Innovation in emerging markets
Strategies for achieving commercial success
Global manufacturers increasingly regard competing successfully in emerging markets as key to their corporate strategy. Identifying the opportunity these markets represent, however, is the easy part. The much more difficult task is determining what it takes to sustain profitable growth in these markets. There is little doubt that emerging markets present a tremendous opportunity for global manufacturers. Not only do countries such as China, India, Russia, and Brazil offer lower operating costs, but they are also home to rapidly growing middle classes that are potentially huge markets for the products and services of global manufacturers.
Global manufacturing executives should ask themselves the following key questions about their strategy in emerging markets:
- Is your company developing fundamentally new products with cost structures that meet the unique requirements of consumers and industrial buyers in emerging markets?
- Is your company developing innovations in emerging markets that can be brought back to change the competitive landscape in developed economies?
- Has your company evaluated the benefits and challenges of locating R&D capabilities in emerging markets? Are your R&D operations integrated into a global infrastructure that takes advantage of common governance, business processes, and expertise?
- How effectively does your company manage regulatory risks in emerging markets in such areas as intellectual property protection, labor laws, and taxes?
- Is your company able to attract, develop, and retain the key employees it needs in emerging markets and integrate them into its global network?
Each emerging market has a unique profile, and the right strategy for a company will depend on the nature of its industry and its capabilities, among other factors. However, too many manufacturers remain captive to the products and strategies that have served them well in the past, missing the opportunity to win new customers and profitable market share through innovations in emerging markets. Organizing to innovate in emerging markets has fundamental implications. To succeed in capturing the full potential of emerging markets will require global manufacturers to meet the following five critical challenges, according to the Innovation in emerging markets: Strategies for achieving commercial success research report.
Rethinking value propositions
Serving the majority of emerging market consumers and industrial buyers will often require manufacturers to design products tailored to the special needs of emerging market customers, often priced far below their offerings in developed markets. Manufacturers that develop new product offerings keyed to the unique needs of individual emerging markets will be likely to achieve the greatest success.
Globalizing research and development
Many manufacturers are now locating research and development (“R&D”) facilities in emerging markets not only to reduce the costs of product development, through lower wages as well as tax credits and other government incentives, but just as importantly, to better incorporate local needs and expertise into product design. While the benefits can be substantial, the challenge is to effectively integrate and leverage R&D teams around the world. To foster these connections, leading companies are combining traditional face-to-face team building with technology solutions such as databases of innovative ideas and global project teams that collaborate online.
Tailoring talent management
Manufacturing executives will need to rethink how they recruit, develop, deploy, and connect the skilled employees on whom they rely. Once seen as an inexhaustible supply of low-cost labor, many emerging markets are now facing the same shortages of skilled labor that are all too familiar in developed countries. And in fast-growing emerging markets, the need to rapidly recruit and develop skilled employees is all the more critical.
Mastering the complexity of global value chains
Delivering commercially viable products that meet the needs of emerging markets will depend on global companies leveraging their expertise in governance, business processes, and management while still providing autonomy to their local operations. Despite their efficiency, global value chains also need to be adjusted to local realities, whether the subzero temperatures of a Russian winter or the inadequate distribution infrastructure in China. While the challenges can be formidable, some companies are using these obstacles as a catalyst to reinvent their operations.
Emerging markets present a unique profile of risks – geopolitical, regulatory, financial, currency, and governance risks among others. Among the greatest concerns facing manufacturers in emerging markets are potential threats to intellectual property rights, whether through outright theft of proprietary know-how or counterfeiting of products.
Emerging markets are becoming the catalysts for new product and service innovation. But tapping the talent and growth potential of these rising economies often requires manufacturers to shed many of their assumptions about customer needs, employee expectations, operations, and innovation that they have learned in the developed economies. They will need to look beyond traditional strategies in order to meet the unique needs of these markets, while still leveraging the efficiency and expertise provided by their global networks. Those that do so successfully will be most likely to thrive as the rules of global competition are rewritten in the years ahead.
About the report
In this report, Deloitte’s Global Manufacturing Industry Practice identifies and analyzes strategic initiatives that global manufacturers must take to thrive in emerging markets. The study builds on a survey of 418 manufacturing executives from companies headquartered in 28 countries that assessed the strategies and approaches to innovation that companies use in emerging markets. The survey focused specifically on 10 important emerging markets: Argentina, Brazil, China, Czech Republic, India, Indonesia, Mexico, Poland, Russia, and South Korea.
Learn more from the full report attached as a PDF file below.
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