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, according to a new report by business advisory firm Deloitte.

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’s 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 per cent 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.”

Key to achieving success in emerging markets appears to be research and development (R&D). 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 either have R&D operations in an emerging market already (45%) or are planning to set them up (30%).

Jane 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.

“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.”

For a free copy of the Innovation in Emerging Markets: Strategies for Achieving Commercial Success report, please visit www.deloitte.com/manufacturing.

Ends

Note to editors:

Innovation in emerging markets In recent years, global manufacturers have been enticed by the enormous business potential presented by emerging markets. But what is required to succeed in these markets whose cultures, customer requirements, labour practices, and regulatory regimes are very different than those in developed markets? Register to receive the full report: Innovation in emerging markets.

About the Research:
The research by Member Firms of Deloitte Touche Tohmatsu into the topic of “Innovation in Emerging Markets” examines what is required for global manufacturers to realize the enormous market potential of the developing economies of Asia, Eastern Europe, and Latin America. Ten emerging markets were examined including: Argentina, Brazil, China, Czech Republic, India, Indonesia, Mexico, Poland, Russia and South Korea. The research involved a global online survey completed by over 400 senior executives from a broad range of manufacturing sectors, 12 in-depth case studies, and points-of-views developed from the extensive experience of Deloitte member firms in advising major manufacturers operating in emerging markets. The executive summary report, “Laboratories of Innovation: Leveraging Emerging Markets for Commercial Success”, which highlights the preliminary findings of the research, was released at a Deloitte CEO Breakfast during The World Economic Forum in Davos, Switzerland. Deloitte will release the full and detailed thought leadership report on 24 July, 2006.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Known as an employer of choice for innovative human resources programmes, it is dedicated to helping its clients and people excel. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s omissions. Services are provided by member firms or their subsidiaries and not by DTT.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.