Fast forward to growth seizing opportunities in high growth markets

Fast Forward to Growth Seizing opportunities in high-growth markets Contents Foreword Executive summary A wake-up call Locating demand: The search for growth 13 New players, new rules: The new shape of competition 26 Rethinking capabilities: The roadmap to success 33 Sizing the future: Assessing where and when to act 35 Shaping the future: Seeding tomorrow’s growth 43 Seizing the future: Operating at speed and scale 54 Conclusion: Windows to the future 65 Methodology: Income and consumption forecasting 67 References 69 Foreword Mark Spelman Global Head of Strategy Accenture The search for growth opportunities in emerging economies is no longer a matter of choice; it has become a necessity With short-term growth difficult to find in developed markets, emerging markets must be considered as more than an optional, longer-term bet previous decades Fundamental shifts in income and demography are reshaping the landscape of global consumption Predicting where and when the related market opportunities will arise is difficult enough; understanding how to grasp them is even harder But making bets on the future, whether short-term or long-term, is an especially difficult challenge amid the persistent uncertainty, complexity and volatility in the global marketplace In my conversations with clients around the world, I am struck by how today’s business executives often find themselves struggling to prioritize their investments across the diverse set of growth markets in emerging economies The questions I hear in boardrooms vary widely: Why aren’t we making profits in China yet? Is it too late to enter Brazil? How can we move faster to establish a foothold in Africa? The questions highlight a key factor in strategic growth planning: the importance of getting your timing right Second, I see a new constellation of competition being formed out of the market turbulence of recent years This is due partly to the new economic and political relationships that are being forged, particularly between emerging economies But I also see transformation in how businesses operate The downturn has spurred improvements in the efficiency of global operations New technologies and reconfigured operating models are allowing companies to create value more effectively and to build more direct and intimate connections with their customers And these new business models, practices and capabilities draw from a more diverse pool of global players, characterized by important differences in strategic priorities, governance and culture Planning an effective global growth strategy across time horizons demands significant investments of time, effort and resources to assess market potential accurately and to build the requisite capabilities for success Putting off such investments, waiting to see how markets evolve, is tempting in today’s economic environment, and it may be the right decision But this presents executives with a critical paradox: ongoing global economic change may lead businesses to shy away from action in the very markets that hold the key to faster growth The longer firms hesitate, the greater the risk of missing out on opportunities, and the more challenging the competitive environment they will face when they eventually take action I see two underlying factors at play First, regardless of when and how growth returns to developed markets, the future map of global demand will look very different from that of It is in the context of this dramatically altered landscape of opportunity and competition that this report, the work of the Accenture Institute for High Performance, calls for an urgent reassessment of the strategies and capabilities that will be central to achieving high performance in tomorrow’s global marketplace Business leaders cannot allow change and uncertainty to paralyze their decision making We hope you find the report insightful and stimulating and its recommendations both useful and actionable Mark Spelman Executive summary In the current global economic environment, executives fear that prospects for growth in many markets are patchy and vulnerable With this fear comes a renewed search for pockets of growth in the global economy We surveyed nearly 600 business leaders worldwide and found that 80 percent are focused primarily on high-growth markets in emerging economies to chart a more compelling path for the future And with good reason Household incomes in emerging economies will jump by more than US$8.5 trillion between 2010 and 2020—nearly 60 percent of the global increase over this period, in real terms.1 As these incomes grow, so will consumption and demand But many executives are not confident that their organizations are up to the task Forty percent not believe that their companies possess the strategic and operational capabilities to fully grasp the opportunities in emerging economies The same proportion worry that they not fully understand the competitive dynamics they will face These doubts are not misplaced— and may be exacerbated by the emergence of a rapidly intensifying competitive landscape, populated by new players with new capabilities High-growth emerging markets are a fast-moving target Companies must build powerful new capabilities to address this new reality Tracking the income surge The pace of income growth in emerging economies can be bewildering Many companies have been impatiently awaiting the promise of profitability in emerging economies But as our detailed analysis of household incomes shows, the real growth in consumption is yet to come For example, many companies are pinning their hopes on China, the world’s most populous nation and one of its largest and fastestgrowing economies Currently, 27 other economies—including Poland, Colombia and Turkey—have a greater number of households with an annual income above US$30,000 But over the next decade, China will rapidly accelerate up the ranks, leaving only three economies with a greater number of households earning US$30,000 and above: the United States, Japan and Germany This pace of change is not restricted to China: Mexican households in this income band are expected to boost their income by an additional US$340 billion by 2020, an increase higher than that expected in Germany And in a richer income segment, households with an annual income of more than US$50,000, Turkey will see a total increase of US$380 billion, the highest of any emerging economy As these examples demonstrate, the varying degree and speed of change across these markets make the size and timing of opportunities difficult to grasp Mapping the competitive terrain Companies seeking their fortunes in high-growth markets face a challenging competitive landscape As competitors jostle for position, firms targeting these markets will confront domestic players with strong local knowledge and intimate customer relationships; established multinationals with global scale that have improved their efficiency in response to the downturn; and a further potent breed, growing multinationals from emerging economies The competitive landscape is characterized by a combination of scale advantages, strong brands, low-cost capabilities and deep local knowledge, as well as an increased role of relationships and government support In this environment, with its wide