talent and valuable skill sets which could otherwise be retained in Australia – particularly in the tourism sector.

A good place for Australian tourist companies to start in developing a strategy to attract new BRIC tourists is to review their recruitment policies to attract international students who, after a short period of training and on the job experience, will significantly enhance their ability to tackle the BRIC market.

Business Tourism

The market for business tourism is largely untapped, but with 87% of business travellers staying longer than the ordinary tourist, both before and/or after their business engagements, the business tourism market presents numerous opportunities for the tourist sector. In 2010, business travel from Brazil increased by 59% due to the rapid growth of Australia’s energy and resources sector and the desire amongst Brazilian companies to learn from Australia’s success.

Why not tailor a tourism package that incorporates business meetings, site visits or even networking events for the more entrepreneurial and business-minded BRIC tourist? With numerous delegations coming to Australia from Mainland China every week, is this a niche opportunity for local tourist companies to start tapping into?

Seasonal Differences

While a seemingly obvious point, it is important not to underestimate the power of seasonal differences, particularly to attract Chinese and Russian tourists. The peak months for Chinese tourist arrivals to Australia are in January and February which, amongst other things, is caused by their desire to avoid the harsh winter climate and travel over the Chinese New Year Season. For Russian tourists, December and January are the peak months for tourist arrivals as they seek to escape the harsh Russian winter.

Tourism companies should focus their marketing and promotional activities to attract Chinese and Russian visitors during our warm summer months.

Cultural Differences

Whilst there are distinct cultural differences between Australia and the BRIC countries, Australia is uniquely placed and well positioned to take advantage of our exclusive position as the only western country within the BRIC region.

With over 1 million Chinese Australians (either born in China or of Chinese ancestry), large numbers of business migrants arriving each year from all of the BRICs, our growing number of international students and our strong cultural and historical ties throughout the region, Australia is a truly multi-national, multi-lingual and multi-cultural society which has so much to offer the BRIC Tourist.

“Speak with one Voice”

In the words of Geoff Dixon, Chairman of Tourism Australia, Australia’s tourism industry needs to “speak with one voice” when marketing overseas. Unlike other sectors, The tourist industry is highly fragmented in Australia which means that collaboration, rather than competition, to attract the BRIC tourist will result in everyone having the chance to share in a much bigger pie.

As an example of this, in 2010, Italy, France and Spain signed an agreement to work jointly to attract BRIC tourists, a partnership which would have been unthinkable a decade ago.

Also, in Pattaya, Thailand, high end luxury resorts have been collaborating to attract the Russian Tourist, a innovative strategy which has met with almost immediate success. By introducing Russian street signs, Russian restaurants and developing training courses for hotel staff and waiters to learn Russian language and cultural differences, Pattaya is now attracting large numbers of big spending Russians.

The BRIC tourist presents an unprecedented growth opportunity for the Tourism Industry….what is your BRIC strategy?

This is a summary of a presentation I gave earlier this month to the Australian Tourism Export Council Meeting Place 2011 in Sydney.

While Jim had already gained recognition and widespread respect for his previous work as an economist and currency analyst, he acknowledges that his career has now been shaped in large part by this simple term. While many eyebrows were raised at the time by some of his more dramatic predictions, notably the one that China would overtake the US to become the largest economy in the world within 30 years, the BRIC concept is now almost a household term, widely recognised within the media, academia, business circles and certainly by the investment community.  At the end of 2009, Jim’s BRIC research was widely acclaimed as the “Call of the Decade”.

With the benefit of 10 years since he first invented the BRIC acronym, it is worth pausing to reflect on how much the world has changed since 2001. As Jim wrote this week in an article in the UK Telegraph in which he reflects on the progress of the BRICs over the last decade:

“All four of the BRIC countries have exceeded the expectations I had of them back in 2001. Looking back, those earliest predictions, shocking to some at the time, now seem rather conservative.

The aggregate GDP of the BRIC countries has close to quadrupled since 2001, from around $3 trillion to between $11 – $12 trillion.

