How business is growing beyond boundaries

1. Competing
for growth
How business is growing
beyond boundaries

2. In this report
Executive summary — how business is growing beyond boundaries 2
New markets — how high-performing companies are approaching 4
rapid-growth markets
New products and services — how high performers are innovating 16
for success
New talents and skills — how high performers are capturing and 26
retaining the talent they need
About this report 36
The benchmark findings for this report are drawn from two studies conducted between
January and February 2011 in parallel for Ernst & Young by the Economist Intelligence
Unit. To explore what companies were doing as they entered new markets and innovated,
we interviewed some 400 C-suite and marketing professionals. To explore how companies
were addressing talent management, we interviewed 400 C-suite and HR directors. As
with our earlier study, we have factored out the impact of sector and distinguished
between the top third highest performers — in both revenue and EBITDA growth — and the
lowest third to see if we can identify distinctive patterns of action that might explain the
superior performance.

3. The new economy is more competitive than the old.
Greater variation in market performance, sharper
market volatility, ceaseless pressure on margins
and demanding stakeholders have made for an
increasingly interconnected — and interdependent —
global economy.
In our first Competing for growth report, we interviewed some 1,400 companies
from around the world to see how they were responding. Our study showed that
successful players — the top quartile in both revenue and EBITDA growth – have
focused on executing four drivers of competitive success:
• Customer reach — to optimize their potential market
• Operational agility — to maximize their effective response
• Cost competitiveness — to optimize their profitability
• Stakeholder confidence — to secure both talent and support for achieving their
goals
This report seeks to test and build on these findings, by exploring how the drivers of
competitive success are being applied to the three fundamental sources of organic
growth: entering new markets, creating new products or services and developing
the new skills required to deliver enhanced, or cheaper, offerings.
By digging deeper into what successful companies are doing, we can draw insight
and offer guidance on how they are achieving their success.
Broaden product/ Prioritize
service offer markets
Focus on Reinforce
key segments brand
Customer
reach
Accelerate Inform
speed of response pricing process
Create flexible
work/delivery High Sustain cost
reduction
platforms Operational performers Cost
agility competitiveness
do better
Master Pass on
innovation on … cost pressure
Improve Optimize
collaboration capital
Stakeholder
confidence
Identify and Re-engage with
explain risks internal talent
Enhance Anticipate
reporting regulatory compliance
For each of the four drivers — customer reach, operational agility, cost
competitiveness and stakeholder confidence — higher performers have adopted
a distinctive set of actions, or have made further progress, in implementing each
program.
Competing for growth How business is growing beyond boundaries 1

4. Executive summary
How business is growing beyond boundaries
The Competing for growth model is an effective framework to help management understand its comparative
position in responding to the new economic reality. The challenge is great, but competitive success is more
likely for those companies that achieve the optimal balance between their customer reach, operational
agility, cost competitiveness and stakeholder confidence.
Our most recent research has reinforced our belief in the value of resonates in the market and with both internal and external
the framework. Its application can be seen to drive high stakeholders. For positioning, like market leadership, is a tool
performance in achieving profitable and organic growth from the rather than just a goal. It is the result of management action and
three core sources: can be changed. By studying the actions of others, management
can be better placed to improve their own position.
In new markets
For the purposes of our research, we have treated the three
High performers approach new markets through a deep sources of organic growth as separate, but in reality, they overlap
understanding of their target customers. They have broadened the into a suite of connected opportunities and challenges. To grow
range of their products and developed them close to their markets successfully, companies need to look beyond these boundaries
to better meet their needs. They move pricing as close to the — indeed way beyond their own current boundaries — to identify
market as possible and as much under their control as possible. their future path.
And they take their stakeholders with them — through clear and
specific communication about both markets and challenges. Going forward, Ernst & Young plans a number of future studies to
drill down further into the global growth agenda.
In product and service innovation
markets
High performers approach new product and service development New
faster and closer to the market so that they can get further up the
value curve and secure better prices for their efforts. They achieve
this performance through more inclusive innovation approaches Customer
reach
that extend beyond product development. And they take their
stakeholders with them by sharing more detail on the potential of
their innovation — and the progress they are making with it.
In talent management
Operational Cost
agility Growth competitiveness
High performers approach their talent resources with the same
New pr
intensity that they approach their customers. Successfully
accessing wider groups allows them to build the diversity that they
ts
need. Recognizing that their talent is an asset to protect, they
odu
len
select carefully and pay more to retain — while recognizing that pay
is only part of the implied contract that such talent demands. Stakeholder
ct
ta
confidence
s
ew
The actions within these three areas may differ, but they all result N
from a company having an integrated view of its distinctive growth
opportunity and executing it effectively across their organization.
This, in turn, stems from having a powerful positioning that
2 Competing for growth How business is growing beyond boundaries

