Five imperatives for_success_in_emerging_markets_accenture


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Reporte de la consultora Accenture sobre la estrategia de crecimiento a seguir en los mercados emergentes

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Five imperatives for_success_in_emerging_markets_accenture

  1. 1. Gearing up for growthFive imperatives for success in emergingmarketsHenry Egan and Armen OvanessoffAccenture Institute for High PerformanceMarch 2011
  2. 2. With a patchy recovery and new investmentlandscape, companies emerging from the downturnface the dilemma of how to prioritise theirinvestments as they plan for the next phase ofgrowth.What’s certain is that emerging markets will need totake on even greater prominence in the growth plansof multinational companies. Over the next five years,it’s expected that emerging markets will account for62 percent of global growth. As the locus of growthlurches East and South, tomorrow’s global industryleaders will increasingly be determined by theirsuccess in emerging markets, not developed ones.Those companies that are quick to re-evaluate thesize of the opportunity in emerging markets andorganise themselves to seize it will be best placedto compete. Here we lay out five imperatives tohelp build the insights and capabilities required forsuccess.2
  3. 3. ContentsThe new investment landscape 4Five imperatives for success in 10emerging markets1 Look beneath the headline numbers 122 Understand your shifting S-curve 143 Uncover cross-country segments 164 Use data as a differentiator 185 Compete on risk 20 “Blue City” of Jodhpur, India 3
  4. 4. The new investment landscapeCompanies emerging The wariness of businessesfrom the downturn face to invest is all too apparent.a difficult dilemma: how Companies are now holdingshould they prioritise their more cash than at any timeinvestments as they plan for in the last 40 years.1 So, thethe next phase of growth? money is there to spend,Having retrenched over the but the patchy recovery andpast few years, business changed landscape haveleaders in many parts of the created a climate of cautionworld are now looking for and indecision.investment opportunitiesto position their companiesto profit in the upturn.However, the landscape inwhich they are investinghas changed, both in termsof where the opportunitiesand risks lie, and in terms ofthe competitive threat theyface.4
  5. 5. Sugarloaf Mountain in Rio de Janeiro, Brazil 5
  6. 6. A shifting set of expansion of the global economy than developed markets. China will Along with a new set of opportunities, companies making investmentopportunities and be a bigger source of growth than the United States, and India will contribute decisions must also factor in a markedly different risk landscape.risks more growth than Germany, Japan, the United Kingdom, France or Canada. Some countries that once appeared a safe haven for investment now look dicey. Whereas, others that haveWhat does the new landscape look Alongside this acceleration in traditionally been seen as risky, nowlike? The stronger performance of emerging markets, we are also look a much safer bet. For example,emerging markets during the seeing a broadening of the base of in terms of macroeconomic stability,downturn – coupled with a stronger growth. Beyond the BRICs, a range Indonesia and Uruguay currently haverebound – has widened the of indicators point to rapid and lower risk ratings than Greece orperformance gap between emerging sustained levels of growth across Ireland, a very different picture fromand developed markets. This has a range of other economies. For before the crisis (see figure 2).served to accelerate and accentuate example, Argentina, Chile, Indonesia,the opportunities in emerging markets. the Philippines, Qatar and Vietnam areBetween 2010 and 2015, global all expected to grow at over 5 percenteconomic output is forecast to rise by in 2011.2 And Africa – often seen asUS$8.5 trillion. Emerging markets are the final frontier for companies – isexpected to account for US$5.3 trillion finally generating business interest,of this growth, some 62 percent (see due to greater stability and fasterfigure 1). This means that emerging growth. The broadening base ofmarkets aren’t just growing faster growth in emerging markets will createthan developed markets; it means that opportunities for business far beyondemerging markets will contribute a the large BRIC economies that havegreater share to the absolute dominated the emerging market story thus far.Emerging markets are forecast to contribute 62% of global growth between 2010 and 2015Figure 1: Breakdown of global GDP growth, 2010-2015(US$ billions at 2005 prices and market exchange rates) 651 59,498 178 152 206 Developed markets 302 273 1,458 • Share of global growth = 38% • CAGR = 1.8% 1,903 203 174 Emerging markets 272 220 • Share of global 617 growth = 62% 1,906 • CAGR = 5.7% 50,983 Global China India Brazil South Russia Mexico Other US Germany Japan UK France Canada Other Global GDP Korea emerging developed GDP 2010 2015 Share of global growth, 2010-2015 22% 7% 3% 3% 2% 2% 22% 17% 4% 3% 2% 2% 2% 8%Source: Economist Intelligence Unit; Accenture analysis6
