Fast forward to growth seizing opportunities in high growth markets

First, regardless of when and how growth returns to developed markets, the future map of global demand will look very different from that of previous decades.. We surveyed nearly 600 bus

Fast Forward to Growth

Seizing opportunities in high-growth markets

The new shape of competition

Sizing the future: Assessing where and when to act 35 Shaping the future: Seeding tomorrow’s growth 43 Seizing the future: Operating at speed and scale 54

Contents

Foreword

The search for growth opportunities in emerging economies is no longer a matter

of choice; it has become a necessity

With short-term growth difficult to find

in developed markets, emerging markets must be considered as more than an optional, longer-term bet

But making bets on the future, whether short-term or long-term, is an especially difficult challenge amid the persistent uncertainty, complexity and volatility in the global marketplace In

my conversations with clients around the world, I am struck by how today’s business executives often find themselves struggling to prioritize their investments across the diverse set of growth markets

in emerging economies The questions

I hear in boardrooms vary widely: Why aren’t we making profits in China yet?

Is it too late to enter Brazil? How can

we move faster to establish a foothold

in Africa? The questions highlight a key factor in strategic growth planning: the importance of getting your timing right

Planning an effective global growth strategy across time horizons demands significant investments of time, effort and resources to assess market potential accurately and to build the requisite capabilities for success

Putting off such investments, waiting

to see how markets evolve, is tempting

in today’s economic environment, and it may be the right decision

But this presents executives with

a critical paradox: ongoing global economic change may lead businesses

to shy away from action in the very markets that hold the key to faster growth The longer firms hesitate, the greater the risk of missing out on opportunities, and the more challenging the competitive environment they will face when they eventually take action

I see two underlying factors at play

First, regardless of when and how growth returns to developed markets, the future map of global demand will look very different from that of

previous decades Fundamental shifts in income and demography are reshaping the landscape of global consumption Predicting where and when the related market opportunities will arise

is difficult enough; understanding how to grasp them is even harder

Second, I see a new constellation of competition being formed out of the market turbulence of recent years This

is due partly to the new economic and political relationships that are being forged, particularly between emerging economies But I also see transformation

in how businesses operate The downturn has spurred improvements in the efficiency of global operations New technologies and reconfigured operating models are allowing companies to create value more effectively and to build more direct and intimate connections with their customers And these new business models, practices and capabilities draw from a more diverse pool of global players, characterized by important differences in strategic priorities, governance and culture

It is in the context of this dramatically altered landscape of opportunity and competition that this report, the work of the Accenture Institute for High Performance, calls for an urgent reassessment of the strategies and capabilities that will be central to achieving high performance in tomorrow’s global marketplace Business leaders cannot allow change and uncertainty

to paralyze their decision making We hope you find the report insightful and stimulating and its recommendations both useful and actionable

Mark Spelman

Global Head of Strategy

Accenture

Mark Spelman

1 We analyzed household income data across 64 countries (see Methodology on page 67 for details) which together accounted for more than 90 percent

of global GDP in 2010 The income of the emerging-market households in our analysis will jump by more than US$8.5 trillion between 2010 and 2020.

5

In the current global economic

environment, executives fear that

prospects for growth in many markets

are patchy and vulnerable With this fear

comes a renewed search for pockets

of growth in the global economy We

surveyed nearly 600 business leaders

worldwide and found that 80 percent

are focused primarily on high-growth

markets in emerging economies to chart

a more compelling path for the future

And with good reason Household

incomes in emerging economies will

jump by more than US$8.5 trillion

between 2010 and 2020—nearly 60

percent of the global increase over this

period, in real terms.1 As these incomes

grow, so will consumption and demand

But many executives are not confident

that their organizations are up to the

task Forty percent do not believe that

their companies possess the strategic

and operational capabilities to fully

grasp the opportunities in emerging

economies The same proportion worry

that they do not fully understand the

competitive dynamics they will face

These doubts are not misplaced—

and may be exacerbated by the

emergence of a rapidly intensifying

competitive landscape, populated by

new players with new capabilities

High-growth emerging markets are

a fast-moving target Companies

must build powerful new capabilities

to address this new reality

Tracking the

income surge

The pace of income growth in emerging

economies can be bewildering Many

companies have been impatiently

awaiting the promise of profitability

in emerging economies But as our

detailed analysis of household incomes

shows, the real growth in consumption

is yet to come For example, many companies are pinning their hopes on China, the world’s most populous nation and one of its largest and fastest-growing economies Currently, 27 other economies—including Poland, Colombia and Turkey—have a greater number

of households with an annual income above US$30,000 But over the next decade, China will rapidly accelerate up the ranks, leaving only three economies with a greater number of households earning US$30,000 and above: the United States, Japan and Germany

