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Automotive manufacturers seek revenue growth in emerging markets

Key findings from the "Innovation in emerging markets" 2007 annual study


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Innovation in emerging markets: 2007 annual study

Like other global manufacturers, automotive companies 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, more automotive manufacturers are locating higher-value activities such as complex production, research and development (R&D), and sales/marketing operations in these rapidly growing economies.

Yet, despite the enormous business opportunities in these markets, a surprising number of companies fall short of their goals. Indeed, Deloitte's Global Manufacturing Industry Group, which is made up of Deloitte member firm manufacturing industry practices, found in its "  Innovation in emerging markets " 2007 annual study that less than half of the executives surveyed in the automotive sector said their companies had been extremely or very successful in meeting either their operational goals or their revenue goals.

The study examined how manufacturers are addressing three operational issues in emerging markets: talent management, risk management, and operating models. The following highlights some of the results for the automotive sector.

Talent management

Tailoring human resource strategies:
80% of the emerging market operations of automotive companies had HR policies that were at least somewhat different than those in developed markets, while 25% had policies that were significantly different.

Attracting and retaining talent: 67% of automotive executives said that compensation was an important HR strategy for their companies in emerging markets, while 68% cited training, 47% cited rewards/recognition, and 55% cited career opportunities.

Risk management

Extent of risk assessments:
Just over half (52%) of automotive executives said their companies conduct a rigorous risk assessment before entering an emerging market, while 47% said they did so for ongoing operations.

Assessing the risk of failure: 80% of automotive companies quantify the risk of failure before entering an emerging market, while 79% also do so for the risk of failing to sustain performance in ongoing operations.

Areas of risk assessment: The percentages of automotive executives reporting that their companies conducted rigorous risk assessments of the following issues were: legal/regulatory (71%), geopolitical (49%), natural disasters (30%), business continuity (73%), intellectual property (66%), supply chain (70%), security (52%), and terrorism (22%).

Risk strategies: Automotive executives reported their companies used the following strategies to manage risk in emerging markets: keep high-value activities in developed markets (31%), locate highvalue activities in low-risk emerging markets (28%), distribute highvalue activities across multiple emerging markets (28%), distribute production operations across multiple emerging markets (27%), distribute data centers across multiple emerging markets (17%), and source components from multiple emerging markets (29%).

Operating models

Decision-making approach: 49% of automotive companies had primarily centralized decision making, while 11% were decentralized and 41% were a mix of centralized and decentralized.

Production: For production operations in emerging markets, automotive executives reported their companies used the following structures: newly-created, i.e., greenfield operation (61%), acquisition (35%), joint venture (42%), and outsourcing (31%).

Sales/Distribution: For sales/ distribution operations in emerging markets, automotive executives reported their companies used the following structures: newly-created, i.e., Greenfield operation (62%), acquisition (29%), joint venture (27%), and outsourcing (19%).

Related link
How automotive companies can mitigate risk in emerging markets 
Conversation with Chris Johnsen, national leader of the Automotive practice