  7. 7. A new era of The downturn has shaken up the global risk landscapecompetition Figure 2: Macroeconomic risk (risk rating, 0 = low risk, 100 = high risk)Together with the shifting 70 Irelandopportunities and risks, companies 65 Greeceseeking new growth markets alsoface a very different competitive 60environment. During the downturn, as 55growth disappeared in most developed 50markets and sources of capital driedup, many Western multinationals 45retreated to focus on their home 40 Indonesiamarkets. AIG put a number of its 35Asian assets up for sale, includingAIA, its Asian life-insurance business; 30 UruguayGeneral Motors sold off Saab, its 25Swedish brand; and Royal Bank of 20Scotland, the UK bank, divestedoperations in Hong Kong, Indonesia, 0 2006 2007 2008 2009 2010the Philippines, Singapore, Taiwanand Vietnam. However, it wasn’t justtroubled financial services providers Source: Economist Intelligence Unit; Accenture analysisand automotive companies thathalted their international expansion.BHP Billiton was forced to walk awayfrom a multi-billion dollar deal tobuy Rio Tinto, and the downturn alsoforced companies such as Carrefourand Vodafone to re-examine theirinternational portfolio and divest lessattractive parts of their business to M&A originating in emerging markets overtook developed markets for thefree up capital. first time in 2009Contrast this with many emerging- Figure 3: Value of outbound M&A deals by country of originmarket multinationals who took (US$ billions)advantage of the downturn to 212strengthen their position. Drawing onthe resilience of their home markets 178 170during the downturn, the number of 167 158companies from emerging markets in 140the Fortune Global 500 reached 95 133in 2010, up from 70 in 2007. Thesecompanies aren’t just winning at 108 97home. They are using their strongdomestic base as a springboard 80for global expansion. The value of 52mergers and acquisitions originating in 37emerging markets surpassed developedmarkets for the first time in 2009(see figure 3). Recent deals includeIndian telecoms operator Bharti 2004 2005 2006 2007 2008 2009Airtel’s US$10.7 billion purchase ofthe sub-Saharan assets of Kuwait- Developed Emergingbased Zain telecom, and the US$1.5 Sources: Dealogicbillion takeover of Volvo by Geely, theChinese automaker. 7
  8. 8. New industry Emerging markets will be the main drivers of global growth in the consumption of TVs, PCs and mobile phones over the next five yearscentres of gravity Figure 4: Source of growth of consumer electronics products, 2010-2015 (number of units, %)Taken together, these trends aredramatically reshaping industries atthe forefront of globalisation. Take TVs 34% 66%electronics and high-tech (E&HT),for example. With slower growthand more saturated markets in many PCs 17% 83%Western economies, consumers inemerging markets will account for Mobile phones 12% 88%the lion’s share of the industry’sexpansion. For example, emergingmarkets will account for 88 percent Developed economies Emerging economiesof the growth in mobile phonesales, 83 percent of the expansion Source: Economist Intelligence Unit; Accenture analysisin PCs purchased, and 66 percent ofadditional TV sets sold over the nextfive years (see figure 4).The shifting centre of growth in theindustry is leading to the emergence Ignore the shifts at Of course, the opportunity in emerging markets and the competitiveof new global market leaders – witness your peril threat posed by players from these countries won’t evolve as quicklythe increasing dominance of Samsungand LG, or the more recent ascent of across all industries. However, even in The E&HT industry provides important industries that are somewhat shelteredAcer, HTC, Huawei or Lenovo. China’s lessons for other industries at earlierHuawei, a telecoms-equipment from these trends, the relative stages of internationalisation. attractiveness of emerging marketsmanufacturer, is a perfect example The first is that tomorrow’s high-of this new breed of competitor. By is likely to have grown. The retail performing companies will increasingly industry is a good example. For someserving China Mobile, China Telecom be determined by their success inand China Unicom, Huawei has built time, retailers were considered to be emerging markets, not developed ones. the laggards of internationalisation.a strong domestic base in the world’s Moreover, in some industries, it will belargest telecoms market. Huawei However, saturated markets at home possible to become the global leader coupled with accelerating demandhas also invested heavily in research just by winning in large emergingand development to accelerate its in emerging markets are forcing markets. Take Alipay, the online large retailers to rapidly expand theirshift towards higher-value products payment subsidiary of Alibaba, theand services. As its competitors footprint in the emerging world. Many online marketplace based in China. The US giants that were once satisfiedretrenched during the downturn, company recently overtook PayPal inHuawei expanded aggressively into with their sizeable home market are terms of its number of registered users now looking to emerging marketsinternational markets, overtaking and transaction volume – this despiteNokia Siemens and Alcatel-Lucent to for growth. Best Buy, the consumer a limited overseas business. electronics retailer, is a good example.become the industry’s second-largestplayer, with 20 percent of the global It first entered emerging markets in The second lesson is that evenmarket. We saw evidence of Huawei’s 