This pace of change is not restricted

to China: Mexican households in this income band are expected to boost their income by an additional US$340 billion by 2020, an increase higher than that expected in Germany And in

a richer income segment, households with an annual income of more than US$50,000, Turkey will see a total increase of US$380 billion, the highest

of any emerging economy As these examples demonstrate, the varying degree and speed of change across these markets make the size and timing

of opportunities difficult to grasp

Mapping the competitive terrain

Companies seeking their fortunes

in high-growth markets face a challenging competitive landscape As competitors jostle for position, firms targeting these markets will confront domestic players with strong local knowledge and intimate customer relationships; established multinationals with global scale that have improved their efficiency in response to the downturn; and a further potent breed, growing multinationals from emerging economies The competitive landscape

is characterized by a combination

of scale advantages, strong brands,

low-cost capabilities and deep local knowledge, as well as an increased role of relationships and government support In this environment, with its wide range of players and broad variety

of capabilities, many companies will face a challenge in pressing home their own competitive advantage

The opportunity paradox

Our research uncovers a paradox: on one hand, there is strong affirmation that firms see continued growth coming from emerging economies On the other hand, they feel that the windows of opportunity to secure their company’s share of these markets may be shrinking The point is underlined by our survey finding that 73 percent of respondents believe they need to accelerate their efforts, or may already be too late,

to build satisfactory market share

in these high-growth markets.

Our research supports this imperative

to accelerate action in seeking opportunities in high-growth markets

In an uncertain economic environment, there is a strong temptation for companies to watch and wait, or even

to retrench or withdraw from some markets until the global economic environment becomes clearer In fact, many organizations have significant reserves of cash that could be used for expansion But they continue

to hesitate A strategy of “wait and see” may be effective, as long as it

is based on a realistic assessment

of the options, opportunities and risks involved More likely, however, hesitation in today’s global competitive environment may be the most

dangerous choice of all High-growth markets offer many opportunities, but the explosion in demand is matched

by ever-intensifying competition

Executive summary

Faced with the risk of squandering these

opportunities, what can companies

do to accelerate their efforts and

avoid missing the boat? What are the

specific capabilities they need to build

in order to compete effectively and

claim their share of future growth?

Opening windows

of opportunity

In our research we found that

successful companies in high-growth

markets think differently about the

capabilities critical for growth and

prioritize their investments in different

ways Specifically, these “successful

globalizers”—companies with a track

record of successful performance in

emerging economies, that are confident

and committed about their future

prospects in these markets—excel in

three areas They are better able to size

the future—they possess the ability

to accurately size, time and prioritize

demand opportunities around the

world They are better able to shape

the future—they possess the insights

and capabilities to cultivate and protect

future demand opportunities around

the world And they are better able

to seize the future—they display the

operational agility and flexibility to

adapt and reorient the company to

grasp opportunities across growth

markets Companies can take specific

actions today to improve their

capabilities in each of these areas:

1 Sizing the future: Where

and when to invest

Our research suggests that successful

companies in high-growth markets adopt

new approaches to assessing potential

market opportunity They take a more

dynamic view that incorporates foresight

and flexibility into strategic planning

They are more adept at examining global

opportunities through multiple lenses

This allows them to aggregate seemingly

disparate markets and uncover business

cases that would otherwise have

remained untapped Witness companies

that have successfully targeted diaspora

communities scattered across the world,

or specific high-potential customer

segments, such as those in

water-scarce areas, rural communities or

newly-empowered female populations

In this way, successful globalizers develop a more complete and realistic understanding of the markets in which they intend to operate

Second, in a rapidly-changing environment, these companies understand better than their competitors the importance of planning over time horizons, allowing them to sequence and prioritize their investments Our research, conducted in partnership with Oxford Economics, illustrates the importance

of identifying where different markets will sit in terms of their consumption

of specific products and services How close are they to reaching a point where demand rapidly takes off? How close are they to market maturity? What are the opportunities of different markets over different time horizons?

This deep understanding of their target markets allows successful globalizers

to become masters of strategic positioning: to be not only where opportunities are today, but where they will be tomorrow Through their superior ability to discern the size, location and timing of opportunities, these companies make more informed decisions and trade-offs around where and when to invest, and remain several moves ahead of the competition

To become masters of strategic positioning, companies can:

• Conduct cross-country forecasts

of product and service consumption across time horizons, beyond national and regional borders, and use these to evaluate trade-offs and guide decisions about when, where and how to enter high-growth markets Some markets may offer immediate opportunities, while others may be poised for more significant growth in the longer term

• Experiment with different customer segmentation variables to uncover new geographic and demographic groups Discovering segments that cut across country borders may unearth business cases beyond those that focus exclusively on country-level segmentation Procter & Gamble has designed razors, shampoos and cleansing products specifically designed for consumers in water-scarce areas

