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Transformation of Emerging Markets

The traditional way multinational corporations (MNCs) do business in emerging markets is being challenged by multiple market-based, macroeconomic, and competitive factors. The time is ripe for MNCs to reorganize and reengage to prepare for long-term success.

The Need for Transformation

For years, emerging markets have driven growth for MNCs, but business climates are changing radically throughout the global marketplace. Overall economic growth in these markets has slowed or stalled, and the economics of doing business in these countries has become more challenging. 

Indeed, many companies even question whether to stay in emerging markets at all because of the increasingly difficult business conditions therein. But it is critical for them to stay, as

MNCs face three primary challenges in emerging markets:

  • Competition. Local businesses in emerging markets are growing stronger and more competitive. They have the advantage of lower overhead costs and lower wages. Stiffer price competition also exists as MNCs expand into middle markets, where a need for lower prices decreases profitability.
  • Costs. As the economies of emerging markets become more advanced, MNCs find rising labor costs at the same time they see declining revenue, while the productivity of skilled workers in emerging markets lags behind that of developed countries.
  • Shifting relationships. MNCs are losing their ability to recruit employees as local companies gain ground. Also, increased confidence in local business has led governments to be less accommodating in policies and regulations.

In order to continue to grow and compete in emerging markets, MNCs need to shift focus to include profitability and productivity as well as growth.

Transforming Local Operations

Transformations are complex endeavors. MNCs need to rethink and rebalance trade-offs in their priorities, products, systems, and people as they seek to improve their competitiveness. This is best achieved through a four-step transformation process that includes short-term improvements as well as structural changes in strategy and execution for sustainable, long-term results:

  1. Reset the strategy to focus on competitiveness. 
  2. Fund the journey by restructuring the local organization to make it leaner and more accountable. 
  3. Win in the medium term through process excellence: eliminate waste and instill simplification, standardization, and automation. 
  4. Establish the right team, platforms, and behaviors for longer-term competitiveness.

It is also important to remember that go-to-market strategies in emerging markets continue to be highly localized.

Remaining competitive in light of the advantages enjoyed by local competitors entails keeping decision-making abilities within local management teams or shifting them to local teams, as well as rethinking local recruitment and training with retention and productivity in mind.

Taking It One Country at a Time

Armed with the knowledge that transformation is key to long-term success in emerging markets, it is tempting to want to centralize and standardize operations and to make changes in all markets at once. It is far better to resist that temptation and start slowly. Work first in one country to develop a robust methodology, then use the lessons learned when rolling out changes in other countries.

Keep in mind that the culture and climate of each country will be different and in need of slightly different standards. MNCs need to look at becoming multilocal players in a global environment. 

Growth in emerging markets will continue, but only for companies that are set up to be competitive and that make growth profitable. In emerging markets, that is the new definition of winning.

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