2007 but has rapidly grown, opening domestic players who think they’redramatic rise in November 2009 when stores in China, Mexico and Turkey. insulated from what’s going on init won a landmark contract to build emerging markets may find theirNorway’s fourth generation (4G) For companies across industries the position at home under threat from message is clear: the new investmentmobile network – this in the backyard these emerging global players. Thisof its major competitors. landscape necessitates a rethink. means that companies that aren’t Those companies that are quick to re- proactive in pursuing the opportunities evaluate the opportunity in emerging in emerging markets aren’t just passing markets and organise themselves to up a valuable source of growth, they’re seize it will be best placed to capture potentially jeopardising their long- new sources of growth in the upturn. term position.8
  9. 9. Petronas Towers in Kuala Lumpur, Malaysia 9
  10. 10. Five imperatives for successin emerging marketsHow should companies and business trends under that executives shouldrespond to the changed our multi-polar world consider when reassessinglandscape? Executives research programme, as well the emerging-marketthinking through their as our research programmes opportunity. We believeresponse to these trends and far-reaching client that these imperatives arecan be excused for feeling experience on international valid for companies acrossa little lost. Much of the operating models across industries and stages ofpublished literature and industries and around the internationalisation:research on emerging is either too high 1. Look beneath thelevel to be practical or too Our advice: while the headline numbersdetailed to be applicable decisions that companies 2. Understand your shiftingfrom one company to the make and their international S-curvenext. The imperatives in this growth journeys will vary, the underlying questions 3. Uncover cross-countryreport are designed to be segmentsstrategic but actionable. In that companies are tryingformulating them we have to answer – such as where, 4. Use data as adrawn on years of extensive when, and how to compete differentiatoranalysis of macroeconomic – remain the same. We’ve 5. Compete on risk identified five imperatives10
  11. 11. Bosphorus Bridge in Istanbul, Turkey 11
  12. 12. 1 Know where to compete The vast potential of the emerging markets is clear. However, knowing Go granular Our advice in sizing the opportunity in emerging markets: look deeperLook beneath the exactly where to compete and how in deciding where to compete. to prioritise opportunities is perhaps The aggregate figures that manyheadline numbers the most difficult question facing companies use to evaluate market companies seeking growth in emerging opportunities – such as GDP or markets. Such choices take on even GDP per capita – can be deceptive,The indicators that greater importance in a period when concealing a wealth of importantmany companies use to investment decisions around where to allocate capital and talent continue to detail. For example, while China is by far the biggest emerging economyevaluate opportunities be characterised by caution. (more than three times bigger than second-placed India), when lookingare often aggregate The misleading middle class at the high-income segment, themeasures, such as GDP The task of sizing the opportunity picture looks very different. In 2010, it’s estimated that there were 167,000or average income in emerging markets is clouded by households in China with annual hyperbole and misleading statistics.levels. But these figures Take the much vaunted “emerging incomes greater than US$75,000.3 This is less than Mexico, Hong Kong,conceal a wealth of middle class”, for example. This South Korea, Brazil, Singapore and segment of consumers is variously Russia (see figure 5). So if you selldetail. Companies that estimated at anywhere between 500 luxury goods, the best opportunitiesgo granular in their million and 2 billion people, and some forecasts suggest it could double might currently exist outside China. While it’s highly likely that China willanalysis can outperform in size over the next two decades. overtake all of these countries, this However, “middle class” is a looselythe competition through defined term and differs across example highlights the dangers of relying on headline figures in market-a deeper understanding markets. In some cases it’s merely sizing exercises. It also helps to explain the middle of the income distribution, why some companies that have rushedof where the greatest while in others it refers to a level of into certain markets are surprised atopportunities lie. income. In either case, it’s unlikely that a middle-class household in how long it takes to break even, or indeed, why some markets surprise India will be able to afford the deluxe on the upside. By digging beneath the refrigerator, high-end TV, smart-phone headline numbers, such as examining and sports utility vehicle of a middle- specific income bands, companies can class family in the United States. The get a much more accurate picture of large discrepancies in the numbers and the true size and pace of growth of the ambiguity around the definition opportunities in emerging markets. of “middle class” matter, especially for companies trying to figure out the most attractive markets for their products and services.12
