Not since the Industrial Revolution has the world been presented with a more mouth-watering opportunity, according to management consultants McKinsey.
The Middle East, Asia and Latin Americas present USD30-trillion opportunity for global companies.
However, unlike the Industrial Revolution that took two centuries to blossom, the emerging market revolution is unfolding at a pace that has never been seen before in the history of civilisation.
At it height, Britain, which led the Industrial Revolution, required 150 years to double its economic output per person; in the United States, locus of the revolution's second stage, doubling GDP per capita took more than 50 years. A century later, when China and India industrialized, the two nations doubled their GDP per capita in 12 and 16 years, respectively.
"Moreover, Britain and the United States began industrialization with populations of about ten million, whereas China and India began their economic takeoffs with populations of roughly one billion," notes McKinsey. "Thus the two leading emerging economies are experiencing roughly ten times the economic acceleration of the Industrial Revolution, on 100 times the scale--resulting in an economic force that is over 1,000 times as big."
While American and European consumers have enjoyed dominance over the past century, emerging market consumers will lead the way in the future.
By 2025, annual consumption in emerging markets will reach USD30-trillion, up from USD120-trillion in 2010, and account for nearly 50% of the world's total, up from 32% in 2010.
"As a result, emerging-market consumers will become the dominant force in the global economy. In 15 years' time, almost 60% of the roughly one billion households with earnings greater than $20,000 a year will live in the developing world," the report said.
The emerging market consumer: young, with money to spend and high aspirations, will be confidently leading consumption globally. This will be in sharp contrast of developed market consumers who are suffering a hangover from decades of overleveraging and debt-fuelled consumption.
"The preferences of emerging-market consumers also will drive global innovation in product design, manufacturing, distribution channels, and supply chain management, to name just a few areas," McKinsey noted.
"Companies failing to pursue consumers in these new markets will squander crucial opportunities to build positions of strength that, history suggests, could be long lasting."
E&Y'S RAPID GROWTH MARKET
The report echoes Ernst & Young's 25 'Rapid Growth Markets' which feature 4.2-billion, or 60% of the global population.
The RGMs include the economies of Saudi Arabia, Egypt, Qatar and the UAE which, along with 21 other markets, that E&Y expects to lead global growth.
"The number of emerging markets households enjoying an income of over USD30,000 will more than double to 149m by 2020, overtaking the US (120m) and the Eurozone (116m)," notes E&Y. "These households will have discretionary income to spend on leisure pursuits, consumer goods and holidays."
OPPORTUNITY FOR COMPANIES
While emerging markets present significant opportunities for global companies, they must ensure that they focus in the right areas.
Throwing accurately: Companies must target growth clusters within emerging markets and positioning themselves for 'explosive' growth. Given that emerging markets are increasingly digital, companies will have rich data to play with.
Devise segmentation strategies: Companies often believe that emerging markets are divided into elite classes eager to emulate the west and penny-pinching poor.
"Marketers who succumb to this false dichotomy are drawn into debating flawed strategic alternatives."
Building brands: McKinsey research shows that a positive word of mouth feedback is three times as important for consumers in Egypt than in the United States and Britain. Building trustworthy brands is crucial to growth.
Organize to take advantage: Multinational companies focusing on emerging markets get bogged down by complexity and end up being less effective than local competitors.
"Clarifying the role of the corporate center is critical; too often headquarters assumes functions that add complexity but little value," noted McKinsey. "New communication technologies can help, but management must ensure that they do not ensnare employees in an ever-expanding web of teleconferences in disorienting time slots, with hazy agendas and ill-defined decision rights."
Retaining talent: Skilled managers are hard to find in emerging markets. recent McKinsey survey found that senior managers working for the China divisions of multinational firms switch companies at a rate of 30 to 40 percent a year--five times the global average. Increasingly, local stars prefer working for local employers that can offer them more senior roles.
While higher salaries is one way to retain talent, companies will need to develop local talent, invest in training and even go as far as to develop relationships with employees' families. Also giving local talent a chance for global exposure will also help retain talent.
The emerging markets offer tremendous opportunities but also intense competition where local companies understand the lay of the land far better than their international counterpart. As Middle East's regional telecom companies can testify, entering the lucrative markets are not without their challenges. Of course, not participating is not an option.
© alifarabia.com 2012