range of players and broad variety of capabilities, many companies will face a challenge in pressing home their own competitive advantage The opportunity paradox Our research uncovers a paradox: on one hand, there is strong affirmation that firms see continued growth coming from emerging economies On the other hand, they feel that the windows of opportunity to secure their company’s share of these markets may be shrinking The point is underlined by our survey finding that 73 percent of respondents believe they need to accelerate their efforts, or may already be too late, to build satisfactory market share in these high-growth markets Our research supports this imperative to accelerate action in seeking opportunities in high-growth markets In an uncertain economic environment, there is a strong temptation for companies to watch and wait, or even to retrench or withdraw from some markets until the global economic environment becomes clearer In fact, many organizations have significant reserves of cash that could be used for expansion But they continue to hesitate A strategy of “wait and see” may be effective, as long as it is based on a realistic assessment of the options, opportunities and risks involved More likely, however, hesitation in today’s global competitive environment may be the most dangerous choice of all High-growth markets offer many opportunities, but the explosion in demand is matched by ever-intensifying competition We analyzed household income data across 64 countries (see Methodology on page 67 for details) which together accounted for more than 90 percent of global GDP in 2010 The income of the emerging-market households in our analysis will jump by more than US$8.5 trillion between 2010 and 2020 Faced with the risk of squandering these opportunities, what can companies to accelerate their efforts and avoid missing the boat? What are the specific capabilities they need to build in order to compete effectively and claim their share of future growth? Opening windows of opportunity In our research we found that successful companies in high-growth markets think differently about the capabilities critical for growth and prioritize their investments in different ways Specifically, these “successful globalizers”—companies with a track record of successful performance in emerging economies, that are confident and committed about their future prospects in these markets—excel in three areas They are better able to size the future—they possess the ability to accurately size, time and prioritize demand opportunities around the world They are better able to shape the future—they possess the insights and capabilities to cultivate and protect future demand opportunities around the world And they are better able to seize the future—they display the operational agility and flexibility to adapt and reorient the company to grasp opportunities across growth markets Companies can take specific actions today to improve their capabilities in each of these areas: Sizing the future: Where and when to invest Our research suggests that successful companies in high-growth markets adopt new approaches to assessing potential market opportunity They take a more dynamic view that incorporates foresight and flexibility into strategic planning They are more adept at examining global opportunities through multiple lenses This allows them to aggregate seemingly disparate markets and uncover business cases that would otherwise have remained untapped Witness companies that have successfully targeted diaspora communities scattered across the world, or specific high-potential customer segments, such as those in waterscarce areas, rural communities or newly-empowered female populations In this way, successful globalizers develop a more complete and realistic understanding of the markets in which they intend to operate Second, in a rapidly-changing environment, these companies understand better than their competitors the importance of planning over time horizons, allowing them to sequence and prioritize their investments Our research, conducted in partnership with Oxford Economics, illustrates the importance of identifying where different markets will sit in terms of their consumption of specific products and services How close are they to reaching a point where demand rapidly takes off? How close are they to market maturity? What are the opportunities of different markets over different time horizons? This deep understanding of their target markets allows successful globalizers to become masters of strategic positioning: to be not only where opportunities are today, but where they will be tomorrow Through their superior ability to discern the size, location and timing of opportunities, these companies make more informed decisions and trade-offs around where and when to invest, and remain several moves ahead of the competition To become masters of strategic positioning, companies can: • Conduct cross-country forecasts of product and service consumption across time horizons, beyond national and regional borders, and use these to evaluate trade-offs and guide decisions about when, where and how to enter high-growth markets Some markets may offer immediate opportunities, while others may be poised for more significant growth in the longer term • Experiment with different customer segmentation variables to uncover new geographic and demographic groups Discovering segments that cut across country borders may unearth business cases beyond those that focus exclusively on country-level segmentation Procter & Gamble has designed razors, shampoos and cleansing products specifically designed for consumers in water-scarce areas • Use information and communications technology (ICT) such as mobile phones and social media to collect reliable and relevant data, improve demand forecasting, and overcome data scarcity Coca-Cola has 22 million consumers following it through social media, and the ensuing dialogue has given Coca-Cola valuable ideas for new beverages and other products • Leverage existing proprietary data for further growth opportunities: the Mexican retailer Grupo Elektra built one of the country’s largest networks of banking branches based on data from a credit service it launched for retail customers • Choose local partners—whether through joint ventures, alliances or other arrangements—to gain a deep understanding of local market dynamics, needs and preferences • Enhance competitor analysis techniques to anticipate emerging competitors across multiple time horizons, from different geographies and adjacent industries Shaping the future: Cultivating new markets While some companies may feel they are too late to secure their position in high-growth markets, our research shows that successful globalizers not simply accept that windows of opportunity are shrinking Instead, they open new windows of opportunity by discovering new demand and seeding future opportunities In an environment where attaining market share is challenging, successful companies have identified the opportunity to grow the size of the overall opportunity, not just their share They understand how to extend the frontiers of opportunity, often through targeted partnerships and collaboration with local stakeholders Our research demonstrates the impact, in real consumption opportunities, that can be achieved