SOURCE: Boston Consulting Group

February 26, 2009 13:47 ET

Experts Available: Despite Worldwide Recession, Emerging-Market Companies Continue to Define New Era of the Global Economy

Scarcer Resources Mean Global Strategies Are More Important Than Ever... and Companies That Wait on the Sidelines May Lose Out

Competing With Everyone From Everywhere for Everything Continues to Be the Core Challenge in Business; It's Just Harder in a Recession, Argue the Authors of GLOBALITY

NEW YORK, NY--(Marketwire - February 26, 2009) - The global recession and financial crisis may be prompting some companies to "stick to their knitting" in markets they're accustomed to -- and believe that the downturn is turning back the clock on globalization.

But that would be dangerous thinking, according to The Boston Consulting Group (BCG), coauthors of the bestselling book GLOBALITY: Competing with Everyone from Everywhere for Everything (Business Plus, Summer 2008).

"There are certainly new dynamics resulting from the crisis, and many executives have diverted some attention away from the emerging markets," said coauthor and BCG senior partner Harold L. Sirkin. "But it would be a mistake to believe that globalization is ending or reversing course, as some have alleged. In reality, leaders of Western and Japanese companies need to think even more carefully and strategically about how to compete in emerging economies like China, India, Russia and Brazil, where home-grown upstarts are continuing to emerge as global challengers."

"Since corporate resources are scarcer now, making the right international moves is critical -- and making no moves could be disastrous. The recession will continue to redefine the global playing field, creating new opportunities for established players willing to invest for the medium and long term," said coauthor and BCG senior partner James W. Hemerling.

Mr. Sirkin and Mr. Hemerling are available to discuss emerging-market myths and approaches they believe established players need to adopt in the context of today's economic troubles. For instance:

  • View infrastructure projects in China and India as a major opportunity. While business in rapidly developing countries may be tempered by the economy, infrastructure and stimulus spending is monumental. China has pledged $586 billion on infrastructure projects and 600 billion yuan [about $6.6 billion USD] in technology stimulus spending. These initiatives will require the support of multinationals.

  • Avoid "generalities" about emerging economies and companies. The common generalization has gone from "China or bust" to "China is no longer competitive." The reality is that production in China was never a panacea, and it's not a poison now. "Right answers are specific to products and market strategies. The big risk is lack of action based on a view that threats -- and opportunities -- have gone away," said Mr. Sirkin.

  • Recognize that product quality is key. The visibility that quality issues get, especially products made in emerging markets, poses a real liability. "Companies need to invest quite a bit -- perhaps 1-2% of costs -- to ensure the quality and safety of products made in emerging markets. There is a cost to low cost. You can pay it up front or take risks for later," said Mr. Sirkin.

  • Avoid "transplanting" developed-world plants and product sets to the developing world, though that may be a tendency in leaner times. To realize the very real benefits of production in rapidly developing economies, companies must commit time and resources to adapting production approaches to local conditions. Too many of the multinationals' plans in developing economies are subscale and under-integrated with the supply bases.

  • Don't accept that developing economies are getting "too expensive." Manufacturing wages in emerging economies will remain well below high-cost countries for the foreseeable future.

  • Understand why some multinationals aren't winning with their emerging-market strategies -- and aren't able to produce at lower costs. They're making significant mistakes, such as: subscale plants; using local employees but not following local work practices; continuing to rely on imported materials and components; doing too much R&D back home in high-cost locations; not designing products locally in emerging countries to leverage labor, local materials and suppliers; and not leveraging local and regional incentives. "Successful multinationals often manualize some processes that are automated elsewhere -- because manual is less expensive and more effective in some markets. Locally adapted manufacturing approaches are really important," said Mr. Hemerling.

  • Remember that China, Brazil, India and most of the other rapidly developing economies aren't each "one place." There are clusters -- like auto manufacturing areas and mini-Silicon Valleys -- in most places. Lower costs and other advantages depend on choosing the right location within the country. "Advantages are specific to industries, regions and markets. These countries are not monolithic. There are major differences within them," said Mr. Sirkin.

  • Keep in mind that developing countries aren't just for production. Companies that produce in emerging countries for global and local markets achieve scale faster. "It's important to think about the whole value chain for local markets: R&D and production and sales," said Mr. Hemerling. Growth in emerging markets is much faster than developed markets, so companies miss out if they don't also understand and produce for the local markets.

To arrange a conversation with Mr. Sirkin or Mr. Hemerling, authors of GLOBALITY and BCG senior partners, please contact Adria Greenberg at Sommerfield Communications, Inc. at adria@sommerfield.com or 212-255-8386.

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