Davos, Switzerland, January 25, 2006 — Emerging markets are becoming the catalysts for new product and service innovation. Long-term success, however, will take far more than simply making minor adjustments to existing products, lowering prices and developing new sales channels, according to a new report released today by the member firms of Deloitte Touche Tohmatsu (Deloitte) during the World Economic Forum in Davos, Switzerland.

Outlining the key research findings at a Deloitte CEO Breakfast event in Davos, Global Managing Director, Deloitte Manufacturing Industry Practice, Mr. Gary Coleman says, "Successful companies are looking beyond traditional strategies to meet the needs of markets with significantly lower per capita GDP.

"Companies will need to acquire a new set of competencies and organizational structures to generate a continuing stream of innovative products tailored to the needs of consumers and industrial buyers in emerging markets."

Mr. Coleman adds, "They will also need to take advantage of their parent company's governance, business processes, and management expertise to offer these products at dramatically lower prices that match the lower purchasing power of most buyers in emerging markets."

The new Deloitte report, "Laboratories of Innovation: Leveraging Emerging Markets for Commercial Success," identifies five strategic initiatives that companies must deploy to grow profitably in emerging markets.  Successful companies need to:

1. Develop tailored product offerings for the local market at cost structures, price points and business models that match GDP per capita economics.
2. Build local R&D capabilities in emerging markets and connect with local commercial managers.
3. Leverage global value chain competencies to maintain margins and effectively manage costs.
4. Acquire deeper customer knowledge and localize marketing strategies to reach customers and capture market share.
5. Win the war for talent by tailoring strategies that effectively deploy, develop and connect people.

Other key findings:

• Executives are bullish about the growth outlook in emerging markets.  Nearly 60 percent of the executives surveyed expect their company's revenues in emerging markets to grow substantially over the next three years, compared to just over 20 percent who were as optimistic about prospects in developed markets.
• Half or more of the executives surveyed said their products were very similar to those sold in their home market.
• For companies who did varying product offerings, they were more likely to vary pricing and discounts rather than offering fundamentally different product models or features.
• Among executives headquartered in developed markets, over 42 percent had lower gross margins in emerging markets, 34 percent had roughly equal margins and only 24 percent enjoyed higher margins.
• Of the companies who did capture higher margins, nearly three-quarters provided product offerings (e.g., features, models and pricing) that were either very different or somewhat different than their home markets.
• Forty percent of the companies selling new products in emerging markets said R&D was done locally, citing "need to understand local market," "lower R&D costs" and "faster time to market" as the top three reasons for investing in local R&D facilities.

"Emerging markets around the world offer significant growth potential, but the most successful and profitable companies will be those that really understand their customers and take a different approach," adds Mr. Coleman.

About the research
The research by Deloitte 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. Key markets examined include: China, India, South Korea, Russia, Poland, Czech Republic, Argentina, Mexico and Brazil. It includes a global online survey that has been completed so far by nearly 300 executives, in-depth case studies and the extensive experience of Deloitte member firms in advising major manufacturers operating in emerging markets. An executive summary report, "Laboratories of Innovation: Leveraging Emerging Markets for Commercial Success," highlights the preliminary findings of the research. The report was released at a Deloitte CEO Breakfast during the World Economic Forum.  In April 2006, Deloitte will release a full report with detailed findings.

About the Global Manufacturing Industry Practice
The Global Manufacturing Industry Practice of the member firms of Deloitte Touche Tohmatsu is comprised of more than 500 partners and 7,500 industry professionals in over 45 countries. Our deep industry knowledge, service line expertise and thought leadership allows us to solve complex business issues with clients in every corner of the globe. We attract, develop and retain the very best professionals and instill a set of shared values centered around integrity, value to clients and commitment to each other and strength from diversity. Deloitte member firms provide professional services to more than 85 percent of the manufacturing companies in the Fortune Global 500^®. For more information about the Global Manufacturing Industry Practice, visit our Web site www.deloitte.com/manufacturing.

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 150 countries. With access to the deep intellectual capital of 120,000 people worldwide, Deloitte delivers services in four professional areas — audit, tax, consulting and financial advisory services — and serves more than one-half of the world's largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas. 

As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu" or other related names.