5. How successful companies are driving their growth
New markets New products New talents
Choosing markets carefully Being driven by current Building the right team to
• Preferring India and China demand activate quickly
— these countries dominate • Increasing product ranges • Paying greater attention to
globally, but there are clear significantly — some 30% of high technical and operational roles
regional approaches, performers have increased their in setting up new operations
particularly with regard to the product range by more than • Going outside the organization
next generation of rapid-growth 20% in the past two years
Customer and traditional sources for
markets
reach • Focusing on current customers management and skills
• Going beyond the figures to and employees as primary
develop a deeper understanding sources of innovation
of the real nature of their target
market
• Being clearer as to their target
segment within each market
Being flexible, but cautious Moving quickly from idea to Being more selective, but
• Achieving sales more quickly market faster to develop and deploy
— using sales agents for quick • Following a formal process for • Investing significant time and
entry, but seeking management innovation, but with greater effort to recruit senior
control of longer-term clarity on “go/no go” criteria management, while moving
operations and process oversight by quickly for rapid-growth
Operational
• Being flexible as to their business management opportunities
agility
approach to market entry, but • Adopting a structured “from • Putting greater focus on fast
seeking to learn from thought to finish” process with routes of staff development
experience launch and review built into the • Moving resource into markets,
plan from the start but with an explicit knowledge
transition expected
Seeking control of price and Acting to capture more value Engaging in a battle for talent
profit • Structuring cost base to • Experiencing higher staff
• Moving pricing closer to the capture value — increasing turnover and challenges in
target market to capture more marketing spend to capture getting the talent they need
Cost opportunities margin • Being willing — and able — to
competitiveness • Achieving greater control of • Locating innovation closer to pay for talent but recognizing
cost bases target markets — increasingly in this is only part of the equation
rapid-growth markets
• Moving production closer to the
target market
Being more transparent Taking their stakeholders with Being more engaged with
through detail them on the journey engagement
• Finding market entry more • Providing more detail to • Starting from a better position
costly than expected in terms of external stakeholders on to grow — handled the
Stakeholder
cash and time opportunity and risk challenges of the recession
confidence better
• Sharing more detail about their • Identifying and rewarding
new market strategy innovative talent • Focusing on engagement
through commercial
effectiveness
Competing for growth How business is growing beyond boundaries 3

6. New markets: what we learnt last time
The first Competing for growth study showed there is caution
around entering new markets. Respondents were clearly aware
of the length of time it takes to break even in a new market,
i.e., 60% believed it would take over a year, with little variation
between high and low performers.
The warning from Competing for growth was that while entering
new markets may be the right thing to do, rapid-growth markets
are only part of the reason for today’s success. High performers
seem to be focusing on initiatives that have a more short-term,
if not an immediate return with current customers in current
markets before addressing new market entry.
What the current research shows, however, is that when high
performers are satisfied that the time is right to address
new market entry, they do so with clarity of focus, speed of
execution and transparency of communication.
4 Competing for growth How business is growing beyond boundaries

7. New markets
What high performers are getting right
High performers have a focus on their current customers that runs
like a thread through their operations. It determines the markets New markets: new frontiers in
where they wish to sell and produce and how they enter and
operate. Consequently, one of our key findings in our initial consumer products
Competing for growth study was the continued importance of
developed markets to these companies. While we found growing As globalization continues to expand horizons,
interest in rapid–growth markets, they were perceived to be companies in the consumer products (CP) sector are
especially competitive and not by themselves, the whole story for actively searching for new markets, and new
high performers. opportunities.
CP companies need to utilize a tailored approach to
It is clear, however, that rapid–growth markets will be an increasing
overcome the inherent challenges of market entry in
factor going forward. To address this, we focused our research on
developing economies.
whether differences exist between high and low performers in their
approach to these markets. It is clear that high performers are not A move into rapid-growth markets typically involves
alone in their pursuit of cross-border opportunities, nor do they operating in less certain political and regulatory
appear to be pioneering ahead into new territories. Rather, it is landscapes, as well as transacting in a more volatile
their execution of these opportunities — focused in purpose, fast to currency. Already, they are faced with the competitive
deliver, and thoroughly explained to their stakeholders — that presence of local CP companies — not yet global in scope,
seems to explain their success. but powerful in ambition and entrepreneurial in nature.
Agile and not averse to taking risks, these local
High performers are doing better on: companies understand their local consumers and benefit
Customer reach — choosing markets carefully from a low-cost business model.
• Preferring India and China — these countries dominate globally, CP companies are relying on projections of future data to
but there are clear regional approaches, particularly with regard underpin their move into such markets. They need to be
to the next generation of rapid-growth markets aware that premiums are high for talent and distribution
• Going beyond the figures to develop a deeper understanding of in emerging economies, principally because they are
the real nature of their target market such competitive markets. It may therefore take longer
• Being clearer as to their target segment within each market for their investment to turn into desired return, and it
will be longer before their business starts performing to
Operational agility — being flexible, but cautious the normal expectations of more mature markets. It will
• Achieving sales more quickly — using sales agents for quick be longer still before they know whether their
entry, but seeking management control of longer-term demographic projections are accurate and whether the
operations political and regulatory terrain will become more certain.
• Being flexible as to their approach to market entry, but seeking
And yet, despite these challenges, it is no exaggeration
to learn from experience
to say that a paradigm shift is under way; within five
Cost competitiveness — seeking control of price years, more than 60% of the revenue of larger CP
and profit companies is set to come from the the rapid-growth
• Moving pricing closer to the target market to maximize the markets. With low-volume growth forecast in
opportunity North America and Western Europe, it is increasingly
• Achieving greater control of their cost base
clear that, for CP companies both large and small, the
rapidly developing economies hold the key to a
• Moving production closer to the target markets
prosperous future.
Stakeholder confidence — being more transparent
through detail
• Finding market entry more costly than expected in terms of
cash and time
• Sharing more detail about their new market strategy
Competing for growth How business is growing beyond boundaries 5