• Use information and communications technology (ICT) such as mobile phones and social media to collect reliable and relevant data, improve demand forecasting, and overcome data scarcity Coca-Cola has 22 million consumers following it through social media, and the ensuing dialogue has given Coca-Cola valuable ideas for new beverages and other products

• Leverage existing proprietary data for further growth opportunities: the Mexican retailer Grupo Elektra built one of the country’s largest networks of banking branches based

on data from a credit service it launched for retail customers

• Choose local partners—whether through joint ventures, alliances or other arrangements—to gain a deep understanding of local market dynamics, needs and preferences

• Enhance competitor analysis techniques to anticipate emerging competitors across multiple time horizons, from different geographies and adjacent industries

2 Shaping the future:

Cultivating new marketsWhile some companies may feel they are too late to secure their position

in high-growth markets, our research shows that successful globalizers do not simply accept that windows of opportunity are shrinking Instead, they open new windows of opportunity by discovering new demand and seeding future opportunities

In an environment where attaining market share is challenging, successful companies have identified the

opportunity to grow the size of the

overall opportunity, not just their share

They understand how to extend the frontiers of opportunity, often through targeted partnerships and collaboration with local stakeholders

Our research demonstrates the impact,

in real consumption opportunities, that can be achieved when businesses invest in generating future demand For example, our analysis examines how demand can be measurably increased through improvements in infrastructure, education and health care

To achieve a better understanding of

how they can push open new windows

of opportunity, companies can:

• Identify and map key stakeholders,

local and global, and build trusted

relationships

• Assess the strength of relationships

with government agencies, industry

regulators and local communities These

relationships can help obtain a license

to operate, ease the policy environment,

and improve access to scarce resources

Executives may be surprised at the

extent of common interests held by

these stakeholders

• Innovate to fulfill unmet needs,

and involve local consumers in

innovation and design Vodafone and

Safaricom’s M-PESA money transfer

platform was designed to address a

particular need in Kenyan society, to

send money to family at home The

service has grown quickly, achieving

14 million registered users within

four years, and has simultaneously

brought an entirely new business

model to markets across the world

• Evaluate local and global leadership’s

understanding of social and economic

factors that influence demand, and

promote the social and economic

development of local communities

Companies successful in emerging

markets engage national and local

governments to help create the

conditions needed for their businesses to

prosper GSK, a leading pharmaceutical

and healthcare products company,

reduced the price of its patented

medicines in the world’s poorest

countries, providing social benefits

and opening up new markets

3 Seizing the future: The

operational agility to grasp

new opportunities

Successful companies infuse their

organizations with the strategic,

operational and cultural agility to

grasp new opportunities Identifying

opportunities is one thing, but rapidly

mobilizing the organization to attain

them is another In order to achieve this,

they prioritize and invest in distinctive

capabilities that boost operational

agility and flexibility These capabilities

are not just instrumental in helping

companies to grasp the opportunities of today, but will play a fundamental role

in shaping the markets of tomorrow

For example, our analysis shows how the power of disruptive innovation can transform industry dynamics, improving the accessibility of consumer products and creating markets In the automotive sector, for example, process redesign and low-cost materials have dramatically broadened the accessibility

of passenger cars to new customers

New pockets of demand have opened

up for those companies with the agility and efficiency to design low-price business models Successful globalizers are pushing the boundaries of what

is possible: they understand that business performance and the bottom line will only become more important

in geographic growth plans They understand that operating at speed and scale will play an ever greater role in determining the winners and losers of the next phase of global competition

To achieve operational agility and seize new opportunities, companies can:

• Explore partnership and acquisition options to boost reach, capability and speed; and continually reassess and evolve ownership and governance structures as circumstances change

The flexibility of Starbucks in managing

a range of business models and partnerships has been instrumental to its success in China, which the company now regards as its “second home market.”

• Develop systems to rapidly redeploy people, capital and ideas around the global organization In expanding its global footprint, Tata Communications designed a wholly new international operating model

to incorporate local leadership expertise into its global operations

• Encourage experimentation—

incubate, fund and protect new ideas

The success of Indian pharmaceutical companies demonstrates the importance

of innovation, and the benefits of scaling new ideas across the global organization

• Assess the leadership team and how its skills and experience align with growth plans Nestlé is relaunching its

International Development Program, giving future leaders experience in foreign markets within the company’s business units across the globe

No business decisions are simple in today’s environment of prolonged global economic uncertainty But a game of

“wait and see” purely due to a lack of understanding or preparedness poses the risk of missing the boat This report uncovers the key dynamics at play and details specific actions that companies can take to build the capabilities for success in the high-growth markets of the future

