Fast forward to growth: Seizing opportunities in high-growth markets

Fast Forward to GrowthSeizing opportunities in high-growth markets

ContentsForeword 3Executive summary 5A wake-up call 9Locating demand: The search for growth 13New players, new rules: 26The new shape of competition Rethinking capabilities: The roadmap to success 33Sizing the future: Assessing where and when to act 35Shaping the future: Seeding tomorrow’s growth 43Seizing the future: Operating at speed and scale 54Conclusion: Windows to the future 65Methodology: Income and consumption forecasting 67References 691

Foreword The search for growth opportunities in previous decades. Fundamental shifts in emerging economies is no longer a matter income and demography are reshaping of choice; it has become a necessity. the landscape of global consumption. With short-term growth difficult to find Predicting where and when the in developed markets, emerging markets related market opportunities will arise must be considered as more than an is difficult enough; understanding optional, longer-term bet. how to grasp them is even harder. But making bets on the future, Second, I see a new constellation of whether short-term or long-term, is an competition being formed out of the especially difficult challenge amid the market turbulence of recent years. This persistent uncertainty, complexity and is due partly to the new economic and volatility in the global marketplace. In political relationships that are beingMark Spelman my conversations with clients around forged, particularly between emerging the world, I am struck by how today’s economies. But I also see transformationGlobal Head of Strategy business executives often find themselves in how businesses operate. The downturnAccenture struggling to prioritize their investments has spurred improvements in the across the diverse set of growth markets efficiency of global operations. New in emerging economies. The questions technologies and reconfigured operating I hear in boardrooms vary widely: Why models are allowing companies to create aren’t we making profits in China yet? value more effectively and to build more Is it too late to enter Brazil? How can direct and intimate connections with we move faster to establish a foothold their customers. And these new business in Africa? The questions highlight a key models, practices and capabilities draw factor in strategic growth planning: the from a more diverse pool of global importance of getting your timing right. players, characterized by important differences in strategic priorities, Planning an effective global growth governance and culture. strategy across time horizons demands significant investments of time, It is in the context of this dramatically effort and resources to assess market altered landscape of opportunity potential accurately and to build the and competition that this report, the requisite capabilities for success. work of the Accenture Institute for Putting off such investments, waiting High Performance, calls for an urgent to see how markets evolve, is tempting reassessment of the strategies and in today’s economic environment, capabilities that will be central to and it may be the right decision. achieving high performance in tomorrow’s global marketplace. Business leaders But this presents executives with cannot allow change and uncertainty a critical paradox: ongoing global to paralyze their decision making. We economic change may lead businesses hope you find the report insightful and to shy away from action in the very stimulating and its recommendations markets that hold the key to faster both useful and actionable. growth. The longer firms hesitate, the greater the risk of missing out on opportunities, and the more challenging the competitive environment they will face when they eventually take action. I see two underlying factors at play. Mark Spelman First, regardless of when and how growth returns to developed markets, the future map of global demand will look very different from that of3

Executive summaryIn the current global economic is yet to come. For example, many low-cost capabilities and deep localenvironment, executives fear that companies are pinning their hopes on knowledge, as well as an increasedprospects for growth in many markets China, the world’s most populous nation role of relationships and governmentare patchy and vulnerable. With this fear and one of its largest and fastest- support. In this environment, with itscomes a renewed search for pockets growing economies. Currently, 27 other wide range of players and broad varietyof growth in the global economy. We economies—including Poland, Colombia of capabilities, many companies willsurveyed nearly 600 business leaders and Turkey—have a greater number face a challenge in pressing homeworldwide and found that 80 percent of households with an annual income their own competitive advantage.are focused primarily on high-growth above US$30,000. But over the nextmarkets in emerging economies to chart decade, China will rapidly accelerate upa more compelling path for the future. the ranks, leaving only three economies The opportunity paradoxAnd with good reason. Household with a greater number of households Our research uncovers a paradox: onincomes in emerging economies will earning US$30,000 and above: the one hand, there is strong affirmationjump by more than US$8.5 trillion United States, Japan and Germany. that firms see continued growth comingbetween 2010 and 2020—nearly 60 This pace of change is not restricted from emerging economies. On the otherpercent of the global increase over this to China: Mexican households in this hand, they feel that the windows ofperiod, in real terms.1 As these incomes income band are expected to boost opportunity to secure their company’sgrow, so will consumption and demand. their income by an additional US$340 share of these markets may be shrinking. billion by 2020, an increase higher The point is underlined by our surveyBut many executives are not confident than that expected in Germany. And in finding that 73 percent of respondentsthat their organizations are up to the a richer income segment, households believe they need to accelerate theirtask. Forty percent do not believe that with an annual income of more than efforts, or may already be too late,their companies possess the strategic US$50,000, Turkey will see a total to build satisfactory market shareand operational capabilities to fully increase of US$380 billion, the highest in these high-growth markets.grasp the opportunities in emerging of any emerging economy. As theseeconomies. The same proportion worry examples demonstrate, the varying Our research supports this imperativethat they do not fully understand the degree and speed of change across to accelerate action in seekingcompetitive dynamics they will face. these markets make the size and timing opportunities in high-growth markets.These doubts are not misplaced— of opportunities difficult to grasp. In an uncertain economic environment,and may be exacerbated by the there is a strong temptation foremergence of a rapidly intensifying companies to watch and wait, or evencompetitive landscape, populated by Mapping the to retrench or withdraw from somenew players with new capabilities.High-growth emerging markets are competitive terrain markets until the global economic environment becomes clearer. In fact,a fast-moving target. Companies Companies seeking their fortunes many organizations have significantmust build powerful new capabilities in high-growth markets face a reserves of cash that could be usedto address this new reality. challenging competitive landscape. As for expansion. But they continue competitors jostle for position, firms to hesitate. A strategy of “wait andTracking the targeting these markets will confront domestic players with strong local see” may be effective, as long as it is based on a realistic assessmentincome surge knowledge and intimate customer relationships; established multinationals of the options, opportunities and risks involved. More likely, however,The pace of income growth in emerging with global scale that have improved hesitation in today’s global competitiveeconomies can be bewildering. Many their efficiency in response to the environment may be the mostcompanies have been impatiently downturn; and a further potent breed, dangerous choice of all. High-growthawaiting the promise of profitability growing multinationals from emerging markets offer many opportunities, butin emerging economies. But as our economies. The competitive landscape the explosion in demand is matcheddetailed analysis of household incomes is characterized by a combination by ever-intensifying competition.shows, the real growth in consumption of scale advantages, strong brands,1 We analyzed household income data across 64 countries (see Methodology on page 67 for details) which together accounted for more than 90 percentof global GDP in 2010. The income of the emerging-market households in our analysis will jump by more than US$8.5 trillion between 2010 and 2020.5

Faced with the risk of squandering these newly-empowered female populations. • Use information and communicationsopportunities, what can companies In this way, successful globalizers technology (ICT) such as mobiledo to accelerate their efforts and develop a more complete and realistic phones and social media to collectavoid missing the boat? What are the understanding of the markets in which reliable and relevant data, improvespecific capabilities they need to build they intend to operate. demand forecasting, and overcomein order to compete effectively and data scarcity. Coca-Cola has 22 millionclaim their share of future growth? Second, in a rapidly-changing consumers following it through social environment, these companies media, and the ensuing dialogue has understand better than their competitors given Coca-Cola valuable ideas forOpening windows the importance of planning over time new beverages and other products.of opportunity horizons, allowing them to sequence and prioritize their investments. Our research, • Leverage existing proprietary data conducted in partnership with Oxford for further growth opportunities:In our research we found that Economics, illustrates the importance the Mexican retailer Grupo Elektrasuccessful companies in high-growth of identifying where different markets built one of the country’s largestmarkets think differently about the will sit in terms of their consumption networks of banking branches basedcapabilities critical for growth and of specific products and services. How on data from a credit service itprioritize their investments in different close are they to reaching a point where launched for retail customers.ways. Specifically, these “successfulglobalizers”—companies with a track demand rapidly takes off? How close are • Choose local partners—whetherrecord of successful performance in they to market maturity? What are the through joint ventures, alliances oremerging economies, that are confident opportunities of different markets over other arrangements—to gain a deepand committed about their future different time horizons? understanding of local market dynamics,prospects in these markets—excel in needs and preferences.three areas. They are better able to size This deep understanding of their target markets allows successful globalizers • Enhance competitor analysisthe future—they possess the ability to become masters of strategic techniques to anticipate emergingto accurately size, time and prioritize positioning: to be not only where competitors across multiple timedemand opportunities around the opportunities are today, but where horizons, from different geographiesworld. They are better able to shape they will be tomorrow. Through their and adjacent industries.the future—they possess the insightsand capabilities to cultivate and protect superior ability to discern the size,future demand opportunities around location and timing of opportunities, 2. Shaping the future: these companies make more informedthe world. And they are better able decisions and trade-offs around where Cultivating new marketsto seize the future—they display theoperational agility and flexibility to and when to invest, and remain several While some companies may feel theyadapt and reorient the company to moves ahead of the competition. are too late to secure their positiongrasp opportunities across growth in high-growth markets, our research To become masters of strategic shows that successful globalizers domarkets. Companies can take specific positioning, companies can: not simply accept that windows ofactions today to improve theircapabilities in each of these areas: • Conduct cross-country forecasts opportunity are shrinking. Instead, they of product and service consumption open new windows of opportunity by discovering new demand and seeding1. Sizing the future: Where across time horizons, beyond national future opportunities. and regional borders, and use these toand when to invest evaluate trade-offs and guide decisions about when, where and how to enter In an environment where attainingOur research suggests that successful market share is challenging, successfulcompanies in high-growth markets adopt high-growth markets. Some markets may offer immediate opportunities, companies have identified thenew approaches to assessing potential opportunity to grow the size of themarket opportunity. They take a more while others may be poised for more significant growth in the longer term. overall opportunity, not just their share.dynamic view that incorporates foresight They understand how to extend theand flexibility into strategic planning. • Experiment with different customer frontiers of opportunity, often through segmentation variables to uncover targeted partnerships and collaborationThey are more adept at examining global new geographic and demographic with local stakeholders.opportunities through multiple lenses. groups. Discovering segments that cutThis allows them to aggregate seemingly across country borders may unearth Our research demonstrates the impact,disparate markets and uncover business business cases beyond those that in real consumption opportunities,cases that would otherwise have focus exclusively on country-level that can be achieved when businessesremained untapped. Witness companies segmentation. Procter & Gamble invest in generating future demand. Forthat have successfully targeted diaspora has designed razors, shampoos and example, our analysis examines howcommunities scattered across the world, cleansing products specifically designed demand can be measurably increasedor specific high-potential customer for consumers in water-scarce areas. through improvements in infrastructure,segments, such as those in water- education and health care.scarce areas, rural communities or 6

To achieve a better understanding of companies to grasp the opportunities of International Development Program,how they can push open new windows today, but will play a fundamental role giving future leaders experience inof opportunity, companies can: in shaping the markets of tomorrow. foreign markets within the company’s business units across the globe.• Identify and map key stakeholders, For example, our analysis shows howlocal and global, and build trusted the power of disruptive innovation No business decisions are simple inrelationships. can transform industry dynamics, today’s environment of prolonged global improving the accessibility of consumer economic uncertainty. But a game of• Assess the strength of relationships products and creating markets. In the “wait and see” purely due to a lack ofwith government agencies, industry automotive sector, for example, process understanding or preparedness posesregulators and local communities. These redesign and low-cost materials have the risk of missing the boat. This reportrelationships can help obtain a license dramatically broadened the accessibility uncovers the key dynamics at play andto operate, ease the policy environment, of passenger cars to new customers. details specific actions that companiesand improve access to scarce resources. New pockets of demand have opened can take to build the capabilities forExecutives may be surprised at the up for those companies with the agility success in the high-growth markets ofextent of common interests held by and efficiency to design low-price the future.these stakeholders. business models. Successful globalizers• Innovate to fulfill unmet needs,and involve local consumers in are pushing the boundaries of what is possible: they understand that The researchinnovation and design. Vodafone and business performance and the bottom Accenture’s Institute for HighSafaricom’s M-PESA money transfer line will only become more important Performance has conducted thoroughplatform was designed to address a in geographic growth plans. They research to investigate the keys forparticular need in Kenyan society, to understand that operating at speed and success in today’s competitive high-send money to family at home. The scale will play an ever greater role in growth markets. The main elementsservice has grown quickly, achieving determining the winners and losers of of research include:14 million registered users within the next phase of global competition.four years, and has simultaneously • Household income analysis, inbrought an entirely new business collaboration with Oxford Economics. To achieve operational agility and seize We created five standard bands ofmodel to markets across the world. new opportunities, companies can: annual household income and, for• Evaluate local and global leadership’s each of 64 countries, estimated theunderstanding of social and economic • Explore partnership and acquisition number of households falling into eachfactors that influence demand, and options to boost reach, capability and band in 2010, 2015 and in 2020. Allpromote the social and economic speed; and continually reassess and forecasts are measured in real terms,development of local communities. evolve ownership and governance and at market exchange rates.Companies successful in emerging structures as circumstances change.markets engage national and local The flexibility of Starbucks in managing • Industry consumption curves, ingovernments to help create the a range of business models and collaboration with Oxford Economics.conditions needed for their businesses to partnerships has been instrumental to This research forecasts the evolutionprosper. GSK, a leading pharmaceutical its success in China, which the company of consumption for a select group ofand healthcare products company, now regards as its “second home industries across the world. It alsoreduced the price of its patented market.” includes scenario-based sensitivitymedicines in the world’s poorest analysis to assess the impact of changes • Develop systems to rapidlycountries, providing social benefits in the business and policy environment. redeploy people, capital and ideasand opening up new markets. around the global organization. In • A survey of 588 business leaders, expanding its global footprint, Tata across 85 countries and 22 industries,3. Seizing the future: The Communications designed a wholly conducted by the Economist Intelligenceoperational agility to grasp new international operating model Unit. Business leaders were asked about to incorporate local leadership their perceptions of the competitivenew opportunities expertise into its global operations. landscape, their company’s plans forSuccessful companies infuse their growth and the capabilities important • Encourage experimentation—organizations with the strategic, for success in these markets. incubate, fund and protect new ideas.operational and cultural agility to The success of Indian pharmaceutical • Conversations with clients andgrasp new opportunities. Identifying companies demonstrates the importance experts across industries and extensiveopportunities is one thing, but rapidly of innovation, and the benefits of secondary research, includingmobilizing the organization to attain scaling new ideas across the global company case studies and analysis ofthem is another. In order to achieve this, organization. greenfield and M&A investment data.they prioritize and invest in distinctive • Assess the leadership team and howcapabilities that boost operational its skills and experience align withagility and flexibility. These capabilities growth plans. Nestlé is relaunching itsare not just instrumental in helping7

