January 25, 2012
Accenture Study: Majority of Companies Say They Must Rethink Their Capabilities To Secure Growth in Emerging Markets
Diversity, speed of emerging market growth require new approaches to compete and win
DAVOS, SWITZERLAND; Jan. 25, 2011 – A majority of global business leaders say their companies are looking to high growth emerging economies to fuel their next stage of growth, but do not believe they have the necessary capabilities to compete in these markets, a new Accenture (NYSE: ACN) study finds. According to a survey of 588 business leaders in 85 countries, 80 percent say their company’s primary focus for growth is on emerging economies, but 73 percent believe they must accelerate their efforts to build sufficient market share in these high-growth markets, or may, in fact, be too late to do so.
The survey, published in an Accenture report: Fast Forward to Growth: Seizing opportunities in high-growth markets, found that 40 percent of executives say they lack a strategy or the operational capabilities to take advantage of opportunities in their target high-growth markets and 57 percent believe their company will have to “reassess” or “fundamentally rethink” the approaches and capabilities they need to compete in these markets. The data reveals no significant difference between companies from mature and emerging markets when it comes to preparedness for building market share in these geographies.
The report analyses the diversity of growth rates of household incomes in a number of economies and suggests that significant opportunities exist in markets that are often poorly understood by multinational businesses. In order to take advantage of these opportunities, the report recommends that as a first key step, companies should invest in advanced techniques to track and forecast rapid changes in purchasing power and consumption trends in these markets, as well as the nature of the competition they will face there.
“There is a tendency for companies to hesitate in prioritizing investments in new markets and even a preference to retrench or withdraw from some locations until the global economic environment becomes clearer,” said Mark Spelman, managing director, Strategy, Accenture. “Many companies are holding healthy cash reserves that could be used to expand, and our research identifies countries with high growth consumer markets that could represent significant opportunities. Yet companies continue to hesitate, which could be one of the greatest risks in today’s competitive environment. The first step is getting to know new markets better.”
A video report from Mark Spelman discussing the global report is available via Accenture’s YouTube channel and may be accessed by clicking this link.
Diversity of household income levels points to the need for better prioritization
The report’s analysis of future household income in 64 leading economies was conducted in collaboration with Oxford Economics. It suggests that 87 percent of the additional 124 million households that become part of the world economy in the 10 years to 2020 will be in emerging economies, representing at least US $8.5 trillion of additional household income. Among the examples of the pace and diversity of growth revealed by the analysis:
- Despite China’s size and growth rate, 21 other emerging economies – including Poland, Colombia, Malaysia, Nigeria and Kazakhstan – had a greater number of households with an annual income above US$50,000 in 2010.
- China was ranked 28th among countries with household incomes of at least US$30,000 in 2010. However, by 2020, it is expected to overtake all but the US, Japan and Germany.
- Among emerging markets, Turkey will see the greatest absolute increase in household income from households earning at least US$50,000 by 2020, a rise of almost 150 percent to US$635bn.
- Other less familiar countries will offer significant opportunities. By 2020, for example, the number of households in Kazakhstan with incomes of at least US $50,000 is expected to more than double to 770,000, more than the combined number of households with incomes of that level in Indonesia, the Philippines, Vietnam, Pakistan and Egypt.
Downturn Has Accelerated Shift in Trade to Emerging Markets
In addition to the results of the business leaders survey, Fast Forward to Growth contains research which indicates that, if current trends continue, the value of exports between emerging economies (E2E) will surpass that between developed markets (D2D) for the first time by the end of 2013. Until recently, D2D trade has dominated global trade volume and as recently as 2000, E2E was the smallest component of global trade flows. According to Accenture, the shift has been accelerated by the economic downturn.
“As trading volume shifts to high growth markets, businesses must either place themselves in these economies or miss out on the increasing trade that will flow between them,” said Spelman. “But the landscape of high growth consumer markets is changing fast and companies must look beyond labels like the BRICs (Brazil, Russia, India, China) when formulating their growth plans. The diversity of growth rates means that companies must consider a broader range of opportunities by becoming granular in their identification of niche market segments.”
The Accenture report illustrates how companies will need to look beyond conventional market segments to new, innovative customer groupings and propositions. One method is to develop cross-country segments of customers with common needs and preferences. For example, one multinational company found success by identifying the needs of male consumers in areas with scarce water supplies and designed male grooming products specifically for this customer group in multiple markets.
According to Accenture, another method is to develop business cases based on the potential that can be found in cities or regions rather than countries. For example, a Chinese beverage company secured an early market advantage by targeting 600 smaller cities rather than entering more competitive larger cities. By using local traditional distribution channels in these smaller cities, the company has enjoyed compound annual growth rates of more than 100 percent since 2005.
Sizing and segmenting new markets
In addition to advocating the use of different segmentation variables to uncover new customer groupings and target markets, the Accenture report identifies recommendations to accelerate the selection of target markets:
- Conduct multi-market forecasts of consumption to help decide how and when to enter select markets;
- Maximize the value of existing proprietary customer data in environments where market data is scarce;
- Gather reliable local-level data through new techniques such as mobile and social media, helping to create new relationships with consumers.
“Accenture’s research makes it clear that multinationals cannot afford to take a business-as-usual approach to growth, especially when it comes to gaining and sustaining a foothold in the emerging world,” said Spelman. “Companies that are able to size, time and prioritize demand opportunities; cultivate and protect future demand in high-growth geographies and build agile and flexible operational capabilities, will have the best chance for long-term success.”
Accenture is a global management consulting, technology services and outsourcing company, with more than 244,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.
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