With India and China reaching new trade heights, Global manufacturers in the last few years have had to confront these challenges and realize the new opportunities emerging markets can create.
Mumbai, India, 3rd August, 2006: With the conclusion of the 2006 Summit on Indian Manufacturing Competitiveness today, a new report Innovation in Emerging Markets: Strategies for achieving commercial success, was released by member firms of Deloitte Touche Tohmatsu. The report indicates that global manufacturers have responded to the impact of emerging markets with the foresight to source, develop, manufacture and sell their products in these high growth regions.
More than half of global manufacturers (56 per cent) surveyed expect to substantially grow revenues in emerging markets over the next three years, with nearly three-quarters anticipating significant increases in China. Less than one quarter (23 per cent) are optimistic about prospects in developed markets, according to research by business advisory firm Deloitte.
However, only 29 per cent of the companies surveyed enjoyed higher margins in emerging markets than in developed ones. But, of those that did, 54 per cent provided different product features to the ones offered in their home markets, compared to 43 per cent of those whose margins were the same or lower.
From the survey, manufacturers send out a clear message - organizations must tailor their products, pricing and strategies specifically to Asian, Eastern European and Latin American countries, if they are to realize the enormous potential of these emerging economies. Half of the manufacturers surveyed provided products in emerging markets that were very similar to those they provided in their home market, despite the fact that 40 per cent generated lower gross margins in emerging markets.
And a key to achieving success in emerging markets appears to be research and development. Forty-nine (49) per cent of the companies selling new products conducted R&D locally. The executives surveyed cited "better understanding of the local market", "faster time to market" and "lower R&D costs" as the top three reasons for conducting R&D in emerging markets.
Gary Coleman, global managing director of manufacturing at Deloitte, added, "The most profitable companies are looking beyond traditional strategies to generate a continual stream of innovative products tailored to the needs of consumers and industrial buyers in emerging markets."
"The most successful manufacturers allow local autonomy while utilising the parent company's governance, business processes, and management expertise to offer products at dramatically lower prices that match the lower purchasing power of most buyers in emerging markets."
Kumar Kandaswami, India manufacturing industry leader at Deloitte, said, "Most manufacturers are more accustomed to developing products designed to serve existing customer segments in mature markets. But emerging markets offer opportunities to forge innovations that create entirely new markets, often among middle and lower income consumers who are not being served well, or perhaps at all, by available products. Herein lays a huge opportunity for the industry, waiting to be tapped"
The result from the India respondents showed:
- Almost half the companies in our survey sell their products in India. 44% of the 418 manufacturing companies participating in Deloitte's survey indicated they currently sell their products in India.
- Most companies sales revenues expected to expand in India. Of the companies that sell their products in India, 51] per cent expected their sales revenues to increase substantially over the next three years, while 37 per cent expected revenues to increase somewhat.
- Roughly one-quarter of companies achieve higher gross margins in India. 26 per cent of companies that sell in India said their gross margins are higher than those in developed markets, while 26% said they are the same, and 48 per cent said they are lower.
- Many companies do not tailor their products for India. 42 per cent of companies indicated they sell very similar products in India as they do in their home market, while only 21 per cent said their products are significantly different.
- R&D operations in India expected to increase. 23 per cent of respondents said they currently have R&D operations in India, while another 12 per cent said they are planning R&D operations. Among companies that either have current or planned R&D operations, 33 per cent expected their R&D activity to increase significantly in India over the next three years, while 39 per cent expected it to increase somewhat.
Commenting on the broad findings, Kumar Kandaswami said, "Long-term success requires more than simply tinkering with existing products, lowering prices, and developing new sales channels. Manufacturers must understand the unique needs of each local market and develop new offerings accordingly."
Deloitte has identified five challenges that global manufacturing companies must innovatively tackle to achieve success in emerging markets:
also see : Innovation
in Emerging Markets: Strategies for achieving commercial
- Build new value propositions to deliver different product offerings that meet the unique needs of emerging market customers. In many cases, this will be at dramatically lower price points than in developed markets.
- Globalise research and development by locating R&D facilities in emerging markets to acquire deeper customer knowledge, and to build, market and distribute tailored products.
- Tailor talent management strategies to the unique needs of employees in emerging markets, rethinking how to effectively recruit, develop, deploy and connect people.
- Master the complexity of Global value chains to provide autonomy at the local level while leveraging the strengths of headquarters, including governance and management know-how.
- Build risk management capabilities to effectively detect, correct and manage the unique profile of risks presented by emerging markets, such as the protection of intellectual property.