A wake-up call We analyzed household income data As emerging-market households spendA world of opportunity across 64 countries that together this newfound income, fresh pocketsFaced with protracted economic accounted for more than 90 percent of demand will emerge. Our researchuncertainty, many companies are of global GDP in 2010. The income of examined the evolution of incomerenewing their interest in emerging the emerging-market households in patterns globally, and how risingeconomies as a springboard for their our analysis will jump by more than household incomes might influencenext phase of growth. Our survey US$8.5 trillion between 2010 and 2020. consumption. For example, a combinationof 588 business leaders reveals that That represents nearly 60 percent of of rising household income and a large80 percent are looking primarily at the total global increase in household population will propel China to be one ofemerging economies for their next stage incomes over this period (see Figure the world’s most significant passengerof growth. And they acknowledge that 1). In particular, China and India are car markets: our estimates show thatthis is where future opportunities lie, projected to experience significant average annual car sales in China arewith 81 percent planning to increase increases in total household income, expected to exceed 15 million by 2020,their investment in emerging economies with additional income of US$3.2 ahead of the United States. Already, inover the coming three years. trillion and US$1.4 trillion, respectively. 2011, China has overtaken the US to become Roll-Royce’s largest market.2Figure 1: Household income growth 2010-2020 (US$ billion, 2010 constant prices)60,000 Developed markets • Share of global growth = 43% • Compound annual growth rate 56,700 (CAGR) = 2.0%55,000 Emerging markets • Share of global growth = 57% • CAGR = 5.4%50,00045,000 41,60040,00035,000 Global China India Russia Brazil Turkey Mexico Indonesia Other US Japan UK Germany Other Global income emerging developed income 2010 2020 Emerging markets Developed marketsSource: Accenture, Oxford EconomicsNote: The analysis covers 64 countries, which accounted for more than 90 percent of global GDP in 2010.9

“Emerging markets,” however, is a may be the most dangerous choice The growth prospects are clear. Butnebulous term that obscures the of all. The economic downturn has it is also clear that many companiesdiversity and complexity across had a profound impact, dramatically will feel locked out of the opportunitythose markets. South Korea, India reshaping the global competitive to become serious players in theand Vietnam are often cited as landscape. High-growth markets market, even before it has taken off.high-potential “emerging markets” present many opportunities, butto watch. Yet average household these opportunities are being rapidly This pattern is repeating itself inincome in these markets diverges snapped up by a new breed of players different industries and locations aroundsignificantly; approximately US$35,400, from emerging economies, as well as the world. In some cases, the risk ofUS$5,800 and US$3,300, respectively, multinationals that have entrenched being locked out of markets threatensin 2010. The value of comparing themselves in these markets during deep and long-term consequences.a “typical” consumer across these previous phases of globalization. The The CEO of a large Chinese railwaycountries is questionable, even when longer they wait, the more challenging equipment manufacturer explainedfactoring in cultural differences. competitive environment they will that the financial crisis weakened face when eventually taking action. the ability of European and NorthHeadline numbers can also mislead. American banks to finance large railwayChina, for example, is the world’s most contracts demanded in Asia’s emergingpopulous country and home to one of The risk of missing economies. Chinese enterprises andthe world’s largest and fastest-growingeconomies. Yet in 2010 it had fewer the boat banks partnered to fill the void. The CEO is confident that his company’s productshouseholds with annual incomes above Companies turning their attention to rival the quality of multinationalUS$30,000 than many other smaller high-growth markets must act quickly competitors and will anchor rapid“emerging” economies, including and definitively to carve out their sales expansion in Asia: exports forColombia, South Africa and Argentina. position. Firms entering and expanding the first half of 2009 increased byWhile attention is focused on the BRIC in high-growth markets can expect 60 percent over the same period ineconomies, we project that by 2020 to face a range of competitors with the previous year.3 The prospect ofTurkey will be home to an additional powerful strengths: from low-cost being locked out of such long-term4.7 million households in this income players to global giants, from locally contracts around the world should be abracket, on a par with expected growth networked incumbents to masters sobering thought for many companies.levels in Brazil. Mexico will also undergo of global scale and efficiency. Inrapid growth in its consumer-market this environment, hesitation risks The intensity of competition is notpotential: there will be an additional squandering opportunities. The longer all that has changed. The diversity of3.3 million households in this segment the hesitation, the greater the odds competitors, and of their competitiveover the decade to 2020. With so that more nimble and prepared players advantages, brings new challenges.much variation and rapid change, will position themselves for these In this report, we bring to light thethe size and timing of opportunities lucrative growth opportunities. fundamental shifts in the globalcan be challenging to grasp. business landscape that the downturn The mobile telecoms market in Latin has wrought. We make clear the America, for example, is often predicted new challenges companies face inThe temptation to to be one of the world’s fastest-growing determining the optimal locationhesitate telecoms markets over the next five years (See “América Móvil and Telefónica: and timing of opportunities, and the risk of delaying action in theBusinesses are understandably hesitant Seizing opportunities ahead of the pack,” face of aggressive competition.to prioritize their investments in these page 12). The market for value-addeddiverse, unfamiliar, but potentiallylucrative markets. Each brings unique services such as mobile data is not yet established in much of Latin America. The opportunityopportunities, challenges and operatingenvironments. The temptation to Penetration rates remain very low in many countries, and rapid increases in paradoxhesitate is aggravated by continued demand may be far off. These facts have Our global business survey uncoveredglobal economic uncertainty, not stopped Mexico’s América Móvil and a paradox: on one hand, companiessluggishness in developed markets Spain’s Telefónica from expanding rapidly see continued growth coming fromand increasingly tempered near-term across these smaller markets, acquiring emerging economies. On the other,growth prospects in emerging markets. local providers and gaining access to they feel that their windows of the infrastructure essential for growth opportunity may be shrinking. OurThe instinctive response of many when demand does take off. Companies survey findings underscored the point:companies will be to watch and wait, or looking to enter these nascent markets 73 percent of respondents believeeven to retrench or withdraw from some will face not only domestic players, they need to accelerate their effortsgeographic locations. Yet our research but also two Fortune Global 500 to build satisfactory market sharedemonstrates that in today’s global multinationals with established products, in these high-growth markets—orcompetitive environment, hesitation infrastructure, relationships and brands. that it may already be too late. 10

With almost three-quarters of businessWanted: Action and leaders believing that they need toconfidence accelerate their efforts in high-growth markets, it is critical to understand theEven while companies feel they dynamics that constrain their progress.are missing out on opportunities,uncertainty may lead them to hesitate Many companies may not appreciateabout investing in high-growth the degree of change in the businessmarkets. In fact, many companies have landscape since the downturn.healthy cash reserves that could beused for expansion. Cash holdings for On the demand side, companiesAmerican nonfinancial companies in have not adjusted their methods toJune 2011 exceeded US$1.9 trillion, locate and measure demand and fullythe highest in half a century.4 evaluate potential opportunities: their tools are often inappropriate,The volatile economic environment or even outdated and irrelevant.drives uncertainty and hesitation,but our research uncovers deeper On the supply side, companiesconcerns. We found that many underestimate the diversity ofbusiness leaders are not confident players and capabilities they willabout their own company’s ability encounter in the competitiveto succeed in high-growth markets. landscape. Next, we explore these demand and supply dynamics.• 40 percent do not believe thattheir company possesses thestrategic and operational capabilities 73% of companies feelto fully grasp the opportunitiesin emerging economies. they need to accelerate• The same proportion acknowledgethat they do not fully understand the efforts or may alreadycompetitive dynamics they will face. be too late to build• Nearly one-third do not even believethat their company has a clear strategy satisfactory marketfor high-growth markets. share in high-growth markets.11

América Móvil and Telefónica:Seizing opportunities aheadof the packLatin America is projected to be the increasing its customer base. In recentfastest-growing telecoms market over years, Telefónica has built on long-the next five years. Demand is growing standing relationships in the region,at unprecedented rates: penetration strengthening its presence throughreached a high of 89 percent this sizable acquisitions of establishedyear.5 As penetration rates rise, so do players such as Vivo.opportunities for lucrative “value-added” services. Almost one-third of all As other telecoms players look tonew phones in Latin America by 2014 high-growth markets in Latin America,are expected to be smartphones. The they are faced not only with smallernumber of mobile data plan subscribers domestic incumbents but also withis expected to more than double this two Fortune Global 500 multinationalsyear, a sizable opportunity in a continent with global reach and scale, combinedof nearly 600 million people.6 with local presence and understanding across the region. Breaking through thisThe market is dominated by two global incumbency poses new and challengingtelecoms giants, each looking for growth questions to potential entrants.to offset a decline in its traditionalrevenue base: América Móvil, which is América Móvil and Telefónica arelooking for growth in mobile, broadband already jostling for position in newand pay TV to offset declining revenue services, including mobile data,in fixed-line services since the market broadband and pay TV. Telefónicawas liberalized and opened up to recently rebranded its operations acrosscompetition, and Telefónica, which is Latin America, bringing together fixedlooking to broaden its footprint beyond line, mobile, broadband and TV underEurope, an intensely saturated and the Movistar brand.competitive market.7 When Latin America’s marketsThese two companies are the dominant begin their inevitable acceleration—players in most key Latin American broadband penetration rates aremarkets. In Mexico, Telcel—América still hovering at around 15 percentMóvil’s mobile arm—holds 72 percent in most of these countries—Américaof the market, but Telefónica is closing Móvil and Telefónica will be at thefast. In the last quarter of 2010, forefront of new opportunities.9the two companies accounted for They are identifying and snapping up90 percent of the one million new opportunities almost before they appear.connections: Telcel took 30 percent,but Telefónica took 61 percent. And inBrazil, América Móvil’s Claro brand isa key player in the market, along withVivo, acquired by Telefónica in 2007.8The strategies América Móvil andTelefónica use to build their presenceare revealing. América Móvil has formany years been buying up smalleroperators around Latin America, takingcontrol of fixed-line infrastructure and 12

Locating demand: Thesearch for growthBetween 2011 and 2016, approximately profitability in China. But over the next for 56 percent of India’s economy,60 percent of global economic growth decade, China will rapidly move up the compared with 34 percent in China),11is forecast to come from emerging ranks, leaving only three economies China’s economy is largely built oneconomies,10 despite an expected with a greater number of households investment and export growth, andnear-term slowdown in key high- earning US$30,000 and above: the Russia is heavily dependent on itsgrowth markets such as China and United States, Japan and Germany. In natural resources: oil, fuel and gasIndia. The triad economies of the 2010, the number of Chinese households accounted for 69 percent of exports inUnited States, Europe and Japan in this income bracket was almost 2010.12 These fundamental differencescontinue to experience persistently twice that in Thailand—but by 2020, illustrate the dangers of relying uponhigh unemployment and public debt there will be more than thirteen times such country groupings for detailedlevels. Many developed economies as many. Our analysis highlights the analysis and comparisons. Lookinghave seen their economic growth dynamics shaping global demand outside the BRICs, Vietnam, Peruforecasts downgraded in recent opportunities through 2020 (see “In and Angola are all forecast to growmonths and companies struggle to focus: Household buying power,” page more quickly than Russia. It becomeslocate the next sources of growth 18). Specifically, we illustrate how clear that even the accuracy of thein these markets. In many emerging US$15 trillion of additional household terms “emerging markets” and “high-economies, in contrast, unemployment income will be dispersed around the growth markets” is debatable.is falling and governments hold world across distinct income segments.significant reserves. Many companies The stories that emerge reveal where Economic groupings and macroeconomicin these markets may not even have “high growth” may be found. terminology help describe importantfelt the impact of the downturn. global trends. But when a company plans its own global strategy, it needsLevels of consumption and demand Attachment to a far more granular analysis—onefor goods and services in emergingeconomies will increase as incomes outdated labels that looks beneath headline figures and provides a more accurate picturegrow. But with enormous differences Income levels and the speed of change of the true size and pace of growthin the size and growth rates of are difficult to keep up with and in demand around the world.demand, along with a variety translate into investment decisions.of customer preferences, it isdifficult to accurately assess and Commentators are quick to embrace labels such as BRIC (Brazil, Russia, The dangers offorecast growth opportunities. India and China), MINT (Mexico, Indonesia, Nigeria and Turkey) and generalization Labeling groups of countries can alsoA fast-moving target CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa). But lead companies to overlook importantWe have conducted an extensive the dramatic speed at which the differences among unfamiliar markets.analysis, in collaboration with Oxford demand landscape is changing brings For decades, the African continent hasEconomics, of household incomes and into question the value of these terms. borne the brunt of such generalizations.their evolution over the coming decade. Over the next three years, in real In 2010, Nigeria had a per capita GDPAccording to our analysis, China lags terms, India’s economy will grow at of US$1,300, lower than the sub-behind 27 other economies, including a rate twice as fast as that of Russia. Saharan Africa average (see FigurePoland, Turkey and Colombia, in the China will grow twice as fast as Brazil. 2).13 Nigeria’s total household incomenumber of households with an annual And there are significant structural was approximately US$200 billion—income greater than US$30,000. This differences: while India’s growth has lower than South Africa’s, despite acomes as no surprise to companies been fueled primarily by domestic population three times as large.14eagerly and impatiently awaiting demand (private consumption accounts13

Figure 2: GDP per capita, 2010 (US$ at 2010 prices and Figure 3: Change in total income for households withmarket exchange rates) annual income of US$5,000 and above, 2010-2020 (US$ billion, constant 2010 prices)8,000 1407,000 1206,000 1005,000 804,000 603,000 Sub-Saharan 402,000 Africa average 201,0000 0 South Egypt Ghana Nigeria Kenya Nigeria Thailand South Malaysia Egypt Ghana Kenya Africa AfricaSource: Oxford Economics Source: Oxford EconomicsHowever, Nigeria’s consumer-market “middle class” is a loosely defined the greatest opportunities lie. Somepotential will soon outstrip that of term and differs across markets. In might be surprised at what they find.other African economies it lags behind some cases it is merely the middle of Significant opportunities exist in citiestoday. By 2020, 7.8 million additional the income distribution. In others, it that many multinationals haven’t evenhouseholds are expected to have an refers to a specific level of income. heard of. Zhengzhou is a prime example.income level of US$5,000 and above, Either way, a middle-class household The capital of Henan province in China,with 12 percent of these earning more in India is unlikely to afford the deluxe Zhengzhou by 2020 will have a biggerthan US$30,000. This translates into refrigerator, high-end TV, smartphone economy than Sweden, Hong Kong orUS$130 billion of additional household and sport utility vehicle of a middle- Israel.16 And Surat, in the Indian state ofincome and an increase far greater than class American family. These large Gujarat, is forecast to be home to nearlyother African economies (see Figure 3). discrepancies and ambiguities in the 8 million people by 2020, more than theThe income growth is also greater than definition of “middle class” matter whole of Paraguay or Norway.17that in burgeoning Asian economies, for companies trying to find the mostsuch as Malaysia and Thailand. The attractive markets for their products One example of a company that haskey driver of Nigeria’s rapid economic and services. followed a city expansion approachgrowth, and incomes, is the country’s is Xiang Piaopiao Food (XPP), whichexpected fast population growth. entered the Chinese beverage market Redrawing borders in 2005 with a milk tea product. The market at the time was concentratedThe misleading Companies must take into account the most appropriate geographic units in Tier 1 and Tier 2 cities, but XPP“middle class” in strategic planning. For example, it may make sense to plan in terms of avoided the high entry costs associated with these markets by focusing on 600Hyperbole and imprecise terminology regions and cities rather than countries smaller cities, using traditional channelshamper the sizing of high-growth and continents. In China, for example, of local distributors. The company hasmarket opportunities. Take the much there are significant variations across achieved compound annual growth ofvaunted “emerging middle class.” provinces in income, demographics, more than 100 percent, with total salesThis consumer segment is variously religion, language and geography. from smaller cities and towns typicallyestimated to include anywhere between By delving more deeply into their accounting for 75 to 80 percent of total500 million and 2 billion people. Some assessment of China and other large sales in each province.18forecasts claim that it could double emerging markets, companies canover the next two decades.15 However, create a more accurate picture of where 14