8. New markets
Customer reach
Choosing markets carefully
Given the increased variation in geographical market growth, the choice of which market to compete in has a
critical impact on company performance. This seems a statement of the obvious, but given the huge variation
that exists throughout both markets and company operations, its implications are immense. The world is
not flat, our starting points are not the same, but with global mobility of capital, the consequence of this
variation affects all players.
Preferring India and China Asia-Pacific and fallen out of the top 10 for companies based in
North America. The term “BRIC” has been superseded.
From a global perspective, we found that India (34%) and China
(33%) dominated the sales focus of all our respondents — with But it is not clear that a new global acronym can be developed.
Brazil (19%), Russia (14%) and Singapore (11%) some way behind. Looking toward the next generation of rapid-growth countries
High performers, however, had a much greater focus on India — the post-BRIC group — no simple category of countries exists.
(47%), followed closely by China (44%) and, to lesser degree, Brazil Countries such as Poland, Mexico and Argentina increase their
(26%). Lower performers had a lower and broader sales focus, with importance, but it is apparent that there is a difference in focus for
the same three countries to the fore, but a similar level of interest sales between the high performers and the low performers and
in Poland, Mexico and Singapore. that this varies by region.
The importance of India and China remain the same regardless of • High performers from Western Europe have a greater focus on
where companies are headquartered, although other key Middle East, Eastern Europe, Turkey and the Ukraine. Other
destinations in the top five are more regionally distinct: Singapore than Indonesia and Mexico, they appear to have less focus on
and Indonesia for Asia-Pacific, Middle East and Russia for Asia-Pacific and Latin America.
Western Europe, and South Korea and Mexico for North America.
• High performers from North America seem to be focused on
Looking more broadly, the top 10 sales markets have a clearer
Latin America. Other than South Korea and the Philippines or
regional tone to them.
Poland in Europe, the focus is strongly regional.
It appears that the combination of high volume and rapid growth in • Asia-Pacific companies have more of an Asia-Pacific focus,
the India and China markets lifts them outside the normal more regardless of whether they are high or low performers.
regional focus. Brazil can be seen to continue to emerge, while
Russia’s relative importance has declined. While it retains fifth
position for European companies’ sales, it has declined for
Most important markets for sales based on location*
Asia-Pacific Western Europe North America
High Low High Low High Low
1 India 71 70 India 45 20 China 46 47
2 China 55 75 China 44 24 India 36 41
3 Brazil 25 35 Middle East 36 18 South Korea 32 6
4 Singapore 25 5 Brazil 26 16 Brazil 23 25
5 Indonesia 18 20 Russia 19 25 Mexico 18 19
6 Bangladesh 11 5 Poland 15 14 Poland 14 22
7 Middle East 11 0 Romania 11 10 Chile 14 9
8 Russia 9 10 Turkey 11 7 Argentina 9 22
9 Malaysia 9 5 Mexico 8 13 Columbia 9 9
10 Vietnam 7 5 Ukraine 8 4 Philippines 9 6
* Post–BRIC group highlighted
6 Competing for growth How business is growing beyond boundaries

9. Going beyond the figures to develop a deeper High performers, however, regardless of sector, placed less
understanding of the real nature of the target market emphasis on simple quantitative demographics and income-per-
head factors. Indeed, high performers focused on political stability
All respondents generally rated economic and demographic factors
more than other players — a key driver of market stability in
highly in determining the markets that they would prioritize for
addition to inflation risks. Furthermore, although lower on their list
investment, with inflation and purchasing power parity
of priorities, high performers also placed greater emphasis on
assessments also important. The number of people multiplied by
gaining a deeper understanding of social factors affecting
high GDP growth seems as reasonable a starting point for market
purchasing behavior and understanding the reputational risk of
assessment as any, although the accuracy of both measures may
transacting in particular markets. The performance challenge is
be much less certain than expected. Given the degree of economic
not simply entering the market, but competing successfully against
reforecasting and correction within the developed world, complete
domestic incumbents. This requires getting beyond the numbers to
accuracy in rapid–growth markets would be unrealistic. But, while it
understand the critical local characteristics of the market. To win in
could be argued that such corrections in these markets have
India and China requires that you understand the market as well as
tended to be on the upside, even excessive demand can unbalance
local companies and can leverage an unmatched advantage
a lean supply chain.
against them.
Other factors are also important. Regulatory structures, for
example, are crucial — especially from a sector perspective. For the
Factors affecting entrance into rapid-growth markets
power and utilities sector, for example, the regulatory environment
dictates a company’s investment model. If such companies were to
move into deregulated markets, they would almost invariably have GDP growth forecasts 48
49
to be the lowest price in order to win market share from incumbent Demographic profile and 40
competitors. Financial services companies are also heavily projections 43
Political stability 38
impacted by regulatory changes. Here, different levels of 32
regulation are being implemented on a global, regional and Inflation and macroeconomic 34
country-by-country basis. The challenge for companies operating stability 42
Purchasing power parity 32
in this sector is not to treat regulatory systems in an isolated, 37
localized way, but to take a step back and consider how such Income per head 26
29
regulation can be turned into an opportunity, rather than an
Gap between wealthy and poor 18
obligation. 19
Social factors 15
affecting purchasing power 10
12
Credit growth 14
Reputational risk 9
4
Size of the grey/black market 6
6
High performers
Low performers
Competing for growth How business is growing beyond boundaries 7

