Thursday, February 7, 2008

How to Compete with Emerging Giants

Seasoned business managers know to expect competition from unexpected places. Still, new global players from developing countries have caught many in the global business community by surprise. Last week’s Economist explored the phenomenon of emerging-market companies that are joining the ranks of the world’s largest multinational corporations (MNCs). Emerging-market companies, such as Huawai, Lenovo, and Infosys, are buying out rivals, merging with other small companies in key geographies, and quickly expanding into developed-country markets. These up-and-coming MNCs benefit from fast decision-making processes (common in family-owned and well-connected businesses) and scrappy managers who honed their skills on the tough local markets of developing countries.

Even with these advantages and homegrown talents, emerging-market companies will have to work hard to compete globally. Developed-country consumers often consider products from emerging-market countries as inferior. Even “made in Japan” once carried a stigma that Japanese companies had to overcome. To reassure consumers and compete in the global marketplace, emerging-market companies will face an up-hill battle even with the benefit of low-cost resources, tenacity, and drive. For U.S. and European MNCs, maintaining their position as Fortune 500 companies requires quick and decisive action to create locally relevant products and services for developing countries. The final business frontiers are quickly morphing from a potential growth opportunity to a business necessity equal in importance to traditional markets. Neither market can be left unattended for long.

To compete in emerging markets, developed-country MNCs have to use their traditional strengths (brand, influence, wealth and depth of business experience) PLUS all the same tools their new competitors will bring to the game (low costs, quick decision-making, creative distribution, local knowledge and a tolerance for low margins). For developed-country MNCs, this points to the creation of highly autonomous regional branches, innovation along the value chain, or acquisition of well-run organizations (without the imposition of parent-company baggage to slow them down). These are disruptive changes to any business and have impact on traditional methods of performance measurement. Publicly traded MNCs would benefit from ensuring clear and compelling explanations of their strategies in emerging markets to both internal and external audiences to increase their appreciation of the necessity and benefits of change.

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