Figure 4. South Africa income inequality scenarios: Number of households, 2020 (million)76543210 US$0-US$5,000 US$5,000-US$15,000 US$15,000-US$30,000 US$30,000-US$50,000 US$50,000+ Baseline income inequality Reduced income inequalitySource: Accenture, Oxford Economics it might mean that companies needUnderstand the to accelerate entry plans as demand“unknown-knowns” for their product picks up sooner than they had expected. This exampleA large number of external factors illustrates how changes in externalcan cause consumer spending to factors may have an unexpecteddiverge from expectations. One such but significant impact on marketfactor is change in the distribution of opportunities and strategic planning.income, something that is receivingincreased attention from opinionformers and policymakers around Spotting opportunity—the world. China, for example, hasmade reducing income inequality a creating demandpriority in its 12th Five-Year Plan. A clear awareness of income trends is a crucial first step toward developingIn South Africa, greater income an accurate map of current and futureequality is also an explicit policy goal. demand. Understanding the point atWe modelled what would happen if which consumption of a product willSouth Africa’s Gini coefficient fell from pick up, accelerate and mature should58 to 51, still a high co-efficient by be a central part of planning marketglobal standards (see Figure 4). The entry and expansion. Accuratelyimpact of this reduction in income assessing market maturity acrossinequality would be to expand by 7 different locations can offer criticalmillion the number of households with insights into how those markets canannual incomes of between US$5,000 best be aligned for strategic planningand US$50,000. Understanding purposes. To illustrate, we haveshifts in the distribution of income estimated the global relationshipallows companies to measure market between household income levelspotential more accurately. This can and market penetration for selectmean the difference between making products and services (see “In focus:a decision to enter a market or not. Or Consumption curves,” page 23).15

In focus: Householdbuying powerWhile high-growth markets offer attractiveconsumer opportunities, diverse and rapidlyevolving income patterns often pose significantstrategic planning challenges. In collaborationwith Oxford Economics, we forecast the evolutionof household incomes across 64 economies.19Our forecasts are measured in real terms atconstant 2010 prices to avoid the potentialdistorting effect of inflation over time. Wecompare income levels across countriesusing market exchange rates, rather thanpurchasing power parities (PPP). We believethis avoids the upward bias of PPP measuresand corresponds more closely to the actualsize of revenue opportunity for businesses.Even with our conservative methodology,the stories that emerge are striking.Between 2010 and 2020, the number ofhouseholds in the 64 countries we studied isforecast to jump by 124 million—87 percentwill be in emerging economies—translating intoUS$15 trillion of additional household incomeby 2020. Emerging economies will accountfor 57 percent of this increase in income. 18

The emerging consumersAs a household’s annual income surpasses US$5,000, spendingon personal goods and demand for high-impact items suchas televisions, mobile telephones and two-wheel vehiclestypically increases. In 2010, 40 percent of emerging-markethouseholds earned less than US$5,000 a year, this share isexpected to fall below 20 percent in 2020. This low-incomesegment would shed 225 million households, nearly a halfof them in China. During the same period, this segmentin Indonesia would shrink by 11 million households—20percent of its current population. Meanwhile, the shareof India’s population earning more than US$5,000 a yearis expected to increase from 47 percent to 81 percent.Figure 5: Additional households with annual income of US$5,000and above, 2010-2020 More than 25 million 5 to 25 million 1 to 5 million 0 to 1 million Less than 0 Not studiedNB: At market exchange rates and 2010 constant prices.19

The great leapThe share of emerging-market households in our analysiswith an income exceeding US$15,000 is expected to increasefrom 36 percent in 2010 to 54 percent in 2020. This jumpadds 240 million households to this income segment.China alone would contribute half of this change, with125 million households. Another hotspot is Russia, where12 million additional households are expected to be in thisincome segment by 2020—this shift represents 20 percentof Russia’s current number of households. As householdspass this income threshold, we can expect them to beginspending on cars, computers, and basic financial products.Figure 6: Additional households with annual income of US$15,000and above, 2010-2020 More than 25 million 5 to 25 million 1 to 5 million 0 to 1 million Less than 0 Not studiedNB: At market exchange rates and 2010 constant prices. 20

Multiple consumer hubsIn 2010, developed-market households dominated the incomesegment of US$30,000 and above. By 2020, it is expectedthat there will be an additional 80 million emerging-markethouseholds in this segment, boosting consumption forhealthcare services, basic leisure goods and home purchases.After China, the shift in Brazil is expected to be one of thelargest in the world, with more than 5 million additionalhouseholds earning at least US$30,000. Turkey is alsoexpected to have an additional 4.7 million householdsin this income segment by 2020, a greater change thanany developed economy apart from the United States.This represents a 73 percent increase over Turkey’scurrent number of households in this segment.Figure 7: Additional households with annual income of US$30,000and above, 2010-2020 More than 25 million 5 to 25 million 1 to 5 million 0 to 1 million Less than 0 Not studiedNB: At market exchange rates and 2010 constant prices.21

The new big spendersThe US$50,000-and-above income band representshouseholds with significant disposable income. Beyond thisincome level, spending on such items as life insurance andpension products, leisure and tourism services, and luxuryconsumer goods would be expected to pick up. China wouldcontribute 5 million additional households to this segment, thesecond-largest increase after the United States. South Korea,a more advanced emerging economy, is expected to doublethe proportion of its population in this income segment to42 percent—one of the highest among emerging economies.Kazakhstan also is expected to more than double the share ofits population in this income segment, from 7 to 15 percent. By2020, Kazakhstan will have 770,000 households earning aboveUS$50,000; more than the combined number in Armenia,Bangladesh, Bulgaria, Egypt, Ghana, Indonesia, Iran, Kenya,Morocco, Pakistan, the Philippines, Ukraine and Vietnam.Figure 8: Additional households with annual income of US$50,000and above, 2010-2020 More than 25 million 5 to 25 million 1 to 5 million 0 to 1 million Less than 0 Not studiedNB: At market exchange rates and 2010 constant prices. 22

In focus:Consumption curvesWorking with Oxford Economics, we Figure 9: Non-life insurance consumption curve, 2008built global economic models to showthe relationship between a country’s 5,000average annual household income 4,500 Netherlandsand expected sales or penetration in 4,000a number of consumer industries. We Premiums per capita (US$)portray these relationships as global 3,500 Japan“consumption curves” in Figures 9, 3,00010, 11 and 25, where we explore the High-income economies 2,500insurance, car and broadband markets. 2,000 USFactors specific to each country 1,500are also at play, as is shown by the Low-income economies 1,000position of individual countries in these Russiacharts, sometimes at some distance 500from the global curve. Understanding Turkey 0these factors allows country-specificconsumption curves to be modelled: 0 20,000 40,000 60,000 80,000 100,000 120,000we provide examples in Figures 24 and Average household income (2008 US$)26. Tomorrow’s successful globalizerswill display mastery of their global and Source: Oxford Economics, Swiss Re, Accenturelocal consumption curves: this levelof analysis can provide the basis for Despite the attention given to fast- premia per capita) would be at US$680.informed choices about market selection growing emerging economies, for In fact, it was around US$4,500. Theand timing, for appropriate geographic many of them the insurance market is difference is due to institutional factors.aggregation or disaggregation of still at an early stage of development: The 2006 Health Insurance Act createdmarkets, and for strategies to grow their market penetration has yet to increase a universal health care system, in whichcustomers’ propensity to consume. significantly. This does not imply an all individuals were mandated to carry absence of growth opportunities. On the basic health insurance in the privateKnow your curve: contrary, being positioned in a market as it is about to take off can give companies sector, while the government subsidized low-income households.20 The country’sNon-life insurance first-mover advantages, such as a strong customer base and brand. The timing, historic maritime links have created a strong tradition of insurance coverage,The relationship between household however, is critical because insurance has and the Netherlands is one of the world’sincome and market penetration is very a long growth phase. Entering too early largest non-life insurance markets.strong in non-life insurance. The steep can be as damaging as entering too late.consumption curve in Figure 9 revealsthat insurance is a “luxury” good for Institutional factors could stimulate Driving up the curve:low-income households. It becomesattractive only at higher income levels, demand ahead of expectations. In the Netherlands, for example, the market Passenger carswhere households have more valuable penetration rate is substantially above A snapshot of the current passengerpossessions and can afford to protect what one would expect from the country’s car consumption curve (see Figurethem. Lower income countries therefore income levels. For an average household 10) illustrates how assessing marketappear around the base of the curve, income of US$51,000 (the country’s maturity in different countries canwhile wealthier economies are clustered average income) in 2009, the curve reveal powerful country groupingshigher up the curve. suggests that consumption (measured by for strategic planning purposes. The23

car markets in Mexico, Slovakia and and their major trading partners may prioritization of investments acrossTurkey appear to be at similar growth promise lucrative opportunities for target markets. For example, in 2008, thephases—rapidly growing markets the automotive sector, as well as for Thai market had not yet taken off. Butwith car purchase penetration ancillary products and services. between 2008 and 2020, the car stockincreasing faster than income growth. is expected to nearly double to 103 carsA “maturing” cluster of markets is In maturing car markets, the next wave per 1,000 people, and annual sales willalso apparent further up the curve: of growth may be in electric or hybrid average 560,000 cars (see Figure 11). Byin these countries, a change in vehicles. Although these vehicles still the same token, Turkey is further up theincome will induce a proportionally make up only a small proportion of consumption curve and expects a muchsmaller change in demand. total car sales, by aggregating similar larger increase in consumption earlier markets, companies may uncover in the decade. Penetration is expectedCompanies can use these patterns and sufficient scale to build a profitable to increase by an additional 82 cars pergroupings to identify potential targets, cross-country business case. 1,000 people—equivalent to annual carsimilarities and synergies. For example, sales of 1.12 million. These examplesmany countries that are approaching the The greatest value in consumption curves illustrate the value of more granular“rapid growth” phase are also significant is their ability to forecast over time. By analysis: some companies may needautomotive manufacturing hubs. Mexico, comparing market dynamics across time to prioritize today’s investment dollarsSlovakia and Turkey are fast becoming horizons and geographies, companies can between building a longer-term positionhotspots for auto parts production paint more accurate pictures of where in Thailand and betting on Turkey’s moreand assembly21 and are attracting and when opportunities will arise. These immediate window of opportunity.considerable investment.22 These markets comparisons anchor a more effectiveFigure 10: Passenger cars consumption curve, 2008 700 Maturing phase Illustrative consumption figures 600 Cars per 1,000 people 500 Rapid-growth phase China 27Cars per 1,000 people US Thailand 54 400 Turkey 92 300 Mexico 181 Slovakia 272 200 Russia Croatia 346 China United States 451 100 Emerging phase 0 0 20,000 40,000 60,000 80,000 100,000 120,000 Average household income (2008 US$)Source: Oxford Economics, World Bank WDI, AccentureFigure 11: Passenger cars: Expected change in car penetration, 2008-2020 600 2008 Illustrative consumption growth: 2020 change 2008-2020 500 Cars per Average 1,000 people sales, annualCars per 1,000 people 400 Croatia Slovakia 99 160,000 Slovakia China 94 15,030,000 300 Turkey 82 1,120,000 Mexico 54 2,200,000 200 Mexico Thailand 45 560,000 Croatia 28 110,000 100 Thailand Turkey 0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Average household income (2008 US$)Source: Oxford Economics, World Bank WDI, Accenture 24

New players, new rules:The new shape ofcompetitionThis chapter looks at the important Many economies have actively courteddynamics reshaping the global foreign investment, and governmentscompetitive landscape: the key players compete against one another toand new competitive pressures that attract firms from around the world.make it more difficult for companies The impact on local competitiveto access growth opportunities. dynamics has been dramatic.We introduce the players in thisnew phase of global competition Multiple layers ofand then look at how they arechanging the rules of the game. incumbency First, companies must compete againstNew players strong local knowledge and the relationships that domestic playersInternationalization has never been a enjoy. Second, many can expect tosimple journey. The ability to become face Western multinationals thatrelevant and respond to local needs have expended significant effort toin new markets has always been a become locally entrenched. Thesefundamental challenge. A major obstacle multinational players possess the scaleis the strength of incumbents, with and efficiency of global enterprises,their deep local-level relationships, some possess strong brands, andacute knowledge of local needs and most have become leaner and morepreferences, and enviable customer competitive in response to economicloyalty. Business school case studies and troubles in their home countries. Finally,media coverage are littered with praise companies entering new markets willfor companies that have managed to also face multinationals from emergingeffectively tailor their offerings to local economies that can leverage scalemarkets. By the same token, companies advantages with low-cost capabilitiesunable to recognize and adapt to and, in some cases, governmentlocal circumstances are criticized. support and funding. Most companies are rightly daunted by the prospectBut companies looking to enter high- of having to take share from thesegrowth markets today face a more incumbents. It is no wonder that somecomplex incumbency challenge than firms feel they are already too late toever before. High-growth markets have enter these markets (For an example ofspurred growing levels of investment how to respond to these pressures, seeand corporate activity over recent years. “Cencosud: Retail relations,” page 30). 26

