Deloitte: Manufacturers must adapt to profit from emerging markets

Companies must adapt to profit from emerging markets

London — While most global manufacturers are pinning their hopes for sales growth on emerging markets, only 29% currently generate better margins in these regions than they do in developed ones, according to Deloitte survey of 400 senior executives from a broad range of industry sectors.

Among companies enjoying higher profitability in developing areas, some 54% provide different product features to the ones offered in their home markets. Half of those questioned still provide uniform products across all markets, despite the fact that 40% generate lower margins in emerging markets, the business advisory firm found.

“Manufacturers must tailor their products, pricing and strategies specifically to Asian, eastern European and Latin American countries, if they are to realise the enormous potential of these emerging economies,” said the survey report.

(R&D apears to be the key to success in emerging markets, with 49% of the companies selling new products conducted the R&D locally. The executives cited the 'need to understand the local market', 'faster time to market' and 'lower R&D costs' as the top three reasons for investing in local facilities.

“Long-term success requires more than simply tinkering with existing products, lowering prices, and developing new sales channels. Manufacturers must understand the unique needs of each local market and develop new offerings accordingly,” commented Jane Lodge, UK manufacturing industry leader at Deloitte.

“The most profitable companies are looking beyond traditional strategies to generate a continual stream of innovative products tailored to the needs of consumers and industrial buyers in emerging markets,” added Gary Coleman, Deloitte’s global managing director of manufacturing.

According to Deloitte, the five main challenges facing global manufacturers in emerging markets are:

1) To build new value propositions, delivering different product offerings that meet the unique needs of emerging market customers, often at much lower price points than in developed markets.

2) Locating R&D facilities in emerging markets to acquire deeper customer knowledge, and to build, market and distribute tailored products

3) Providing autonomy at the local level, while leveraging the strengths of headquarters, including governance and management know-how.

4) Building risk management capabilities to effectively detect, correct and manage the unique profile of risks presented by emerging markets, such as the protection of intellectual property.

5) Tailoring talent management strategies to the unique needs of employees in emerging markets, rethinking how to effectively recruit, develop, deploy, and connect people.