Reports conclude global trade "actually works"
By Staff -- Manufacturing Business Technology, 7/1/2006 12:00:00 AM
Failing to allocate resources for entering new markets in rapidly developing economies (RDE) and low-cost countries will result in many a missed opportunity, say reports from Boston Consulting Group (BCG) and New York-based Accenture.
Multinational companies contacted by BCG expect more than one-third (34 percent) of their sales to come from RDEs such as China and India by 2010—up from 21 percent at the end of 2005. Yet despite expectations, about 60 percent believe they are underinvesting to be successful in these markets.
Accenture claims conditions in many of these countries are creating "a perfect storm" of opportunity as they transition from being mere geographies for low-cost sourcing to viable markets for middle classes with expendable incomes.
"Global trade is working," says Johan Karlberg, partner and lead for global operations strategy at Accenture, and coauthor of the report. "At the same time, several emerging economies are reaching maturity to boast a significant middle class. The 'perfect storm' emerges as these emerging economies are offering low-cost sourcing and manufacturing, and their consumers are rapidly asking for new products. The opportunities for globally savvy companies are immense."
Yet the changes necessary to reap the opportunities are not insignificant.
"The [first] key to organizing global operations is senior management must recognize the global market," says Ron Nicol, senior VP, BCG. "Companies that thrive will be those that create a global platform. It will be necessary for executives and managers to relocate, which is specifically about talent management."
According to the BCG study, Organizing for Global Advantage in China, India, and other rapidly developing economies, these countries and others—e.g., Central and Eastern Europe, as well as Latin America—will be responsible for 40 percent of the growth in the world's GDP over the next 10 years.
The report sites five factors driving this growth:
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Rapid expansion of RDE markets;
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Cost and capital advantages;
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Development of talent in RDEs;
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Migration of customers to RDEs; and
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Emergence of RDE competitors.
Nearly all of the surveyed companies will increase their investment in sales activities in these markets in 2006.However, corporate commitments of hard assets, capital, employees, and managers fall short of what is needed to meet revenue targets. At the same time, core values that distinguish a company must be instilled to in-country managers and protected against dilution and erosion, the authors conclude.
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