Figure 12: Fortune Global 500100% 47 60 70 78 91 95 11790% 453 44080% 430 422 409 40570% 38360%50%40%30%20%10%0% 2005 2006 2007 2008 2009 2010 2011 Developed EmergingSource: Fortune Global 500, Accenture analysisEmerging giants meet the demand there and from other (see page 31) details this important shift South American countries. Embraer, the and how rapidly intra-emerging marketAlready 117 companies from emerging Brazilian commercial plane manufacturer, (“E2E”) trade has grown in just theeconomies are in the Fortune Global reports record profits through sales past ten years to transform the global500, a six-fold increase since 2000. of mid-size jets suitable for regional competitive landscape. As emergingThis trend appears to be accelerating. travel between emerging economies. economies increasingly dominate globalTwenty-two emerging-market SABMiller, a leading global brewer trade and investment flows, it is only amultinationals replaced their developed with roots in South Africa, recently matter of time before the world sees amarket peers on the list in 2011 (see built a brewery in South Sudan. The new global map of talent, innovationFigure 12). The emerging-market company’s deep experience in emerging and industry standards.companies are also quickly moving up economies—it operates in 17 Africanthe ranks. In 2011, 70 percent of theFortune Global 500 fastest-growing countries—gave it the confidence to Seasoned global players enter this unserved market, despite Southcompanies (by revenue) were from Sudan’s severe infrastructure barriers. Notwithstanding the importance ofemerging markets. competitors from emerging economies, These examples of success in high- it would be wrong to assume thatCompanies based in emerging economies growth markets by companies from they will dominate the next eraoften have an advantage in entering emerging economies exemplify a broader of competition. Some of the bestand expanding in high-growth markets. transformation in the global business examples of success in high-growthFor example, they may be more familiar landscape: the sharp increase in business markets have been multinationalswith serving low-income customer activity between emerging economies based in developed markets. With agroups or operating amid infrastructure since the beginning of the downturn. well-established presence in emergingdeficiencies. The size of the prize is China has displaced the United States economies, these companies are wellevident, and the success stories are only as Brazil’s largest trading partner. China positioned to combine their superiorincreasing. China’s fast-growing Chery, has also become India’s biggest trading global scale and efficiency with theiran automotive company, launched its partner, and the two countries have local knowledge and responsiveness.mini car, QQ, in nearly 80 countries, agreed to a US$100 billion bilateral Many solidified their position duringmost of them emerging economies. trade target by 2015. But the story the downturn as their gains in emergingChery is particularly successful in isn’t just about China. India’s exports to economies made up for the pain felt atBrazil. In the first half of 2011, Chery’s Brazil increased more than tenfold from home. For example, Figure 13 illustratesexports to Brazil reached 18,000 units, 2000 to 2010 and exceed those of Latin how, through its presence in emerginga quarter of its exports.23 The company American economies such as Mexico. economies, Unilever sustained growthhas recently built a plant in Brazil to “The journey to multidirectional trade” during the downturn despite shrinking27

Figure 13: Unilever revenue growth breakdown (€ billion) Figure 14: Composition of Unilever’s revenue (percentage share)50 40% 42% 44% 47% 49% 53%45 8.1 44.340 -2.2 38.43530 60% 58%25 56% 53% 51%20 47%151050 Total revenue, 2005-2010 2005-2010 Total revenue, 2005 2006 2007 2008 2009 2010 2005 change in change in 2010 revenue from revenue from developed emerging Developed markets Emerging markets markets marketsSource: Unilever company reports Source: Unilever company reportsrevenue from developed markets. In acquisition of Jaguar and Land Rover Capital, credit and corporate2010, for the first time, the majority of created a company with a range ofUnilever’s revenue was from emerging high- and low-value offerings well governance: The freedom toeconomies (see Figure 14). The company positioned to compete at the opposite invest for the long termplans to increase this share to 75 ends of the same market. With thesepercent by 2020.24 offerings, Tata Motors can also cater Constraints on capital investment to markets around the world at and difficulties securing credit haveCompanies such as Tesco in South Korea different stages of development. hampered growth efforts in the wakeor Coca-Cola in Brazil have shown that of the downturn. Firms backed by statebeing a foreign or “Western” company Such ventures can leverage their capital and sovereign wealth funds,is certainly no disadvantage. These complementary strengths to rapidly meanwhile, have benefited in thiscompanies possess strong competitive build market share in home markets and environment as they have been ableadvantages. Their established brand form a springboard for global success. to access investment capital largelypresence positions them well to attract Some companies have used partnerships unconstrained by the pressures ontalent and customers. They can also to develop entirely new offerings: global capital markets.draw upon their regional and global Vodafone and Safaricom’s M-PESAnetworks and mechanisms to better money-transfer service acquired 14 Consider the example of sovereignidentify and rapidly act on local million registered customers within wealth funds in the Middle East, whichopportunities. What matters for high four years (see “M-PESA: Creating new have approximately US$1.7 trillion inperformance is not a company’s country markets through innovation,” page 44). assets under management.25 In 2010, asof origin; it is the company’s strategic funds across the Middle East sought toand operational capabilities for success. New rules diversify and invest in new high-growth markets, 49 percent of their investmentsCombining forces As the key players in global markets were directed toward the Asia Pacific change, so do the pressures that shape region—a significant leap comparedCompanies also have a greater appetite the rules of competition. The location of with the 7 percent invested in thefor cross-border partnerships across a company’s headquarters matters less region from 2000 to 2008.26emerging- and developed-market than its ability to grasp opportunitieseconomies, built through joint ventures, while others watch and wait. Many of the fast movers into high-acquisitions and other models. These growth markets have been thosecomplementary capabilities, assets The following three trends are that have had the freedom to take aand strengths can create a formidable increasingly shaping the competitive longer-term investment perspective.competitive force. Tata Motors’ landscape. Ownership and governance structures 28

play a role here, as certain models difficult to steal. Africa, for example, high-capacity machines are equippedare less beholden to short-term was emerging as a compelling growth to wash traditional gowns. And whenshareholder demands. This freedom opportunity for global banks just LG expanded into the Indian marketprovides a distinct advantage in tasks as the financial crisis struck. Since with a television set featuring on-such as product development or market then, companies less affected by screen display in the regional languagesplanning. Of China’s 54 businesses in the downturn have taken advantage of Hindi, Tamil and Bengali, thethe Fortune Global 500, 41 are state- of Africa’s more open playing field “Sampoorna” sold more than 100,000owned. While the total number of state- and snapped up the most lucrative sets in the first year of its launch.31owned enterprises in China fell from partnerships and acquisitions. For159,000 in 2003 to 114,500 in 2010, example, the Industrial and Commercial With opportunity and competitionthe total assets of those under central Bank of China recently acquired 20 difficult to evaluate and predict,government control rose from RMB percent of South Africa’s Standard Bank companies often hesitate to invest.3 trillion (US$473 billion) to RMB 20 and formed a commercial partnership It is not surprising that the majoritytrillion (US$3,150 billion).27 And though for corporate banking services.29 And of businesses believe they need tomany of Brazil’s large companies are Bank of China partnered with Togo- accelerate their efforts to buildpublicly listed, most of them are family- based Ecobank, which operates widely market share—or that it may beowned. The majority of India’s giant across Africa, to facilitate trade and already too late. As companiesconglomerates still hold family names, investments between Africa and Asia. wait, they fear that the windows ofand family members serve on boards. Snapping up the most promising opportunity are shrinking. They know partners is a key advantage to moving the opportunities lie in high-growth markets. They know they need toAccess and preferential fast in this sector. accelerate their efforts. But whattreatment: The importance Global efficiency and exactly should they be doing? What are the capabilities they need to buildof relationships local responsiveness: Dual in order to succeed in high-growthMore and more, relationships are markets? The following chaptersshaping access to new market imperatives, not a trade-off seek to answer these questions.opportunities: business-to-business, The most astute competitors in today’sbusiness-to-government, government- fast-evolving opportunities combineto-government, as well as cross-sector global efficiency and scale with localrelationships with civil society and non- relevance and responsiveness. Forgovernmental organizations (NGOs). example, while Coca-Cola benefits from its global scale and brand, itsThe resources and extractives sector local market understanding allows theis a case in point. Mining rights and company to offer 15 varieties of Fantaaccess to natural resources are carefully in Mexico.30 Such success requirescontrolled by host governments and a carefully designed internationalare often granted to state-backed operating model: deep local marketcompanies on the basis of high-level insights, such as preferences aroundgovernmental agreements. In exchange packaging and the local palate,for rights to extract more than 11 combined with flexible sales andmillion tons of copper and 620,000 distribution strategies that can respondtons of cobalt in the Democratic to the local retail infrastructure.Republic of Congo, China has agreedto build hundreds of clinics, hospitals Many companies grounded in efficiencyand schools, two hydro-electric dams, advantages have built more targeted3,300km of road and 3,000km of offerings to appeal to specificrailway there.28 As long-term investment consumer groups. Players such asdeals brokered by governments seeking China’s Haier, Taiwan’s HTC and Southforeign expertise erect barriers to later Korea’s Samsung and LG have movedentrants, the path to new opportunities beyond their initial low-cost offeringsfor many companies may be blocked. to design products and services for a variety of income levels, cultural tastesIn other industries, access to and preferences. Haier has drivenopportunities may depend on cultivating international expansion by tailoring itsrelationships with the right partners. products to local markets: in China’sIn the banking sector, acquisitions and rural Sichuan province, Haier sellsjoint ventures are a common route to washing machines specifically designedentry. Banking has traditionally been and labeled to wash “clothes, sweetan industry where market share is potatoes and peanuts.” In Africa, its29

Cencosud: Retail relationsCencosud in Latin America established, looked to acquire well-entrenchedthrough a focus on strong relationships, players in high-growth markets,a regional foothold that is daunting such as the Wong Group in Peru,to potential competitors. For thereby gaining access to establishedsupermarkets, chances of success are infrastructure and relationships. Thesestrongly influenced by access to the acquisitions—13 in just 10 years—haveinfrastructure and ecosystems that enabled the company to expand rapidlysupport their business. Appropriate across the region, driving year-on-real estate, and effective supplier year growth of more than 25 percent.and distribution networks, can make Cencosud is now the leading or No. 2or break a venture. The right local- supermarket retailer in three of thelevel relationships are critical because four countries in which it operates.32control over real estate and supplychains can sit in a small number of Cencosud’s competitive position ishands in high-growth markets. In an raising the stakes for other retailersindustry where market share really attempting to gain a foothold in thesecounts, relationships can provide the high-growth markets. New entrants,access needed to unlock opportunity whether regional or global retailers, willand to establish a leading presence. be pitted against Cencosud’s mastery of local knowledge and relationships.Cencosud has long been one of thekey players in its home market ofChile, and the company is buildingon its domestic position to expandacross Latin America. In stepping upits regional expansion, the company 30

The journey to multidirectional tradeA new map of global Phase 1 Phase 3trade and investment is Before 2002, the majority of global The third phase, heralded by theemerging. The dominance trade took place between developed global downturn, is still under way. It economies. For example, just ten is characterized by the resilience ofof developed economies years ago, 47 percent of world exports between emerging economies.is being challenged, exports excluded emerging economies E2E exports have grown from the completely. Exports between emerging smallest component of global tradeand the last ten years economies accounted for just 15 to the second-largest contributoralone have seen a sharp percent of total exports in 2000. to international exports, just behind Emerging economies were largely D2D (developed market to developedtransformation in the perceived as sources of raw materials. market) exports. Our estimates suggestdynamics of global trade. The triad economies of the United that if E2E exports continue to grow States, Japan and the European Union at the average annual rate theyThe implications are far determined the norms and rules of experienced from 2000 to 2010, theyreaching, not least in giving business. However, China’s accession could overtake D2D exports by 2013. to the World Trade Organization ina clue as to where the 2001 marked a turning point, openingfuture hubs of opportunity up China’s vast potential as an exporter, particularly of manufacturedand competition will lie. goods, to the rest of the world.The journey to Phase 2multidirectional trade From 2002 to 2006, E2E exportsover the past decade averaged 25 percent annual growth. By 2003, they overtook exports fromhas three distinct phases developed to emerging economies, and(see Figure 15). by 2006 E2E exports overtook those from emerging to developed economies. Exports between developed economies remained the dominant component of global trade. But their relative share declined during this period, from 53 percent in 2002 to 38 percent by 2006.31

Emerging economies This transformed are becoming the key landscape of competition shapers of global trade is characterized by a more and investment, both as diverse set of competitors sources and destinations. and a more varied range of strategic motives and From being the smallest organizational behaviors. component of global exports only a decade ago, The implications are E2E exports have grown fundamental; from a new dramatically to become the global map of talent and second-largest contributor innovation, to new industry to international exports. standards and norms. Our estimates show that if E2E exports continue to grow at the average annual rate they experienced in 2000- 2010, they could overtake D2D exports by 2013.Figure 15: Journey to multidirectional trade (LHS: Export value, US$ billion; RHS: Indexed export value, 2000 = 100) 18,000 Phase 2 Phase 3 440 Phase 1 420 16,000 400 380 14,000 360 340 Indexed export value, 2000 = 100 12,000 320Export value, US$ billion 300 10,000 280 260 8,000 240 220 6,000 200 180 4,000 160 140 2,000 120 100 0 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Developed to Developed (D2D) Emerging to Developed (E2D) Developed to Emerging (D2E) Emerging to Emerging (E2E)Source: IMF Direction of Trade Statistics 32

Rethinking capabilities:The roadmap to successBusiness leaders realize that they need In our research, we were keen to Disappointed globalizersto step up their search for growth—and understand the perceptions and thethat old approaches will not be suitable actions of two particular sample groups: We also looked at companies thatfor the new competitive landscape. Some are committed to growing in high-57 percent of respondents to our survey Successful globalizers growth markets but that have beenacknowledge that they need to “reassess” disappointed by their performance to We looked at companies that have had a date. They are defined by the followingor “fundamentally rethink” their track record of successful performance characteristics:approaches and capabilities to compete during recent years and are alsoand win in high-growth markets. • They are primarily looking at emerging confident and committed about their future growth in high-growth markets. economies for their next stage ofMoreover, our research unearthed key growth.differences between successful and Specifically, they are defined by theunsuccessful companies in high-growth following characteristics, based on their • In the past three years, their companymarkets. Successful companies think responses to our survey: revenue and profits in high-growthdifferently about the capabilities critical • They are primarily looking at emerging markets have developed slower thanfor growth and prioritize investments in economies for their next stage of they expected.different ways. growth. • They are planning to increase Keys to high57% of respondents investment in their target high-growth markets over the next three years. performanceto our survey • They believe they have an accurate Our research uncovers three capability areas that successfulacknowledge that they understanding of the size of opportunities in emerging economies. globalizers excel at relative to their peers, particularly in comparisonneed to “reassess” or • They believe they fully understand the with disappointed globalizers:“fundamentally rethink” competitive dynamics that they face in these markets. 1. Sizing the future: The ability to accurately size, time and prioritizetheir approaches and • They believe they possess the strategic demand opportunities around the world. and operational capabilities to fullycapabilities to compete grasp those opportunities. 2. Shaping the future: The insights and capabilities to cultivate and protectand win in high- • In the past three years, their company future demand in high-growth markets. revenue and profits in high-growthgrowth markets. markets have developed in line with, 3. Seizing the future: The operational agility and flexibility or faster than, their expectations. to adapt and reorient the company to grasp opportunities In 2010, 61 percent of these successful across high-growth markets. globalizers experienced global revenue growth of 5 percent or more. The following chapters look at each of these capability areas in depth.33

Accenture conducted anextensive research programto investigate the keys tosuccess in today’s hyper-competitive high-growthmarkets.The main elements of research include:• Household income analysis, incollaboration with Oxford Economics.We created five standard bands ofannual household income and, for eachof 64 countries, estimated the numberof households falling into each band in2010, 2015 and in 2020. All forecastsare measured in real terms, and atmarket exchange rates.• Industry consumption curves, incollaboration with Oxford Economics.This unique research maps the evolutionof a select group of industries across theworld. It also includes scenario-basedsensitivity analysis that assesses theimpact of changes in the business andpolicy environment.• A survey of 588 business leaders,across 85 countries and 22 industries,conducted by the Economist IntelligenceUnit. Business leaders were asked abouttheir perceptions of the competitivelandscape, their company’s plans forgrowth and the capabilities importantfor success in these markets.• Conversations with clients andexperts across industries and extensivesecondary research, including companycase studies and analysis of greenfieldand M&A investment data. 34