The research

Accenture’s Institute for High Performance has conducted thorough research to investigate the keys for success in today’s competitive high-growth markets The main elements

• Industry consumption curves, in collaboration with Oxford Economics This research forecasts the evolution

of consumption for a select group of industries across the world It also includes scenario-based sensitivity analysis to assess the impact of changes

in the business and policy environment

• A survey of 588 business leaders, across 85 countries and 22 industries, conducted by the Economist Intelligence Unit Business leaders were asked about their perceptions of the competitive landscape, their company’s plans for growth and the capabilities important for success in these markets

• Conversations with clients and experts across industries and extensive secondary research, including

company case studies and analysis of greenfield and M&A investment data

A wake-up call

A world of opportunity

Faced with protracted economic

uncertainty, many companies are

renewing their interest in emerging

economies as a springboard for their

next phase of growth Our survey

of 588 business leaders reveals that

80 percent are looking primarily at

emerging economies for their next stage

of growth And they acknowledge that

this is where future opportunities lie,

with 81 percent planning to increase

their investment in emerging economies

over the coming three years

We analyzed household income data across 64 countries that together accounted for more than 90 percent

of global GDP in 2010 The income of the emerging-market households in our analysis will jump by more than US$8.5 trillion between 2010 and 2020

That represents nearly 60 percent of the total global increase in household incomes over this period (see Figure 1) In particular, China and India are projected to experience significant increases in total household income, with additional income of US$3.2 trillion and US$1.4 trillion, respectively

As emerging-market households spend this newfound income, fresh pockets

of demand will emerge Our research examined the evolution of income patterns globally, and how rising household incomes might influence consumption For example, a combination

of rising household income and a large population will propel China to be one of the world’s most significant passenger car markets: our estimates show that average annual car sales in China are expected to exceed 15 million by 2020, ahead of the United States Already, in

2011, China has overtaken the US to become Roll-Royce’s largest market.2

Figure 1: Household income growth 2010-2020 (US$ billion, 2010 constant prices)

China India Russia Brazil Turkey Mexico Indonesia Other

emerging US Japan UK Germany Otherdeveloped income Global

2020

Developed markets

• Share of global growth = 43%

• Compound annual growth rate

Emerging markets Developed markets

Source: Accenture, Oxford Economics

Note: The analysis covers 64 countries, which accounted for more than 90 percent of global GDP in 2010.

“Emerging markets,” however, is a

nebulous term that obscures the

diversity and complexity across

those markets South Korea, India

and Vietnam are often cited as

high-potential “emerging markets”

to watch Yet average household

income in these markets diverges

significantly; approximately US$35,400,

US$5,800 and US$3,300, respectively,

in 2010 The value of comparing

a “typical” consumer across these

countries is questionable, even when

factoring in cultural differences

Headline numbers can also mislead

China, for example, is the world’s most

populous country and home to one of

the world’s largest and fastest-growing

economies Yet in 2010 it had fewer

households with annual incomes above

US$30,000 than many other smaller

“emerging” economies, including

Colombia, South Africa and Argentina

While attention is focused on the BRIC

economies, we project that by 2020

Turkey will be home to an additional

4.7 million households in this income

bracket, on a par with expected growth

levels in Brazil Mexico will also undergo

rapid growth in its consumer-market

potential: there will be an additional

3.3 million households in this segment

over the decade to 2020 With so

much variation and rapid change,

the size and timing of opportunities

can be challenging to grasp

The temptation to

hesitate

Businesses are understandably hesitant

to prioritize their investments in these

diverse, unfamiliar, but potentially

lucrative markets Each brings unique

opportunities, challenges and operating

environments The temptation to

hesitate is aggravated by continued

global economic uncertainty,

sluggishness in developed markets

and increasingly tempered near-term

growth prospects in emerging markets

The instinctive response of many

companies will be to watch and wait, or

even to retrench or withdraw from some

geographic locations Yet our research

demonstrates that in today’s global

competitive environment, hesitation

may be the most dangerous choice

of all The economic downturn has had a profound impact, dramatically reshaping the global competitive landscape High-growth markets present many opportunities, but these opportunities are being rapidly snapped up by a new breed of players from emerging economies, as well as multinationals that have entrenched themselves in these markets during previous phases of globalization The longer they wait, the more challenging competitive environment they will face when eventually taking action

The risk of missing the boat

Companies turning their attention to high-growth markets must act quickly and definitively to carve out their position Firms entering and expanding

in high-growth markets can expect

to face a range of competitors with powerful strengths: from low-cost players to global giants, from locally networked incumbents to masters

of global scale and efficiency In this environment, hesitation risks squandering opportunities The longer the hesitation, the greater the odds that more nimble and prepared players will position themselves for these lucrative growth opportunities