  13. 13. Think regions and cities, not Despite the overall size of China’s economy, several other emerging markets have a greater number of high-income householdscountries and continentsIn assessing opportunities and Figure 5: Number of households with annual income greater than US$75,000*,designing strategies for larger 2010emerging markets, companies should (thousands)think in terms of regions and cities,not countries and continents. In China, 708for example, there are significant 632variations across provinces, in terms 582of income, demographics, religion,language and geography. There isno such thing as a national market, x4.2making China more like the EuropeanUnion than the United States. This 301translates into a markedly different 272business environment in China’s cities. 228The market for PCs is a good example. 167In 2009, there were 109 PCs per 100people in Shanghai, compared with39 in Ningxia, a northern region.4With the market close to saturation, Mexico Hong Kong South Korea Brazil Singapore Russia Chinacompanies targeting growth inShanghai are likely to face fiercer *US$ at 2005 prices and market exchange ratescompetition and slimmer profit Source: Economist Intelligence Unit; Accenture analysismargins. The tastes, preferences andattitudes of consumers are also likelyto be very different, with Shanghaishoppers demanding the very latesttechnology and models.By going granular in their assessmentof China and other large emergingmarkets, companies can get a moreaccurate picture of where the greatestopportunities lie. And some mightbe surprised about what they find.Significant opportunities exist in citiesthat many multinationals won’t haveeven heard of. Take Zhengzhou, thecapital of Henan province in China, forexample. The Economist IntelligenceUnit forecasts that, by 2020, thecity will have a bigger economy thatSweden, Hong Kong or Israel.5 13
  14. 14. 2 Know when to enter emerging markets Timing is critical in emerging markets. Exploit the finite window of opportunity To complicate matters further,Understand your Knowing when to enter, when to S-curves in many industries appearindustry’s shifting accelerate growth, and when to look for the next opportunity will go a long to be shifting. Commoditisation and innovation continue to bring downS-curve way to determining success. Going in too early can prove disastrous, the cost of products and services. The Tata Nano is a prime example. With and there are countless examples of a price of less than US$2,500, theLifecycles of products companies that have had their fingers burnt. But, equally, there is a huge Nano will increase the affordability of cars, meaning that companies willand services generally opportunity cost associated with see demand at lower levels of income, arriving too late in emerging markets. shifting the S-curve. Expected take-follow an S-curve from By allowing competitors a head start, off and saturation points may need toadoption to maturity. they can amass the scale, relationships be adjusted, as automakers are likely and brand loyalty needed to build an to find that demand takes off andHowever, accelerating unassailable lead. accelerates sooner than expected (seeincomes combined So when’s the best time to enter a figure 7).with falling prices in particular emerging market? This With a finite and shrinking window is a complex question with a huge of opportunity, companies who adoptmany categories mean number of country, industry and a wait-and-see approach may missthat demand will take company-specific factors that need to be considered. However, out. The optimal entry point is often just before the take-off point, whichoff more quickly and understanding the maturity of demand allows companies to establish a for your product or service is vital to foothold in the market before growthmarkets may become determining the current attractiveness accelerates. However, in industriessaturated sooner. With of the market and the headroom for with a longer growth phase, attractive growth. opportunities may still exist fora narrower window of companies arriving late. Companiesopportunity in emerging Understand your S-curve already operating in emerging markets must also understand the maturitymarkets, companies that Demand for most categories of goods of their S-curve, to ensure that they and services follow a similar path – are ready to jump to the next growthemploy a wait-and-see what is commonly described as an opportunity, even while reaping thestrategy may miss the S-curve. Many factors influence the path of this curve for each category, revenues from their mature product or service.boat. everything from tastes and preferences to religion and regulation. However, As well as helping companies to the primary determinant of demand decide when to enter emerging is normally income, particularly markets, industry S-curves can also in emerging markets where many inform decisions about how to enter consumers are purchasing products emerging markets. For example, when or services for the first time. Demand considering a product or service in growth can be separated into three its Emerging phase, it may make distinct phases: Emerging, Accelerating sense for multinationals to establish and Maturing (see figure 6). partnerships with local players, benefiting from their local knowledge Of course, different products and and relationships to gain a foothold services have different S-curves. For in the nascent market. In a country example, consumption of affordable where a product or service is in the consumer goods, such as soft-drinks, Maturing phase, companies will be will take off at much lower levels of faced with slower growth, fiercer income and reach maturity much competition, and better established quicker. On the other hand, demand competitors. With less headroom for luxury products, like designer for growth, market share becomes handbags, doesn’t begin to accelerate more important, making market entry until average incomes are significantly through acquisition increasingly higher. attractive.14