Sizing the future: Assessingwhere and when to actOur research suggests that successful This deep understanding of their target One way to build this understandingglobalizers in high-growth markets markets allows successful globalizers to is through in-depth analysis ofadopt new approaches to assessing become masters of strategic positioning: consumption curves for companies’potential market opportunity. The to be not only where opportunities are products and services. By analyzingdistinction becomes clearer when today, but where they will be tomorrow. consumption curves, companies canwe compare them with firms that Through their superior ability to identify the optimal entry point for ahave been disappointed by their discern the size, location and timing of particular target market. For example,performance in high-growth markets. opportunities, these companies make more in our analysis “In focus: Consumption informed decisions and trade-offs around curves” (see page 23), we see that theTraditionally, companies looking to where and when to invest, and remain non-life insurance market has a longenter new markets might construct several moves ahead of the competition. growth phase. Entering too early cancountry-by-country business cases, be as damaging as entering too late.or segment opportunities by common This type of analysis also offers clues tolanguage, for example. Successful Getting the “where” appropriate routes of entry. For example,globalizers take a more dynamicview that incorporates flexibility and and the “when” right in a country where demand is still in its infancy, companies have more time toforesight into strategic planning. Sizing and timing opportunities across build partnerships with local players and high-growth markets is complex. The gradually cultivate their customer base.First, they are more adept at examining evolution of household income over the In a more mature market, entry throughglobal opportunities through multiple next decade—an indicator of potential acquisition might be more attractive.lenses, to find where and when demand consumer buying power—underscoreswill arise. Witness companies that its importance. For example, from 2010 Cross-country consumption forecastshave successfully targeted diaspora to 2020, Turkey’s share of households can also identify countries at similarcommunities scattered across the world, with an annual income above US$50,000 stages of market development. Suchor specific high-potential customer is estimated to nearly double, from 18 insights open opportunities to sharesegments, such as those in water- percent to 34 percent. This translates into lessons across markets and to build scalescarce areas, rural communities or an additional 3.6 million households in and synergy into market entry plans. Fornewly-empowered female populations. that income segment, representing total example, our analysis shows that Mexico,In this way, successful globalizers household income of US$380 billion. Slovakia and Turkey are on the cusp ofdevelop a more complete and realistic rapid demand growth for passenger cars.understanding of the markets in But the accurate assessment ofwhich they intend to operate. addressable opportunities is only a Successful globalizers recognize that first step. Planning over time horizons superior market assessment capabilities,Second, in a rapidly-changing business is becoming a critical capability, as such as analysis of household incomesenvironment, these companies consumption levels evolve at a variety and product consumption curves, giveunderstand better than their competitors of speeds around the world. In this them an edge. For example, 75 percentthe importance of planning over time complex and volatile environment, of successful globalizers said thathorizons, allowing them to sequence and understanding these dynamics, and using looking at the size of potential consumerprioritize their investments. Our research, this understanding to evaluate trade-offs purchasing power is critical for growth.conducted in partnership with Oxford and guide decisions about when, where Among disappointed companies, onlyEconomics, illustrates the importance and how to enter high-growth markets, 42 percent had similar feelings.of identifying where different markets will be critical to success. Some marketswill sit in terms of their consumption may offer immediate opportunities, while We now look at some of the specificof specific products and services. How others may be poised for more significant ways in which successful globalizersclose are they to reaching a point growth in the longer term. differentiate themselves and build anwhere demand rapidly takes off? How in-depth understanding of their targetclose are they to market maturity? high-growth markets.What are the opportunities of differentmarkets over different time horizons?35

Procter & Gamble: Designingfor the $2-a-day consumerAs it pursues an ambitious goal of This approach has already providedadding 800 million new consumers critical market insights. Last year, P&G 75% of successfulbetween 2010 and 2015, Procter &Gamble (P&G) is actively targeting targeted the notoriously challenging male grooming market in India. Through globalizers said thatthe underserved—those it calls the“$2-a-day” consumers. In a significant field research, product developers discovered that previous international looking at the size ofshift in strategy, P&G is moving brands of men’s razors had failed potential customerbeyond its traditional focus on high- because of poor access to running waterend beauty and personal care to build in India’s rural communities. In response, purchasing power isnew markets at the “bottom of the the company launched an affordablepyramid,” seeking to reach consumer razor that uses less water. Within three critical for growth,segments across high-growth marketsthrough a deep understanding of months of launch, Gillette Guard became the best-selling razor in India and today compared with 42%their needs and preferences. represents more than half of the razors sold in the country. Building on its rural of disappointedRealizing that future opportunities liepredominantly in emerging economies, customer insights, P&G is developing globalizers. new cleansing and hair-care productsP&G has invested significant time, specifically designed to be effective inmoney and management attention to water-scarce conditions across China,aggressive expansion in these markets. India, Africa and Latin America.CEO Robert McDonald speaks of“shifting the center of gravity” of the Following the success of the Beijingcompany’s innovation away from top- Innovation Center, P&G plans toend products and toward innovation invest US$250 million in a newthat reaches underserved consumers. innovation center in Singapore as a “connect and develop” hub. The hubTo achieve this goal, P&G has established will meld insights from customersthe Beijing Innovation Center. While and local stakeholders to co-createthe company has 25 innovation centers appropriate products that help P&Gacross the world, the US$70 million ensure that it has the right productsinvestment in the Beijing center in the right place at the right time.provides a base for P&G researchers tocollect insights from across the world.These insights will drive cross-countrygroupings of consumers and productsdesigned to serve their specific needsand living conditions. The unit is focusedon discovering cross-country insights:product researchers frequently travelacross multiple countries and regions totest potential products in the field. 36

Segment to seek new customer groupingsSuccessful companies stand out throughtheir focus on segmentation techniques Identifying cross- France Telecom’s Orange brand is another example. As the firm analyzedthat create customer groupings thatare relevant both within and across country segments strategic segments across its African and Middle Eastern markets, ithigh-potential markets. According to Today’s tech-savvy young adults found that, regardless of nationality,our survey, 82 percent of successful in Mumbai have more in common consumers share a need for very low-globalizers believe that this is critical with their peers in New York than cost, easy-to-use telephone services. Infor growth, compared with 64 percent with youngsters in rural India. response, Orange launched innovativeof disappointed globalizers (see Figure Affluent consumers in Shanghai are services such as Bonus Zone, which16). Successful globalizers are also more more likely to buy the same luxury offers special prices when networklikely to devote adequate time, money products as high-income consumers traffic is low. For the illiterate, Orangeand attention to building this capability, in Paris. Alongside their geographic launched Voice SMS, a service for shortwith 78 percent saying they do so, strategies, companies should identify voice messages offered at the samecompared with only 45 percent segments that cut across national price as an SMS. Orange discoveredof disappointed globalizers. borders. Emerging-market strategies a specific consumer segment for this have traditionally focused on service that spans Botswana, Cameroon, tailoring products to specific local Côte d’Ivoire, Egypt and Madagascar.35Approaching needs. While understanding local tastes and preferences is essential,segmentation in companies should also find cross- Procter & Gamble (see “Procter & Gamble: Designing for the $2-a-daydistinctive ways country opportunities to enable greater operational scale. Restricting consumer,” page 36) has identified new market segments through similaritiesSuccessful companies use advanced segmentation to a country-byin living conditions. The company hastechniques to analyze demand. Seventy- country approach may hide lucrative focused on products that addressfive percent highlight the critical opportunities that could be uncovered consumer challenges in water-scarcerole of understanding the size of by a cross-country business case. areas: razors that require less rinsing,potential customer purchasing power, for example, or detergents that arecompared with only 42 percent of The world’s diaspora populations, for effective with minimal water. As waterdisappointed companies (see Figure 17). example, provide a vast pool of well- scarcity becomes an ever-greaterSuccessful companies are also more networked consumers with similar tastes global challenge, this segment maylikely to identify synergies through and preferences that companies can tap offer further opportunities to scalean understanding of similar business to develop cross-border segments. There the business around the world.environments before making country are more Chinese people living outsidegroupings—41 percent of successful China than there are French peopleglobalizers achieve this understanding, living in France.33 Dabur, the Indiannearly double the amount of consumer goods company, has adopteddisappointed companies (22 percent). an international growth strategy thatOn the contrary, successful globalizers leverages the expansive Indian diaspora.do not make strategic growth plans Dabur created a cross-country customerbased on easy and conventional segment that spans South Asia and thecriteria, such as targeting locations Middle East, based upon similaritieswith a common language. Disappointed in hair-care preferences: it launchedglobalizers are twice as likely to do so. Dabur Amla, a hair oil, in Bangladesh, Pakistan and the United Arab Emirates. Dabur plans to use its success among the Indian diaspora as a springboard for broader growth in new segments of global consumer markets.3437

Figure 16: Segmentation techniques that create customer groupings that are relevant within and across high-potentialmarkets (percentage of respondents)Successful 82%globalizers 78%Global 71%average 59% 12%Disappointed 64%globalizers 45% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth surveyFigure 17: Criteria used to group target high-growth markets when conducting strategic planning(percentage of respondents) 75%Potentialconsumer 54%purchasingpower 42% 41%Similarity ofbusiness/policy 35%environment 22% 18%Groupings usedby economicanalysts 9%(e.g. BRIC) 7% 17%Commonlanguage 28% 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Successful globalizers Global average Disappointed globalizersSource: Accenture Fast Forward to Growth survey 38

Compensate for data scarcityDespite the expansion of the digital Figure 18: Importance for growth: Sophisticated statistical and analyticaluniverse and its wealth of information, techniques to make up for scarce and unreliable datacompanies still rely on sparse or (percentage of respondents)weak data when conducting strategicplanning in high-growth emergingmarkets. The lack of centralizedstatistical agencies combined with Successful 70%local conditions can make it difficult globalizersor excessively expensive to collectdata. When it comes to estimatingand forecasting, the results will beonly as good as the underlying data. Global average 63%Successful companies recognize thevalue of insights and the challenge ofscarce, reliable data. Seventy percentof successful globalizers consider this Disappointed 43%critical for growth, compared with 43 globalizerspercent of disappointed globalizers (seeFigure 18). At the same time, successfulglobalizers use innovative means to 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%collect and mine data using analytics. Source: Accenture Fast Forward to Growth surveyFinding new roads tocustomers: Leveraging participants.37 Followers give their reactions to new products—such as Fueling growth throughtechnology Kuat, a drink based on the guarana proprietary data berry, a local favorite. FavorableSuccessful companies use technology consumer response has led to increased Successful companies do not justto address data shortages. In India, crop investment in anticipation of innovate in how to capture data but“e-Choupal” kiosks, set up by the growing demand.38 Consumers also also understand the premium value ofconglomerate ITC, give farmers access propose new juice flavors, such as the reliable data in high-growth markets.to crop prices, weather and other new cashew-flavored Minute Maid. Grupo Elektra, a Mexican retailer,information in local languages.36 This strong and loyal following has also leveraged existing data to build aMore than 4 million Indian farmers stimulated growth in other divisions of new business. The retailer collected aaccess these kiosks—a striking number the company. For example, the Coca- wealth of financial information aboutgiven the infrastructure constraints Cola clothing brand has become so its customers when it launched a creditof rural India. ITC uses advanced popular that Brazilians are willing to service for those without bank accounts.analytics and mobile technologies pay up to US$200 for a pair of jeans. Based on this new data, Grupo Elektrato track data from individual farms built one of the country’s largest branchand then offers farmers tailored Companies can combine the power of banking networks to complement itssupplies, such as fertilizer and seeds. technology with the insights of their popular retail chain.40 local partners by equipping them withThe proliferation of social media in simple, easy-to-use mobile devices.emerging markets offers another source Hindustan Unilever gives its ruralof insights into customer needs and distributors a user-friendly mobilepreferences. Coca-Cola’s social media application so they can transmitmarketing strategy in Latin America, stock level and pricing information.particularly in Brazil, generates a Unilever then uses the information toconstant stream of information on manage inventory and predict demand.consumer preferences. Coca-Cola Improved demand forecasting hashas nearly 22 million followers, and helped Hindustan Unilever to increaseBrazilians are among the most active rural store sales by nearly a third.3939

Anticipate emerging competitorsAccurately measuring fast-evolving between emerging economies, such as Likewise, some competitors arewindows of opportunity requires an trade and investment agreements, are structured around their presenceassessment of current demand, future also reshaping the business landscape. in multiple industries. The growthdemand and the component within For example, Mexico and some model of Indian conglomerates, sucheach of these that is accessible. An South American countries—Uruguay, as the Tata Group or the Aditya Birlaaccurate analysis of the accessible Paraguay and Peru—want to establish Group, is based on expansion into newdemand cannot be carried out without mutually beneficial trade pacts with industries—their success in one marketunderstanding the dynamics of both India, particularly around information can be a buffer for cycles in otherdemand and competition. technology.42 Keeping track of future industries, or provide a steppingstone competition can boost strategic to entering new markets.Successful companies emphasize planning efforts and reveal new optionscompetitor analysis techniques to for partnerships or acquisitions.anticipate and evaluate emerging Preparing for yourcompetitive threats, both from adjacentindustries and from new geographic Looking beyond your next victorylocations. Eighty-one percent ofbusiness executives from successful industry’s traditional Companies cannot expect their competitive advantage to last as longcompanies agreed that this capabilityis critical to their company’s success in boundaries as they may have been accustomed to. In fact, research shows that thehigh-growth markets (see Figure 19). Successful companies keep an eye on average lifespan of a Standard & emerging competitors from adjacent Poor’s 500 company is shortening.46 industries, or industries further afield.Locating the As technology and business model To remain relevant, companies must move beyond anticipating the influxfuture hotspots of innovation continue to blur the boundaries between industries, a keen of new competitors. They must continually plan their next venturecompetition knowledge of competitive threats from multiple sources is crucial. The decline and build capabilities for its success. Enterprises must have a foot in theAt the macro level, mapping the volume of DVD rental stores, bookshops and opportunities of today and tomorrow.and shape of trade and investment flows music retailers is a cautionary tale of Apple is an example of a companycan help to locate future hotspots of companies that failed to identify and using product innovation to stay aheadcompetition. Companies can also look adapt to this shift. Companies that are of competitors. While redesigningfor opportunities and challenges that alert to such trends have a sharper lens new versions of its iPhone, Apple wasemerge from government strategies, to spot new competitors and business developing its iPad tablet. It beatsuch as “going out” initiatives (where options. Nestlé, for example, used its competitors to the market and forcedgovernments encourage local companies broad, loyal customer base to enter them to scramble to offer alternatives.to invest abroad), nurturing of national the pharmaceuticals sector. In 2010 itchampions or strategic plans to created a health science business tobuild advantage in specific sectors. develop products that tackle obesityFor example, Malaysia’s Economic and chronic ailments such as heartTransformation Programme, launched disease.43 Similarly, Google is no longerin October 2010, is the country’s just a search engine. For example, theroadmap toward its aim of becoming company operates in the smartphonea high-income country. The roadmap market, through its stake in the Androidincludes a target of 6 percent annual software and its plans to acquiregrowth and a focus on 12 strategic Motorola Mobility,44 and also in thesectors, including tourism, financial renewable energy market, through itsservices, palm oil and electronics.41 investments in wind energy projects.45New economic cooperation plans41