when businesses invest in generating future demand For example, our analysis examines how demand can be measurably increased through improvements in infrastructure, education and health care To achieve a better understanding of how they can push open new windows of opportunity, companies can: companies to grasp the opportunities of today, but will play a fundamental role in shaping the markets of tomorrow • Identify and map key stakeholders, local and global, and build trusted relationships For example, our analysis shows how the power of disruptive innovation can transform industry dynamics, improving the accessibility of consumer products and creating markets In the automotive sector, for example, process redesign and low-cost materials have dramatically broadened the accessibility of passenger cars to new customers New pockets of demand have opened up for those companies with the agility and efficiency to design low-price business models Successful globalizers are pushing the boundaries of what is possible: they understand that business performance and the bottom line will only become more important in geographic growth plans They understand that operating at speed and scale will play an ever greater role in determining the winners and losers of the next phase of global competition • Assess the strength of relationships with government agencies, industry regulators and local communities These relationships can help obtain a license to operate, ease the policy environment, and improve access to scarce resources Executives may be surprised at the extent of common interests held by these stakeholders • Innovate to fulfill unmet needs, and involve local consumers in innovation and design Vodafone and Safaricom’s M-PESA money transfer platform was designed to address a particular need in Kenyan society, to send money to family at home The service has grown quickly, achieving 14 million registered users within four years, and has simultaneously brought an entirely new business model to markets across the world • Evaluate local and global leadership’s understanding of social and economic factors that influence demand, and promote the social and economic development of local communities Companies successful in emerging markets engage national and local governments to help create the conditions needed for their businesses to prosper GSK, a leading pharmaceutical and healthcare products company, reduced the price of its patented medicines in the world’s poorest countries, providing social benefits and opening up new markets Seizing the future: The operational agility to grasp new opportunities Successful companies infuse their organizations with the strategic, operational and cultural agility to grasp new opportunities Identifying opportunities is one thing, but rapidly mobilizing the organization to attain them is another In order to achieve this, they prioritize and invest in distinctive capabilities that boost operational agility and flexibility These capabilities are not just instrumental in helping To achieve operational agility and seize new opportunities, companies can: • Explore partnership and acquisition options to boost reach, capability and speed; and continually reassess and evolve ownership and governance structures as circumstances change The flexibility of Starbucks in managing a range of business models and partnerships has been instrumental to its success in China, which the company now regards as its “second home market.” • Develop systems to rapidly redeploy people, capital and ideas around the global organization In expanding its global footprint, Tata Communications designed a wholly new international operating model to incorporate local leadership expertise into its global operations • Encourage experimentation— incubate, fund and protect new ideas The success of Indian pharmaceutical companies demonstrates the importance of innovation, and the benefits of scaling new ideas across the global organization • Assess the leadership team and how its skills and experience align with growth plans Nestlé is relaunching its International Development Program, giving future leaders experience in foreign markets within the company’s business units across the globe No business decisions are simple in today’s environment of prolonged global economic uncertainty But a game of “wait and see” purely due to a lack of understanding or preparedness poses the risk of missing the boat This report uncovers the key dynamics at play and details specific actions that companies can take to build the capabilities for success in the high-growth markets of the future The research Accenture’s Institute for High Performance has conducted thorough research to investigate the keys for success in today’s competitive highgrowth markets The main elements of research include: • Household income analysis, in collaboration with Oxford Economics We created five standard bands of annual household income and, for each of 64 countries, estimated the number of households falling into each band in 2010, 2015 and in 2020 All forecasts are measured in real terms, and at market exchange rates • Industry consumption curves, in collaboration with Oxford Economics This research forecasts the evolution of consumption for a select group of industries across the world It also includes scenario-based sensitivity analysis to assess the impact of changes in the business and policy environment • A survey of 588 business leaders, across 85 countries and 22 industries, conducted by the Economist Intelligence Unit Business leaders were asked about their perceptions of the competitive landscape, their company’s plans for growth and the capabilities important for success in these markets • Conversations with clients and experts across industries and extensive secondary research, including company case studies and analysis of greenfield and M&A investment data A wake-up call A world of opportunity Faced with protracted economic uncertainty, many companies are renewing their interest in emerging economies as a springboard for their next phase of growth Our survey of 588 business leaders reveals that 80 percent are looking primarily at emerging economies for their next stage of growth And they acknowledge that this is where future opportunities lie, with 81 percent planning to increase their investment in emerging economies over the coming three years We analyzed household income data across 64 countries that together accounted for more than 90 percent of global GDP in 2010 The income of the emerging-market households in our analysis will jump by more than US$8.5 trillion between 2010 and 2020 That represents nearly 60 percent of the total global increase in household incomes over this period (see Figure 1) In particular, China and India are projected to experience significant increases in total household income, with additional income of US$3.2 trillion and US$1.4 trillion, respectively As emerging-market households spend this newfound income, fresh pockets of demand will emerge Our research examined the evolution of income patterns globally, and how rising household incomes might influence consumption For example, a combination of rising household income and a large population will propel China to be one of the world’s most significant passenger car markets: our estimates show that average