Taken from a new report by business advisory firm Deloitte:
More than half of global manufacturers (56%) 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%) are optimistic about prospects in developed markets, the report said.
However, less than one third (29%) of the companies surveyed currently enjoy higher margins in emerging markets than in developed ones. Of those that do, over half (54%) are providing different product features to the ones offered in their home markets.
Deloitte said its findings send out a clear message – manufacturers must tailor their products, pricing and strategies specifically to Asian, Eastern European and Latin American countries, if they are to realise the enormous potential of these emerging economies.
Half of the manufacturers questioned still provide uniform products across all markets, despite the fact that 40% generate lower gross margins in emerging markets.
Jane Lodge, UK manufacturing industry leader at Deloitte, 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.”
The report said key to achieving success in emerging markets appears to be research and development (R&D). It added: “Nearly half (49%) of the companies selling new products conducted the R&D locally. The executives cited the ‘need to understand the local market’, ‘faster time to market’ and ‘lower R&D costs’ as the top three reasons for investing in local facilities.”
The responses from the UK manufacturers surveyed paint a similar picture:
Nearly two-thirds (64%) of UK manufacturers expect to increase sales revenues in emerging markets over the next three years.
One in five UK manufacturers achieves higher gross margins in emerging markets than in developed markets. Only 5% said their emerging market operations sell products significantly different to those in their domestic markets.
Three-quarters of UK manufacturers questioned by Deloitte either have R&D operations in an emerging market already (45%) or are planning to set them up (30%).
Lodge added: “UK manufacturers know the price of failing to recognise challenges from the Far East and Asia, and now, the most profitable global manufacturers are using emerging markets as the catalysts for new product and service innovation.”
Deloitte has identified five challenges that global manufacturing companies must innovatively tackle to achieve success in emerging markets:
Build new value propositions, delivering 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 (R&D), locating R&D facilities in emerging markets to acquire deeper customer knowledge, and to build, market and distribute tailored products
Master the complexity of their global value chains, providing 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.
Tailor talent management strategies to the unique needs of employees in emerging markets, rethinking how to effectively recruit, develop, deploy, and connect people.
Gary Coleman, global managing director of manufacturing at Deloitte, said: “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.”
He added: “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.”