On tomorrow’s agenda• Conduct cross-country forecastsof product and service consumptionacross time horizons, beyond nationaland regional borders, and use these toevaluate trade-offs and guide decisionsabout when, where and how to enterhigh-growth markets.• Experiment with different customersegmentation variables to discover newgeographic and customer groupingoptions.• Use information and communicationstechnology, such as mobile phonesand social media, to collect reliableand relevant data to improve demandforecasting.• Assess the value of existing proprietarydata and seek potential to leverage it forfurther growth opportunities.• Choose local partners, whetherthrough joint ventures, alliances orother arrangements, to build a deepunderstanding of local market dynamics,needs and preferences.• Enhance competitor analysis techniquesto anticipate emerging competitors acrossmultiple time horizons, geographies andadjacent industries.Figure 19: Anticipating and evaluating new competitors from other industries and markets (percentage of respondents)Successful 81%globalizers 70%Global 79%average 60% 12%Disappointed 74%globalizers 58% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth survey 42

Shaping the future:Seeding tomorrow’s growthWhile some companies may feel they Our analysis, in collaboration withare too late to secure their position Oxford Economics, demonstratesin high-growth markets, our research the impact, in real consumptionshows that successful globalizers do opportunities, that can be achievednot simply accept that windows of when businesses invest in generatingopportunity are shrinking. Instead, they future demand. For example, ouropen new windows of opportunity by analysis examines how demand canshaping and seeding future demand. be measurably increased through improvements in infrastructure,Most businesses today accept the education and health care.need to engage with local stakeholdersin order to gain a licence to operate The analysis presented in “Shape yourand increase their penetration and consumption curve: Building digitalmarket share. Many companies have pathways” (see page 49) details howgone further, appreciating the need businesses can increase and bringto collaborate with governments forward demand by engaging in policyand other actors, and to invest in development and infrastructure building.the communities in which they The scenarios outlined in “Shiftingoperate, in order to drive economic consumption curves: The value ofdevelopment and higher incomes. disruptive innovation” (see page 51) illustrate the potential rewards forBut our research finds that successful companies with a deep commitmentglobalizers go further still: they to consumer-focused innovation.are not content to simply push for Companies should not underestimateincreased sales that will come about the potential to influence consumeras incomes rise. They aspire to “shift trends and shape their next opportunity.their consumption curve,” ratherthan just move along it. They are not Successful globalizers place significantlyjust looking to scramble for market greater emphasis on specific capabilitiesshare; rather, they want to increase that seed future growth. They investthe overall size of the market, as well in relationships with local stakeholdersas their share of it. And critically, and design flexible business modelsthey understand the strategies and that can adapt to local circumstances.capabilities required to extend the They share and scale successfulfrontiers of opportunity in this way. innovations that can uncover and generate new demand. Finally, they create strategies and processes that encourage sustainable growth.43

M-PESA: Creating new marketsthrough innovationThe sudden explosion of M-PESA in The success of M-PESA illustratesKenya shows how companies can how companies can create and graspactively shape future opportunities opportunities to build an entirely newthrough innovation that targets the market so quickly that competitorsfulfillment of unmet needs. Vodafone’s barely have a chance to catch up.M-PESA platform, which now generates Vodafone and Safaricom laid the16 percent of local partner Safaricom’s foundations for success by taking anrevenue, was launched in March 2007 innovative approach to the nascentto provide a system of electronic peer- market for financial services, designingto-peer payment for consumers in a product from the bottom up toKenya. In a country where 40 percent meet specific local needs, quicklyof the people had no access to financial establishing market incumbencyservices, but a similar share owned a and rapidly rolling out M-PESAmobile phone, M-PESA offered a new across the country. In the Kenyanplatform to meet the needs of those market, the incumbency advantageswithout bank accounts.47 enjoyed by M-PESA have created a challenging environment for would-The platform addresses a particular be competitors: only one in five ofneed in Kenyan society, to send money alternative branchless banking servicesto family at home: 17 percent of Kenyan have passed the one million user mark,households depend on remittances compared with M-PESA’s 14 million.51from relatives working away from homeas their primary source of income.48 M-PESA’s success is not limited to itsM-PESA aims to reduce the high cost initial products. The partnership hasof sending money across the country extended its initial product offeringand to remove the risks of doing so. The to launch M-KESHO accounts, whichsolution is a simple-to-use mobile phone offer micro-savings, micro-credit andapplication, supported by a network of micro-insurance to M-PESA customers.branded retail outlets across Kenya that And success is not limited to Kenya:tap into the strong consumer trust in Vodafone is combining its Kenyanthe Safaricom brand. experience with its global reach to enter into new ventures in Tanzania,By serving the unmet needs of South Africa and Afghanistan, and theKenyan consumers, M-PESA has company has identified India as the nextgrown quickly, achieving 14 million big opportunity for growth.registered customers within fouryears. This corresponds to 81 percentof Safaricom’s customer base, two-thirds of Kenyan adults, and 35percent of the entire population.49M-PESA has achieved US$320 millionper month in person‐to‐persontransfers, equal to approximately10 percent of Kenyan GDP.50 44

Engaging with local stakeholdersIt is easy to underestimate the is a key weapon in the arsenal against consumers, from door-to-door salesimportance of local relationships in competitors—and perhaps the greatest to urban “high-street” settings. Inhigh-growth markets. Relationships challenge of all in high-growth markets. 2010, L’Oréal’s sales in Brazil rose 20with governments, regulators and percent,53 to €740 million,54 and thelocal communities play a crucial role Cosmetics giant L’Oréal has made company expects to add 50 million newin obtaining a license to operate. expansion in Brazil a top priority, customers there over the next decade.55Opportunities may go to companies aiming to double sales by 2015.52that can effectively negotiate with In the Brazilian cosmetics market, Successful companies in high-growthgovernments and local authorities, the third largest in the world, the markets understand the importanceoften benefiting local incumbents. dominant domestic incumbent Natura of forging relationships and engagingGovernments and policymakers can Cosméticos has built unmatched local stakeholders. Ninety percent ofkeep the windows of opportunity open market reach with a strategy of successful globalizers view relationshipsby easing the policy environment or direct sales through a network of with local stakeholders as critical forproviding access to scarce resources. over one million sales consultants. To success, far in excess of the 69 percent challenge Natura’s dominance, L’Oréal among companies disappointed by theirSimilarly, establishing strong is adopting a differentiated strategy. performance in emerging markets. Thisrelationships with suppliers, It is establishing partnerships with belief is reflected in practice: 79 percentdistributors and consumers can open retailers, such as Lojas Americanas, of successful globalizers report thatup opportunities in unfamiliar but to forge new consumer relationships they devote sufficient time, money andlucrative segments and geographies. For through high-end displays and personal management attention to stakeholderconsumer goods companies, building beauty advisers. By establishing strong relationships. Only 54 percent of thosenetworks for the efficient distribution relationships with high-street retailers, with disappointing performance reportof products in new markets is critical L’Oréal will be in prime position to the same commitment (see Figure 20).to success. Forging a strong identity take advantage of the shifts in buyingand brand relationship with consumers behaviors they expect from BrazilianFigure 20: Management of relationships with local stakeholders (percentage of respondents)Successful 90%globalizers 79%Global 81%average 66% 69%Disappointedglobalizers 54% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth survey45

Companies are already seeing thebenefits of this strategic focus andinvestment: 83 percent of successfulglobalizers believe that they havealready established strong relationshipswith local stakeholders (see Figure 21).83% of successfulglobalizers believethey have establishedstrong relationshipswith local stakeholders,compared with 47%of disappointedglobalizers.Figure 21: “My company has established strong relationships with localstakeholders” (percentage of respondents)Successful 83%globalizersGlobal average 61%Disappointed 47%globalizers 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Source: Accenture Fast Forward to Growth survey 46

Uncovering latent demandSearching for latent demand also Successful companies understand the The means to discover latent demandopens windows of opportunity: that is, importance of innovation in reaching need not reside in-house. BP Energyuncovering sections of the population untapped consumers: nearly two-thirds India (now First Energy) bought patentedthat have previously been excluded from believe in the importance of new sales technology from the Indian Instituteaccess to consumer products or services. and marketing techniques to reach of Science (IISc) that uses fuel pellets underserved consumers (see Figure 22). made from agri-waste to run smokelessSuccessful companies build strategies to Banco Bradesco, operator of Brazil’s stoves: it has now successfully soldmeet the needs of potential consumers largest retail banking network, found an its “Oorja” stoves to nearly a quarterunderserved by traditional products and innovative solution to meet the banking of a million homeowners and hopesbusiness models. Providing innovative needs of rural consumers. In 2009, to bring this energy-efficient solutionsolutions for unmet needs, such as those pursuing a goal of “banking inclusion” to 3.6 billion potential customers.60in rural areas, can spur new demand in a country with more than 50 millionand uncover powerful engines for wider “unbanked” consumers, Bradescoeconomic growth. In India, for example, opened the country’s first floating bankrural incomes have been growing at branch on the Amazon River network.more than 7 percent annually over the Targeting 250,000 people along thepast few years. The income growth banks of the river, who are used toaccounts for almost 40 percent of traveling more than twelve hours toIndia’s total consumption of goods and collect salaries, pensions and their Bolsaservices.56 More than 50 percent of new Família grant, the floating branch hassubscribers for some leading telecoms uncovered pockets of demand previouslyproviders are rural customers, and the unserved by traditional banking.59share of rural subscribers in the Indianmarket has hit 34 percent, up from lessthan 5 percent just five years ago.57In Peru, soft-drinks manufacturerAJE took on multinational players bytargeting its Kola Real soda at lowerincome brackets. AJE has replicated itssuccess in other emerging economies.The manufacturer’s success is groundedin a business model that targets latent Figure 22: Importance for growth: New sales channels to reach previouslydemand. First, the low-cost business excluded customer groups (percentage of respondents)model allows the company to offer itsproducts at lower prices. That makesits drinks affordable to the majority ofthe population. Second, an innovative Successful 63%distribution system, involving micro- globalizersentrepreneurs using their own transport,allows it to reach untapped consumersin remote areas. In 2006, AJE set upin Asia. It now boasts annual sales of Global average 50%US$1.5 billion across 16 countries. Ourhousehold income analysis shows thatsignificant growth in household incomeis expected in many of the countries in Disappointed 47%which Kola Real operates, such as India, globalizersIndonesia and Brazil. India alone is oncourse to gain 21 million householdsearning up to US$30,000 per year 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%by 2020, equivalent to additional Source: Accenture Fast Forward to Growth surveyhousehold income of US$1.1 trillion.5847

Seeding future demandMany of the multinationals that have Companies with an effective presenceachieved success in high-growth markets in high-growth markets are also On tomorrow’s agendaover recent decades were quick to realize investing in the health and educationthe important connection between of local communities. Doing so builds • Identify and map key stakeholders,business success and socioeconomic the demand and consumer base of the local and global, and build trusteddevelopment. An “enlightened self- future. GSK, one of the world’s leading relationships.interest” drove many companies to providers of medicines and health • Assess the strength of relationshipsinvest in these markets and develop a care products, founded its strategy with government agencies, industryproactive stance toward collaborating in emerging economies on its Access regulators and local communities.with stakeholders for mutual advantage. to Medicine program. The program is • Innovate to fulfill unmet needs, and designed to increase the company’sSuccessful companies engage with involve local consumers in innovation positive societal impact while deliveringnational and local governments to and design. business benefits. GSK has reducedshape the conditions needed for their the price of its patented medicines • Evaluate local and global leadership’sbusinesses to prosper. In May 2010, in the world’s poorest countries. The understanding of social and economicfor example, the Brazilian government price reductions build new markets factors that influence demand, andlaunched the US$8.5 billion National while increasing access to previously promote the social and economicBroadband Plan (PNBL). The plan unattainable medicines and safeguarding development of local communities.aims to provide Internet coverage to the future health of local communities.11.9 million households by the end of2014. State-owned Telecomunicações Significant benefits can be attainedBrasileiras (Telebrás) holds overall through initiatives that uncover and seedresponsibility for the plan. Four future demand. These are highlightedadditional companies, Telcos Claro, TIM, in “Shape your consumption curve:Sky and GVT, have agreed to invest Building digital pathways”, page 49, andand offer Internet packages under “Shifting consumption curves: The valuethe plan. This commitment to capital of disruptive innovation,” page 51.investment to boost the telecomsinfrastructure exemplifies the willingnessof companies to invest upfront insupport of government initiatives,in the expectation of significantlong-term returns.61 Our analysis Figure 23: Importance for growth: Strategy and process design that ensuresin “Shape your consumption curve: environmentally and socially sustainable growth (percentage of respondents)Building digital pathways” (see page49) makes clear the disproportionateconsumption benefits that theseinfrastructure investments can achieve. Successful 82% globalizersWhile investment in “hard” infrastructuremay help companies open new windowsof opportunity, successful players realizethat deeper engagement is necessary Global average 69%to keep them open. Eighty-two percentof successful globalizers stated that“strategy and process design that ensuresenvironmentally and socially sustainable Disappointed 68%growth” will be critical to success in globalizershigh-growth markets, compared with68 percent of those disappointed intheir performance (see Figure 23). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Accenture Fast Forward to Growth survey 48

Shape your consumptioncurve: Building digitalpathwaysAs part of our research with Oxford Figure 24: Chile’s broadband consumption curve, 2020Economics, we conducted scenario-based sensitivity analysis to understand 70the impact of business and policy 60 Potential curvechanges on market penetration. The Broadband subscribers per 100 people Average householdscenario presented in Figure 24 shows income in 2020the potential impact in Chile of policies 50designed to increase broadbandcoverage and Internet accessibility. 40 Baseline curveIn our baseline scenario, we assume 30that rising household incomes increase 19broadband demand from eight 20subscribers per 100 people in 2008 to15 per 100 in 2020. Effective policy 10 15interventions can boost this evenfurther. In many ways Chile’s digital 0economy is ahead of its peers. It has 5,000 25,000 45,000 65,000 85,000 105,000a focus on government e-services andhigh social media penetration—but Average household income (2008 US$)significant limitations still exist. Forinstance, the government’s broadband Source: Oxford Economics, Accenturereview found that 20 percent of NB: The potential curve diverges from the baseline at higher average income levels because the modelChilean households, particularly in assumes that higher average incomes translate into increased computer ownership and thereforerural areas, are not covered by any increased demand for broadband.fixed broadband network.62 We thenposed the question: what wouldhappen if broadband coverage werebrought to all Chilean households?49