annual car sales in China are expected to exceed 15 million by 2020, ahead of the United States Already, in 2011, China has overtaken the US to become Roll-Royce’s largest market.2 Figure 1: Household income growth 2010-2020 (US$ billion, 2010 constant prices) 60,000 55,000 Developed markets • Share of global growth = 43% • Compound annual growth rate (CAGR) = 2.0% 56,700 Emerging markets • Share of global growth = 57% • CAGR = 5.4% 50,000 45,000 41,600 40,000 35,000 Global income 2010 Emerging markets China India Russia Brazil Turkey Mexico Indonesia Other emerging US Developed markets Source: Accenture, Oxford Economics Note: The analysis covers 64 countries, which accounted for more than 90 percent of global GDP in 2010 Japan UK Germany Other Global developed income 2020 Designing agile and flexible operations The rapid evolution of markets demands speed in identifying and responding to opportunities Entering a new market, designing a new product or making an acquisition requires organizational agility and flexibility to move ideas, people and capital around the organization as required Our survey highlights some significant differences between successful globalizers and other companies Although companies across the board consider the rapid mobilization of people to be critical for success in high-growth markets, behavior differs substantially when it comes to committing sufficient time, money and attention (see Figure 27) The ability to mobilize people is particularly important for large domestic players expanding onto the international stage In seeking to extend its footprint beyond India’s borders, Tata Communications designed a wholly new operating model to incorporate local leadership expertise into its global operations By establishing corporate offices in Singapore, Sri Lanka, the United States and the UK, the company has extended the reach of its corporate center By instituting a rotation model, employees can be redeployed according to business need, while simultaneously building their cross-cultural skills.80 Successful globalizers also place greater emphasis than other companies on the ease of redeploying capital around the world They are more confident that they pay sufficient attention to this capability (see Figure 28) Successful globalizers are also far more likely to feel that they have sufficient access to investment capital (see Figure 29) 57 Attitudes toward the movement of ideas around the organization are particularly illuminating Innovation will become increasingly important Players in higher-end markets will face heightened pressures to innovate as firms from emerging economies continue their move up the value chain Players at the lower end will face continued pressure as competitors find innovative ways to develop the same offerings at a lower cost: think Tata’s Nano car, Asus’ notebook computers or the new generation of lower-cost pharmaceuticals (see “Indian pharmaceuticals: Turning agility to advantage,” page 60) Successful globalizers place great importance on generating new ideas and innovations Seventy percent use incentives to encourage local innovation and experimentation among employees in potential high-demand locations, and 76 percent underline the importance of structures and incentives that generate and capture demand Once new ideas and innovations are created, successful globalizers also focus on sharing and scaling successful ideas across the organization (see Figure 30) Investment in innovation can lead to significant demand and consumption gains, as illustrated in “Shifting consumption curves: The value of disruptive innovation,” page 51 Figure 27: Rapid mobilization of people around the global organization (percentage of respondents) Successful globalizers 78% 73% 73% Global average 57% 75% Disappointed globalizers 43% 0% Critical for growth 20% 40% 60% 80% 100% Receiving adequate attention Source: Accenture Fast Forward to Growth survey Figure 28: Rapid mobilization of capital to different parts of the world (percentage of respondents) Successful globalizers 72% 71% 62% Global average 56% 56% Disappointed globalizers 43% 0% Critical for growth 20% 40% 60% 80% 100% Receiving adequate attention Source: Accenture Fast Forward to Growth survey 58 Figure 29: “My company has sufficient access to investment capital” (percentage of respondents) Successful globalizers 77% Global average 55% Disappointed globalizers 36% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Accenture Fast Forward to Growth survey Figure 30: Structures and processes to share and scale successful innovations across high-potential markets (percentage of respondents) Successful globalizers 82% 72% 75% Global average 59% 64% Disappointed globalizers 49% 0% Critical for growth 20% Receiving adequate attention Source: Accenture Fast Forward to Growth survey 59 40% 60% 80% 100% Indian pharmaceuticals: Turning agility to advantage The rising global presence of Indian pharmaceutical companies in recent years demonstrates the importance of organizational agility and flexibility, as companies build on their domestic success by sharing and scaling innovation across new markets Growth in India’s pharmaceutical sector has been strong in recent years, driven by rising domestic consumption and strong export demand The pharmaceuticals industry has traditionally been dominated by companies in developed markets But deregulation and new production processes have allowed new players to gain leadership in the generics market India’s leading pharmaceutical players have taken advantage of the opportunities presented by deregulation and patent expiration through innovative approaches to process design Traditionally, pharmaceutical industry R&D has been a slow process, but in India the adoption of reverse pharmacology has provided production efficiency gains and helped manufacturers to test generic drugs more quickly and increase the speed to market The ability to bring relevant products quickly to market at low price points has been instrumental for domestic players in shaping the Indian market on their terms Organizational agility, combined with a focus on lean, low-cost manufacturing operations, has enabled domestic players to secure the largest share of the Indian market: while 15 of the world’s top 20 pharmaceutical companies have an active presence in India,81 domestic players supply 90 percent of bulk drugs in the country.82 Domestic companies are also rapidly expanding sales in advanced formulations and specialty medicines In response, foreign multinationals are aggressively pursuing joint ventures with Indian players These ventures are designed to gain access to the Indian market Bayer HealthCare, for example, recently launched a joint venture with Cadila, one of India’s largest privately held pharmaceutical companies But these ventures are also designed to establish a new base for expansion into other emerging markets In 2009, GSK, the world’s third-largest pharmaceutical company, signed an agreement with India’s Dr Reddy’s to develop and market selected products across emerging markets Building on the strength of their domestic position and the advantages of joint ventures with multinational players, Indian companies are expected to grow exports nearly 20 percent this fiscal year, to US$12 billion They will supply nearly 50 percent of the