The world economy has doubled in size since 2001, and a third of that growth has come from the BRICs. Their combined GDP increase was more than twice that of the United States and it was equivalent to the creation of another new Japan plus one Germany, or five United Kingdoms, in the space of a single decade.

Some observers say the effect of the BRICs on the world economy has been exaggerated because their growth was primarily driven by exports to the developed markets, as well as the rise in commodity prices.

Exports certainly played a major role for China, but since the 2008 credit crisis and the consequent fall in demand in the US and elsewhere, that is no longer the case.

For India, domestic demand has been the driver throughout the last decade, and increasingly it is the domestic consumer as well as an increase in infrastructure spending that is fuelling growth in the BRIC economies.

The credit-fuelled growth in US demand certainly played its part in their ascent, but even since 2008, and despite the ongoing US struggles, the BRIC economies have continued to power ahead.

However you choose to interpret the data, the importance of the BRICs in global economic growth is beyond dispute. Personal consumption in the BRIC countries has skyrocketed. In China, between 2001 and 2010, domestic spending increased by $1.5 trillion, or roughly the size of the UK economy.

The increase in the other three was about the same, perhaps slightly more. BRICs now account for probably close to 20 percent of world trade compared with less than 10 percent in 2001.”

Whilst the BRIC idea was first dreamt up as an investment idea or theme, designed to challenge the thinking of investors and their professional advisors, even Jim has been surprised by how quickly the BRIC countries themselves have started collaborating via their annual BRIC (now “BRICS” to include South Africa), Leaders Summit which has met every year since 2009 to discuss opportunities for political, economic and even trade collaboration.

The recent BRICS Leaders Meeting in China in April 2011 laid the tracks for greater ‘intra-BRIC’ trade and investment co-operation in the years ahead.  This is vital to the global economy and should be occupying the minds of all forward thinking business leaders, investors and entrepreneurs.

‘Intra-BRIC trade’, or trade among the BRIC members, has grown at the rate of 30 percent per annum since 1999 and now accounts for 8 percent of global trade. During the last 10 years, intra-BRIC trade increased nine-fold, compared to global trade which only doubled over the same period.

In recent years, Intra-BRIC trade has been mainly characterised by Russia and Brazil supplying natural resources to satisfy the industrial and infrastructural needs of India and China. However, this is likely to change. Watch out for more investment and trade deals between the BRICs as they create their own trading bloc and invest in each other’s capabilities.

10 years later, it is time to acknowledge Jim O’Neill’s vision, foresight and thought leadership. But as he reminds me from time to time, the BRIC idea has a long way to run yet!

“This is an exciting development for Russia, Australia and the global trading system,” said Australian Trade Minister Craig Emerson.

The agreement has been welcomed by Australia and means the world’s 11th largest economy will soon join the other 153 members of the WTO.

“Membership of the WTO is a commitment to play by a set of rules designed to make trade free and fair for all Members,” said Emerson. “The WTO is a club countries want to join and no-one has ever left it.”

The accession of Russia into the WTO will guarantee improved market access for Australian exporters of agriculture, manufacturing and services, with Russia agreeing to lower some import tariffs as soon as their WTO membership becomes effective.

The announcement of Russia’s accession comes after the proposal of a new pathway for the Doha Round by Australian Prime Minister Julia Gillard. The new pathway was proposed at the recent G20 Leaders’ Meeting in Cannes.

Gillard and Emerson will seek further endorsement at APEC meetings in Honolulu this week.

It is particularly interesting to find South Africa at the BRIC table, as this appears to have been driven more by geo-political than economic reasons. According to Jim O’Neill of Goldman Sachs, the original inventor of the BRIC acronym in 2001: “As far as the economics are concerned, South Africa is one of the more wealthy nations in Africa, and is currently the largest in US$ terms at around $350bn. However, this is quite small, not only by BRIC standards, but compared to some others. For example, Russia is around $1,600bn, nearly five times larger than South Africa, and India is currently similar in size to Russia. Brazil is currently closer to $2bn in size, while China is considerably larger at around $5,500bn. Importantly, there are a number of other economies from the so-called emerging world that are bigger than South Africa. This would include Indonesia (approximately $700bn), Mexico ($1,050bn), Turkey ($725bn) and South Korea ($1,000bn). These four nations, along with each of the BRIC economies, are all one percent or more of global GDP, and what we would increasingly think of as growth economies.” It is tough to see how South Africa matches up to these four countries, never mind the BRIC countries.