The mobile telecoms market in Latin America, for example, is often predicted

to be one of the world’s fastest-growing telecoms markets over the next five years (See “América Móvil and Telefónica:

Seizing opportunities ahead of the pack,”

page 12) The market for value-added services such as mobile data is not yet established in much of Latin America

Penetration rates remain very low in many countries, and rapid increases in demand may be far off These facts have not stopped Mexico’s América Móvil and Spain’s Telefónica from expanding rapidly across these smaller markets, acquiring local providers and gaining access to the infrastructure essential for growth when demand does take off Companies looking to enter these nascent markets will face not only domestic players,

but also two Fortune Global 500

multinationals with established products, infrastructure, relationships and brands

The growth prospects are clear But

it is also clear that many companies will feel locked out of the opportunity

to become serious players in the market, even before it has taken off.This pattern is repeating itself in different industries and locations around the world In some cases, the risk of being locked out of markets threatens deep and long-term consequences The CEO of a large Chinese railway equipment manufacturer explained that the financial crisis weakened the ability of European and North American banks to finance large railway contracts demanded in Asia’s emerging economies Chinese enterprises and banks partnered to fill the void The CEO

is confident that his company’s products rival the quality of multinational competitors and will anchor rapid sales expansion in Asia: exports for the first half of 2009 increased by

60 percent over the same period in the previous year.3 The prospect of being locked out of such long-term contracts around the world should be a sobering thought for many companies.The intensity of competition is not all that has changed The diversity of competitors, and of their competitive advantages, brings new challenges

In this report, we bring to light the fundamental shifts in the global business landscape that the downturn has wrought We make clear the new challenges companies face in determining the optimal location and timing of opportunities, and the risk of delaying action in the face of aggressive competition

The opportunity paradox

Our global business survey uncovered

a paradox: on one hand, companies see continued growth coming from emerging economies On the other, they feel that their windows of opportunity may be shrinking Our survey findings underscored the point:

73 percent of respondents believe they need to accelerate their efforts

to build satisfactory market share

in these high-growth markets—or that it may already be too late

Wanted: Action and

confidence

Even while companies feel they

are missing out on opportunities,

uncertainty may lead them to hesitate

about investing in high-growth

markets In fact, many companies have

healthy cash reserves that could be

used for expansion Cash holdings for

American nonfinancial companies in

June 2011 exceeded US$1.9 trillion,

the highest in half a century.4

The volatile economic environment

drives uncertainty and hesitation,

but our research uncovers deeper

concerns We found that many

business leaders are not confident

about their own company’s ability

to succeed in high-growth markets

• 40 percent do not believe that

their company possesses the

strategic and operational capabilities

to fully grasp the opportunities

in emerging economies

• The same proportion acknowledge

that they do not fully understand the

competitive dynamics they will face

• Nearly one-third do not even believe

that their company has a clear strategy

for high-growth markets

With almost three-quarters of business leaders believing that they need to accelerate their efforts in high-growth markets, it is critical to understand the dynamics that constrain their progress Many companies may not appreciate the degree of change in the business landscape since the downturn

On the demand side, companies have not adjusted their methods to locate and measure demand and fully evaluate potential opportunities: their tools are often inappropriate,

or even outdated and irrelevant

On the supply side, companies underestimate the diversity of players and capabilities they will encounter in the competitive landscape Next, we explore these demand and supply dynamics.

73% of companies feel they need to accelerate efforts or may already

be too late to build satisfactory market share in high-growth markets.

11

Latin America is projected to be the

fastest-growing telecoms market over

the next five years Demand is growing

at unprecedented rates: penetration

reached a high of 89 percent this

year.5 As penetration rates rise, so do

opportunities for lucrative

“value-added” services Almost one-third of all

new phones in Latin America by 2014

are expected to be smartphones The

number of mobile data plan subscribers

is expected to more than double this

year, a sizable opportunity in a continent

of nearly 600 million people.6

The market is dominated by two global

telecoms giants, each looking for growth

to offset a decline in its traditional

revenue base: América Móvil, which is

looking for growth in mobile, broadband

and pay TV to offset declining revenue

in fixed-line services since the market

was liberalized and opened up to

competition, and Telefónica, which is

looking to broaden its footprint beyond

Europe, an intensely saturated and

competitive market.7

These two companies are the dominant

players in most key Latin American

markets In Mexico, Telcel—América

Móvil’s mobile arm—holds 72 percent

of the market, but Telefónica is closing

fast In the last quarter of 2010,

the two companies accounted for

90 percent of the one million new

connections: Telcel took 30 percent,

but Telefónica took 61 percent And in

Brazil, América Móvil’s Claro brand is

a key player in the market, along with

Vivo, acquired by Telefónica in 2007.8

The strategies América Móvil and

Telefónica use to build their presence

are revealing América Móvil has for

many years been buying up smaller

operators around Latin America, taking

control of fixed-line infrastructure and

increasing its customer base In recent years, Telefónica has built on long-standing relationships in the region, strengthening its presence through sizable acquisitions of established players such as Vivo