world’s bulk drug requirement The United States remains the largest export destination, followed by the UK, Germany, South Africa and Russia In coming years, however, Indian firms anticipate significant growth in exports to emerging economies A recent study forecasts that by 2020, seven emerging markets—Brazil, China, India, Indonesia, Mexico, Russia and Turkey—will account for one-fifth of international pharmaceutical sales.83 As new markets develop in emerging economies, Indian players and their joint-venture partners may hold an advantage They can apply their domestic experience to new geographies and innovate at home before scaling across global markets Success in these markets will play a critical role in determining the future growth prospects of even the largest companies Pfizer estimates that 75 percent of pharmaceutical sales growth over the next five years will come from emerging markets.84 In seizing these opportunities, operational agility and flexibility will be critical 60 Building leadership teams for tomorrow’s reality Ninety-one percent of successful globalizers report that their leadership team is fully committed to entry and expansion in high-growth markets, compared with just 60 percent among those companies disappointed by their performance (see Figure 31) Commitment from the top is a hallmark of success But senior-level commitment tells only part of the story Successful globalizers’ leadership teams are configured differently and work in different ways These teams are also more likely to invest the resources and devote the attention required to ensure that the team composition reflects a diversity of perspectives and experience (see Figure 32) Figure 31: “My company’s top leadership is committed to market entry and expansion” (percentage of respondents) Successful globalizers 91% Global average 72% Disappointed globalizers 60% 0% 10% 20% 30% 40% The efforts of successful companies to broaden the backgrounds and geographic distribution of their teams exemplify the importance of diversity HSBC announced in 2009 that the office of the CEO would move from London to Hong Kong;85 and in 2011, Unilever appointed Bharti Airtel Chairman Sunil Mittal to its global board as a non-executive director.86 Looking to the demands of tomorrow, leading companies have adopted structured approaches to ensure that their future leadership has the appropriate diversity of experience Nestlé, for example, is relaunching its International Development Program in Marketing and Sales The 36-month program aims to give future leaders an introduction to the company’s headquarters and their product category prior to a 30-month assignment to a foreign market.87 Source: Accenture Fast Forward to Growth survey Global companies see the benefits of developing local leadership in new markets When PepsiCo stepped up its efforts to establish the KFC brand in China, for example, it recruited local managers who could build the company Some leaders have chosen a “networked” approach rather than one that is “process-driven.” In order to address high-priority concerns, for example, international hotel chain Four Seasons has established new global 61 through a deep understanding of Chinese tastes and preferences Today, Yum! Brands, KFC’s parent company, cites the focus on local leadership as a key element in the success of a business that generated US$4.1 billion in revenue in China in 2011.88 Successful companies also recognize that operating across diverse and fast-growing markets demands a variety of decision-making styles They acknowledge this more readily than other companies They are also far more likely to invest in building leadership teams that can easily reconfigure their composition to meet complex demands (see Figure 33) 50% 60% 70% 80% 90% 100% cross-functional committees on issues such as leadership development and product innovation These committees connect business units and move beyond siloed lines of command toward a model that puts the right people in the room with the right information to make decisions Whatever model is used, it must provide the flexibility to adapt to and keep an eye on the future shape of the organization Figure 32: Leadership teams that possess a diversity of perspectives and experience (percentage of respondents) Successful globalizers 91% 82% 88% Global average 69% 89% Disappointed globalizers 72% 0% Critical for growth 20% 40% 60% 80% 100% Receiving adequate attention Source: Accenture Fast Forward to Growth survey Figure 33: Leadership teams that easily reconfigure their composition and decision-making style to meet growth-market needs (percentage of respondents) Successful globalizers 89% 81% 77% Global average 59% 73% Disappointed globalizers 43% 0% Critical for growth 20% 40% 60% 80% 100% Receiving adequate attention Source: Accenture Fast Forward to Growth survey 62 Embedding a culture to manage complexity and change Successful companies, in any market, are committed to building the skills and capabilities required for success and shaping the corporate culture to support them Today’s fast-evolving business environment demands a culture that is comfortable with uncertainty, complexity and change Across the board, our survey respondents acknowledge the importance of this critical capability But there is a significant gap between successful companies and others in terms of committing sufficient time, money and management attention to building these corporate cultures (see Figure 34) One of the most successful globalizers of recent decades, Samsung, grasped early on the importance of molding the company’s culture to its new business reality The company also realized the difficulties in transforming the way a company thinks, feels and works Samsung has been drawing select Western business practices into its traditional South Korean corporate culture For example, it launched meritocratic promotion and pay into a culture based on seniority and reverence for elders It also combines a focus on innovation with expertise in process improvement The company is engaged in an ongoing process that preserves the best aspects of its long-held culture while incorporating new traits into its organization Samsung’s drive to reorient its culture has allowed the company to embrace the demands of new markets while maintaining the foundations of its success.89 On tomorrow’s agenda • Explore partnership and acquisition options to boost reach, capability and speed, and continually reassess and evolve ownership and governance structures as circumstances change • Develop systems to rapidly redeploy people, capital and ideas around the global organization • Encourage experimentation—incubate, fund and protect new ideas • Assess the leadership team and how its skills and experience align with growth plans Figure 34: A corporate culture that embraces uncertainty and change (percentage of respondents) Successful globalizers 85% 70% 77% Global average 57% 73% Disappointed globalizers 47% 0% Critical for growth 20% Receiving adequate attention Source: Accenture Fast Forward to Growth survey 63 40% 60% 80% 100% 64 Conclusion: Windows to the Future Who will be the high performers in the next phase of global competition? It will be those organizations that are able to make the most of the transformations in today’s business environment to position themselves