In Recession, Focus on Emerging Markets

By James W. Hemerling

      6 trillion on infrastructure in coming years, according to Merrill Lynch estimates. Some of the projects could be delayed or canceled as a result of the global slowdown. Regardless, the opportunities are substantial.

     The third major opportunity involves providing goods and services to consumers in rapidly developing countries. Despite the global slowdown, consumer spending is still increasing in the RDEs and Western companies have an opportunity to increase sales both to the growing middle class and the tens of millions of people who are emerging from poverty each month and becoming consumers for the first time, the so-called "Next Billion" consumers.

     With more than 1.3 billion people in China, 1.1 billion people in India, 190 million in Brazil, 140 million in Russia, 85 million in Vietnam, 71 million in Turkey—and hundreds of millions more in other rapidly developing countries—the potential is huge, even in these tough times.

    Until recently the Next Billion consumers were barely able to buy the things necessary for survival: food, clothing, and housing. But now their incomes are growing at a faster rate than the economies in which they live. Already as much as one-third of their spending goes to purchasing better products and premium brands. They're now buying name-brand personal-care and household products. They're either purchasing or saving their money to purchase consumer electronics and appliances. And, most important, they're young, with upwards of 40 years of consumer spending ahead of them at a time when their incomes are growing.

    So what steps should businesses take to weather the economic storm and take advantage of these counterintuitive opportunities? They should:

• Push intelligently toward more low-cost country offshoring, sourcing, and manufacturing. Since businesses and consumers are trading down to lower-priced goods, the RDEs' low production costs are essential to reducing overall costs and serving cost-conscious consumers.

• Diversify, or "pinpoint," your operations globally to take advantage of the specific strengths of different locations. Companies need to localize operations as much as possible to keep them "lean" and optimize labor-capital tradeoffs.

• Remain sensitive to commodity prices. Despite recent sharp drops in commodity prices, caused by the global slowdown, they will increase in the long run as the rapidly developing economies grow.

• Pay close attention to the RDEs' new consumers. Create goods that meet the needs of people living in small spaces with limited budgets and unreliable utilities.

• Take advantage of merger-and-acquisition opportunities if you can, since downturn mergers typically create value, while upturn mergers typically destroy value.

• Improve your global talent base. At a time when many firms are struggling, companies have a better opportunity to attract top talent, something that is often difficult in the RDEs in booming times.

• Look to the future despite the challenging circumstances that face you today. Understanding what your company should look like in five to 10 years should determine your current path.

     The financial crisis is affecting every business, every sector, and every country differently. But make no mistake: In this era of globality, it is affecting everyone. Companies able to weather the storm and take advantage of the opportunities it creates will come out stronger than ever.

James W. Hemerling is a senior partner of the Boston Consulting Group () and co-author, with BCG partners Harold L. Sirkin and Arindam K. Bhattacharya, of Globality: Competing with Everyone from Everywhere for Everything (BusinessPlus, June 2008).

Catatan / Note  :
RDE's = Rapidly Developing Economy ( Negara-negara yang perkembangan ekonominya sangat pesat )

Posted by : hsr ( April 4, 2009 )