As other telecoms players look to high-growth markets in Latin America, they are faced not only with smaller domestic incumbents but also with

two Fortune Global 500 multinationals

with global reach and scale, combined with local presence and understanding across the region Breaking through this incumbency poses new and challenging questions to potential entrants

América Móvil and Telefónica are already jostling for position in new services, including mobile data, broadband and pay TV Telefónica recently rebranded its operations across Latin America, bringing together fixed line, mobile, broadband and TV under the Movistar brand

When Latin America’s markets begin their inevitable acceleration—

broadband penetration rates are still hovering at around 15 percent

in most of these countries—América Móvil and Telefónica will be at the forefront of new opportunities.9

They are identifying and snapping up opportunities almost before they appear

América Móvil and Telefónica:

Seizing opportunities ahead

of the pack

Locating demand: The

search for growth

Between 2011 and 2016, approximately

60 percent of global economic growth

is forecast to come from emerging

economies,10 despite an expected

near-term slowdown in key

high-growth markets such as China and

India The triad economies of the

United States, Europe and Japan

continue to experience persistently

high unemployment and public debt

levels Many developed economies

have seen their economic growth

forecasts downgraded in recent

months and companies struggle to

locate the next sources of growth

in these markets In many emerging

economies, in contrast, unemployment

is falling and governments hold

significant reserves Many companies

in these markets may not even have

felt the impact of the downturn

Levels of consumption and demand

for goods and services in emerging

economies will increase as incomes

grow But with enormous differences

in the size and growth rates of

demand, along with a variety

of customer preferences, it is

difficult to accurately assess and

forecast growth opportunities

A fast-moving target

We have conducted an extensive

analysis, in collaboration with Oxford

Economics, of household incomes and

their evolution over the coming decade

According to our analysis, China lags

behind 27 other economies, including

Poland, Turkey and Colombia, in the

number of households with an annual

income greater than US$30,000 This

comes as no surprise to companies

eagerly and impatiently awaiting

profitability in China But over the next decade, China will rapidly move up the ranks, leaving only three economies with a greater number of households earning US$30,000 and above: the United States, Japan and Germany In

2010, the number of Chinese households

in this income bracket was almost twice that in Thailand—but by 2020, there will be more than thirteen times

as many Our analysis highlights the dynamics shaping global demand opportunities through 2020 (see “In focus: Household buying power,” page 18) Specifically, we illustrate how US$15 trillion of additional household income will be dispersed around the world across distinct income segments

The stories that emerge reveal where

“high growth” may be found

Attachment to outdated labels

Income levels and the speed of change are difficult to keep up with and translate into investment decisions

Commentators are quick to embrace labels such as BRIC (Brazil, Russia, India and China), MINT (Mexico, Indonesia, Nigeria and Turkey) and CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) But the dramatic speed at which the demand landscape is changing brings into question the value of these terms

Over the next three years, in real terms, India’s economy will grow at

a rate twice as fast as that of Russia

China will grow twice as fast as Brazil

And there are significant structural differences: while India’s growth has been fueled primarily by domestic demand (private consumption accounts

for 56 percent of India’s economy, compared with 34 percent in China),11

China’s economy is largely built on investment and export growth, and Russia is heavily dependent on its natural resources: oil, fuel and gas accounted for 69 percent of exports in

2010.12 These fundamental differences illustrate the dangers of relying upon such country groupings for detailed analysis and comparisons Looking outside the BRICs, Vietnam, Peru and Angola are all forecast to grow more quickly than Russia It becomes clear that even the accuracy of the terms “emerging markets” and “high-growth markets” is debatable

Economic groupings and macroeconomic terminology help describe important global trends But when a company plans its own global strategy, it needs

a far more granular analysis—one that looks beneath headline figures and provides a more accurate picture

of the true size and pace of growth

in demand around the world

The dangers of generalization

Labeling groups of countries can also lead companies to overlook important differences among unfamiliar markets For decades, the African continent has borne the brunt of such generalizations

In 2010, Nigeria had a per capita GDP

of US$1,300, lower than the Saharan Africa average (see Figure 2).13 Nigeria’s total household income was approximately US$200 billion—lower than South Africa’s, despite a population three times as large.14

sub-However, Nigeria’s consumer-market

potential will soon outstrip that of

other African economies it lags behind

today By 2020, 7.8 million additional

households are expected to have an

income level of US$5,000 and above,

with 12 percent of these earning more

than US$30,000 This translates into

US$130 billion of additional household

income and an increase far greater than

other African economies (see Figure 3)

The income growth is also greater than

that in burgeoning Asian economies,

such as Malaysia and Thailand The

key driver of Nigeria’s rapid economic

growth, and incomes, is the country’s

expected fast population growth

The misleading

“middle class”

Hyperbole and imprecise terminology

hamper the sizing of high-growth

market opportunities Take the much

vaunted “emerging middle class.”