Figure 25: Fixed-line broadband consumption curve, 2008 45 40 SwedenBroadband subscribers per 100 people 35 South Korea 30 25 20 15 10 Chile 5 0 0 20,000 40,000 60,000 80,000 100,000 120,000 Average household income (2008 US$)Source: Oxford Economics, World Bank WDI, AccentureOur results suggest that improving the business landscape. A significant Sweden’s success in deploying a fastaccess to the Internet could number of small businesses would and wide network was supported by taxboost broadband subscriber rates gain access to new technologies, breaks for infrastructure investmentsby around 25 percent, from 15 such as cloud computing— this would and directly subsidized rural deploymentper 100 people to nearly 19 (see provide a boost to innovation and to the tune of US$800 million.65 TheFigure 24). This is equivalent to an entrepreneurship. It would also open up country’s new broadband strategy—withadditional 650,000 subscribers. new channels to customers, including a target of 90 percent coverage at 100 overseas markets. Mbps average speed by 2020—reflectsIn practical terms, this change could the collaborative nature of the plan: abe brought about through public and South Korea has developed one of the joint challenge with different roles forprivate collaborative investment that world’s most advanced broadband different players.66enables more households to connect to networks through the government’sthe Internet. Recognizing the massive long-term commitment to and Figure 25 illustrates how progressivepotential that Internet access holds for collaboration with the private sector. broadband policies in both Sweden andthe economy, the Chilean government South Korea’s Information Infrastructure South Korea have allowed subscriptionrecently commissioned a strategic (KII) Plan was initiated in 1994 and rates to shift measurably away fromreview of broadband policy. The goal designed to connect 84 percent of the global curve, effectively boostingis to identify potential measures that households to broadband services with consumption. Businesses acrosseliminate the country’s coverage speeds of up to 1 Mbps by 2005. The industries have been able to benefitdifferentials and strengthen broadband plan combined government support and from these initiatives.takeup.63 Companies in Chile have private-sector investment. Specifically,the opportunity to work with local the “KII-Private” phase of building the Proactive engagement in policygovernments and other businesses to network for households and business development and infrastructure buildingshape the institutions, infrastructure included private-sector investment can have a very real impact on businessand standards that will govern future of US$14.5 billion. That investment opportunities by increasing and bringingindustry dynamics. was supplemented by US$1.76 billion forward demand. of government loans between 2000The benefits of collaborative investment and 2005.64 The near-ubiquity ofextend far beyond the creation of a new internet access has enabled Southcustomer base for service providers. Korea to become a world leader inImproved internet access can transform market sectors such as online games. 50

Shifting consumptioncurves: The value ofdisruptive innovationRenault, the French automotive As part of our sectoral consumption impact of any price change can becompany, used its acquisition of analysis, in collaboration with Oxford broken down into two elements: theRomanian car manufacturer Dacia Economics, we examined the potential “substitution effect” and the “incometo produce the Logan, a five-seater impact of disruptive innovation on effect.” The substitution effect occurssedan. The Logan was introduced in the automotive sector. We selected when a price drop makes cars moreRomania in 2004. Prices started at India’s passenger car sector as an affordable and consumers can tradeUS$6,500, approximately 40 percent example. It is a market about to take up from their current transport mode.lower than rival sedans.67 The car was a off and promises significant rewards. This means that the consumption curvesuccess in Romania and other emerging would shift to the left, so that there iseconomies and now accounts for one In the baseline case, as household higher demand at every income levelin five of Renault’s global sales.68 Tata incomes in India rise, the ratio of (move from A to B in Figure 26). ButMotors launched its no-frills small car, passenger cars to people is expected to the dramatic price drop also increasesthe Tata Nano, in 2008. It retails for rise to 28 per 1,000 by 2020, compared the purchasing power that householdsUS$2,500,69 70 percent lower than the with 10 cars per 1,000 people in 2008. can dedicate to buying a car—it hasaverage car price in India in 2008.70 This growth would translate into 3 a similar effect to that of an increase million cars sold per annum in the period in income. This is the income effectThese cars are not stripped-down to 2020. We then posed the question: and is demonstrated in Figure 26 asversions of the models sold in developed what would happen if price innovation a move along the consumption curveeconomies. In fact, the innovations reduced average retail prices across (move from B to C). Of course, thisextend beyond the actual product, the Indian car market? (see Figure 26). isn’t a stage-by-stage process. Theincluding a full-scale process redesign breakdown presented depicts thefrom materials sourcing to marketing. In our alternative scenario, innovation potential shifts as the market movesFor example, the locally sourced, drives down prices significantly to a new equilibrium. The combinedlow-cost steel that Renault uses for and current industry dynamics are impact of these two effects could be athe Logan is more difficult to shape transformed. Households lower in 25 percent increase in car sales over andthan the steel used for high-end the income spectrum would be able above the baseline—equivalent to ancars. To work with this steel, the car’s to afford new cars. Consumption additional 750,000 cars per annum (thisdesign had to be simple enough to patterns would change as households is toward the upper end of the rangebe manufactured by humans instead re-prioritize their demand between of car sales’ responsiveness to price:of robots. Working with human labor goods and services. To illustrate, take see Methodology, page 67, for furtherallowed Renault to take advantage a scenario in which car prices in India details on the modeling assumptionsof Romania’s low labor costs.71 drop by 50 percent. Typically, the used to generate this estimate).51

Figure 26: India passenger cars consumption curve: Disruptive innovation scenario 45 A 50% price reduction 40 could potentiallyPassenger Cars per 1,000 people 35 C translate into 25% 2020 Curve - 50% reduction in real price B higher car sales. 2020 Curve - 30 constant car price A 25 20 7,500 8,000 8,500 9,000 9,500 10,000 10,500 11,000 Average household income (2008 US$)Source: Oxford Economics, AccentureInvestment in disruptive innovation is Lessons from the small-car segmenta big commitment. But the rewards extend beyond emerging economies,are tantalizing. Some automotive and so will the benefits. Manyplayers have already started to open consumers in markets that havethis window of opportunity. The traditionally favored larger cars, suchRenault-Nissan alliance is launching as the United States, are downsizinga low-cost car project in India, led to cheaper cars that combine fuelby Gérard Detourbet, the head of economy with the features ofthe global Logan program.72 South larger cars. Ford’s small cars, theKorea’s Hyundai Motor Company Fiesta and Fusion, set sales recordsis investing in India, including a in 2011.74 Companies in matureresearch and development center, markets also have an incentive toto make India its global hub of support the sale of low-cost, smalllow-cost, small-car production.73 cars that meet new fuel-efficiency standards. For example, in the UnitedTapping into India’s demand is more States, automotive companies havecomplicated than it might appear. committed to doubling the averageFinding the right mix of price and fuel economy of their fleets by 2025.75product features that would induceIndian consumers to trade uprequires technological investmentand a deep understanding oflocal needs. Success also relies onbuilding a robust business case thatincorporates the additional costs ofresearch and product developmentinto a low-margin, high-volumesales plan. This is a high-risk, high-reward opportunity. But for somecompanies, the risk of missing theopportunity altogether may be higher. 52

Seizing the future:Operating at speedand scaleSuccessful companies infuse their Innovation plays an important roleorganizations with the strategic, in this. Our analysis shows how the 83% of successfuloperational and cultural agility tograsp new opportunities. In order power of disruptive innovation can transform industry dynamics, improving globalizers believeto achieve this, they prioritize andinvest in distinctive capabilities the accessibility of consumer products and creating new markets. In the they can keep up withthat boost operational agility and automotive sector, for example, process the pace of change inflexibility. These capabilities are not redesign and low-cost materialsjust instrumental in helping companies have dramatically broadened the high-growth markets,to grasp the opportunities of today, accessibility of passenger cars to newbut will play a fundamental role in consumers. New pockets of demand compared with 47%shaping the markets of tomorrow. have opened up for those companies with the agility and efficiency to of disappointedFor many companies, a focus onefficiency and profitability may have design low-price business models. globalizers.been secondary to the desire to grow Successful globalizers are pushing thequickly and establish a foothold boundaries of what is possible: theyin high-growth markets. But the understand that business performancecompetitive pressures of tomorrow’s and the bottom line will only becomemarkets will demand renewed attention more important in geographicon efficiency. Agility and flexibility growth plans. They understand thatwill be essential to enable companies operating at speed and scale will playto serve new consumers faster and an ever greater role in determiningmore effectively than their rivals. the winners and losers of the next phase of global competition.Our research demonstrates thatsuccessful globalizers prioritizespecific capabilities that boostoperational agility and flexibility.This in turn allows them to adaptand reorient to the opportunities oftoday and tomorrow. The results ofthis commitment are clear: 83 percentof successful globalizers believe thattheir company is able to keep pacewith change in high-growth markets,a figure significantly ahead of theglobal average of 62 percent. 54

Starbucks: Flexibility, the recipefor successWith nearly 500 stores across mainland At the same time, Starbucks addedChina, Starbucks has undergone strong direct responsibility for China to thegrowth in China over the past five portfolio of Asia Pacific President Johnyears. Starbucks now regards China Culver, bringing executive responsibilityas its “second home market” and for the market into the top managementplans to triple the number of stores team. Culver’s remit includes growingthere by 2015.76 But the company’s and developing Starbucks operationssuccess has not been simple: it had in Indonesia, Japan, Malaysia, Newto be flexible enough to incorporate Zealand, the Philippines and Southa range of ownership models, from Korea. Starbucks continues to explorejoint ventures to wholly-owned new high-growth markets throughoperations, and develop them over joint ventures and licensing models.time. Starbucks understands the The flexibility of its approach, drivenimportance of agility in order to take largely by the maturity of the company’sadvantage of new opportunities. presence in each market, is central to achieving the agility that Starbucks hasJoint ventures with local operators such displayed. The operational changes thatas Hong Kong-based Maxim’s powered Starbucks has been able to make are athe coffee giant’s initial venture into testament to its culture and ability toChina. With Starbucks’ need to gain navigate complexity and change.local market experience and build thenecessary networks, these partnerships Starbucks may have only scratchedprovided access to new consumers the surface of the coffee opportunityand allowed Starbucks to “dip a toe in in China: single-store sales in Chinesethe water” of the potentially lucrative outlets are on average 40 percentChinese market. less than in the United States, and the average consumer purchasesThe company’s confidence in China has just five cups of coffee per year,grown with its success, and Starbucks compared with 400 in North America.is deepening its roots in the market. It As tastes change—driven in part byhas partnered with Ai Ni Group, one the company’s own efforts—China isof China’s most established coffee poised to become the world’s second-operators and agricultural companies, biggest coffee market. Starbucks isto open a coffee farm and processing well positioned to take advantagefacilities in the southwestern province of of this new wave of growth.79Yunnan. Expansion plans target ten newChinese cities each year to reach a totalof 1,500 stores in 90 cities by 2015.77Restructured operations and themove from a partnership model to awholly-owned venture reflects theimportance of China in the company’sgrowth plans. In June 2011, Starbuckstook full ownership of the stores itran in partnership with Maxim’s. Thisagreement gave Starbucks 250 wholly-owned stores in the provinces ofGuangdong, Hainan, Sichuan, Shaanxiand Hubei and afforded the companygreater control of its brand, outlets andproduct offering.78 56

Designing agile and flexible operationsThe rapid evolution of markets demands Attitudes toward the movement ofspeed in identifying and responding ideas around the organization areto opportunities. Entering a new particularly illuminating. Innovationmarket, designing a new product will become increasingly important.or making an acquisition requires Players in higher-end markets willorganizational agility and flexibility face heightened pressures to innovateto move ideas, people and capital as firms from emerging economiesaround the organization as required. continue their move up the value chain. Players at the lower end willOur survey highlights some significant face continued pressure as competitorsdifferences between successful find innovative ways to develop theglobalizers and other companies. same offerings at a lower cost: thinkAlthough companies across the Tata’s Nano car, Asus’ notebookboard consider the rapid mobilization computers or the new generationof people to be critical for success of lower-cost pharmaceuticals (seein high-growth markets, behavior “Indian pharmaceuticals: Turningdiffers substantially when it comes agility to advantage,” page 60).to committing sufficient time, moneyand attention (see Figure 27). Successful globalizers place great importance on generating new ideasThe ability to mobilize people is and innovations. Seventy percent useparticularly important for large incentives to encourage local innovationdomestic players expanding onto the and experimentation among employeesinternational stage. In seeking to extend in potential high-demand locations, andits footprint beyond India’s borders, 76 percent underline the importanceTata Communications designed a wholly of structures and incentives thatnew operating model to incorporate generate and capture demand. Oncelocal leadership expertise into its global new ideas and innovations are created,operations. By establishing corporate successful globalizers also focus onoffices in Singapore, Sri Lanka, the sharing and scaling successful ideasUnited States and the UK, the company across the organization (see Figure 30).has extended the reach of its corporatecenter. By instituting a rotation model, Investment in innovation can lead toemployees can be redeployed according significant demand and consumptionto business need, while simultaneously gains, as illustrated in “Shiftingbuilding their cross-cultural skills.80 consumption curves: The value of disruptive innovation,” page 51.Successful globalizers also place greateremphasis than other companies on theease of redeploying capital around theworld. They are more confident thatthey pay sufficient attention to thiscapability (see Figure 28). Successfulglobalizers are also far more likely tofeel that they have sufficient accessto investment capital (see Figure 29).57

Figure 27: Rapid mobilization of people around the global organization (percentage of respondents)Successful 78%globalizers 73%Global 73%average 57% 75%Disappointedglobalizers 43% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth surveyFigure 28: Rapid mobilization of capital to different parts of the world (percentage of respondents)Successful 72%globalizers 71%Global 62%average 56% 56%Disappointedglobalizers 43% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth survey 58

Figure 29: “My company has sufficient access to investment capital”(percentage of respondents)Successful 77%globalizersGlobal average 55%Disappointed 36%globalizers 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Source: Accenture Fast Forward to Growth surveyFigure 30: Structures and processes to share and scale successful innovations across high-potential markets(percentage of respondents)Successful 82%globalizers 72%Global 75%average 59% 64%Disappointedglobalizers 49% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth survey59

Indian pharmaceuticals:Turning agility to advantageThe rising global presence of Indian recently launched a joint venture withpharmaceutical companies in recent Cadila, one of India’s largest privatelyyears demonstrates the importance of held pharmaceutical companies. Butorganizational agility and flexibility, these ventures are also designed toas companies build on their domestic establish a new base for expansion intosuccess by sharing and scaling other emerging markets. In 2009, GSK,innovation across new markets. the world’s third-largest pharmaceutical company, signed an agreement withGrowth in India’s pharmaceutical sector India’s Dr. Reddy’s to develop andhas been strong in recent years, driven by market selected products acrossrising domestic consumption and strong emerging markets.export demand. The pharmaceuticalsindustry has traditionally been dominated Building on the strength of theirby companies in developed markets. domestic position and the advantagesBut deregulation and new production of joint ventures with multinationalprocesses have allowed new players to players, Indian companies are expectedgain leadership in the generics market. to grow exports nearly 20 percent this fiscal year, to US$12 billion. TheyIndia’s leading pharmaceutical will supply nearly 50 percent of theplayers have taken advantage of the world’s bulk drug requirement. Theopportunities presented by deregulation United States remains the largestand patent expiration through export destination, followed by the UK,innovative approaches to process Germany, South Africa and Russia. Indesign. Traditionally, pharmaceutical coming years, however, Indian firmsindustry R&D has been a slow anticipate significant growth in exportsprocess, but in India the adoption of to emerging economies. A recent studyreverse pharmacology has provided forecasts that by 2020, seven emergingproduction efficiency gains and helped markets—Brazil, China, India, Indonesia,manufacturers to test generic drugs more Mexico, Russia and Turkey—willquickly and increase the speed to market. account for one-fifth of international pharmaceutical sales.83The ability to bring relevant productsquickly to market at low price points As new markets develop in emerginghas been instrumental for domestic economies, Indian players andplayers in shaping the Indian market their joint-venture partners mayon their terms. Organizational agility, hold an advantage. They can applycombined with a focus on lean, low-cost their domestic experience to newmanufacturing operations, has enabled geographies and innovate at homedomestic players to secure the largest before scaling across global markets.share of the Indian market: while 15 Success in these markets will play aof the world’s top 20 pharmaceutical critical role in determining the futurecompanies have an active presence growth prospects of even the largestin India,81 domestic players supply companies. Pfizer estimates that90 percent of bulk drugs in the 75 percent of pharmaceutical salescountry.82 Domestic companies are also growth over the next five years willrapidly expanding sales in advanced come from emerging markets.84 Informulations and specialty medicines. seizing these opportunities, operational agility and flexibility will be critical.In response, foreign multinationals areaggressively pursuing joint ventureswith Indian players. These ventures aredesigned to gain access to the Indianmarket. Bayer HealthCare, for example, 60

