Western Manufacturers Should Look to Emerging Markets for New Business Strategy

Viewpoint: Western Manufacturers Should Look to Emerging Markets for New Business Strategies

June 13, 2012
Business models common in low-cost manufacturing centers could work their way into Western markets as manufacturers seek a competitive edge.

Executives say shifting from a domestic to global business is the most difficult business-model change to implement. The executives responding to a Blue Canyon Partners research project ranked such changes even higher than a substantial number of other highly challenging initiatives.

Despite that high degree of difficulty, globalization remains a priority for most industrial firms.

In a 2011 Conference Board study of CEO priorities, manufacturing CEOs ranked growth the No. 1 priority, with cost optimization in second place.

For most manufacturing firms, the best opportunities for both growth and cost optimization involve participation in emerging markets such as China, Brazil, India and numerous other less familiar country markets -- a sharp departure from the focus on the markets of North America, Europe, and Japan of earlier decades.

In the past, Western businesses focused their globalization initiatives on low-manufacturing and sourcing costs in countries such as China and Mexico to improve competitiveness and profitability in their home markets.

This led to opportunities for aggregation, as elite segments of those same global markets achieved income levels sufficient to buy the products made by those firms, yielding benefits in terms of economies of scale.

These initiatives are the ones that yielded the claims about successful diversification of revenues beyond traditional developed country markets.

Such globalization initiatives, allowed Western firms to exploit their core strengths, either by introducing efficiencies in manufacturing and sourcing or by seizing on opportunities to serve an expanded market for the firm's products.

Globalization: Chapter Two

But the future focus of globalization will shift. At its center will be initiatives designed to bring firms' activities in emerging markets into the portfolios, business models, and cultures of established Western companies.

Examples of this are already visible in many industrial markets. Globalization strategies will move toward assimilating the core strengths of often-unfamiliar firms from emerging markets.

This shift will be critical to firms in developed markets that want to succeed in the broad middle markets of the large emerging economies - the segments which will contribute most of the growth that will occur in the coming decade.

To succeed in those markets, manufacturers must offer customers products that are almost as good as those in developed economies at a great price point.

It's a competency that has driven many emerging market firms such as Huawei, Haier, Sany and Mindray to positions of global prominence.

Furthermore, meeting future competitive challenges in both Western and emerging markets will require manufacturers in developed economies to "become them" in important ways.

Companies in developed markets will have to learn and assimilate new approaches to innovation, ones that "take out unnecessary features and their costs" rather than products that constantly "raise the bar".

They will have to rethink the balance between product and service contributions to the value delivered to customers.

They will have to blend processes appropriate to success in emerging markets with those that have been critical to their growth in past decades in their traditional markets.

Globalization has always been a challenge, but it will become an even more difficult as manufacturers struggle to adopt strategies embraced by firms in emerging markets.

Even so, manufacturers will have to adapt to be successful in the markets of the next decade.

George F. Brown, Jr. is the CEO and cofounder of Blue Canyon Partners Inc., a consulting firm working with leading business suppliers on growth strategy. Along with Atlee Valentine Pope, he is the author of "CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs," published by Greenleaf Book Group Press of Austin, Texas.

See also:

Early Birds and China's Mice

3 Keys to Successful Globalization

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