Deloitte: Multinational Organizations turning to Emerging Markets For Revenue Growth
In a recent study conducted by Deloitte, entitled ‘Fortresses and footholds: Emerging market growth strategies, practices and outlook’, over 600 executives from 10 key emerging markets, including countries in the Middle East, were surveyed to capture the greatest revenue opportunities, successful growth strategies and challenges each company faced.
The Deloitte study found that the greatest success in emerging markets came from understanding the special requirements of customers in each market, and then designing offerings to meet their needs at appropriate market prices.
“At a time when most developed countries are still struggling to regain their status after the 2008 global financial crisis, China, India and Brazil, along with other emerging markets have taken the lead, projected to account for a majority of growth in global gross domestic project (GDP) in next several years,” said Julian Hawkins, partner in charge for Consulting at Deloitte Middle East, citing the study’s findings.
“In addition, emerging markets were primarily used by multinational organizations to reduce costs. However, these firms are now turning to emerging markets as a platform for revenue growth from 2014 and beyond,” he added.
Of the total number of respondents surveyed in the Deloitte study, 389 were executives from companies that currently generate revenues from one of 10 key emerging market countries or regions, such as the Middle East.
One of the significant findings was that the key ingredient in success included establishing company-owned production, service, distribution and R&D, amongst other functions, to become closer to customers and part of the local business community.
The strategies the executives often rated as being extremely or very successful were:
• Using local sales/service support centers (62 percent)
• Employing company-owned sales or distribution (60 percent)
• Conducting R&D locally (45 percent)
In general, the Deloitte study featured successful growth strategies which include:
Local Presence
Even among the larger multinational companies, those with extensive company-owned operations in emerging markets were more successful when it came to achieving their revenue goals. Among companies with revenues greater than US$1 billion with company-owned operations in at least five top emerging markets, 60 percent exceeded their revenue goals compared to 32 percent of companies with operations in four or fewer of these markets.
Organic growth appears most promising
Across companies of all sizes and industries, organic growth was considered the most important approach for expanding in emerging markets, cited by 60 percent of executives surveyed by Deloitte, followed by joint ventures with local companies (20 percent).
Success requires adapting to these markets
Based on survey findings, success in emerging markets requires companies to go beyond simply exporting their existing offerings sold in the advanced economies. Instead, companies must customize offerings to meet the specific tastes and preferences of local customers in each emerging market. Two strategies most often cited as extremely or very successful were:
• Designing products/services specifically for the local emerging market (60 percent)
• Offering a different value proposition for emerging market customers (59 percent)
Unsuccessful strategies were also identified by the respondents, which included: employing non-traditional distribution channels (41 percent), offering products/services in smaller packages or bundles at lower prices (28 percent), and partnering with non-governmental organizations (NGOs) and local organizations (28 percent).
Key challenges faced by the companies, according to the study, were raising brand awareness in the market. In addition, providing products or services that meet customer needs at affordable prices was rated as one of the top three challenges in the major emerging markets analyzed in detail.
The Deloitte report finds that the opportunity in emerging markets is significant, but the challenges can be daunting. Both the successes and failures identified in the survey, seek to aid organizations build more robust and sustainable platforms for growth in emerging markets.