It made this next meeting of the “BRICS” leaders even more intriguing for those of us who follow the changing dynamics of the new world order, a world in which the US finds itself as more of an “observer” than the dominant player it once was, and a world in which some of the poorest African, Latin American and Eastern European nations are likely to have increasing influence and power at the expense of their western cousins.

This will inevitably challenge many of the practices, traditions and institutions that have been taken for granted during the last century, and will result in new alliances and groupings of countries who, until quite recently, were heavily dependent on the developed world for foreign aid, investment and financial support.

The global financial crisis of 2008/9 accelerated a process which began back in 2005 or so when China’s economic success, and the increasing dependency of the US on China, caused new trading and economic relationships to be formed between the BRIC countries. China started investing heavily in African resources, Russia and India traded energy, IT and military hardware, and Brazil exported iron ore, oil, coal and other commodities to China. Suddenly, the BRIC countries were voting as a “bloc” at WTO negotiations in Doha and collaborating on climate change at Kyoto (and later Copenhagen) creating significant new problems for the original G7 group of nations, which had become the G8 with the inclusion of Russia in 1994.

I thought Brazil offered the strongest prospects for investors and businesses looking to tap into its rapid growth fuelled by domestic consumption, infrastructure investment and intra BRIC trade.

In truth, this wasn’t a difficult prediction to make and I wasn’t alone in making it. Over the last two years the Brazilian economy has grown by 15 percent, the Real has risen by 46 percent and the Bovespa has climbed a staggering 213 percent since its lowest point in 2008.

Last week I chaired a panel of Brazil experts at the AISES From Delhi to Rio event, and there is no doubt that an increasing number of foreign companies are now looking to tap into the close to US$100 billion investment which has been announced so far as the funds set aside to invest in hosting the FIFA World Cup in 2014 and the Rio Olympics in 2016.

A further 1 billion was pledged last week during President Obama’s visit to Brazil and it seems that it will be hard to pick up a newspaper soon without reading more announcements, predictions and commentary about Brazil’s future influence on the global economy.

So, here is my prediction for 2011… this will be the year in which the Russian economy will surprise us on the upside, and over the next two years investors and businesses will beat a path to the door of Russia and Eastern Europe! Sounds unlikely? Well read on…

I am, as always, very grateful to Michael Hanson-Lawson, Karine Hirn and my friends at East Capital, an independent US$7.3bn asset manager specialising in investing in Eastern Europe, for the great work they do in educating us all on the truth about Russia and Eastern Europe, in contrast to the more negative commentary you read in the press.

I am therefore pleased to have their permission to showcase their 3Cs which are aligning to position Russia as the compelling investment story of 2011: Convergence, Consumerism and Commodities:

Convergence

Eastern Europe is catching up Western Europe through political, economic and financial integration. From Slovenia to Poland, all of the Eastern European countries are experiencing rising incomes, increasing productivity and a substantial growth in consumer spending. Across the 27 countries that make up the ‘investable markets’ of Eastern Europe, the GDP per capital has increased by 237 percent over the last decade, compared to only 93 percent in the Eurozone.

Beef exports surged in November, adding to increased annual demand from South East Asia, including Korea (9 percent), and developing markets the Philippines (12 percent), Malaysia (21 percent) and Taiwan (25 percent), but Russia has emerged as Australia’s fourth largest market for beef, buying an unprecedented 48,032 tonnes this year, a 234 percent increase on 2009.

While these markets are primarily responsible for a 26 percent increase in beef exports this year, sales to the United States have decreased 26 percent, in spite of reduced supply from former beef production powerhouse Argentina, which is driving demand for Australian beef in other markets.

