- 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.
Contact Information: Contact: Adria Greenberg Sommerfield Communications, Inc. 212-255-8386 adria@sommerfield.com