10. New markets
Customer reach
Choosing markets carefully
Being clearer as to their target segment within each We asked all our respondents which customer segments they were
market focusing on — and in which markets. There were companies focused
across the different segments for each market, but there were
Rapid-growth markets are complex. Much depends on the distinctive patterns in the response. Of the 23 major emerging
ever-changing demographics as the group is far from homogenous. markets, there was significant variation by country:
Some segments comprise small numbers of individuals with high
levels of wealth, offering potential for high price points. There is a • “Premium customers” were the most highly targeted segment
long history of these groups being targeted by international in only three locations: Russia, the Middle East and China. Each
companies. Other segments offer greater numbers of customers areas where there are distinct groups with immense personal
— and hence larger volumes — though lower pricing. The Indian wealth
middle class, a popular target with an average income of • The “middle-market/aspirational” segment was the most highly
US$4,000, may not be very rich compared with their Western targeted segment in 10 countries: India, South Africa, Turkey,
counterparts, but numbering over 400 million, they represent a Argentina, Singapore, Indonesia, Philippines, Malaysia, South
huge opportunity. It is this latter “volume” segment that is driving Korea and Taiwan
fundamental change in business models, because the challenge of • “Cost-conscious or value” segment customers were the main
serving them profitably is so different for companies from targets in Eastern Europe and Latin America
developed markets.
• Only in Thailand did a majority of our respondents target the
“commodity” segment
There was, however, much greater variation in focus when
company performance was considered. The majority of high
performers target:
• “Premium” customers in the Middle East, Russia, China and
Latin America
• “Mid-market” customers in Africa, Brazil and the rest of the Asia
• “Cost-conscious” customers in Eastern Europe
• A mixture of segments in India
8 Competing for growth How business is growing beyond boundaries

11. In contrast, low performers almost always highlighted that they also suggest that, regardless of the scale of future potential, the
were targeting the broad “middle market.” This suggests that a intense competition for the “middle market” — and the scale of
more focused approach — whether low-volume high-value, or operational challenge it presents — is currently impacting overall
cheaper mass market — is driving enhanced performance. It might performance for some players.
Market segment of greatest focus for sales — majority responses
High performers Low performers
Greatest area of focus % Greatest area of focus %
Africa Mid–market 35 Mid–market 43
Brazil Mid–market 33 Mid–market 31
China Premium 31 Mid–market 30
India Mid–market 30 Mixture 26
Middle East and North Africa Premium 38 Mid–market 43
Russia Premium 35 Mid–market 46
Other Eastern Europe Cost–conscious 28 Mid–market 36
Mid–market 33
Other Far East Mid–market 32
Cost–conscious 33
Other Latin America Premium 26 Cost–conscious 36
Competing for growth How business is growing beyond boundaries 9

12. New markets
Operational agility
Being flexible, but cautious
Agility implies both speed and flexibility. In terms of new market opportunities, it requires both an ability to
respond to an opportunity quickly but, equally, to preserve the control necessary to move out of a market
as painlessly as possible, should the situation deteriorate. In a volatile market, windows of opportunity both
open and close with increasing speed.
Speed to enter, but able to exit Once the opportunity had shown merit, all respondents felt that
establishing a joint venture partnership was the most effective
Companies have quite different perspectives on what are either the route to take advantage. Indeed, in many rapid-growth markets it
quickest or the most effective ways of entering a market, but high may be required. High performers, however, if given the choice,
performers appear to adopt a more cautious approach. Working were more likely to place importance on making an acquisition or
with a local distributor was recognized by all respondents as being establishing a green field investment rather than working with a
the fastest way of entering a market. High performers, however, local partner. It seems that control is recognized as a precursor to
are both significantly more likely to focus on working with a sales speed and flexibility. Minimizing contractual obligations to partners
agent and less likely to establish a joint venture partnership or maximizes the ability to respond and, if necessary, to exit.
make an acquisition than low performers. In such a way, they are
speeding the access to the market but with the least capital or Operational implications clearly vary based on whether a company
contractual exposure. simply has a sales operation in a market or has a production facility
in that market as well. Governments will see the production facility
Fastest rapid–growth market entry strategies as offering the attractive potential of future employment. They
may put in regulations to require this over time.
47
Working with local distributors
56 This cautious approach is reflective of a different perspective that
Working with a sales agent 42 high performers seem to share about the obstacles that present
35
24
the greatest challenges in rapid growth markets. All respondents
Acquiring local private company
32 listed lack of bureaucratic clarity as the biggest obstacle. But while
Establishing a joint venture partnership 21 low performers listed slow customs, punitive taxes or arbitrary
30
Winning a privatization tender 14 courts — all major potential downside risks — high performers had
9
much more macro–level concerns about more widespread and
Establishing a greenfield investment 5
4 likely political and macro-economic risk. If your main challenges are
expected in the course of business, building nimbleness into your
High performers
Low performers operation is essential.
Most effective rapid–growth market entry strategies
Establishing a joint venture partnership 41
49
Acquiring local private company 37
30
Working with local distributors 34
37
Establishing a greenfield investment 20
16
Working with a sales agent 16
16
Winning a privatization tender 7
15
High performers
Low performers
10 Competing for growth How business is growing beyond boundaries

