Feature Article

Some of the countries included this analysis like Australia, who from an economic or political perspective may have been traditionally categorized as developed, but in the consumption of high tech products from foreign manufacturers, they are emerging and present great growth possibilities. There are many countries whose consumption of high tech products is growing at above average rates (e.g., Thailand, Indonesia, Hungary, Ukraine, Mexico, Brazil) but due to their relative size or the stability of their data, they have not been included in this article. In the future, their size and stability may achieve levels where they can be included in the analysis. Here are the top ten Tech Channel Index emerging markets we analyzed:

Next, we would like to provide some context about the relative size of these emerging markets when compared to more established markets. The US is largest and most stable of all markets for the consumer IT products covered by Tech Channel Index. The top 3 European markets (UK, Germany, France) that make up the largest share of Europe are the next most stable markets. First, let’s look at the US, the Big 3 EU countries and the Emerging Markets combined:

In aggregate, these ten emerging markets are about one quarter the size of the US and about one half the size of the three largest European markets. The collective year-over-year growth of the emerging markets was 2 percent, much better than the US, but not as good as Europe BIG 3. So, the emerging markets are individually much smaller and collectively have smaller growth than the major European markets in 2008.

Notice that the adjusted year over year growth rate for this portfolio of emerging markets has jumped to 11 percent, three times the European growth rate while the relative size has dropped to one third that of the Europe BIG 3. Later on in this article we will look at the individual returns of various countries and see that finding the highest growth and staying clear of those with large downward swings is critical to growing profit dollars.

The objective of avoiding inventory shortages while maintaining optimal stocking levels is the same in emerging and developed markets. We first looked at what are the basic statistics around actual inventory levels in 2008; average, minimum and maximum stocking levels. Notice the countries have been arranged from the smallest average weeks of inventory⁵ to the highest with bands shown for the min and max. Different countries also have quite different average stocking levels and variation around the average stocking level; higher stocking levels do not seem to indicate higher variation.

This next table may appear a little complicated as it has a lot of columns. But, the point of the table is simple; approximately how many weeks of inventory would a manufacturer need to stock with their indirect channel in these countries. We looked at two separate conditions: under-stock and over-stock. The Shortage Occurrences is the number of times over a 100 week period that the stocking levels would have been below 3 and 4 weeks of inventory respectively. We chose 3 and 4 weeks as a baseline to roughly align with the minimum shipping lead-times a manufacturer may expect into those countries. It turns out that only Australia and India were in double digits, that overall, these countries did not have a high number of shortage occurrences. As for the overstock condition, we looked at the number of occurrences when a country would have held more than 1 and 3 standard deviations above average stocking levels over a 100 week horizon. Again, there were not a high number of over-stock occurrences. As a point of reference, take the US, average weeks of inventory plus one standard deviation equates to about 12 weeks. Also, the US had about the same ratio of shortage and over-stock occurrences. So, these emerging markets behave much like more established markets.

When forecasting sales in any market, period-to-period stability is important to understand. If the number is going to oscillate up and down, then you would like to account for that in your projections. A particular market may have great growth potential, but extremely high variability in period-to-period sales, so it will be difficult for a manager to include these markets in their growth projections. With higher period-to-period variability comes higher consumption of inventory and high operating costs. We charted the week-to-week sales variability of the emerging markets as a relative multiple of the US which has the lowest variability of all the countries covered by Tech Channel Index.

This chart yields some interesting insights. The most obvious is Poland. Poland has the lowest week-to-week variability, 1.9 times that of the US and the lowest average inventory levels. While China inventory levels are middle of the pack, but notably higher week-to-week variation, more than 4 times that of the US.

The primary purpose of this article was to provide sales, country, and channels managers with insights into how emerging markets performed in 2008. There was also a secondary objective: to provide users with an approach to using Tech Channel Index data to perform a comparative analysis across various markets. Those countries can be either located in the same region or those that have some common characteristic, like being an emerging market.

The table below summarizes the key metrics by country that we reviewed in the article.

We saw the positive contribution and impact of large markets like China and Poland on the contribution to growth dollars. When smaller markets like India have high rates of growth, above 30 percent or 5 times that of the larger market, they can contribute equally to growth dollars as well. While downward swings in larger markets like Russia can also have a material impact on the overall growth of the portfolio. Each market will have merits and risks and those must be weighed.

Overall, the weeks of inventory required to manage in those countries appears to be manageable. The number of shortage and overstock occurrences was no higher than the US. Each country does have distinctly different stocking level and depending on the size of the market, that larger and more uncertain markets may require materially more inventory.

At Tech Channel Index we report observations about the data. We do not draw conclusions, judge or interpret markets. However, a couple of facts; Poland has good size, good growth rates, good growth contribution, low inventory and the lowest week-to-week sales volume variation. China is the largest market, good growth rates, reasonable inventories, the highest week-to-week sales volume variation. The numbers around these two markets stand out.

Tech Channel Index collects and analyzes data across more than 100 countries. We seek to provide useful data and analysis to manufacturers of high tech products who seek to sell their products in global markets. This article was intended to provide practical and useful insights that can be used in evaluation of these markets for entry decisions, inventory allocations and incentive program budgeting. We are always available to answer questions about our data, the analysis and our services.

The Tech Channel Index creates a single uniform view into high tech channel health with timely and detailed measurement of sales and inventory performance for major and emerging markets across the globe. As of August 2008, Index metrics are derived by aggregating and normalizing over 5 million transactions collected from over 1500 distributors and retailers each week. Participating Index companies represent over $30 billion in annual channel sales in multiple high tech product categories. The basket of 35,000 products chosen for the Index have been tested and benchmarked against established economic standards and have been found to accurately represent spending on Enterprise IT, Consumer IT and Software categories. Products included in the index are tracked across all geographies and partner segments worldwide. This approach to construction yields an Index data set that is uniquely uniform from channel-to-channel and country-to-country.

Zyme, using patent pending methods, created the Tech Channel Index (TCI) to provide a single uniform view of sales and inventory performance metrics that cover developed and emerging markets. As of October 2009, Index metrics are derived by aggregating and normalizing over 7 million transactions collected from over 2000 distributors and retailers each week. Participating Index companies represent over $40 billion in annual channel sales in multiple high tech product categories. The basket of 35,000 products chosen for the Index have been tested and benchmarked against established economic standards and have been found to accurately represent spending on Enterprise IT, Consumer IT and Software categories. Products included in the index are tracked across all geographies and partner segments worldwide. This approach to construction yields an Index data set that is uniquely uniform from channel-to-channel and country-to-country.