  15. 15. Understanding the maturity of target markets can help companies decide when and how to enter Figure 6: S-curve for passenger cars 550 1. Emerging 2. Accelerating 3. Maturing 500 UK 450 Spain Germany Greece 400Passenger cars per capita, 2010 (stock per 1,000 people) 350 South Korea 300 Taiwan 250 Saudi Russia Arabia 200 South Argentina Africa 150 Mexico 100 Thailand 50 Indonesia 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 GDP per capita, 2010 (US$ dollars at market exchange rates) 1. Emerging 2. Accelerating 3. Maturing Demand is still in its infancy because most At a certain threshold (around US$6,000), greater Beyond this point, increases in GDP per capita consumers can’t afford to buy a car – e.g. Thailand affordability sees demand growth outstrip increases in don’t translate into significant demand growth – and Indonesia. GDP per capita – e.g. Argentina and Mexico. e.g. Germany and Spain. Source: Economist Intelligence Unit; Accenture analysis Falling prices of products and services mean that take-off and saturation points are shifting Figure 7: Shifting S-curves Per capita consumption 2. Saturation Point ...and that markets can accelerate to maturity more quickly 1. Take-Off Point Falling prices mean that take-off points for products and services arrive at lower levels of income... Per capita income 15
  16. 16. 3 Understand cross-country consumer preferences As a result of globalisation and the Look for cross-country segments Cutting across their geographicUncover cross- rapid proliferation of the Internet, strategies, companies should seekcountry segments goods, services, ideas and people flow more freely than ever between the to identify segments – groups of consumers with similar tastes and world’s countries and regions. These preferences – across countries. flows lead to the spread and greater Conventional thinking on emergingIn an era of increased convergence of attitudes, tastes and markets often emphasises theircross-border flows of preferences across borders. Today, diversity, and the need to design high-income consumers in Mumbai individual strategies and offerings togoods, services, ideas have more in common with affluent successfully compete in each market.and people, there are consumers in Shanghai, Tokyo and However, while companies should New York than with consumers in rural be careful not to underestimate theoften greater similarities India, whose needs and purchasing differences across emerging markets, power are likely to be more akin to they equally shouldn’t overlookamong consumers across rural consumers in China or many opportunities to build greater scalecountries than within Africa countries. This creates a into their operations. Procter & dilemma for companies who have Gamble is an example of a companythem. By focusing on traditionally designed their emerging- that looks at segments of customerssimilar segments across market strategies on a country- on a global scale. For example, P&G by-country basis. The diversity of found that taboos over femininedifferent countries, larger emerging markets means that hygiene products in rural India were successfully serving multiple consumer similar to those in parts of Africa. Tocompanies can share segments requires a host of different counter these issues, P&G workedleading practices across approaches; a one-size-fits-all with schools and local communities strategy simply won’t cut it. However, to raise awareness of the importanceborders and create the multiple strategies across many of female hygiene issues. Though ascale needed to serve markets increase cost and complexity. continent apart, the similar attitudes How can this dilemma be addressed? and needs of consumers in rural Indiapreviously unprofitable meant that P&G was able to use its experience in Africa to quickly roll outcustomer segments. and scale a pilot outreach programme in Rajasthan, India. Similarly, Dabur, the Indian consumer goods company, has adopted an international expansion strategy based on segments. Dabur found that hair-care preferences in other parts of South Asia and the Middle East were similar to those in India, and capitalised on this by launching Dabur Amla, its hair oil, in Bangladesh, Pakistan and the United Arab Emirates. Given the huge Indian diaspora across the world, the company has ambitious plans to capitalise upon this segment to further expand its international footprint.16