Argentina’s decreased exports are due to a combination of drought conditions and restrictive government policy intended to make beef more affordable to the domestic market.

Australian beef exports to the Middle East increased by 33 percent from last year but the real growth for this market is in lamb, up by 50 percent on last year’s exports to the region.

“The forecast in the Gulf Cooperation Council (which incorporates Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) is they will import… US$49 billion [of produce] by 2020,” Meat and Livestock Australia’s Middle East and North Africa manager Lachlan Bowtell said.

Gillard ratified an agreement with Russian president Dmitry Medvedev on 12 November at the G20 summit in Seoul. Originally the deal was blocked by a parliamentary committee which demanded Russia met a series of safety conditions, with the result uranium exports to Russia had to be sold on to another country.

Gillard said the agreement meets all Australia’s and the International Atomic Energy Agency’s nuclear safeguards. It will allow Russia to use the Australian uranium locally for nuclear power, as the United States, China, Japan and South Korea do. About 10,500 tonnes of uranium valued at $1.1 billion is exported from Australia’s three mines each year.

The new agreement has sparked speculation in the mining industry that the Gillard government may also enter into an agreement with India, provided it meets the import condition of signing the Nuclear Non-proliferation Treaty. Indian Prime Minister Manmohan Singh is visiting Australia late in 2011.

Australia currently sells all its mined uranium but there are plans for new operations to be established. Gillard said the agreement with Russia will create employment and consolidate Australia’s position as a reliable provider of energy resources.

Take a moment to scroll through the vast array of new products, brands and innovations coming from China, India, Brazil and other emerging countries. Many of these new names are already displacing long established players in many sectors, including fashion, cosmetics, sportswear, and automobiles etc, and are successfully competing for the attention of consumers of all ages in emerging countries.

It just goes to show that nobody is safe in the new global economy; the most successful brands are those offered by the smaller innovators in fashion, food & beverage, automotive, personal and domestic care, consumer electronics, mobile telecoms, travel, and many more… not the big western brands and massive local corporations.

Why now?

• Both consumers and brands in emerging markets are rapidly getting wealthier, more sophisticated, more mobile, and more educated, resulting in an abundance of confidence, enthusiasm, creativity, and entrepreneurialism.
• Many emerging markets (other than China) have younger populations, and will not be confronted with ageing populations for a long time to come, meaning an endless source of young entrepreneurs as well.
• Brands from emerging markets are well positioned to cater to other booming emerging markets. They may be perceived around the world as less arrogant, too. On top of that, they are less hindered by too many legacy systems and old world thinking.
• Emerging markets will soon boast the biggest markets for everything, from cars and beers, to detergents and mobile internet: not a bad environment for innovation to flourish.

It’s really important for all entrepreneurs, businesses and innovators to take notice of these developments before it’s too late! You don’t need me to tell you that it’s an opportunity as well as a threat.

Among the constant stream of mind boggling statistics, numbers and charts, here a few highlights worth dwelling on:

• There are more cars sold in China today than in America. Experts predict that there will be 50 million cars sold every year in China by 2030.
• In India, more than 240 million people will enter the workforce in the next 20 years, and more than 24 million people (a number greater than the total population of Australia) will become ‘affluent’ (i.e. those earning more than 1 million rupees per annum, the top two percent of the Indian population).
• Retail sales in Moscow now exceed Paris and London.
• In Brazil, 32 million people have moved into the ‘middle’ and ‘high’ income bracket in the last five years, a figure that is expected to double in the next five years.
• China and India together already have 500 million internet users, and a further 700 million more will be added by 2015, generating revenues of more than $80 billion in internet commerce.
• An army of 2 billion middle class consumers have now emerged from the BRIC (and other emerging) countries, are currently spending US$6.9 trillion per annum and, according to McKinsey, this figure will rise to US$20 trillion in the next decade, a figure which represents about double the current consumption of the USA!

