BRICs or Beyond: Catch the Next Wave or Tread Water?

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Seven new emerging markets – Indonesia, Malaysia, the Philippines, South Africa, Thailand, Turkey, and Vietnam – offer enticing alternatives to the more mature BRICs nations. The real GDP growth in this next wave of emerging markets is equal to or greater than the BRIC countries, whose hot growth of the past 20 years is cooling off. With multinationals from other Western nations beginning to turn their attention to these new emerging markets and aggressive local competitors in those markets jumping onto the global competitive stage, how much pressure should U.S. multinationals feel about making preemptive moves there?

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Why extend beyond the BRICs when there is still plenty of room there to grow?
Middle class expansion in the BRIC countries is still vibrant. We see years of growth opportunities there, especially in Brazil, India, and China.
Even if it's a hedging strategy, some presence in these new markets is better than none.
Companies that invested in the BRICs early were rewarded handsomely over time – they are the market leaders there.  Why wouldn't the same trend hold true for the next wave of emerging markets?
We already have low-cost manufacturing locations.
The gap in labor costs has narrowed somewhat, but the BRICs countries are still our major labor arbitrage plays. Plus, we have long-established supply chain infrastructure there.
Sourcing is only one side of the coin.
The new emerging markets are much more than a sourcing diversification strategy – they are the consumer markets of the future, growing faster and more sustainably than the BRICs. What is your company's long-term growth strategy?  Will you be an active participant or a bystander?
Local competitors in the new emerging markets accept lower margins than we can.
They use lower cost, lower scale facilities that provide cost advantages. They also tailor their brands and create niche products to fit smaller markets and segments.
Consider new business models and other innovative approaches.
Many Western multinationals mainly adapt global products to local markets. Some innovators have refined their business models based on what local companies are doing. Not only does this help them compete more effectively in the new emerging markets, but it also gives them fresh new approaches in other markets around the world.

My take

us_KishoreRao_135x155_070913.jpg us_SimonMcLain_135x155_070913.jpg
Kishore Rao, principal, Strategy & Operations,
Deloitte Consulting LLP
Simon McClain, senior manager,
Deloitte Consulting LLP

As we discussed in our recent Deloitte Business Trends 2013 article, "Building on the BRICs: Redrawing the global map of opportunity and competition,”1 the new emerging markets offer potentially significant opportunities. Of course, there are a number of challenges associated with them, but an investment of time and resources now may help to gain a foothold for the future.

On the opportunity front, their fast-growing economies and middle classes really do represent the next consumer wave globally. Similar to the BRIC countries, those Western multinationals that invest in the new emerging markets early on are likely to enjoy a competitive advantage there over other multinationals, both near term and long term.

At the same time, local competitors based in the new emerging markets are proving to be both aggressive and ingenious. They employ a variety of new business models to create appropriately scaled products and appeal to local preferences.  This is a valid concern for Western multinationals that operate on a broader scale and focus on adapting their global brands to local markets. But it shouldn't be an impossible barrier to entry.

In fact, it's that very resourcefulness of local companies that may make investment by Western multinationals more of an imperative – from two perspectives:

First, as we documented in the Trends article, some of those companies are making the leap onto the global stage, effectively adapting their guerilla business models and strategies to foreign markets. From a purely defensive point of view, Western multinationals can benefit from learning about the business models those companies employ and how to compete against them, because it won't be long before those emerging market competitors are in Westerners’ backyards.

Second, by learning about the business models employed by emerging market competitors, Western companies can explore ways to adopt and even refine those models in ways that help them topple specific barriers in the new emerging markets, such as infrastructure issues and local preferences.

As Western multinationals look more to bottom of the pyramid-types of markets for sourcing diversification and potential consumer market expansion, they will continually face the business model and margin issues. The companies that crack that code sooner rather than later can blaze a path to success.


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