Thursday, 25 September 2008

Study: Execs look to Emerging Markets to Defy Downturn

A new study of executive attitudes has revealed that business confidence in emerging markets continues to defy the gloomy economic outlook.

According to an Economist Intelligence Unit report sponsored by BT Global Services and titled ‘Ahead of the game: Succeeding in Emerging Markets’ 87% of those surveyed say they are optimistic or very optimistic about prospects for revenue growth in the next two years.

Hailed as one of the biggest surveys of business in emerging markets ever conducted, the study covered some 1,300 executives from major companies in 15 developing economies such as Eastern Europe, Africa, Latin America and Asian countries such as China, India and Thailand.

The report claims that an expanding middle class and wealthy customer base are inspiring firms to chase ambitious revenue and gross margin targets. Over a quarter, 26%, of respondents said only a gross margin of 35 % or more is ‘acceptable’.

Executives believe the key to success lies in matching growing consumer demand for high quality goods and services. Nearly six out of 10 firms or 56% put this success factor ahead of price. 24 % point to the importance of a strong brand and some executives even argue that brand loyalty is now greater in emerging markets than ‘mature’ countries.

Together, the findings suggest that Western firms entering these emerging markets must use their financial, brand and management strengths to achieve rapid growth. On the other hand, domestic companies within these markets feel they hold a key advantage over foreign firms with their strong local knowledge and contacts.

Fortunately for new international entrants, local businesses are ready to collaborate with more than half (55 per cent) saying they already work closely with foreign businesses day-to-day and a further 31 per cent considering following suit at some point. In return they will look for access to financial, brand and management skills and management acumen as well as international sales and export channels.

Francois Barrault, CEO, BT Global Services, said: “The study shows that emerging economy customer bases represent a bright opportunity for firms with international brands. But finding value in these markets is not a simple task and businesses will need to supplement their core skills with local knowledge and expertise.”

While 61 % of respondents believe emerging markets are becoming more “Westernised” some major operational differences remain. Nearly eight out of ten international entrants surveyed have customised their products and services in order to compete, with almost a fifth, 18% doing complete redesigns.

Substantial investments within many of these countries over the past decade have delivered solid gains for business. The state of physical infrastructure such as roads, rail and electricity supply and communications infrastructure is not viewed as a major barrier to growth by most respondents.

Barrault added: “Simple access is no longer the key communications challenge in emerging markets. The real value comes from bringing together global and local experts into a secure collaborative environment to deliver new levels of innovation, customisation and service support for a changing customer base.”