Global manufacturers once regarded emerging markets primarily as low-cost locations for routine operations. Now, attracted by the enormous business opportunities, and often encouraged by government policies, manufacturers are locating higher-value activities such as complex production, research and development (R&D), and sales/marketing operations in these rapidly growing economies.

Rethinking the business approaches for emerging markets

Lack of satisfaction with specific skills

Eastern Europe

Percent of executives reporting difficulty. Source: Deloitte’s Global Manufacturing Industry Group

Yet, despite the enormous business opportunities in these markets, a surprising number of companies fall short of their goals. Indeed, Deloitte’s 2007 study of the challenges in emerging markets reveals that less than half of the executives surveyed said their companies had been extremely or very successful in meeting either their operational goals or their revenue goals in emerging markets.

Adapting to this rapidly changing global business network requires companies to rethink their business approaches for emerging markets. To achieve success, companies should address particularly the following key areas.

• Talent management

  As companies locate more higher-value operations in emerging markets, they are now finding it more difficult to attract and retain the skilled employees they need. To compete effectively in this talent battle, manufacturers need to customize their human resources strategies to address local market customs and conditions. They also need to align these HR approaches with their specific business strategies and operating model. In addition to compensation, companies will need to offer employees a comprehensive value proposition that includes training, rewards and recognition, and career opportunities.

• Risk management

  While emerging markets are brimming with opportunities, they are also fraught with risk. In many locations, these can include weak intellectual property protections, uncertain political environments, corruption, and complex legal and regulatory regimes, to name a few. Success in emerging markets requires an intelligent approach to managing the risks necessary to drive future growth, while avoiding risks that have no upside potential.

• Operating models

  Companies often enter into joint ventures or third-party arrangements, especially when first entering an emerging market. The executives surveyed, however, were far more likely to report their companies used newly-constructed, wholly-owned subsidiaries (greenfield investment), which provide greater control, more upside potential, and quicker decision-making.

About the report

This second annual report details the key findings of Deloitte’s Global Manufacturing Industry Group’s 2007 study of the challenges facing manufacturers in emerging markets. The study focused on the operational issues facing manufacturers across a broad spectrum of industry sectors, including automotive, industrial products, process, aerospace and defense, consumer durable and non-durable, life sciences and telecommunications manufacturers as they locate and expand in five important markets: China, India, Southeast Asia, Latin America, and Eastern Europe.

The research for the study included a survey of 446 executives from manufacturing companies headquartered in 31 countries around the world and in-depth interviews with senior executives at eight major manufacturers. In addition, the study also drew from Deloitte member firm experience in working with manufacturers in emerging markets around the world.