for growth tomorrow It will be those that have revised their approach to global growth in recognition of the fundamental changes in the global landscape of opportunity and competition Success will not come to those that rely on outmoded templates and attitudes Rather, it will come to those that engage in new strategic and operational approaches that bring a superior ability to track and act upon the diversity of global opportunities, wherever they are found These opportunities will, in many cases, lie in emerging economies Beginning today, business executives can focus on understand the unfolding changes in the map of global trade and investment flows, especially between emerging economies They can build their understanding of where new competitors and partners will come from and where emerging players are placing their big bets for growth Beginning today, companies can view global growth opportunity through multiple lenses They can look across time horizons in order to better sequence their investments and more effectively evaluate trade-offs between competing opportunities They can also look across national borders, for example, by aggregating across disparate markets to find new opportunities and by exploring new pockets of demand 65 Beginning today, firms can make efforts to push the boundaries of opportunity beyond the status quo They can build the relationships and make the investments to generate new demand, to build new customer groups and to shape the possibilities of consumption For example, innovating new business models can shift price points and bring new customer groups within reach And entirely new markets can be seeded through improvements in infrastructure, healthcare and education Tomorrow’s high performers are already building agility and flexibility into their international operating models They are leveraging advances in technology and analytics; they are reconfiguring processes and organizational structures; and they are investing in building skills and leaders that have a superior capacity to identify and rapidly act upon emerging opportunities Their culture embraces market change and uncertainty, rather than allowing change to paralyze decision-making The future looks bright for companies that are acting today to position themselves for the next era of global opportunity and competition Business leaders who invest in building the capabilities to succeed in this new environment will not talk of shrinking windows of opportunity—they will throw open the windows to the future 66 Methodology: Income and consumption forecasting Household income analysis Accenture, in collaboration with Oxford Economics, constructed household income band estimates and forecasts for 64 countries.90 These countries accounted for more than 90 percent of global GDP in 2010 The research involved the following stages: • Data collection: The data for total net disposable household income (i.e., total household income once all taxes have been paid) were collected from national statistics agencies and broken down by key sources (wage earnings, government transfers, other income sources) This was done for each of the 64 countries • Data adjustments: For some emerging markets, total household incomes were rescaled using the household savings rate to match the consumption total in the national accounts In some cases, no breakdown was available for the source of income, so a proxy country, with a similar economic structure, was used • Total household income forecasts: The Oxford Economics baseline macroeconomic forecasts from June 2011 were used as a basis for calculating estimates and forecasts of total household income in 2010, 2015 and 2020 • Income distribution estimates across income bands: We used a lognormal distribution, which is defined by two parameters: the mean (median household income, in this case), and the standard deviation (which captures the degree of dispersion around the mean) 67 The projected distribution for 2020 was obtained by inputting the 2020 forecasts of average income into the function, keeping the standard deviation constant • Inflation adjustment: All forecasts are adjusted to constant 2010 US$ Baseline global consumption curves Accenture, in collaboration with Oxford Economics, estimated the consumption curves for a select number of products and services paved in each country was included For broadband penetration, the average broadband speed was included • Identifying market phases: The takeoff, rapid growth and maturity points were identified for each consumption curve The takeoff point was located as the point where market penetration begins to significantly increase at the bottom of the consumption curve The rapid-growth point was calculated by using the point where the slope of the consumption curve is steepest The market maturity point is where market penetration does not rise significantly despite an increase in income The main steps for all sectors covered were: Scenarios • Defining the shape of the consumption curve: Different ideas were explored for the general functional form of each sector’s consumption curve The logistic functional form was chosen as the most appropriate fit, based on the academic literature and the nature of the selected industries Scenarios were developed to test how consumption curves might change and how they might be shifted by targeted business and/ or policy action Output from two scenarios, passenger car market and broadband penetration, was presented in the main body of the report • Estimating the consumption curve: The first step was to estimate a crosscountry relationship between market penetration and household income The base year for analysis was sectorspecific, and we used household income data for the base year The estimated curve implicitly assumes that the relationship between household income and market penetration takes the same shape across all countries The second step was to incorporate relevant country-specific structural factors For example, for passenger car market penetration, the percentage of roads Passenger car market The approach was to estimate a baseline consumption curve for 2020 for a particular case-study country (India) and then vary the parameters of interest to test different scenarios The baseline curve for 2020 already includes the increase in market penetration due to the expected rise in household income The household income data were based on our own research in this area In the alternative scenario presented in the report, we test the impact of a 50 percent price reduction Consumption analysis explores the relationship of a given good versus others in the consumer basket Typically, the impact of a price change on demand can be decomposed into the substitution and income effects The substitution effect arises because of the relative price change, since a price drop makes cars more affordable relative to other goods and consumers are encouraged to trade up from their current transport mode According to the academic literature, the price elasticity of the car stock to price changes is around 0.11 (for example, Johansson & Schipper, 1997).91 However, it is likely that a large price drop would trigger a more significant response in demand This is particularly true in emerging economies, where the passenger car stock per capita is still very low To account