Innovative
Strategies Key to Success in India and Other
Emerging Markets
With
the conclusion of the 2006 Summit on Indian
Manufacturing Competitiveness, a new report "Innovation in Emerging Markets: Strategies
for achieving commercial success", has been
released by member firms of Deloitte Touche
Tohmatsu ("Deloitte").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%)
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%) are optimistic about prospects in developed
markets, according to research by business
advisory firm Deloitte.
However, only 29% of the companies surveyed
enjoyed higher margins in emerging markets
than in developed ones. But, of those that
did, 54% provided different product features
to the ones offered in their home markets,
compared to 43% of those whose margins were
the same or lower.
From the survey, manufacturers send out a
clear message that 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% generated lower
gross margins in emerging markets.
And a key to achieving success in emerging
markets appears to be research and development
("R&D"). Forty-nine (49) percent 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 utilizing 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, 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:
1. 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.
2. Most companies sales revenues expected
to expand in India. Of the companies that
sell their products in India, 51% expected
their sales revenues to increase substantially
over the next three years, while 37% expected
revenues to increase somewhat.
3. Roughly one-quarter of companies achieve
higher gross margins in India. 26% 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%
said they are lower.
4. Many companies do not tailor their products
for India. 42% of companies indicated they
sell very similar products in India as they
do in their home market, while only 21% said
their products are significantly different.
5. R&D operations in India expected to increase.
23% of respondents said they currently have
R&D operations in India, while another 12%
said they are planning R&D operations. Among
companies that either have current or planned
R&D operations, 33% expected their R&D activity
to increase significantly in India over the
next three years, while 39% 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:
1. 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.
2. Globalize research and development ("R&D")
by locating R&D facilities in emerging markets
to acquire deeper customer knowledge, and
to build, market and distribute tailored products.
3. Tailor talent management strategies to
the unique needs of employees in emerging
markets, rethinking how to effectively recruit,
develop, deploy and connect people.
4. 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.
5. 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.