13. Being flexible as to their approach to market entry, A number of factors could explain this difference, but it is probably
but seeking to learn from experience most likely explained by the longer experience of market entry
that many companies in Western Europe will have had — not least
While recognizing market variation, high performers are more into other European markets. The more consistency developed,
polarized in their approach to market entry than low performers. the greater the opportunity for organizational learning.
A significant number plan market entry based on the needs of their
Consistency of approach to market entry
target clients and past experience. High performers were
significantly more likely to say that they had a consistent approach
High performers
that they leveraged for speed and effectiveness. But, equally, high Our approach varies We approach new markets
performers made up a majority of the larger group that responded significantly by market
Our approach varies
in aapproach new markets
We consistent way
that their approach varied significantly by market to optimize significantly by market in a consistent way
27
flexibility. 34
27
34
This polarization is also driven by both sector and market choice.
Market entry options are not always fully under the control of
39
management. The governments of certain rapid-growth markets 39
Our approach varies
impose the route of entry in some, if not all, sectors. There is,
slightly by market
Our approach varies
however, some variation in the market entry strategy adopted by slightly by market
our respondents depending on their regional location. While there
is a mixture of response from all regions, there is a difference in
where the majority focused: Low performers
• 43% of Asia-Pacific's high performing companies reported that We approach new markets
Our approach varies in aapproach new markets
they varied their approach considerably based on the market We consistent way
significantly by market
Our approach varies in a consistent way
significantly by market 22
• 55% of North America's high performing companies reported
30 22
that their approach varied slightly by market 30
• 38% of Western Europe's high performing companies reported
that they had a consistent approach to market entry
48
48
Our approach varies
slightly by market
Our approach varies
slightly by market
Competing for growth How business is growing beyond boundaries 11

14. New markets
Cost competitiveness
Seeking control of price and profit
In our original Competing for growth research, we found that high performers were much more in control
of their pricing than low performers. Some 28% had introduced new pricing strategies in the past two years
and they were significantly ahead in seeking to support better pricing through better systems and improved
analytics. Consequently, a larger number were able to push through price rises — even in a difficult time. They
saw price as the starting point for their consideration of cost, rather than the other way around.
Moving pricing closer to the target market Achieving greater control of their supply chain
Our most recent research shows that pricing remains one of the We sought to explore how respondents were addressing their
most complex and strategic decisions that a business takes in its supply chain in support of their wider market footprint. While there
operations. During the recession, many companies acted to take is a great deal of variation between sectors and markets, there
these decisions to the centre in the interest of both speed and does seem to be a difference in the focus of high performers.
perceived control. High performers share this concern, but they
are just as likely to have pushed pricing to the regional level rather High performers were more likely to seek and achieve greater
than the center. Thirty-three percent of high performers made control of the factors that impact their pricing and their costs.
pricing decisions at the regional level, compared with 29% of low This is supported by examining responses on the factors that have
performers. In contrast, 37% of low performers made decisions at a the greatest impact on pricing to serve key customers in rapid-
global level, compared with only 33% of high performers. growth markets. In almost all cases, low performers felt that
factors such as import costs, distribution, transport, and, indeed,
This confirms the findings from our earlier report Winning in a relative negotiating strength with third parties, had a bigger impact
polycentric world. These findings showed that the convergence of on their pricing than high performers did.
market potential between the developed and rapidly developing
world means that the number of markets that multinationals must We also asked respondents what were the key factors impacting
consider as “strategic” has increased. But, at the same time, the cost in serving their customers in rapidly developing markets.
nature of the opportunities in those markets can be fundamentally Distance from production to market was the major factor for both
different. In the developed world, companies have well-established groups, but significant differences between high performers and
business models and asset bases, but face weak growth prospects. low performers were reported:
In the rapidly developing economies, this situation is often
reversed. The reality of the global economy may be more variation • Labor costs play a more significant role in determining high
in operations rather than less. performer cost base than for low performers
• Import and customs costs are a far more significant element in
Location of decisions on pricing of goods and services low performers’ costs both in proportion and priority
• Transport infrastructure costs are also more significant for low
33 performers, suggesting that the distances are greater
At global headquarters
37
At regional level 33 This analysis of cost suggests that high performers have moved to
29 locate a larger proportion of production close to — and often in
In the rapid-growth market itself 17
16 — the markets they aim to serve. In turn, this supports the view
By third-party agents, 2 that economies of scale — certainly above a certain level — are no
distributors or partners 2
longer the dominant factor in competitive success.
A combination of any 14
16 High performers
Low performers
12 Competing for growth How business is growing beyond boundaries