Building leadership teams for tomorrow’s realityNinety-one percent of successful Figure 31: “My company’s top leadership is committed to market entry andglobalizers report that their leadership expansion” (percentage of respondents)team is fully committed to entry andexpansion in high-growth markets,compared with just 60 percent amongthose companies disappointed by their Successful 91% globalizersperformance (see Figure 31).Commitment from the top is a hallmarkof success. But senior-level commitmenttells only part of the story. Successful Global average 72%globalizers’ leadership teams areconfigured differently and work indifferent ways. These teams are alsomore likely to invest the resources Disappointed 60%and devote the attention required to globalizersensure that the team compositionreflects a diversity of perspectivesand experience (see Figure 32). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%The efforts of successful companies Source: Accenture Fast Forward to Growth surveyto broaden the backgrounds andgeographic distribution of their teamsexemplify the importance of diversity.HSBC announced in 2009 that the office through a deep understanding of cross-functional committees on issuesof the CEO would move from London Chinese tastes and preferences. Today, such as leadership development andto Hong Kong;85 and in 2011, Unilever Yum! Brands, KFC’s parent company, product innovation. These committeesappointed Bharti Airtel Chairman cites the focus on local leadership connect business units and moveSunil Mittal to its global board as a as a key element in the success of beyond siloed lines of command towardnon-executive director.86 Looking to a business that generated US$4.1 a model that puts the right people inthe demands of tomorrow, leading billion in revenue in China in 2011.88 the room with the right informationcompanies have adopted structured to make decisions. Whatever modelapproaches to ensure that their Successful companies also recognize is used, it must provide the flexibilityfuture leadership has the appropriate that operating across diverse and to adapt to and keep an eye on thediversity of experience. Nestlé, for fast-growing markets demands a future shape of the organization.example, is relaunching its International variety of decision-making styles.Development Program in Marketing and They acknowledge this more readilySales. The 36-month program aims to than other companies. They are alsogive future leaders an introduction to far more likely to invest in buildingthe company’s headquarters and their leadership teams that can easilyproduct category prior to a 30-month reconfigure their composition to meetassignment to a foreign market.87 complex demands (see Figure 33).Global companies see the benefits of Some leaders have chosen adeveloping local leadership in new “networked” approach rather thanmarkets. When PepsiCo stepped up its one that is “process-driven.” In orderefforts to establish the KFC brand in to address high-priority concerns, forChina, for example, it recruited local example, international hotel chain Fourmanagers who could build the company Seasons has established new global61

Figure 32: Leadership teams that possess a diversity of perspectives and experience (percentage of respondents)Successful 91%globalizers 82%Global 88%average 69% 89%Disappointedglobalizers 72% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth surveyFigure 33: Leadership teams that easily reconfigure their composition and decision-making style to meet growth-marketneeds (percentage of respondents)Successful 89%globalizers 81%Global 77%average 59% 73%Disappointedglobalizers 43% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth survey 62

Embedding a culture to manage complexityand changeSuccessful companies, in any market, difficulties in transforming the wayare committed to building the skills a company thinks, feels and works. On tomorrow’s agendaand capabilities required for success Samsung has been drawing select • Explore partnership and acquisitionand shaping the corporate culture to Western business practices into its options to boost reach, capability andsupport them. Today’s fast-evolving traditional South Korean corporate speed, and continually reassess andbusiness environment demands a culture culture. For example, it launched evolve ownership and governancethat is comfortable with uncertainty, meritocratic promotion and pay into a structures as circumstances change.complexity and change. Across the board, culture based on seniority and reverenceour survey respondents acknowledge for elders. It also combines a focus on • Develop systems to rapidly redeploythe importance of this critical capability. innovation with expertise in process people, capital and ideas around theBut there is a significant gap between improvement. The company is engaged global organization.successful companies and others in terms in an ongoing process that preserves • Encourage experimentation—incubate,of committing sufficient time, money and the best aspects of its long-held culture fund and protect new ideas.management attention to building these while incorporating new traits intocorporate cultures (see Figure 34). its organization. Samsung’s drive to • Assess the leadership team and how reorient its culture has allowed the its skills and experience align withOne of the most successful globalizers company to embrace the demands of growth plans.of recent decades, Samsung, grasped new markets while maintaining theearly on the importance of molding the foundations of its success.89company’s culture to its new businessreality. The company also realized theFigure 34: A corporate culture that embraces uncertainty and change (percentage of respondents)Successful 85%globalizers 70%Global 77%average 57% 73%Disappointedglobalizers 47% 0% 20% 40% 60% 80% 100% Critical for growth Receiving adequate attentionSource: Accenture Fast Forward to Growth survey63

Conclusion:Windows to the FutureWho will be the high performers in the Beginning today, firms can make effortsnext phase of global competition? It will to push the boundaries of opportunitybe those organizations that are able to beyond the status quo. They canmake the most of the transformations in build the relationships and make thetoday’s business environment to position investments to generate new demand,themselves for growth tomorrow. to build new customer groups and toIt will be those that have revised shape the possibilities of consumption.their approach to global growth in For example, innovating new businessrecognition of the fundamental changes models can shift price points and bringin the global landscape of opportunity new customer groups within reach. Andand competition. Success will not entirely new markets can be seededcome to those that rely on outmoded through improvements in infrastructure,templates and attitudes. Rather, it will healthcare and education.come to those that engage in newstrategic and operational approaches Tomorrow’s high performers are alreadythat bring a superior ability to track building agility and flexibility into theirand act upon the diversity of global international operating models. Theyopportunities, wherever they are found. are leveraging advances in technologyThese opportunities will, in many cases, and analytics; they are reconfiguringlie in emerging economies. processes and organizational structures; and they are investing in buildingBeginning today, business executives skills and leaders that have a superiorcan focus on understand the unfolding capacity to identify and rapidly actchanges in the map of global trade and upon emerging opportunities. Theirinvestment flows, especially between culture embraces market change andemerging economies. They can build uncertainty, rather than allowing changetheir understanding of where new to paralyze decision-making.competitors and partners will comefrom and where emerging players are The future looks bright for companiesplacing their big bets for growth. that are acting today to position themselves for the next era of globalBeginning today, companies can view opportunity and competition. Businessglobal growth opportunity through leaders who invest in building themultiple lenses. They can look across capabilities to succeed in this newtime horizons in order to better environment will not talk of shrinkingsequence their investments and windows of opportunity—they will throwmore effectively evaluate trade-offs open the windows to the future.between competing opportunities.They can also look across nationalborders, for example, by aggregatingacross disparate markets to find newopportunities and by exploring newpockets of demand.65

Methodology: Income andconsumption forecasting The projected distribution for 2020 paved in each country was included.Household income was obtained by inputting the 2020 For broadband penetration, the averageanalysis forecasts of average income into the function, keeping the standard deviation broadband speed was included. • Identifying market phases: TheAccenture, in collaboration with Oxford constant. takeoff, rapid growth and maturity pointsEconomics, constructed household • Inflation adjustment: All forecasts were identified for each consumptionincome band estimates and forecasts are adjusted to constant 2010 US$. curve. The takeoff point was locatedfor 64 countries.90 These countries as the point where market penetrationaccounted for more than 90 percentof global GDP in 2010. The research Baseline global begins to significantly increase at the bottom of the consumption curve. Theinvolved the following stages: consumption curves rapid-growth point was calculated by• Data collection: The data for total net using the point where the slope of the Accenture, in collaboration with Oxforddisposable household income (i.e., total consumption curve is steepest. The Economics, estimated the consumptionhousehold income once all taxes have market maturity point is where market curves for a select number of productsbeen paid) were collected from national penetration does not rise significantly and services.statistics agencies and broken down by despite an increase in income.key sources (wage earnings, government The main steps for all sectorstransfers, other income sources). This covered were: Scenarioswas done for each of the 64 countries. • Defining the shape of the Scenarios were developed to test• Data adjustments: For some emerging consumption curve: Different ideas were how consumption curves mightmarkets, total household incomes were explored for the general functional form change and how they might berescaled using the household savings of each sector’s consumption curve. The shifted by targeted business and/rate to match the consumption total in logistic functional form was chosen as or policy action. Output from twothe national accounts. In some cases, no the most appropriate fit, based on the scenarios, passenger car market andbreakdown was available for the source academic literature and the nature of broadband penetration, was presentedof income, so a proxy country, with a the selected industries. in the main body of the report.similar economic structure, was used. • Estimating the consumption curve:• Total household income forecasts: The first step was to estimate a cross- Passenger car marketThe Oxford Economics baseline country relationship between market The approach was to estimate a baselinemacroeconomic forecasts from penetration and household income. consumption curve for 2020 for aJune 2011 were used as a basis for The base year for analysis was sector- particular case-study country (India)calculating estimates and forecasts of specific, and we used household income and then vary the parameters of interesttotal household income in 2010, 2015 data for the base year. The estimated to test different scenarios. The baselineand 2020. curve implicitly assumes that the curve for 2020 already includes the• Income distribution estimates relationship between household income increase in market penetration due to theacross income bands: We used a log- and market penetration takes the expected rise in household income. Thenormal distribution, which is defined same shape across all countries. The household income data were based onby two parameters: the mean (median second step was to incorporate relevant our own research in this area.household income, in this case), and the country-specific structural factors.standard deviation (which captures the For example, for passenger car marketdegree of dispersion around the mean). penetration, the percentage of roads67

In the alternative scenario presented in Broadband penetrationthe report, we test the impact of a 50percent price reduction. Consumption Using Chile as a case study, ouranalysis explores the relationship of a baseline consumption curve for 2020given good versus others in the consumer incorporates the impact of risingbasket. Typically, the impact of a price household incomes and improvementschange on demand can be decomposed in the average speed of fixed-lineinto the substitution and income effects. broadband from around 2 Mbps to around 15 Mbps. This is based onThe substitution effect arises because recent market trends that suggestof the relative price change, since a a brisk pace in broadband speedprice drop makes cars more affordable improvements around the world.relative to other goods and consumersare encouraged to trade up from their Although improvements in speedcurrent transport mode. According to the increase penetration rates, access (asacademic literature, the price elasticity indicated by maximum coverage) isof the car stock to price changes is also important. In Chile broadbandaround 0.11 (for example, Johansson & penetration is limited by accessSchipper, 1997).91 However, it is likely restrictions—20 percent of householdsthat a large price drop would trigger a are not covered by any fixed broadbandmore significant response in demand. network. The Chilean governmentThis is particularly true in emerging has announced its intention to workeconomies, where the passenger car with business to widen broadbandstock per capita is still very low. To access to all households. To captureaccount for this impact, we increased this, in our alternative scenario, thethe price elasticity in our scenario to maximum penetration rate in the0.3. Studies that look at price elasticity broadband consumption curve isin the context of large price drops increased from 45 subscribers perare rare, so our assumed elasticity of 100 people to 65 subscribers.0.3 lies just above the upper estimatesuggested by most academic studies.The income effect means that householdpurchasing power has increased as aresult of the price drop. For example,a 50 percent price fall in a good thatrepresents 20 percent of the averagehousehold’s consumer spending impliesa rise in real income of 10 percent.So although the household’s averagenominal income hasn’t actuallychanged, the price drop simulates thesame effect as an income increase.We might usually assume that theshare of vehicle purchases stays inline with the household’s share in theconsumer price index (CPI) bundle.But our scenario assumes a disruptiveinnovation whose impact is to bringabout a significant shift in householdspending patterns, increasing the shareof household spending on cars at theexpense of other items in the consumerbundle. To account for this change,we assume that vehicle purchases riseto 10 percent of household income. 68

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Acknowledgments About the AccentureCore research team Institute for HighRob Hayward, Armen Ovanessoff,Athena Peppes, Kuangyi Wei Performance The Accenture Institute for HighSenior executive steering Performance creates strategic insights into key management issues andcommittee macroeconomic and political trendsPaul Nunes, Mark Purdy, Matthew through original research and analysis.Robinson, Mark Spelman Its management researchers combine world-class reputations with Accenture’sExternal economic advisor extensive consulting, technology andVanessa Rossi outsourcing experience to conduct innovative research and analysis intoWe would like to thank the many how organizations become and remainAccenture client account executives high-performance businesses.who provided input.We would also like to thank the About Accenturefollowing individuals for their Accenture is a global managementcontributions to the study consulting, technology services andClaire Allen, Allan Alter, Joshua Bellin, outsourcing company, with more thanSarah Bird, Shawn Collinson, Tim Cooper, 244,000 people serving clients inSteve Culp, Ladan Davarzani, Philip Davis, more than 120 countries. CombiningHenry Egan, Alex Foster, Stephane Girod, unparalleled experience, comprehensiveAnish Gupta, Nancy Hamill, Jeanne Harris, capabilities across all industries andFrancis Hintermann, Sarah Hunter, Sanjay business functions, and extensive researchJain, Mamta Kapur, Marcia Kramer, Hans on the world’s most successful companies,von Lewinski, Gong Li, David Light, Scott Accenture collaborates with clients toLivermore, Luisa Lombardo, David Mann, help them become high-performanceSusan Mann, Matthew McGuinness, businesses and governments. The companyJoanne McMorrow, Raghav Narsalay, generated net revenues of US$25.5 billionAndrew Newby, Alex Pachetti, Yali for the fiscal year ended Aug. 31, 2011.Peng, Anton Pichler, Bérenger Playford, Its home page is www.accenture.com.Lawrence Ryz, Carron Sass, StefanoScuratti, Abhik Sen, Tina Senior, AndrewSleigh, Marcelo Gil Souza, Roxanne Taylor,Meng Yen Ti, Jens Tholstrup, RobertThomas, David Thomlinson, Oscar Vasco,Alex Walker.Copyright © 2012 AccentureAll rights reserved. 11-2358 / 11-4446Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture.

Fast forward to growth: Seizing opportunities in high-growth markets

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