The Alibaba.com IPO—priced at $68 at the open—captured the imagination of many in the past couple of months. One of the assets that contributed to Alibaba’s success to date has no doubt been its supply chain as its tentacles connect input sources to manufacturers, factories and their customers.
And, while Alibaba has opened markets for many in China, companies expanding into emerging markets frequently remain challenged as they extend their supply chains into mainland China and other emerging markets. But there are some companies—leaders—that have higher-performing supply chains and tend to generate stronger growth.
In fact, a recent Accenture study focused on supply chain factors in emerging markets found that supply chain leaders are more than twice as likely as other companies to say their supply chain organization has helped their enterprise achieve greater than 20% growth in priority emerging markets. So how do they do it?
Much as DNA differentiates individuals, our analysis found that these leaders are differentiated by the way they invest in, leverage and nurture their supply chain. More precisely, we found that they are more likely than other companies to employ four major supply chain practices as they invest in assets in the targeted regions, tap into existing operations and hire talent to manage their operations.
That is not to say one-size-fits-all. A myriad of approaches exist, and the right answer depends on the individual company, their objectives, the target market, and their risk appetite and ability to manage it, to name a few.
But skimming the cream from the top, we find that the leaders were more likely to:
Use a broad mix of approaches to support their emerging market initiatives. While they invest in regional assets, service these areas from already established operations, hire local talent and extend strategic alliances to existing partners and set up joint ventures or partnerships with local organizations, they least frequently make acquisitions. But even then, 45% of the leaders included acquisitions in the mix as compared to 30% of others surveyed.
Complement a low-cost structure with a focus on quality and market knowledge to differentiate themselves. Success in emerging markets requires more than a lean cost structure. Leaders were much more likely to measure their differentiated quality as an indicator of success, and they recognized the importance of understanding the market, its culture and how business gets done in those markets.
Use technology extensively to increase efficiency, improve flexibility and enhance decision-making. Surprisingly, use of technology was not as widespread among the surveyed companies. While 48% of the companies said their supply chain uses technology extensively to support their emerging market pursuits, 45% said their use of technology is only moderate. Leaders were actually twice as likely as others to use technology extensively.
Continue to invest aggressively in supply chain operations to keep pace with changing market dynamics. In fact, 22% of the leaders invested more than $40 million in their supply chain operations, as compared to 13% who invested at a similar level as they seek to achieve their growth goals. As they invested more, they also tended to spread more spend across key supply chain areas, including the pursuit of operational excellence through standardization of regional operations processes, streamlining, automation, shared services and IT systems; physical infrastructure, which in some instances might mean expanding manufacturing facilities or widening their warehouse network; customer analytics; more local partnering to reach more customers and tap local expertise; and develop local supply chain talent—tomorrow’s leaders.
All of that aside, as any company that has considered emerging market expansion can attest, these markets can be lands full of opportunities but they also present unforeseen challenges. In most cases, a company’s ability to maximize the potential upside while minimizing the risks is highly dependent on the strength of the company’s supply chain.
That certainly was true of the supply chain leaders who reported robust growth in their chosen emerging markets on the back of a high-performing supply chain. These organizations have created a supply chain that has exceeded their expectations by taking advantage of a variety of approaches, gaining deep insights into their target markets, making extensive use of technology and investing aggressively in key areas of their operations.
As a result, supply chain leaders positioned themselves to gain competitive advantage as they go head to head in the marketplace with local companies that enjoy strong name recognition in the target markets as well as expansion-minded peers. In doing so, they rely heavily on their supply chain to help them navigate the uncertainty and volatility that exists in emerging markets.
Mark H. Pearson is the senior managing director, Accenture Strategy, Operations. Accenture is a global management consulting, technology services and outsourcing company, with more than 293,000 people serving clients in more than 120 countries.