for this impact, we increased the price elasticity in our scenario to 0.3 Studies that look at price elasticity in the context of large price drops are rare, so our assumed elasticity of 0.3 lies just above the upper estimate suggested by most academic studies Broadband penetration Using Chile as a case study, our baseline consumption curve for 2020 incorporates the impact of rising household incomes and improvements in the average speed of fixed-line broadband from around Mbps to around 15 Mbps This is based on recent market trends that suggest a brisk pace in broadband speed improvements around the world Although improvements in speed increase penetration rates, access (as indicated by maximum coverage) is also important In Chile broadband penetration is limited by access restrictions—20 percent of households are not covered by any fixed broadband network The Chilean government has announced its intention to work with business to widen broadband access to all households To capture this, in our alternative scenario, the maximum penetration rate in the broadband consumption curve is increased from 45 subscribers per 100 people to 65 subscribers The income effect means that household purchasing power has increased as a result of the price drop For example, a 50 percent price fall in a good that represents 20 percent of the average household’s consumer spending implies a rise in real income of 10 percent So although the household’s average nominal income hasn’t actually changed, the price drop simulates the same effect as an income increase We might usually assume that the share of vehicle purchases stays in line with the household’s share in the consumer price index (CPI) bundle But our scenario assumes a disruptive innovation whose impact is to bring about a significant shift in household spending patterns, increasing the share of household spending on cars at the expense of other items in the consumer bundle To account for this change, we assume that vehicle purchases rise to 10 percent of household income 68 References We analyzed household income data across 64 countries (see Methodology on page 67 for details) which together accounted for more than 90 percent of global GDP in 2010 The income of the emerging-market households in our analysis will jump by more than US$8.5 trillion between 2010 and 2020 25 Sovereign Wealth Fund Institute “Rolls-Royce Posts Record Sales”, The Wall Street Journal, 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America head aims to double Brazil sales by 2015,” Bloomberg, March 17, 2011 53 L’Oréal, “Brazil: A real thirst for beauty,” Shareholders’ corner, 2011 54 L’Oréal annual report, 2010 55 “To L’Oréal, Brazil’s women need new style of shopping,” The Wall Street Journal, January 21, 2011 56 “Masters of rural markets: The hallmarks of high performance,” Accenture, 2010 “State of mobile in Latin America,” mobiThinking, September 2010 33 “Weaving the world together,” The Economist, November 19, 2011 América Móvil and Telefónica corporate investor presentations, 2011 34 Egan, H and A Ovanessoff, “Gearing up for growth,” Accenture, 2011 57 “Rural market,” India Brand Equity Foundation, August 2009; Telecom Regulatory Authority of India Wireless Intelligence, “Snapshot: América Móvil merger targets Telefónica in Latin America,” January 2010 35 “Africa and the Middle East, lands of innovation for Orange,” Orange, November 2010 58 ”Case study: AJE—taking on bigger rivals,” Financial Times, 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Intelligence Unit, “CHAMPS: China’s fastest-growing cities,” 2010 17 Citymayors website 18 “Reaching China’s Next 600 Cities,” China Business Review, November-December 2010 19 NB: The sample covers the majority of developed economies and a significant proportion of emerging economies 20 The Dutch Association of Insurers 21 European Automobile Manufacturers’ Association 22 ”Toyota to invest EUR265m for new vehicles in UK, Turkey,” The Wall Street Journal, November 24, 2011 23 “Cornerstone laying ceremony held for Chery Brazil Industry Park,” Chery Press release, July 22, 2011 24 “Unilever targets emerging markets for 75 percent of sales,” Reuters, August 17, 2011 69 62 Borrell, L., et al., “Strategic review of broadband regulatory policy in Chile,” January 11, 2010 41 Malaysia Economic Transformation Programme website 63 Borrell, L., et al., “Strategic review of broadband regulatory policy in Chile,” January 11, 2010 42 The Hindu Business Line, “South American nations keen on trade pacts with India,” August 6, 2011 64 The Information Technology and Innovation Foundation (ITIF) 43 “Nestlé to take on pharmaceutical sector,” Financial Times, September 27, 2010 44 “Google buys Motorola Mobility,” The Guardian, August 15, 2011 45 “Google makes another big wind energy investment,” Forbes, June 22, 2011 46 Nunes, P and T Breene, “Jumping the S-Curve,” Boston: Harvard Business Review Press, 2011 65 Atkinson, R., et al., “Explaining international broadband leadership,” ITIF, 2008 66 Government Offices of Sweden, “Broadband strategy for Sweden,” 2009 67 Govindarajan, V and A.T Dubiel, “Reverse innovation in action: Romanian cars from a French company on the German Autobahn,” Harvard Business Review blog post, May 21, 2010 68 Renault Group corporate website 47 Financial Sector Deepening Kenya; “Safaricom M-PESA”, International Finance Corporation, March 2009 69 Tata Motors 48 “Mobile payments go viral: M-PESA in Kenya,” Gates Foundation, 2010 71 Govindarajan, V., and A.T Dubiel, “Reverse innovation in action: Romanian cars from a French company on the German Autobahn,” Harvard Business Review blog post, May 21, 2010 49 “Safaricom limited announces audited results for the year ended 31st March 2011,” Safaricom news release; UN population database 70 Polk 72 “Renault-Nissan firms small car programme for India,” Forbes India, November 28, 2011 73 Hyundai Motor corporate website 74 “US car buyers downsizing as gas prices bite,” The Independent, April 5, 2011 75 “Barack Obama unveils ‘historic’ agreement on fuel economy standards,” The Guardian, July 29, 2011 76 Starbucks investor call, Q4 2011 77 “Starbucks plans coffee joint venture with China’s Ai Ni Group,” The Wall Street Journal, July 14, 2011; “China takes Starbucks to next level,” Forbes, May 13, 2011 78 ”Starbucks tightens focus on China,” The Wall Street Journal, June 3, 2011 79 “China’s coffee consumption: From leaves to beans,” Global Coffee Review, August 2011 80 “Tata Communications: Building a global-local operating model,” Accenture, 2009 81 “The emergence of India’s pharmaceutical industry and implications for the US generic drug market,” US International Trade Commission, May 2007 82 Bulk Drug Manufacturers Association (India) 83 “Pharma 2020: The vision—which path will you take?” PricewaterhouseCoopers, 2007 84 “Pfizer eyes bigger push into emerging markets,” Reuters, January 19, 2010 85 “HSBC CEO moves to Hong Kong,” Reuters, September 25, 2009 86 Unilever corporate website 87 Nestlé corporate website 88 “KFC’s radical approach to China,” Harvard Business Review, November 2011 89 Khanna, T., J Song and K Lee, “The globe: The paradox of Samsung’s rise,” Harvard Business Review, July 2011 90 