This consumer segment is variously

estimated to include anywhere between

500 million and 2 billion people Some

forecasts claim that it could double

over the next two decades.15 However,

“middle class” is a loosely defined term and differs across markets In some cases it is merely the middle of the income distribution In others, it refers to a specific level of income

Either way, a middle-class household

in India is unlikely to afford the deluxe refrigerator, high-end TV, smartphone and sport utility vehicle of a middle-class American family These large discrepancies and ambiguities in the definition of “middle class” matter for companies trying to find the most attractive markets for their products and services

By delving more deeply into their assessment of China and other large emerging markets, companies can create a more accurate picture of where

the greatest opportunities lie Some might be surprised at what they find Significant opportunities exist in cities that many multinationals haven’t even heard of Zhengzhou is a prime example The capital of Henan province in China, Zhengzhou by 2020 will have a bigger economy than Sweden, Hong Kong or Israel.16 And Surat, in the Indian state of Gujarat, is forecast to be home to nearly

8 million people by 2020, more than the whole of Paraguay or Norway.17

One example of a company that has followed a city expansion approach

is Xiang Piaopiao Food (XPP), which entered the Chinese beverage market

in 2005 with a milk tea product The market at the time was concentrated

in Tier 1 and Tier 2 cities, but XPP avoided the high entry costs associated with these markets by focusing on 600 smaller cities, using traditional channels

of local distributors The company has achieved compound annual growth of more than 100 percent, with total sales from smaller cities and towns typically accounting for 75 to 80 percent of total sales in each province.18

Figure 2: GDP per capita, 2010 (US$ at 2010 prices and

market exchange rates)

8,000

Source: Oxford Economics

Figure 3: Change in total income for households with annual income of US$5,000 and above, 2010-2020 (US$ billion, constant 2010 prices)

Source: Oxford Economics 0

100 80 60 40 20

South Africa

Egypt Ghana

120 140

Thailand Malaysia

Understand the

“unknown-knowns”

A large number of external factors

can cause consumer spending to

diverge from expectations One such

factor is change in the distribution of

income, something that is receiving

increased attention from opinion

formers and policymakers around

the world China, for example, has

made reducing income inequality a

priority in its 12th Five-Year Plan

In South Africa, greater income

equality is also an explicit policy goal

We modelled what would happen if

South Africa’s Gini coefficient fell from

58 to 51, still a high co-efficient by

global standards (see Figure 4) The

impact of this reduction in income

inequality would be to expand by 7

million the number of households with

annual incomes of between US$5,000

and US$50,000 Understanding

shifts in the distribution of income

allows companies to measure market

potential more accurately This can

mean the difference between making

a decision to enter a market or not Or

it might mean that companies need

to accelerate entry plans as demand for their product picks up sooner than they had expected This example illustrates how changes in external factors may have an unexpected but significant impact on market opportunities and strategic planning

Spotting opportunity—

creating demand

A clear awareness of income trends is

a crucial first step toward developing

an accurate map of current and future demand Understanding the point at which consumption of a product will pick up, accelerate and mature should

be a central part of planning market entry and expansion Accurately assessing market maturity across different locations can offer critical insights into how those markets can best be aligned for strategic planning purposes To illustrate, we have estimated the global relationship between household income levels and market penetration for select products and services (see “In focus:

Consumption curves,” page 23)

Figure 4 South Africa income inequality scenarios: Number of households, 2020 (million)

US$5,000-US$15,000 US$15,000-US$30,000 US$30,000-US$50,000

Source: Accenture, Oxford Economics

17

In focus: Household

buying power

While high-growth markets offer attractive

consumer opportunities, diverse and rapidly

evolving income patterns often pose significant

strategic planning challenges In collaboration

with Oxford Economics, we forecast the evolution

of household incomes across 64 economies.19

Our forecasts are measured in real terms at

constant 2010 prices to avoid the potential

distorting effect of inflation over time We

compare income levels across countries

using market exchange rates, rather than

purchasing power parities (PPP) We believe

this avoids the upward bias of PPP measures

and corresponds more closely to the actual

size of revenue opportunity for businesses

Even with our conservative methodology,

the stories that emerge are striking.

