For companies that have squeezed much of the potential growth out of their mature markets, tapping the emerging markets is a no-brainer. But doing so isn’t only a path to new customers in less-developed countries. Innovation designed to exploit opportunities in immature economies can sometimes be transferred back home to positive effect.
For example, a magnetic resonance imaging manufacturer created a relatively inexpensive, portable machine for use in India and China, where many areas are far from hospitals, notes David Axson, managing director of the finance and enterprise performance practice at Accenture Strategy. Sales were so strong that the company started marketing the product in more developed countries as well, says Axson.
“We’re seeing quite a bit of that reverse innovation taking place, where companies are designing for emerging markets and then moving that design back into mature markets,” he says.
The concept applies not just to product development but also to internal technology usage. Within the past few months, Axson relates, two Accenture clients that had implemented cloud-based performance management, planning and budgeting systems in Eastern Europe and Asia are now transitioning to those systems company-wide, replacing their traditional on-premise systems.
“I think we are at the tipping point where cloud-based, mission-critical applications are going mainstream for large companies,” observes Axson, opining that “we’re getting a long way beyond” concerns that such apps could pose heightened security risks.
It’s more than just an economic decision, he adds. “There are also flexibility and speed-to-deployment elements. When you update a cloud solution it’s instantaneously available to every user worldwide, and you don’t have to worry about whether you updated the software on this computer in China and that one in Brazil.”
Companies also might consider expanding their use of outsourcing worldwide, based on their experience in emerging markets. “It’s a way to conflate fixed costs into a more variable cost structure where you pay based on the level of business activity,” says Axson, noting that partnering with local companies is the most frequently used strategy for entering a developing market. “That can be a very potent capability when you’re dealing with volatile markets, and emerging markets are volatile. In North America and Western Europe we’re not used to seeing GDP increase by 10% one year and fall 6% the next.”
Those doing business in emerging markets also may acquire discipline about product distribution that can be applied to other markets. Axson told of one client that sells construction equipment to commercial buyers but also to individual do-it-yourself folks. “There aren’t any big-box stores in China,” he says. “They’ve got to sell through half a million independent retailers. So from a distribution and pricing standpoint, there’s a lot of intelligence you can gain by looking at how leaders in those markets are successful and translating that, rather than taking the old-fashioned approach to globalization, which is trying to replicate what you do in the United States or Germany in every market you move into.”
Meanwhile, not only is Western investment in emerging markets skyrocketing, but companies in those markets are increasingly investing in developed economies. In fact, they are potential acquirers of your business.
“There’s a defensive position that some companies may need to take,” says Axson. “It’s not just your traditional competitors you have to look at anymore. Fast-growth companies in emerging markets are looking for a footprint on the global stage by buying brand-name European and American businesses.”