Fast Forward to GrowthSeizing opportunities in high-growth markets
ContentsForeword	                                             3Executive summary	                                    5A wa...
2
Foreword                          The search for growth opportunities in       previous decades. Fundamental shifts in    ...
4
Executive summaryIn the current global economic                     is yet to come. For example, many                  low...
Faced with the risk of squandering these    newly-empowered female populations.           • Use information and communicat...
To achieve a better understanding of          companies to grasp the opportunities of    International Development Program...
8
A wake-up call                                                    We analyzed household income data                     As...
“Emerging markets,” however, is a            may be the most dangerous choice            The growth prospects are clear. B...
With almost three-quarters of businessWanted: Action and                        leaders believing that they need toconfide...
América Móvil and Telefónica:Seizing opportunities aheadof the packLatin America is projected to be the         increasing...
Locating demand: Thesearch for growthBetween 2011 and 2016, approximately      profitability in China. But over the next  ...
Figure 2: GDP per capita, 2010 (US$ at 2010 prices and                Figure 3: Change in total income for households with...
Figure 4. South Africa income inequality scenarios: Number of households, 2020 (million)76543210            US$0-US$5,000 ...
16
17
In focus: Householdbuying powerWhile high-growth markets offer attractiveconsumer opportunities, diverse and rapidlyevolvi...
The emerging consumersAs a household’s annual income surpasses US$5,000, spendingon personal goods and demand for high-imp...
The great leapThe share of emerging-market households in our analysiswith an income exceeding US$15,000 is expected to inc...
Multiple consumer hubsIn 2010, developed-market households dominated the incomesegment of US$30,000 and above. By 2020, it...
The new big spendersThe US$50,000-and-above income band representshouseholds with significant disposable income. Beyond th...
In focus:Consumption curvesWorking with Oxford Economics, we           Figure 9: Non-life insurance consumption curve, 200...
car markets in Mexico, Slovakia and                                           and their major trading partners may        ...
25
New players, new rules:The new shape ofcompetitionThis chapter looks at the important           Many economies have active...
Figure 12: Fortune Global 500100%             47           60           70         78          91         95          1179...
Figure 13: Unilever revenue growth breakdown (€ billion)                 Figure 14: Composition of Unilever’s revenue     ...
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
Fast forward to growth: Seizing opportunities in high-growth markets
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Fast forward to growth: Seizing opportunities in high-growth markets

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Accenture’s Institute for High Performance has conducted thorough research to investigate the keys for success in today’s competitive high- growth markets. The main elements of research include:
• Household income analysis, in collaboration with Oxford Economics. We created five standard bands of annual household income and, for each of 64 countries, estimated the number of households falling into each band in 2010, 2015 and in 2020. All forecasts are measured in real terms, and at market exchange rates.
• Industry consumption curves, in collaboration with Oxford Economics. This research forecasts the evolution of consumption for a select group of industries across the world. It also includes scenario-based sensitivity analysis to assess the impact of changes in the business and policy environment.
• A survey of 588 business leaders, across 85 countries and 22 industries, conducted by the Economist Intelligence Unit. Business leaders were asked about their perceptions of the competitive landscape, their company’s plans for growth and the capabilities important for success in these markets.
• Conversations with clients and experts across industries and extensive secondary research, including company case studies and analysis of greenfield and M&A investment data.

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Transcript of "Fast forward to growth: Seizing opportunities in high-growth markets"

  1. 1. Fast Forward to GrowthSeizing opportunities in high-growth markets
  2. 2. 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
  3. 3. 2
  4. 4. 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
  5. 5. 4
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 8
  10. 10. 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
  11. 11. “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
  12. 12. 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
  13. 13. 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
  14. 14. 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$30,000. This differences: while India’s growth has lower than South Africa’s, despite acomes as no surprise to companies been fueled primarily by domestic population three times as large.14eagerly and impatiently awaiting demand (private consumption accounts13
  15. 15. Figure 2: GDP per capita, 2010 (US$ 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
  16. 16. 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
  17. 17. 16
  18. 18. 17
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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$50,000and above, 2010-2020 More than 25 million 5 to 25 million 1 to 5 million 0 to 1 million Less than 0 Not studiedNB: At market exchange rates and 2010 constant prices. 22
  24. 24. In focus:Consumption curvesWorking with Oxford Economics, we Figure 9: Non-life insurance consumption curve, 2008built global economic models to showthe relationship between a country’s 5,000average annual household income 4,500 Netherlandsand expected sales or penetration in 4,000a number of consumer industries. We Premiums per capita (US$)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
  25. 25. 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
  26. 26. 25
  27. 27. 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
  28. 28. 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
  29. 29. 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

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