15. Moving production closer to the target market • For Asia-Pacific based companies, almost two-thirds of higher
performers are focusing on India compared with just over half of
The top markets for production for all respondents are China lower performers. This suggests that a focus on India in certain
(30%), India (28%), Brazil (12%) and Mexico (12%). High markets contributes to growth.
performers, however, have a much greater focus on India (43%) • The picture in North America is, however, rather different. China
and China (41%), which almost exactly mirrors their sales focus. is the leading destination for investment in production, with 41%
of leading businesses focusing on this market, compared with
But when we look at the location of respondents, some strong 31% of lower performers.
regional differences emerge between high and low performers in
their attitude to location: While large differences clearly exist between high and low
performers in their first choice of destination, the variance
• 40% of leading Western Europe businesses have identified India between their second choice of production location is no more than
as their primary destination for investment, whereas only 21% 2%. It is worth noting that, while 50% of Asia-Pacific production
of lower performers have the same focus. focus is within their own region, this falls to only 20% for
companies based in North America.
The most important growth markets for production
For North America based companies For Asia-Pacific based companies For Western Europe based companies
China 41 66 India 40
31 India 21
55
India 27 59 China 32
28 China 30
60
Middle East 18 18 Brazil 16
25 Brazil 6
20
South Korea 18 Singapore 18 Poland 15
6 5 11
Singapore 18 Middle East 14 Russia 13
3 0 10
Poland 18 Malaysia 11 Ukraine 13
3 5 3
Russia 14 Vietnam 9 Romania 8
6 20 9
South Africa 14 Indonesia 9 Bangladesh 8
0 10 3
Argentina 9 Bangladesh 7 Mexico 7
19 0 11
Brazil 9 Mexico 5 Turkey 7
13 0 7
Malaysia 9 Russia 2 Colombia 7
6 5 6
Colombia 9 Thailand 2 Pakistan 7
6 5 1
Romania 9 Pakistan 2 Philippines 7
3 0 0
Mexico 5 Taiwan 2 Middle East 6
31 0 20
Vietnam 5 Romania 2 Singapore 5
13 0 16
Philippines 5 Ukraine 2 Chile 5
9 0 9
Chile 5 South Africa 2 Malaysia 5
9 0 3
Bangladesh 5 Nigeria 2 Indonesia 3
6 0 11
Indonesia 5 Philippines 0 Thailand 3
3 15 6
High performers
Low performers
Competing for growth How business is growing beyond boundaries 13

16. New markets
Stakeholder confidence
Being more transparent through choice
We continue to observe that high performers are reporting more extensively than low performers. This
is particularly evident in the extent of the information they provide to external stakeholders on the new
markets they are entering. The market determines risk and the regulatory regime – and hence the amount
that you need to report to your market. Some markets are more of a challenge than others and need more
attention. And companies have a lot to explain.
Finding market entry more costly than expected in terms Sharing more detail about their new market strategy
of cash and management time It is not simply a question of volume of information that might
In a forthcoming report — CFO: mastering the costs of entry — we explain the communication success of high performers.
ask some 900 CFOs to comment on their experience of investing in Regardless of performance, companies report their perspective
rapid-growth economies. In almost a third of cases, the costs, time of the business prospects in the markets in which they operate
spent or risk was higher than expected. While there was consistent and this includes a discussion of risk. Indeed, high performers
difficulty reported on finding reliable business partners, valuing place less importance on the historical performance of the
potential acquisitions and budgeting for the short– to medium–term different business units.
costs of entry, high performers typically spent more time on
Nor is it an issue simply of the quality of material — there is
strategy development, but especially on valuing the wider market
much less emphasis placed on the quality of forecasting than we
opportunity and undertaking due diligence. Both sets of problems
would have expected, although this could be explained by the
have a similar source in the ongoing challenge in accessing high
ongoing nature of the high performers dialogue with their
quality and reliable data upon which to base both market
stakeholders.
assessment and entry route. High performers, however, are clearly
looking both more widely and more carefully at the opportunity for There is also a variation in type and detail of information. Rather
them. than talking about regions or geographical clusters, high
performers talk about specifics. In addition, they seek to provide
Most difficult market entry issues both broader and more granular data with more coverage of
non-financial KPIs. And they are more likely to discuss the
48 impact of regulatory change and potential environmental risks.
Identifying reliable business partners
46
Valuing potential acquisitions 46 They are also more specific about operational efficiency
45 measures — and their impact on the wider business — as well as
Short- to medium-term costs of entry 42 the tax exposure they face.
44
Strategy development 36
33 Information provided to external stakeholders on entering
Valuation of market opportunities 35 rapid-growth markets
26
Identifying M&A targets 25 55
22 Countries involved
36
Due diligence 25 Business prospects in market 50
17 49
Risk assessments 44
42
High performers
Cash and liquidity positions 36
Low performers 47
Latest performance 34
47
Accuracy of growth forecasts 29
40
Operational efficiency measures 25
16
Tax exposure 22
11
Impact of regulatory change 18
12
Environmental risks 16
12
High performers
Low performers
14 Competing for growth How business is growing beyond boundaries