  17. 17. Unlock new sources of Companies need to look beyond simple demographics and consumer value when defining customer segmentsdemandUncovering segments can also Figure 8: Multidimensional customer segmentationhelp companies unlock demand inpreviously unprofitable consumersegments. Significant untapped Attitudes & Needs Behaviourdemand exists in emerging markets, • Attitudes (lifestyle, interests, risk • Usage (average time using productparticularly in remote rural areas tolerance) or service)where margins are razor thin or in • Needs (buyer needs) • Relationship (tenure, loyalty)small emerging markets where volumes • Perceptions (brand awareness, • Constraints (cultural, regulatory)are insufficient to generate adequate beliefs)returns on their own. Uncoveringsegments can allow companies to Multidimensionalserve these markets profitably, by Customercreating the combined scale needed to Segmentationbring down operational costs, such asproduction, marketing and distribution.Re-examine your customer Value Demographics • Revenue of customer • Gender, agesegmentation techniques • Profitability of customer • Education • Cost to serve or acquire • OccupationA granular approach to growth – one • Incomethat dissects the opportunities withinmarkets – will be needed to uncovercross-country segments. Companiesmay also need to re-examine their Source: “New Faces, Places and Spaces: Customer-centric principles for acquiring customers in today’s multi-polarcustomer segmentation techniques. world”, Accenture 2009.Many companies continue to dividetheir customer base into groups basedon simple demographics, such as ageor income, or into categories basedon how profitable they are. These areimportant, but to help identify similarclusters of consumers across borders,companies need to supplement thisdata with often-neglected behaviouraland needs-based attributes, such astime spent online or brand loyalty,to create a truly multidimensionalcustomer segmentation (see figure 8). 17
  18. 18. 4 Good data; good decisions option. Instead, companies must find innovative ways to capture data about Good data is the key to good decisions, target customers, taking advantage of and making good decisions is even low-cost technologies.Use data as a more important as companies retrain their sights on growth, particularly in Hindustan Unilever (HUL), India’s largestdifferentiator a cost-conscious recovery period. In fast-moving consumer-goods company, putting together the business case for is an example of a company that is entering a new market, targeting a making use of mobile technologies toGood data is the key to new customer segment, or launching a get information on demand patterns new product or service, few executivesgood decisions, but data still rely on gut instinct alone to guide and consumer trends in remote areas. As part of a trial, HUL is providing someis notoriously difficult their decisions. This is particularly of its rural distributors – including true in less familiar emerging markets. traditional mom-and-pop stores –to get hold of and often Executive teams will scour economic, with mobile devices to capture andunreliable in emerging financial, demographic, social and relay information about its products risk indicators to paint a detailed – including stock levels and Companies picture of the business landscape in This creates a real-time stream of specific countries and the tastes andthat can find ways preferences of their target customers. information that can be used to better predict demand and manage inventory,to overcome this can But what happens when good data develop new products and services, and simply doesn’t exist? You can have craft targeted marketing messages. ACsteal a march on their the most powerful and sophisticated Nielsen, a research firm, estimates thatcompetitors by more analytical tools available, but they’re better demand forecasting has allowed of little use if the underlying data HUL to increase sales in rural stores byaccurately targeting being analysed is unreliable. This is around one-third.7 the challenge facing many companiescustomers and better looking to build a better understanding As the HUL example shows, companiesidentifying opportunities of customers in emerging markets. looking to build a better understanding of consumers beyond the big citiesto improve efficiency. Dodgy data will increasingly turn to mobile technologies to capture and track Getting hold of reliable data is a data. However, some of the most constant headache for companies innovative companies will be able looking to enter or expand in to reach even further. For example, emerging markets. Data might exist in Brazil, Banco Bradesco is able to for the major urban areas in emerging access 200,000 potential customers markets, such as Cairo, Delhi, Hanoi or via a bank branch on a boat that Rio, but it gets a lot patchier outside travels up and down a section of the the big cities and can be non-existent Amazon River. This allows them to in remote, rural areas. Take the case serve customers who don’t even own of Experian, the credit ratings agency, a mobile, and to capture valuable that is attempting to put together information about their evolving needs “credit CVs” for rural Indians to assess and preferences. their credit worthiness. They are trying to collect data on customers, many of whom live in dwellings that Turn data into dollars don’t have house numbers or street Collecting proprietary data about names.6 Consumer goods companies customers can be incredibly valuable, face similar difficulties. Given the even providing the basis for entirely traditional small-scale mom-and-pop new businesses. Grupo Elektra, for retail outlets that reach beyond the example, a Mexican retailer, started big cities, reliable information about offering credit to consumers who the tastes, preferences and buying did not have a bank account. In the behaviours of customers rarely exists. process, it ended up collecting a wealth of financial information about Use data as a differentiator its customers. To utilise this data, it decided to move into financial So how should companies go about services, and now has one of the getting the data they need? Given the country’s biggest networks of bank razor-thin margins that companies branches to complement its popular face beyond the big cities, expansive retail chain. market research efforts aren’t an18
