Guest column: The great urbanization, threats/opportunities

September 14, 2010

Second of two parts

by Jim Gould

In part one, we addressed the impact of Asia’s fast urbanization on the global economy, its estimated 30 billion square feet of new floor space a year in just China and India alone, and its unprecedented demand for flooring and raw materials.

Some say China’s economy is slowing or it’s just “a bubble” and dismiss it as neither threat nor opportunity. That “slowing” economy is still growing at 7%—more than twice that of the U.S.

Unlike a democracy where progress requires a negotiated majority, China’s government is free to create and implement its plans with little challenge. Consider only 15 years ago its 10th Five-Year Plan set a goal of 7% annual growth and in that time it has grown from obscurity to the world’s largest consumer of autos, energy and timber products.

While the U.S. continues to debate its energy strategy, China has become the world’s largest producer of wind turbines, hydroelectric power and solar panels with more nuclear power plants under construction than any other country.

Beyond China and India, Asia’s urbanization is so profound it cannot happen without consequences to the rest of the planet. McKinsey & Co. estimates the coming decade will be the first in 200 years when emerging markets contribute more growth than developed ones. As this “great rebalancing” takes place, Asia will be home to over half of the world’s new construction.

This will create a hard surface opportunity three times that of the entire U.S. hard surface market. China’s timber demand already exceeds what several countries can produce; it will likely have to redirect raw material and manufacturing to meet its domestic need. Increased demand will create shortages of material, higher prices and, in turn, innovation and new technologies. Manufacturing hubs will shift to the East, perhaps to Indonesia where costs are lowest.

With this in mind, we have to ask ourselves: As growth increases the needs and production capacity of emerging markets what opportunities will emerge for Western companies? Who will fill Asia’s demand for finished flooring? Who will provide the raw materials? Where will it be made? How will this impact the flooring industry worldwide?

Some may see only threats while others may see opportunity. If you are open to exploring then begin now to study the possibilities. Read everything on how other industries are approaching emerging markets. Partner with a guide that knows the market and visit first hand; expensive lessons await those unfamiliar with cultural, business and governmental differences in the East.

Gaining overseas exposure

Take a note from Asian manufacturers at Surfaces and use an international show to gain exposure, exhibit products or find customers. Both Domotex shows in Germany and Shanghai draw 40,000 attendees each from around the world.

Buyers also need to foresee the possible ramifications these global forces will have on their businesses. Higher prices and possible shortages are just two. Partnering with suppliers positioned for the future is important. Understand your suppliers’ strategic plans to address these issues and make sure your long terms goals are on the same path.

Just to be clear, “the future” is not 10 years away. As Honeywell used to advertise, “Someday is today,” these are not futuristic dreams but today’s reality.

To read more, visit the Floor Covering Institute blog: blog.floorcoveringinstitute.com.

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