SOURCE: The Boston Consulting Group

The Boston Consulting Group

September 12, 2013 22:00 ET

Multinational Companies Target High Growth in Emerging Markets Despite Challenges

A BCG Survey Reveals That Execution Holds Back the High Ambitions of Global Companies

DALIAN, CHINA--(Marketwired - Sep 12, 2013) - More than three-quarters of multinational companies, or 78 percent, expect to gain market share in emerging markets, yet only 13 percent feel that they have cracked the code to succeed against local competitors in those markets, according to a recent survey conducted by The Boston Consulting Group (BCG).

These findings highlight the mismatch between the aspirations of multinationals in emerging markets and what is required to win. Multinationals know that they need emerging markets to fuel future growth, but they have not yet mastered them. For example, although emerging markets contribute an average of 28 percent to the revenues of respondent companies, only 9 percent of the companies' top 20 leaders are located in these markets.

The findings from the Globalization Readiness Survey are detailed in a new report, titled "Playing to Win in Emerging Markets: Multinational Executive Survey Reveals Gap Between Ambition and Execution," which is being released today at the World Economic Forum's Annual Meeting of the New Champions 2013.

"Emerging markets are now responsible for nearly 40 percent of global GDP and an even larger share of GDP growth. Many of these markets are dominated by able and ambitious local competitors that often have superior local knowledge, stronger government relationships, and lower cost structures. Multinationals have their work cut out for them," says Bernd Waltermann, a BCG senior partner and coauthor of the report.

BCG asked more than 150 executives to assess the relative importance of 13 capabilities in emerging markets and then to evaluate their companies' actual performance against those dimensions. The most important capabilities turned out to be precisely the ones in which companies say they fall short.

Most notably, the respondents said that their companies demonstrated the largest performance gap in attracting and retaining local talent.

In addition, executives said that they need to improve their capabilities to develop strong local leaders, create localized business models, and establish growth targets and execution plans -- all capabilities where the performance gap exceeds 20 percent. In fact, none of the executives said that their company had all the capabilities necessary for meeting their emerging-market goals.

"This research clearly highlights the challenges that companies feel in emerging markets and underscores the importance of addressing them," says Rich Lesser, CEO of BCG.

Many Markets, Many Priorities

Despite slowing growth, China remains the most important emerging market for multinational companies. More than four out of five multinationals, or 83 percent, said that China is an important market.

Brazil and India were next in line, with 57 percent of multinationals citing each country as an important emerging market. Southeast Asia (46 percent) and Russia (42 percent) were the fourth and fifth most important emerging markets, respectively.

"By virtue of the size of its economy and the rapid growth of its middle and affluent classes, China remains the destination of choice for most companies," says David Michael, a BCG senior partner and coauthor of the report. "Other markets will rightfully receive more and more attention, but China still offers plenty of opportunity."

Almost one-third of participants cited Mexico as a major priority, while one-quarter rated the Middle East and North Africa; Latin America, excluding Brazil and Mexico; and Eastern Europe as either a major or a top priority market. Sub-Saharan Africa is also starting to receive attention: 17 percent cited it as an important priority.

Survey Methodology

The 156 executives surveyed work for a wide variety of multinationals, including industrial goods companies (37 percent of the respondents); consumer goods (22 percent); technology, media, and telecommunications (10 percent); financial services (9 percent); and health care, professional services, and energy (each 6 percent).

Of the respondents, 30 percent work for companies headquartered in the U.S. and Canada, 49 percent for companies headquartered in Western Europe, 7 percent for companies based in Japan, 3 percent for companies headquartered in other developed Asia-Pacific markets, and 11 percent for companies based in emerging markets.

Nearly half of the executives, or 47 percent, work for companies with annual revenues exceeding $10 billion. One-third work for companies with $1 billion to $10 billion in sales.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group
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