  19. 19. Burj Khalifa Skyscraper in Dubai, United Arab Emirates 19
  20. 20. 5 The revival of risk The political turmoil witnessed in parts of North Africa and the Middle East in Risk practices are honed for their home markets or similar developed countries, and the significant cost cutting and organizational reshufflingCompete on risk early 2011 provided a timely reminder in response to the downturn have left that risk matters when it comes to the operations of many companies doing business in emerging markets. vulnerable.Expanding into emerging Take Egypt as an example. Before themarkets can be a risky dramatic events in January 2011, the country’s strong economic growth, The rapid internationalisation of many companies has also left them, especially relatively well-educated population, In configuring their global expansion large domestic market, and pro- plans, many companies have focusedfor companies that are business reforms made it an attractive on the opportunity at the expense ofmore accustomed to proposition for multinational the potential risk. For example, in an companies. Between 2005 and 2009, effort to quickly scale their businessesthe safer surrounds of foreign direct investment into Egypt across borders, a number of companiesthe United States and doubled, making it North Africa’s most popular investment destination. have reduced the importance of their country managers in favour ofWestern Europe. High However, the impact, speed and product-led business units that span unpredictability of events served to geographies. As recent events haveperformers are not only highlight the significant risks that shown, while the macroeconomicsbetter at identifying still accompany investments in many of business may be increasingly emerging markets. borderless, politics and otherand managing risks, components of risk certainly aren’t.they increasingly see Expect the unexpected Compete on riskrisk as a competitive Emerging markets are, by and large, inherently riskier than the developed Emerging markets far beyond thedifferentiator. markets in which most multinational BRICs now receive greater attention companies have traditionally operated. from all angles, whether from The political instability that companies analysts, investors or the media. New were faced with in North Africa is technologies and market liberalisation just one type of risk companies have increasingly allow companies of any to deal with. When doing business size to access opportunities in these in emerging markets, companies are markets. You no longer need to be also often faced with underdeveloped a Coca-Cola, Procter & Gamble or infrastructure, weak protection General Electric to have expansive of intellectual property rights, ambitions in the emerging world. As unpredictable regulation, and greater the opportunities become increasingly financial volatility, to name just a few accessible, risk can become an of the risks (see figure 9). A number important differentiator, allowing of companies have found themselves companies to significantly increase faced with unexpected challenges over their degrees of freedom in emerging recent years. High-profile examples markets. include Vodafone’s tax dispute in India, the breakdown of Danone’s Walmart is a company that gains joint-venture with Chinese food and competitive advantage through its beverage company Wahaha, or the strong risk-management capabilities. cyber security threat that Google has The US retailer has historically gained faced in China. market share in the wake of natural disasters, such as hurricanes, or other Balancing opportunity and serious events. This is the result of Walmart’s meticulous contingency risk planning, allowing it to recover quickly Emerging markets are riskier, but few from temporary supply chain shocks companies can afford to ignore the and reopen its stores rapidly, by relying growth opportunities they present. on back-up measures such as mobile Managing this balance is a growing electricity generators. By responding concern in boardrooms. Most Western faster than its competitors, alongside multinationals without a long history increased sales, Walmart generates in the emerging world are ill-prepared significant goodwill by assisting the to deal with the broader range and communities in which it operates at a heightened levels of risk they face. time of significant upheaval.820
