China-led multicontinent infrastructure development initiative could lead to long-term cost savings, new consumer markets, writes Managing Director Deborah Weinswig
October 26, 2016
NEW YORK – Lower transit costs, greater access to emerging economies and higher demand for consumer goods: The One Belt One Road initiative could have some distinct benefits for Western multinational corporations, according to “Deep Dive: One Belt One Road-Impact on Western Multinational Companies,” a new report from international think tank Fung Global Retail & Technology.
Led by China, the 65-nation One Belt One Road (OBOR) will fund the development of a network of infrastructure including roads, railroads, ports, electricity and energy to link the nation with South and Southeast Asia, Central Asia, Russia and Europe, as well as Eastern Africa via land and sea. The massive improvements should benefit numerous sectors, including trade, tourism and logistics, writes Deborah Weinswig, Managing Director of Fung Global Retail & Technology.
“For Western multinational companies that are looking to capitalize on the opportunity, they will enjoy the advantages of their IP and brand equity that they have established in their country of domicile and internationally,” Weinswig observes. “However, they will likely face challenges in the region.”
In addition to creating both infrastructure and trade ties between China and the other nations involved, OBOR will provide opportunities for China to export overcapacity and make investments overseas, and set the stage for the next round of global economic growth, the report notes.
The initial effort, four loans totaling US$509 million from the Asia Infrastructure Investment Bank (AIIB) were for power, transportation and urban investments in Bangladesh, Indonesia, Pakistan and Tajikistan. These and other programs likely will reduce manufacturing and transportation costs and allow companies to access the lower wages of emerging economies, reducing prices for Western consumers. In addition, as the local economies improve, demand for consumer goods, and food and beverage should increase. Among the multinational companies Fung Global Retail & Technology expects to benefit are: DHL in trading and logistics; Shell in energy; Caterpillar in infrastructure; Nike and Apple in consumer goods; and Coca-Cola and Nestle in food and beverage.
Tourism, too, should benefit: Chinese airlines are planning new routes connecting cities along the route – and those connections could become available to their U.S. airline partners.
However, patience will be needed: the infrastructure projects funded by OBOR will take years to complete. And Western multinational companies will face some challenges, including weak protections for intellectual property; developing brand loyalty to compete with local companies; different credit systems; possibly erratic supplies; and less-than transparent regulatory processes.
“We foresee challenges in the short-to-medium term as U.S. and Western multinational companies grapple with the environment in some of the emerging markets along the OBOR,” Weinswig writes. “In the long run, we expect these challenges to be mitigated by gradual improvement in domestic regulatory environments and believe the rewards are more than justified by the risks.”
The report, found here, is the latest in a series of in-depth analyses of retail and other business opportunities around the world. Previous reports issued by Fung Global Retail & Technology include: “UK Retail Overview: Characteristics, Developments and Prospects,”“US Furniture Market 2016: Preferences and Trends,” and “Turkey Retail Overview: Characteristics, Developments and Prospects.” Fung Global Retail & Technology’s reports and analyses can be found at www.coresight.com and www.deborahweinswig.com. Subscribe here to Deborah Weinswig’s daily news and analysis on retail, fashion and technology.
About Fung Global Retail & Technology
Fung Global Retail & Technology is a think tank whose research team, based in New York, London and Hong Kong, follows emerging retail and tech trends, specializing in the ways retail and technology intersect, and in building collaborative communities.
The team, led by Deborah Weinswig, former top Wall Street and retail tech analyst and startup advisor, publishes ongoing thematic and global market research on topics such as the Internet of Things, digital payments, omni-channel retail, luxury and fashion trends and disruptive technologies. Subscribe here for Deborah Weinswig’s analyses of retail, fashion and technology. More information can be found at www.coresight.com.