17. Key questions for management
• Have you chosen the right markets for your
business?
• What is your position with regard to India and China?
• How deeply do you understand your target
customers?
• What is different about your competitors and better
about you?
• How much of your pricing do you control?
• How much of the opportunity do you communicate
to your stakeholders?
Competing for growth How business is growing beyond boundaries 15

18. New products and services: what we learnt last time
The first Competing for growth study highlighted innovation as
a critical area for competitive success. It also showed that a top
priority for high performers is the introduction of a broader range of
products and services to improve return from existing customers.
Sixty-two percent of high performers used new products and
services as a means to increase sales, compared with only 44% of
low performers.
The research showed that, while low performers are more focused
on cost competition, high performers are driving into new markets
and product areas where price competition is less intense.
Our most recent research drills down into how high performers are
succeeding in this drive for new products and services. Closeness to
the market, self belief, the right talent and stronger processes are all
part of the competitive mix.
16 Competing for growth How business is growing beyond boundaries

19. New products and services
What high performers are getting right
Innovation in products or services was cited as being most
important in winning the competitive battle by 71% of respondents Innovation: cleaning up in cleantech
to our original Competing for growth study. Two quite distinct
approaches emerged. Intense competition around incremental Few sectors have grown as fast, or as widely, as clean
innovation to better meet the needs of current customers and technology (cleantech) in recent years. Helping deliver
often equally intense collaboration with third parties in tackling the economic growth, jobs, energy security and carbon
transformational innovation that creates new markets. reduction, cleantech’s rapid expansion has been
underpinned by the success of innovative and
The centrality of effective new product development is reinforced entrepreneurial industry leaders in utilizing the
by our latest research. But the low price that is demanded in many renewable resources that exist around the world.
emerging markets may require the convergence of the two
approaches, through the adoption of more transformational A diverse sector, with a number of different technologies
innovation techniques to existing products. So, for example, the within its orbit, the industry's development has been one
US$2,000 car is not creating anything new, but its challenging of the key economic success stories of recent years.
price requires a radically transformed approach to production. Indeed, its very diversity has been a large factor in its
success; solar, wind and biomass are just some of the
technologies that have been driving the sector forward.
High performers are doing better on:
And yet, with a number of new technologies emerging, it
Customer reach — being driven by current demand
is clear that this is one industry which exists in a state of
• Increasing product ranges significantly — some 30% of high permanent innovation. One area that is attracting much
performers have increased their product range by more than attention from investors is “efficiency technologies.”
20% in the past two years While these aren’t necessarily new, they can be used in
• Focusing on current customers and employees as primary innovative ways to deliver large savings in costs and
sources of innovation energy. An example is light-emitting diodes (LEDs), which
use a fraction of the energy needed for more traditional
Operational agility — moving quickly from idea to market
lighting. Lasting for a lifetime, they can provide
• Following a formal process for innovation, but with greater consumers with savings for many decades and, as an
clarity on “go/no go” and oversight by business management easy and cost-effective means of saving energy, their
• Adopting a structured “from thought to finish” process with potential is enormous.
launch and review built into the plan
In addition, second generation biofuels are being
Cost competitiveness — acting to capture more value aggressively researched, as are tidal, offshore wind and a
• Choosing to invest to increase control — increasing marketing whole host of other technologies. There are some in this
spend to capture margin sector who are comfortable with new innovations failing
• Locating innovation closer to target markets — increasingly in as long as those that succeed deliver real and radically
rapid-growth markets successful new products. Others, however, believe that
all the technologies that are necessary to combat climate
Stakeholder confidence — taking their stakeholders with change exist already.
them on the journey
• Providing more detail on opportunity and risk to external While only time will tell whether existing technologies at
stakeholders massive scale or really radical undiscovered technologies
• Identifying and rewarding innovative talent
dominate the next generation of cleantech companies,
this sector’s success story is far from over. In fact, it’s
only just beginning.
Competing for growth How business is growing beyond boundaries 17