  21. 21. To compete on risk, companies need Emerging markets are riskier across the boardto strengthen their risk-managementcapabilities. They need to build their Figure 9: Risk ratingscapacity to identify risks, assess (risk rating: 0 = low risk, 100 = high risk)their potential impact across the 90entire organisation, and monitor and 85mitigate the effects (see figure 10). 80The prioritisation of risks will differ 75depending on a number of factors, 70such as a company’s industry, its 65geographic footprint and its strategic 60priorities. Nissan, the Japanese 55automaker, provides a useful example. 50The company manufactures a large 45proportion of its cars in Japan, but 40increasingly sells them in the United 35States and other parts of Asia. Nissan 30identified that this mismatch between 25supply and demand left the company 20exposed to exchange-rate volatility. 15To respond, Nissan plans to migrate a 10significant portion of its operations to 5the United States and Asian countries 0with dollar-linked currencies.9 Security Political Legal & Financial Tax Policy Labour Infrastructure Stability Regulatory Market Emerging China Brazil India Russia Developed US Japan Germany UK Source: Economist Intelligence UnitCompanies can use a risk-response framework to identify potentially high-impact risks and developcontingency plans to mitigate themFigure 10: Risk-Response Framework 1. Identify 2. Assess 3. Monitor 4. Mitigate Scan horizon to identify risks Assess each risk based on its Design risk dashboard to Develop contingency plans to across different categories likelihood and impact monitor changing nature of mitigate high-impact risks Map risks across risks organisation to identify pressure points Risk Assessment Matrix Risk Categories Risk Exposure High Security Business Units 1 12 7 4 Political Risk A B C D 1 8 Economic 6 4 Financial 6 Impact 2 3 Legal & Regulatory 13 14 5 Tax 7 9 11 10 8 Labour Infrastructure 12 Low Likelihood High 21
  22. 22. The coming phase of global competition promises tobe eventful. Growth is on the minds of executives allaround the world; but with persistent uncertaintiesand questions around the nature of the recovery,companies need a clear strategy that looks beyondthe current fog and prioritises investments toachieve sustainable, long-term growth.Emerging markets will take on even greaterprominence in the post-recession era. Formultinationals in many industries, emerging marketswill be where the greatest opportunities lie, but alsothe greatest threats. A thriving business in maturemarkets will no longer be sufficient to ensuresustained high performance. To be tomorrow’sglobal industry leaders, companies will need to buildsuccessful businesses in emerging markets.Getting beneath the headline figures, understandingyour shifting S-curve, uncovering cross-countrysegments, using data as a differentiator, andcompeting on risk will help companies developthe insights and capabilities that are essential tosuccess. It’s time to prepare.22
  23. 23. References1 Accenture Outlook, “It’s all aboutbalance”, June 20102 Economist Intelligence Unit3 US$ at 2005 prices and marketexchange rates4 National Bureau of Statistics ofChina, “China Statistical Yearbook2009”5 Economist Intelligence Unit,“CHAMPS: China’s fastest-growingcities”, 20106 FinancialTimes, “Experian: creatingcredit CVs for India”, December 13,20107 ForbesIndia, “Hindustan Unilever’sBharat Darshan”, 22 September 20108 Accenture Outlook, “It’s all aboutbalance”, 20109 Financial Times, “Nissan to shiftoutput to dollar economies”,November 21, 2010 Puerto Madero Bridge in Buenos Aires, Argentina 23
  24. 24. About the authors About the Accenture About AccentureHenry Egan (henry.egan@accenture. Institute for High Accenture is a global managementcom) is a manager in the Geographic Performance consulting, technology servicesStrategy team within Accenture’s and outsourcing company, withGrowth & Strategy function. The team The Accenture Institute for High approximately 211,000 people servingadvises Accenture’s leadership on Performance creates strategic clients in more than 120 countries.the company’s geographic footprint, insights into key management issues Combining unparalleled experience,with a focus on emerging markets. He and macroeconomic and political comprehensive capabilities across allpreviously worked for the Accenture trends through original research and industries and business functions,Institute for High Performance. analysis. Its management researchers and extensive research on the world’s combine world-class reputations with most successful companies, AccentureArmen Ovanessoff (armen.ovanessoff@ Accenture’s extensive consulting, collaborates with clients to help leads the Emerging technology and outsourcing experience become high-performance businessesMarkets programme at the Accenture to conduct innovative research and and governments. The companyInstitute for High Performance. His analysis into how organizations generated net revenues of US$21.6focus is on macroeconomic, geopolitical become and remain high-performance billion for the fiscal year endedand business trends that affect businesses. Aug. 31, 2010. Its home page ismultinationals active in emerging; publishing and speaking onthe business realities of globalisation.He also manages Accenture’s strategicpartnership with the World EconomicForum.We would like to thank Paul Nunesand Ivy Lee for their insights andcontributions to this report.Copyright © 2011 AccentureAll rights reserved.Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture.ACC11-1465 / 11-2941 Chao Phraya River in Bangkok, Thailand