Do you need an emerging markets strategy?
This article is published in collaboration with The Boston Consulting Group.
If there had been any doubt as to how quickly the global economic landscape—and the market perceptions of it—can change, it would have been erased by events during August and September 2015. Concerns about the Chinese economy and fretting over the next move by the U.S. Federal Reserve triggered massive global market volatility in stocks, commodity prices, and exchange rates. And that turmoil underscored a critical imperative: leaders of companies operating around the world need to move beyond old views and conventional wisdom as they set global strategies.
At the heart of many such strategies today remains a binary view that divides the world into “advanced” and “emerging” economies, with the former including wealthy nations and the latter encompassing less affluent, faster-growing countries. That mind-set has guided the setting of global strategies in corporate boardrooms, leading multinational companies to adopt emerging-market strategies for expanding beyond their traditional markets.
That binary view of the world economy is now hopelessly outdated, however. Colombia, Malaysia, Poland, and Turkey, for example, have as little—or less—in common with other so-called emerging countries such as Bangladesh and Kenya than they do with Germany or the U.S. Therefore, companies need to move beyond old labels and find new ways to set market priorities. And the answer is not just a matter of looking for new labels. Any approach needs to be dynamic and agile so that strategies can be altered when short- and long-term developments alter conditions within and across individual countries.
The evidence of a radically altered global landscape is everywhere. For one thing, the leading economic powerhouses today are not necessarily—as they used to be—high-income countries. This new paradox surrounding wealth and economic might stems from the robust growth rates posted by major low- and middle-income countries over the past 15 years. And the demand dynamics in these countries are quite different from those seen in high-income nations. In addition, in the aftermath of the global financial crisis, economic-growth momentum now varies widely across countries, and the differences do not conveniently align with the notions of emerging and advanced countries. Two of the four original BRIC (Brazil, Russia, India, and China) countries, for instance, have experienced a steep falloff in growth, and China—while still growing faster than most other countries—is facing heightened uncertainty in the midst of a rebalancing of its economy. Meanwhile, other emerging countries have significant—and much less recognized—potential for economic expansion.
Such developments have major implications for any company operating globally. Which markets are most relevant for a particular company? How can corporate leaders prioritize effectively amid such shifting dynamics?
To help answer such questions, we propose two approaches that can be useful as sorting tools. The first involves combining the lenses of economic size and growth momentum to identify countries—24 in our current analysis—that must be on the watch list of any corporation with global ambitions.
The second approach focuses on a country’s major categories of expenditure, which we call demand blocks. In those countries where personal consumption accounts for the dominant share of demand, for example, consumer goods companies are likely to find a lucrative market opportunity while industrial-goods makers will want to focus more on markets where investment is a major demand block.
These two approaches are designed to be the basic inputs for an active radar that helps identify important markets. They are only the first step in identifying priorities, providing the basis for more industry-specific analyses. The sorting criteria that make sense for a particular company may differ from those of other companies because they more specifically reflect, for example, that company’s products or services and its global positioning. And any sorting method is not intended to produce definitive answers once and for all. But the snapshots provided by our two approaches help identify underrated and overrated market opportunities and underscore why companies must abandon outdated mind-sets in reshaping their global strategies.
Publication does not imply endorsement of views by the World Economic Forum.
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Author: Dinesh Khanna is global leader of the Global Advantage practice at The Boston Consulting Group.Alexander Roos is the global leader of The Boston Consulting Group’s Corporate Development practice and a member of the Industrial Goods practice. Enrique Rueda-Sabater is a core member of The Boston Consulting Group’s Global Advantage, Strategy, and Public Sector practices. Janika Gauselmann is a Senior Knowledge Analyst at the Boston Consulting Group. David Michael is among The Boston Consulting Group’s foremost experts on China, having served as managing director of the firm’s Greater China business and worldwide leader of BCG’s Global Advantage practice.
Image: A man walks past buildings at a central business district. REUTERS/Nicky Loh.
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