Are emerging countries still a concern for our manufacturers?

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For several years, the chapter 'ensuring its presence in emerging markets' has almost disappeared from the strategic agenda of carmakers and, in particular, French carmakers. At a time when Putin is starting a war with Ukraine and breaking up the emergence of one of the BRIC markets, Stellantis and Renault seem to want to reopen this chapter since, when presenting his 'Dare Forward 2030' plan, C. Tavares announced a target of 25% of Stellantis' turnover in these countries by 2030 and L. De Meo is preparing to present a similar plan for Renault.

At a time when Russia's war against the Ukraine is reminding manufacturers that the 'Global Value Chains' optimised by their purchasing departments are very fragile and that the famous BRICs, about which there was so much talk 10 years ago, are uncertain eldorados, we can ask ourselves how this question of emerging countries and, more generally, of the capacity of European manufacturers to be present outside of Europe, will look in 2022.

Indeed, if we take a step back historically, we cannot but be struck by the reversal that has taken place over the last four years: Until 2018, there was a consensus that growth in volumes and sales could only come from emerging markets and that it was therefore highly strategic to build strong competitive positions there now; since then, the setbacks experienced by all and/or some manufacturers in South America, Iran, Turkey, Russia, Algeria and China have called this accepted truth into question.

In France, analysts tended to stress that PSA's 'fundamentals' were more fragile than those of Renault because the latter had succeeded in 'intercontinentalization', whereas the former had hoped for a time to achieve this in China before having to admit its failure, which was not compensated for by Brazil, Russia or India. Since 2018, one can have the feeling that this absence of PSA's emerging markets has rather served its profitability whereas Renault has suffered from its much greater exposure to the risks inherent in these markets which are marked by
- a very high variability of volumes sold from one year to the next ;
- a no less significant exposure to exchange rate risk, which means that for the same volumes sold, revenues in euros and/or the cost of components can vary considerably
- high exposure to political or geopolitical risks, of which the current crisis is just one example, in addition to what has happened in Iran and/or Algeria in recent years.

For these reasons, when, on the departure of T. Bolloré, Renault questioned its 2017 plan centred on volumes and, therefore, largely on expansion in the emerging countries in order to favour profits, everyone understood that it was first of all a question of putting an end to the "big sell-off" that this strategy had led to in Europe. Insofar as, as soon as he arrived, Luca De Meo did not hesitate to take PSA as an example, both at Renault and for the observers, the feeling that intercontinentalization was not in the odour of sanctity at Renault developed. Together with the breakdown of relations with Dongfeng in China and the desire to "move upmarket" and to better separate the Renault and Dacia brands, the Brazilian, Indian, Russian teams and/or those which focus on the "entry" offer, seemed to be disavowed.

On the PSA side, the merger with FCA certainly corrected the impression of an exclusive concentration on Europe and/or on mature markets since, in addition to North America, FCA brought a very convincing Brazilian asset since Fiat, now completed by Jeep, has been in the top three for years, along with VW and GM. However, like PSA, FCA is conspicuous by its virtual absence from the other BRICs and Stellantis did not seem to be concerned or bothered by this lack. Even if the question was not dealt with until the 45th minute of Carlos Tavares' presentation of his 10-year strategic plan, it was dealt with: North America and extended Europe constitute the base of Stellantis' activity and defending the market shares of its brands and the profitability of its old or new activities there will be the first priority; however, the Middle East and Africa, Latin America, India and "Asia Pacific" and China must become - said C. Tavares - the third driver of Stellantis' profitability and contribute 25% of the turnover while ensuring a double-digit margin.

In the regions where Stellantis has significant market shares (Middle East/Africa and South America), the stated aim is to consolidate these market shares, which exceed 20 points, by being present with local offers for cars, light commercial vehicles and pick-ups and thus to ensure a very high profitability (12% in Africa, 10% in South America)  In India, the objective is to structure a local offer and a "hub" which should enable us to gain a foothold in Indonesia and Malaysia. The stated objective is to "quadruple" the market share - which is currently very low - while ensuring double digit profitability. Citroën had begun to outline its plans for this in September 2021. "The new C3 is the first model in a family of three vehicles with an international vocation, developed and produced in India and South America, which will be marketed in these two regions over the next three years", explained Vincent Cobée, the brand's general manager. Previously in charge of Nissan's Dacia, which was to be Datsun, V. Cobée was, in the Alliance, one of those managers who devoted a large part of their career to developing the presence of the manufacturers in the emerging markets. C. Tavares seemed to indicate that he will call upon these skills extensively over the next 9 years. In fact, in India as in China, everything has to be done or redone for Stellantis.

Given the discretion of Luca De Meo on this question and the important impact of the war in Ukraine on Renault's activity, one could fear that, in a sort of cross-over which we are used to when we follow the course of the life of our two constructors, Renault is less offensive on this question, Renault is less offensive in this area and is basically letting Stellantis go and break his teeth on the very complicated and uncertain files which have appeared as a millstone around the company's neck for the last four financial years rather than as the - admittedly auxiliary - "profitability engines" that C. Tavares wants to make of them. 

La Tribune understands that this will not be the case and that : 
"The group is fine-tuning a specific plan for these markets, which include India, the countries of Latin America and the Africa-Middle East zone. With a range of models entirely dedicated to each of these markets. The specifications of this plan, which should be adopted in 2022, should concentrate the brand with the diamond on the "B" (city cars) and "C" (compact cars) segments, and open it up to the pick-up segment. Renault will thus have a range that will no longer be taken from the Dacia catalogue or from a re-adaptation of the brand's models. They will have to respond to local specificities and ensure Renault's new strategy of moving upmarket."

We are waiting to learn more and to understand how Renault will be able to turn its back on what has made its ability to be present - and often profitable - in emerging markets: the bet of Schweitzer and then Ghosn with Logan and then its cousins and, in 2016, Kwid followed by Triber and Kiger was that it was necessary to be able to "go downmarket" and that this was a condition to be in the market. In this perspective, "responding to local specificities and ensuring Renault's new strategy of moving upmarket" is indeed very "renaulutionary", i.e. contrary to everything that had been done in recent years at Renault, often with a certain success. This is above all the squaring of the century. 
In any case, the year 2022 is clearly beginning with a reopening of this forgotten file.

The weekly column by Bernard Jullien is also on www.autoactu.com.

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