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Emergent Markets' Role in Semi: When does emergent mature?


The importance of the emerging markets (EMs) on the global economic and business stage has been questioned more during the past year due to slowing growth rates. China, the leading EM, continues to hold the main stage both in terms of its role as a global manufacturer, consumer market, economic force, and its membership in the political leadership circle. Given all of these significant roles, and the slowing of the growth boom that has been China's economic dragon, at what point to we begin to consider China, or any EM, namely the BRIC EMs (Brazil, Russia, India, and China), and into the realm of mature(-ing) markets, or does that categorization even matter anymore?

Emergent growth and semi forecasts

Perhaps one of the important reasons for segmenting the global marketplace into mature versus emergent markets is in considering growth potential and demand for both consumer and enterprise electronics. Stronger GDP growth does have direct relationships with increased electronics (among other) purchasing for multiple sectors. The characteristics of the mature markets versus EMs are, in part, rooted in the slower GDP growth rates in the 1-4% range for mature markets, versus the 5-8% range for EMs. The drop in EM GDP growth from the low double digits is an important signal and comes as a result of efforts that the EMs have taken to prevent inflation and overheating which would have negative effects internally in the EMs, most notably the unsustainability of such high growth rates.

For semi, the slowing growth in the EMs should be understood as a long-term positive. Although in the short-term, the sluggishness of the mature economies has depressed the semiconductor and electronics industry's growth, revenue, and volume rates and although the EMs were seen as the great hope for offsetting the lack of mature market purchasing, the long-term views are actually more positive as a result of the EM controlled growth patterns.

Maturing EMs

With sustainable growth in sight for the EMs, the forecast for semi strengthens as well. Importantly, within the EM countries, the increased move to purchasing electronics products for CE and enterprises is at the core of semi growth sustainability. More specifically, the falling average selling prices (ASPs) for components and electronic end-products as rapid cycles move through mature markets, lowers the price of later-cycle products for the EM consumers making up low volume high price losses with higher volume lower priced sales in the EM. This waterfall pattern has not changed significantly and it is still one of the major engines for positive long-term forecasts supporting the semi and electronics industry's growth.

The final question of maturing EMs is perhaps best understood as also being a waterfall though. We have been witnessing the slowing pace of China's growth, due to both policies and the economic cycles internally and globally, as well as the changes in the BRIC economies more generally. Meanwhile, the next tier of EMs, which includes South Korea, Indonesia, Vietnam, Thailand, Singapore, among others, have been increasing their pace to meet the market expansions of the BRICs. It is likely not until we see this next EM group solidify and until the BRIC group settles into a multi-year, steady GDP pattern, that we can look to reclassifying BRIC from EM to mature markets. The imminence of that point is not likely to be that far into the future though.

For more detailed discussion on the relationship of semi, the EM countries, and notably China, see the most recent Smith MarketWatch Quarterly article, "Taking China's Pulse," available on

Lisa Ann Cairns, Ph.D.
Written on Monday, 29 October 2012 14:25 by Lisa Ann Cairns, Ph.D.

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