Reprinted with permission from Deloitte.
In mid-2011, Deloitte Consulting LLP conducted a survey of 628 executives to understand where they perceived the greatest revenue opportunities in emerging markets, which growth strategies have proved most effective and the challenges companies face. The survey respondents included 389 executives from companies that currently generate revenues from one of 10 key emerging market countries or regions.
The companies surveyed found the greatest success in emerging markets came not from simply establishing a sales office and selling their existing products and services. Instead, these companies came to understand the special requirements of customers in each emerging market and then designed offerings to meet their needs at market appropriate prices. A key ingredient in success was to establish company-owned production, service, distribution, R&D and other operations in emerging markets to become closer to customers and part of the local business community.
Executives saw the greatest opportunities and strategies in the following:
- Opportunities remain in the BRIC (minus Russia). Among 10 leading emerging markets, executives surveyed were most likely to expect revenue increases of 25 percent or more over the next three years in Brazil, India and China.
- Bigger is better. According to respondents whose companies had revenues of $5 billion or greater—those larger companies were more likely to have exceeded their sales revenue goals in emerging markets over the last three years, while small companies (less than $500 million in revenue) were the least likely to have done so.
- Go local. Companies that had company-owned operations in at least five of six major emerging markets were much more likely to have exceeded their revenue goals. In addition, some successful strategies were using local sales/service centers, employing company-owned sales and distribution and employing a company-owned supply chain. Local operations may provide advantages such as greater knowledge of customer needs and buying habits, greater brand awareness in the market and more experience in navigating government approvals and procedures.
- Know your customer. Designing products specifically for customers in the local market and offering a different value proposition were considered as among the most successful strategies. When it came to challenges identified by survey participants, one of the top challenges in five of the six emerging markets studied was to provide products/services that meet customer needs at prices they can afford.
For many companies, the opportunity in emerging markets is significant, but the challenges can be daunting. Driving growth in emerging markets has fundamental implications for a company’s business strategy, operating model and risk management capabilities – now as well as in the future. While organizations should not embark lightly upon their emerging market journey, the lessons learned from this survey – both successes and failures – can help organizations build more sustainable platforms for growth in emerging markets.