More and more businesses are gathering into the emerging markets to reap the benefits that these markets have to offer. They have given the economies with high-growth access to low-cost sourcing.
Many of these businesses have established a stable operation which has been fairly successful. But sometimes, a headline like toys with lead-paint or contaminated food makes news every now and then. This makes the consumers question the brand names operating via offshoring.
Emerging markets: A strategic expansion
According to a study by Deloitte, wherein 24*7 executives were surveyed from industrial and consumer product companies. The companies included in the survey have a presence in emerging markets.
The study exposed that these companies have made the emerging markets their central plan. In fact, half of them expect a global revenue of 20% from these emerging markets. Apart from these, one-third of them are planning to allow a portion of 20% of their investments in these markets.
Forward-thinking companies have become more strategic when it comes to establishing their operations in these regions. Cost-saving has not been the only reason for moving your business to these emerging markets.
It has become more than establishing your shop at a low-cost center. As per the above graphical representation, 71% of the respondents think that it’s important to save cost. More than this, you will have to offer a product that satisfies the needs of the customers in the local market of an emerging economy.
Like for example, if you can recall the success story of Nokia that designed new phones which catered directly to the needs of the consumers. Although the story did not have a beautiful ending in its part.
This is because the companies could not keep pace with the fast pace of evolution of the capability and capacity of the emerging markets sourcing. Therefore, if you are focusing on innovation, growth, and sustainability in emerging markets then focus on these three factors:
- Capacity
- Capability
- Risk
Capacity:
The nations like China and India are developing economies and expected to continue to be like pillars of the growth of global GDP. This is the reason why companies are targeting these markets in spite of cultural constraints.
You will require a deep understanding of their local market. There are very few companies who have explored and achieved this capacity after several decades of hard work. They are constantly expanding their capacities to meet the growing demand of the local market of emerging economies as well as to compete with the local market leaders.
Capability:
Another factor around which it is important for companies to develop strategies is capability. After years of hard work, companies are moving up the value chain within advanced engineering techniques. Some of them start supporting local giants which are outshining the competitors at a global level. MNCs are using high end, low-cost manufacturing abilities to create more complex engineered products for global as well as local markets. After an acute awareness about the features of local markets, the companies aim to expand their service and product offerings.
A vigorous R&D working of companies have increased their capacity and build their capability. This has provided a lucrative field for an engineering consultancy. Many companies are reaching out to the emerging markets for an enhancement in the offering of their products and services.
By accessing talented and experienced workers at low-cost centers are offering them an expansion in their capabilities. Businesses are developing strong relationships with local business players to enhance their capacity and capability.
Risk:
There are many risks attached to a business that starts operating in a new country after a strategic expansion. There are cross-border risks related to business that has to be planned and it is one of the three crucial factors that businesses need to consider. This is the reason that companies must choose the destination of their activity so that across geographies they create a sustainable revenue structure.
Some of the cross border risks are fluctuating exchange rates, [political instability, crude oil price volatility, operation instability and many more. These risks can result in drastic outcomes which can hamper your business growth. Abandoning the idea of expanding in an emerging market because of these risks is not a sound decision. In fact, companies should work hard and get prepared to manage these risks efficiently.
Conclusion:
After reading this post, we hope that you know how beneficial is emerging markets sourcing. Before expanding your business to these growing markets, you must take care of the three factors as explained above. This will help you in gaining more and avoid all kinds of repercussions.