20. New products and services
Customer reach
Being driven by current demand
Effective account management is perceived by high performers as being the greatest source of growth for
the next two years. This has a fundamental impact on the product development process. Part of the process
of maximizing the return on existing accounts is introducing a broader range of products and services to
those accounts — both across the range of product value and the product life cycle. This is the top priority for
high performers.
High-performing companies aim to “lead in their segment” when it
comes to product innovation as such leadership helps shape a Customer segmentation and
market-leading brand and avoids having to compete on price.
Forty-four percent of low performers, by contrast, see themselves understanding your customers
as “fast-followers.” Some 48% of high performers describe
Segmentation is becoming more precise and
themselves as being “pioneers” in product development, compared
sophisticated as companies strive to target the most
with only 25% of low performers, and almost twice as many have
profitable customers. IT should be championing the
radically rethought their approach to innovation in order to meet
systematic collection, analysis and presentation of
demand.
customer and market data to identify where the higher-
margin opportunities lie.
Consequently, high performers’ product portfolios and sales
pipelines include a significantly higher percentage of new products Existing clients should naturally be a rich source of
— 46% of their sales came from new products developed in the past future business and many companies are looking to
three years which they support through extensive marketing. In broaden the range of products and services offered,
contrast, new products account for only 24% of low performers’ support account management and develop the customer
sales. And this has not happened by chance. life cycle concept. Customer knowledge is likely to be at
the heart of such efforts.
Increasing product ranges significantly
Analysis allows for differential investment
The focus of high performers on better understanding the needs of
the customer has resulted in an explosion of product development. By taking a more selective path, some companies may
Some 87% of all survey respondents have grown their portfolios of resist the temptation to expand into certain emerging
products over the past three years to exploit their market potential markets. Others may even choose to take the tough and
better. This seems remarkable at a time when competition is controversial decision to contract, exiting existing
intense and cost management paramount, but reflects the fact that segments and axing renowned brands where margins are
incremental innovation has become a main competitive tool. It also low or negative. Once more, IT can support such difficult
suggests that business on a broad scale has mastered the ability to choices, providing profitability analyses to help challenge
produce variety without compromising on cost. They are replacing long-held assumptions.
the economies of scale with the more complex economies of Moving into new markets brings a number of logistical
learning and sales. challenges, not least providing service to different time
zones, and IT can help ensure that customer care is
But the scale of increase for high performers has been much more
geared up to support these changes.
extensive: 54% have increased by over 11% in the past three years
and 30% by more than 20%. The equivalent figures for low Customer knowledge
performers are only 17% and 6%. Indeed, for low performers, 48%
have only increased by between 1% and 45%, and 21% stayed the Understanding the customer is the key to effective
same or declined. marketing, and IT can be at the center of a continuous
feedback culture that encourages sales and service staff
to provide information on existing and potential clients.
Innovation for growth IT’s role in the new global economy,
Ernst & Young, April 2011.
18 Competing for growth How business is growing beyond boundaries

21. Increase in range of products
Putting Tata Motors' employees at
Increased by greater than 20%
6
30
the heart of innovation
Increased by between 11% and 20% 24
11 Leading companies in emerging markets often produce
16
Increased by between 6% and 10%
16 innovative designs that reduce manufacturing costs and
Increased by between 1% and 5% 19 sometimes disrupt entire industries. For example, in
48
India, Tata Motors’ US$2,900 Nano vehicle is priced at
Stayed the same 10
16 less than half the cost of any other car on the market
Decreased 1 worldwide, and a version is set to go on sale in Europe
5
High performers
this year.
Low performers
Prakash Telang, Managing Director of Tata Motors India,
says it is crucial to create an environment and corporate
Focusing on current customers and employees as
culture that nurtures innovation and encourages
sources of innovation
continuous improvement. Within Tata, the corporate
culture is not only geared toward driving innovation and
This explosion in product development, however, is focused on
product improvement, but is also aimed at engaging
today’s demand. Most of the ideas come from current employees
every employee to contribute to this process, from the
or customers. Indeed, innovating with a focus on potential, rather
shop floor to the boardroom.
than current, customers seems to have a detrimental impact on
current performance in that it is an approach favored by low Tata Motors expects and encourages their people to
performers. Our earlier work found that high performers have bring to work what they call a simple “three H formula”:
developed better customer analytics systems to understand the hands, head and heart. Someone who is just doing their
needs of their current customers and this seems reflected in their job for eight hours a day is using their hands. Aiming to
improved performance in product development. solve a problem involves the head. And if they are doing
all of that with passion, they are probably bringing their
But it also suggests that most of the effort is focused on heart.
incremental development. Indeed, fewer high performers are
looking across their supply chain or to academic institutions, which For Tata Motors, it is critically important to engage their
suggests less focus on transformational initiatives with both their people on all three Hs and to create an environment
increased costs and longer time-frames. where everybody feels an integral part of the company,
passionate about contributing and developing it forward.
Most effective sources of innovation As Prakash puts it: “If we can all see how Tata Motors
can grow and everybody contributes, big things can
Our employees 72
46 probably happen.”
Existing customers 64
66
Prakash Telang, Managing Director, interviewed by
Potential customers 41
54 Ernst & Young, Planning for growth study, July 2010
R&D facilities 28
13
Suppliers, retailers, wholesalers 26
44
Educational institutes 16
25
Other rapid-growth market experience 12
12
High performers
Low performers
Competing for growth How business is growing beyond boundaries 19