Direction Next
Logically, the next question would be if the mantle of economic leadership moves, where will it end up? Although Latin America with large markets, rich in natural resources and growing manufacturing strength epitomized by Brazil, Argentina, Chile and Venezuela, Eastern Europe, especially Russia, with vast oil and gas reserves may see themselves as prime candidates. Asia, however, with a mix of small, medium and large economies is also a serious contender. It alone offers a diversified portfolio and varied mix of economies, size, development and political stability. Even with its unique complexities, Asia has emerging intrinsic strengths, which may enable it to drive the next wave of economic growth with its increasing concentration of factors of production, growing domestic demand, stronger banking systems, dependence on savings rather than on credit, and continued market growth shown in last eighteen months.

Implications for Business
This shift in economic power has far-reaching implications for global corporations who until now, were focused on developed western markets and used Asian markets as a source or export destination. In essence, Asian opportunities have yet to be fully leveraged. Across sectors such as the automotive, banking, aviation, telecommunications and IT, local or joint venture companies dominate the market and multinationals have to strive harder to manage their position. Strong local brands will continue to dominate key Asian markets, giving relatively minor market share to multinational companies. Asian economies led by China and India will cumulatively spend USD 6 trillion on infrastructure development over the next three years. Domestic and global corporations will ramp up their investment in the more attractive growing economies whilst reducing their spend elsewhere. The consumer goods market in Asian economies will offer much higher potential returns than western economies. Roll out of new vehicles during last two quarters represents an indicator of how companies are betting on these markets.

Key Message for Companies
Consequently the opportunities in emerging markets make it imperative for global corporations to shift their primary focus to the rapidly developing economies mainly, although not exclusively, in Asia to secure their leadership positions in the next decade. However, doing business in these economies has not always been easy for large global corporations and often they face stiff competition from local players. Global corporations need to adapt themselves and their strategies to the opportunities and challenges posed by fast growing economies and change their outlook from one of chasing incremental revenue to that of a primary market and driver of demand. Surely, specific to each industry there would be critical success factors. Few generic enablers could help these companies win, like - to locate segments of consumers who believe in saving prior to spending and pay in cash rather than incurring debt, as credit is in short supply across many customer groups. They should develop products and services that are suited to the needs of the local customers rather than stripping down an existing product from abroad to suit a price point. Companies should offer more for the same price, rather than reducing price to sell downsized products / services. Companies must leverage the low-cost benefits of these economies to the fullest by shifting larger parts of their operations to low-cost markets such as China and India. This would accelerate cost competitiveness in these price sensitive markets as well enable them to fulfil the demands of customers in developed markets who are increasingly moving towards lower products and services cost. This is the right time to find the local best-fit partners in these emerging economies at right valuations, mitigating the overall risks and understanding local markets better in a quicker way. Moreover, it is also the right time to recruit top talent for local as well as global responsibilities. What’s more, companies need to plan for the long-term if they are to secure their positions for the next 10, 15, 25 years from now and not the next quarterly stock market report or how to get over a recessionary period that may only last for two years.

Thank you for reading Synovate Periscope. Synovate Business Consulting (www.synovate.com/bc) is the strategic business unit that assists clients globally to enter, evolve and expand in emerging and developed markets through fact-based market analysis.