Argentina, Armenia, Australia, Austria, Bangladesh, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Ecuador, Egypt, Estonia, Ethiopia, Finland, France, Germany, Ghana, Greece, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Italy, Japan, Kazakhstan, Kenya, South Korea, Luxembourg, Malaysia, Malta, Mexico, Morocco, the Netherlands, Nigeria, Norway, Pakistan, Paraguay, the Philippines, Poland, Portugal, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Thailand, Turkey, United Kingdom, Ukraine, United Arab Emirates, United States, Venezuela, Vietnam 91 Johansson, O., and L Schipper, “Measuring the long-run fuel demand of cars,” Journal of Transport Economics and Policy, September 1997 70 Acknowledgments Core research team Rob Hayward, Armen Ovanessoff, Athena Peppes, Kuangyi Wei Senior executive steering committee Paul Nunes, Mark Purdy, Matthew Robinson, Mark Spelman External economic advisor Vanessa Rossi We would like to thank the many Accenture client account executives who provided input We would also like to thank the following individuals for their contributions to the study Claire Allen, Allan Alter, Joshua Bellin, Sarah Bird, Shawn Collinson, Tim Cooper, Steve Culp, Ladan Davarzani, Philip Davis, Henry Egan, Alex Foster, Stephane Girod, Anish Gupta, Nancy Hamill, Jeanne Harris, Francis Hintermann, Sarah Hunter, Sanjay Jain, Mamta Kapur, Marcia Kramer, Hans von Lewinski, Gong Li, David Light, Scott Livermore, Luisa Lombardo, David Mann, Susan Mann, Matthew McGuinness, Joanne McMorrow, Raghav Narsalay, Andrew Newby, Alex Pachetti, Yali Peng, Anton Pichler, Bérenger Playford, Lawrence Ryz, Carron Sass, Stefano Scuratti, Abhik Sen, Tina Senior, Andrew Sleigh, Marcelo Gil Souza, Roxanne Taylor, Meng Yen Ti, Jens Tholstrup, Robert Thomas, David Thomlinson, Oscar Vasco, Alex Walker Copyright © 2012 Accenture All rights reserved Accenture, its logo, and High Performance Delivered are trademarks of Accenture About the Accenture Institute for High Performance The Accenture Institute for High Performance creates strategic insights into key management issues and macroeconomic and political trends through original research and analysis Its management researchers combine world-class reputations with Accenture’s extensive consulting, technology and outsourcing experience to conduct innovative research and analysis into how organizations become and remain high-performance businesses About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 244,000 people serving clients in more than 120 countries Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments The company generated net revenues of US$25.5 billion for the fiscal year ended Aug 31, 2011 Its home page is www.accenture.com 11-2358 / 11-4446 [...]... 500 fastest-growing companies (by revenue) were from emerging markets Companies based in emerging economies often have an advantage in entering and expanding in high -growth markets For example, they may be more familiar with serving low-income customer groups or operating amid infrastructure deficiencies The size of the prize is evident, and the success stories are only increasing China’s fast- growing... capabilities to cultivate and protect future demand in high -growth markets 3 Seizing the future: The operational agility and flexibility to adapt and reorient the company to grasp opportunities across high -growth markets The following chapters look at each of these capability areas in depth Accenture conducted an extensive research program to investigate the keys to success in today’s hypercompetitive high -growth. .. future growth in high -growth markets Specifically, they are defined by the following characteristics, based on their responses to our survey: • They are primarily looking at emerging economies for their next stage of growth • They are planning to increase investment in their target high -growth markets over the next three years • They believe they have an accurate understanding of the size of opportunities. .. real estate and supply chains can sit in a small number of hands in high -growth markets In an industry where market share really counts, relationships can provide the access needed to unlock opportunity and to establish a leading presence looked to acquire well-entrenched players in high -growth markets, such as the Wong Group in Peru, thereby gaining access to established infrastructure and relationships... The car markets in Mexico, Slovakia and Turkey appear to be at similar growth phases—rapidly growing markets with car purchase penetration increasing faster than income growth A “maturing” cluster of markets is also apparent further up the curve: in these countries, a change in income will induce a proportionally smaller change in demand and their major trading partners may promise lucrative opportunities. .. Businesses are understandably hesitant to prioritize their investments in these diverse, unfamiliar, but potentially lucrative markets Each brings unique opportunities, challenges and operating environments The temptation to hesitate is aggravated by continued global economic uncertainty, sluggishness in developed markets and increasingly tempered near-term growth prospects in emerging markets The instinctive... share—or that it may be already too late As companies wait, they fear that the windows of opportunity are shrinking They know the opportunities lie in high -growth markets They know they need to accelerate their efforts But what exactly should they be doing? What are the capabilities they need to build in order to succeed in high -growth markets? The following chapters seek to answer these questions Cencosud:... their windows of opportunity may be shrinking Our survey findings underscored the point: 73 percent of respondents believe they need to accelerate their efforts to build satisfactory market share in these high -growth markets or that it may already be too late 10 Wanted: Action and confidence Even while companies feel they are missing out on opportunities, uncertainty may lead them to hesitate about investing... variety of income levels, cultural tastes and preferences Haier has driven international expansion by tailoring its products to local markets: in China’s rural Sichuan province, Haier sells washing machines specifically designed and labeled to wash “clothes, sweet potatoes and peanuts.” In Africa, its high- capacity machines are equipped to wash traditional gowns And when LG expanded into the Indian market... revenue growth of 5 percent or more 33 Disappointed globalizers We also looked at companies that are committed to growing in highgrowth markets but that have been disappointed by their performance to date They are defined by the following characteristics: • They are primarily looking at emerging economies for their next stage of growth • In the past three years, their company revenue and profits in high- growth ... Companies turning their attention to high -growth markets must act quickly and definitively to carve out their position Firms entering and expanding in high -growth markets can expect to face a range... we making profits in China yet? Is it too late to enter Brazil? How can we move faster to establish a foothold in Africa? The questions highlight a key factor in strategic growth planning: the... expansion into new industries—their success in one market can be a buffer for cycles in other industries, or provide a steppingstone to entering new markets Preparing for your next victory Companies