One particularly interesting development is the explosion in the number of mobile phone subscribers, which is a lower cost and therefore more accessible item. Consumption is expected to rise to roughly 140 phones per 100 people even in very low per capita GDP countries. This has caused market players in media, telecommunications, consumer products and financial services to completely rethink their traditional business models.

For example, mobile banking holds much greater potential than internet banking, with a high likelihood that it will leapfrog online financial activity in emerging markets. And value-add services, ranging from personalised weather reports to product and price information on demand, are rapidly changing the way in which consumers source, compare, assess, reject and buy many different products via their mobile phones.

The good news for new market entrants is that all players in the BRIC countries are having to develop an entirely new approach to serving the new emerging consumer, which levels the playing field and creates new opportunities for smart, innovative, savvy and brave new entrants who are willing to jump in and swim with the bigger fish. The major brands of yesterday may not be the successful brands of tomorrow: nobody is safe!

What does this mean for Australia? Is this an opportunity or a threat? Do we have a chance to compete with major brands from the US and Europe? And do we have the appetite for this?

All Australian companies (big and small) need to develop a strategy to engage with these new emerging countries: you can’t sit back and allow this once-in-a-generation opportunity pass by without at least giving some thought as to how it could affect your business as an opportunity or a threat. Don’t forget that Chinese and Indian companies also have a vision to go global, and Australia is a country that interests them greatly!

Opportunities exist across the board for Australian companies, particularly in some of our more progressive and innovative industries (e.g. technology, design, high value manufacturing, cleantech, environmental protection etc.) and also some of our more traditional areas (e.g. education, tourism, finance and professional services). To remain relevant, we have to start participating now.

Do your research. How could your business or ideas thrive in an emerging country like China, a country on our doorstep with whom we have enjoyed close ties and strong relationships for over 35 years, whose economy has grown by over 8.5 percent per annum for the last 30 years and, by the year 2025 or earlier, will overtake the US to become the largest economy in the world? Is there something that you do, or offer, or sell which would appeal to a small segment of a country with over 1.3 billion people? If so, start now to immerse yourself in the opportunity. Don’t let the grass grow under you!

You must start familiarising yourself with all of these countries now. Read a book, take a holiday, search the internet, join a delegation and saturate yourself in everything you can find about these new economic powerhouses!

Imagine living in the United States in the 1930s and witnessing all of the technological and economic advances that took place over the next 50 years. You now have the chance to do that all over again in China, India, Russia or Brazil. Get started now!

Most economists agree that during the next 20 years, China will overtake America to become the largest economy in the world, with India, Russia and Brazil not far behind. It will become increasingly important for entrepreneurs, businesses and investors to properly understand and gain experience in the new BRIC economies, so that deciding to invest or do business (or not) in these markets is a considered, rational progression – not a blind leap of faith!

While the four BRIC countries exhibit many differences, in terms of their local culture, society, language, history and politics, they all exhibit a number of common characteristics, which make them important for business and investment, for example:

They all have large populations (four of the six largest populations in the world).

• China: 1.3 billion
• India: 1.2 billion
• Brazil: 191 million
• Russia: 141 million

They have large areas of land available for farming and mining.

• Russia: 17.1 million sq km
• China: 9.6 million sq km
• Brazil: 8.5 million sq km
• India: 3.3 million sq km

They are already some of the largest economies in the world, and growing faster than developed countries.

• China: US$4,909 billion, growing by 10.3 percent per annum
• Brazil: US$1,574 billion, growing by 3.5 percent per annum
• India: US$1,236 billion, growing by 7.4 percent per annum
• Russia: US$1,229 billion, growing by 5.5 percent per annum

When you combine the three traditional economic forces of big populations, large areas of land and the availability of capital and wealth, an interesting picture emerges:

The four BRIC countries, together with the US, represent the five most influential and dominant economies in the world today for business and investment. And, unlike the US and other developed economies, the BRICs are growing rapidly, applying their available capital into long term growth assets, for example infrastructure, construction and to raise lower incomes, and building new wealth among their emerging middle classes.