In July we looked country-by-country at the expanding power of emerging economies—as markets, as supply sources and as manufacturing venues. Perhaps the most dramatic insight was that by 2020, 57% of the world’s economic growth is projected to come from emerging markets. The research also revealed that emerging market household incomes are likely to increase by more than $8.5trn from 2010 to 2020. Lastly, we observed that emerging economies will hardly be the exclusive playground of long-established multinationals from developed economies. Instead, more and more global players will hail from emerging markets. As evidence, consider that if E2E (emerging-market-to- emerging-market) exports continue to increase at their current rate, they will outpace D2D (developed-country-to-developed-country) volumes by 2013.
Figure 1: in 2000, the total value of the world’s D2D transactions was roughly equal to the sum of all transactions involving emerging markets (E2D, D2E and E2E). By 2010, the sum of all D2D transactions was less than one third the sum of all transactions involving emerging markets. Source: iMF Direction of Trade Statistics.
Emerging economies already are represented by 117 companies in the Fortune Global 500—a six-fold increase since 2000. Twenty-two emerging-market multinationals replaced companies from more-developed markets in 2011 alone (Figure 2). Emerging- market companies are also moving quickly up the ranks: In 2011, 70% of the Fortune Global 500’s fastest-growing companies (by revenue) were from emerging markets.
As they grow, companies that actually hail from emerging markets often have an advantage. They may, for example, be more adept at accommodating regional customs, catering to lower- income groups, or accommodating infrastructure deficiencies. Leveraging advantages such as these, China has displaced the United States as Brazil’s largest trading partner. India’s exports to Brazil increased more than tenfold from 2000 to 2010 and now exceed those of Latin American countries such as Mexico. China and India also have become each others’ best trading partner, with more than $100bn in trade expected by 2015.
Figure 2: The rapidly shifting makeup of Fortune’s Global 500.
Across Asia-Pacific and other growing strongholds such as Latin America and Eastern Europe, several additional advantages hold sway:
Easier access to capital. Constraints on capital investment and difficulty securing credit have hampered growth efforts in the wake of the downturn. However, firms backed by state capital and sovereign wealth funds tended to suffer less because of easier access to investment capital. Consider sovereign wealth funds in the Middle East, which have approximately $1.7trn in assets under management. In 2010, as funds across the Middle East sought to diversify and invest in new high-growth markets, 49% of their investments were directed toward the Asia-Pacific region—a significant leap compared to the 7% invested in the region from 2000 to 2008.
A longer-term investment perspective. Less pressure for rapid ROI allows organisations to think more creatively about product development, and to consider lengthier time horizons when engaging in market planning. In China, the number of state-owned enterprises fell from 159,000 in 2003 to 114,500 in 2010; however, total assets under central government control rose from $473bn to $3.1trn. A higher-than-average number of Indian and Brazilian companies are family owned. Both of these structures— state- and family-controlled businesses—may be less obligated to pay investors back quickly.
Good relationships between governments. Close governmental ties are often the foundation of new E2E opportunities. Mexico, Uruguay, Paraguay and Peru are currently seeking trade pacts with India, particularly around information technology. In exchange for rights to extract more than 11 million tons of copper and 620,000 tons of cobalt in the Democratic Republic of Congo, China has agreed to build hundreds of Congolese clinics, hospitals and schools, as well as two hydro-electric dams, 3,300 km of road and 3,000 km of railway.
Targeted offerings. Emerging market players often concentrate on designing specifically targeted products and services that meet the needs of distinct income levels, cultures and geographies. In China’s rural Sichuan province, Haier sells washing machines specifically designed and labeled to wash “clothes, sweet potatoes and peanuts.” And India’s Dabur has designed uniquely formulated hair care products for markets in Bangladesh, Pakistan and the United Arab Emirates. Of course, segmented offerings are not the sole province of emerging-market companies. Still, emerging- market companies often have unique insights and sensitivities regarding markets that may resemble theirs in one form or another.
Market opportunities in small but fast-growing cities and provinces. Unlike much of the developed world, there is explosive growth potential in markets that, historically, have been minimally relevant.
Growing in emerging markets
With emerging market opportunities difficult to evaluate and predict, companies may hesitate to invest. However, the more they wait, the more opportunity windows shrink. So if waiting is generally the wrong thing to do, what are the right things? How, in other words, can “globalisers” from inside and outside developing economies increase their ability to succeed in high-growth markets? Following are several tips.
Engage with local stakeholders
Tight connections with governments, local authorities, regulators and local communities can generate more benefits than just expedited licenses and permits. Oftentimes, a good relationship opens doors and helps keep them open. Getting close to suppliers, distributors and consumers is also key to capturing opportunities in unfamiliar segments and geographies. According to Accenture research, 90% of successful globalisers view relationships with local stakeholders as critical for success—far more than companies that indicated disappointment with their performance in emerging markets.
Uncover latent demand
Searching for latent demand—identifying sections of the buying population that may previously have been overlooked—also opens windows of opportunity. In India, rural incomes have been growing at more than 7% annually over the past few years, and now account for almost 40% of total consumption of goods and services. More than 50% of some Indian telecommunications companies’ subscribers are rural customers.
Successful globalisers also understand the importance of innovation in reaching untapped niches. Two thirds of respondents to the aforementioned Accenture research recognise the importance of new sales and marketing techniques to reach underserved consumers.
Seed future demand
Multinationals that achieved success in high-growth markets have often discovered the connection between business success and socioeconomic development. Basically, “enlightened self interest” drove them to invest in emerging markets. Toward this end, investment in “hard” infrastructure is obviously important. However, successful globalisers realize that deeper engagement is also necessary.
Explore public/private partnerships
Proactive engagement in policy development and infrastructure building can increase business opportunities by stimulating forward demand. Take technology enablement and Internet usage: Expanding the Internet’s presence and performance can positively affect the business and social landscape, and open up new channels to customers in overseas and domestic markets.
Prepare leaders for tomorrow’s global realities
Ninety-one percent of the Accenture survey’s “successful globalisers” report that their leadership teams are widely committed to entering and expanding in high-growth markets, compared to just 60% among companies that have been disappointed by their global performance (Figure 3).
Figure 3: “My company’s top leadership is committed to market entry and expansion” (percentage cited by respondents).
Create a change-friendly culture
Stronger emphasis on emerging markets requires corporate cultures that are comfortable with uncertainty, complexity and change.
Samsung was one of the first companies to really “get it”—to fully understand the importance of aligning a corporate culture with a new business reality. Toward this end, Samsung has been transforming how it thinks, feels and works—drawing select Western business practices into its corporate culture. For example, it launched meritocratic promotion and pay into a culture based on seniority and reverence for elders.
What it takes
What companies will emerge or prevail as leaders of tomorrow’s consummately global economy? Few answers are certain, but here are two distinct likelihoods: First, a higher percentage of growth leaders will come from the marketplaces and economies we now describe as “emerging.” Second, those leaders will be organizations with exceptional vision and exceptional flexibility; they will excel at anticipating change and transforming rapidly. It sounds easy, but successful globalizers know better.