Between 2010 and 2020, the number of

households in the 64 countries we studied is

forecast to jump by 124 million—87 percent

will be in emerging economies—translating into

US$15 trillion of additional household income

by 2020 Emerging economies will account

for 57 percent of this increase in income.

The emerging consumers

Figure 5: Additional households with annual income of US$5,000 and above, 2010-2020

More than 25 million

NB: At market exchange rates and 2010 constant prices

5 to 25 million 1 to 5 million 0 to 1 million

As a household’s annual income surpasses US$5,000, spending

on personal goods and demand for high-impact items such

as televisions, mobile telephones and two-wheel vehicles

typically increases In 2010, 40 percent of emerging-market

households earned less than US$5,000 a year, this share is

expected to fall below 20 percent in 2020 This low-income

segment would shed 225 million households, nearly a half

of them in China During the same period, this segment

in Indonesia would shrink by 11 million households—20

percent of its current population Meanwhile, the share

of India’s population earning more than US$5,000 a year

is expected to increase from 47 percent to 81 percent.

The great leap

Figure 6: Additional households with annual income of US$15,000

and above, 2010-2020

More than 25 million 5 to 25 million 1 to 5 million 0 to 1 million

The share of emerging-market households in our analysis

with an income exceeding US$15,000 is expected to increase

from 36 percent in 2010 to 54 percent in 2020 This jump

adds 240 million households to this income segment.

China alone would contribute half of this change, with

125 million households Another hotspot is Russia, where

12 million additional households are expected to be in this

income segment by 2020—this shift represents 20 percent

of Russia’s current number of households As households

pass this income threshold, we can expect them to begin

spending on cars, computers, and basic financial products.

Multiple consumer hubs

Figure 7: Additional households with annual income of US$30,000 and above, 2010-2020

More than 25 million

NB: At market exchange rates and 2010 constant prices

5 to 25 million 1 to 5 million 0 to 1 million

In 2010, developed-market households dominated the income segment of US$30,000 and above By 2020, it is expected

that there will be an additional 80 million emerging-market

households in this segment, boosting consumption for

healthcare services, basic leisure goods and home purchases After China, the shift in Brazil is expected to be one of the

largest in the world, with more than 5 million additional

households earning at least US$30,000 Turkey is also

expected to have an additional 4.7 million households

in this income segment by 2020, a greater change than

any developed economy apart from the United States

This represents a 73 percent increase over Turkey’s

current number of households in this segment.

The new big spenders

Figure 8: Additional households with annual income of US$50,000

and above, 2010-2020

More than 25 million 5 to 25 million 1 to 5 million 0 to 1 million

The US$50,000-and-above income band represents

households with significant disposable income Beyond this

income level, spending on such items as life insurance and

pension products, leisure and tourism services, and luxury

consumer goods would be expected to pick up China would

contribute 5 million additional households to this segment, the

second-largest increase after the United States South Korea,

a more advanced emerging economy, is expected to double

the proportion of its population in this income segment to

42 percent—one of the highest among emerging economies

Kazakhstan also is expected to more than double the share of

its population in this income segment, from 7 to 15 percent By

2020, Kazakhstan will have 770,000 households earning above

US$50,000; more than the combined number in Armenia,

Bangladesh, Bulgaria, Egypt, Ghana, Indonesia, Iran, Kenya,

Morocco, Pakistan, the Philippines, Ukraine and Vietnam.

In focus:

Consumption curves

Working with Oxford Economics, we

built global economic models to show

the relationship between a country’s

average annual household income

and expected sales or penetration in

a number of consumer industries We

portray these relationships as global

“consumption curves” in Figures 9,

10, 11 and 25, where we explore the

insurance, car and broadband markets

Factors specific to each country

are also at play, as is shown by the

position of individual countries in these

charts, sometimes at some distance

from the global curve Understanding

these factors allows country-specific

consumption curves to be modelled:

we provide examples in Figures 24 and

26 Tomorrow’s successful globalizers

will display mastery of their global and

local consumption curves: this level

of analysis can provide the basis for

informed choices about market selection

and timing, for appropriate geographic

aggregation or disaggregation of

markets, and for strategies to grow their

customers’ propensity to consume

Know your curve:

Non-life insurance

The relationship between household

income and market penetration is very

strong in non-life insurance The steep

consumption curve in Figure 9 reveals

that insurance is a “luxury” good for

low-income households It becomes

attractive only at higher income levels,

where households have more valuable

possessions and can afford to protect

them Lower income countries therefore

appear around the base of the curve,

while wealthier economies are clustered

higher up the curve

Despite the attention given to growing emerging economies, for many of them the insurance market is still at an early stage of development:

fast-market penetration has yet to increase significantly This does not imply an absence of growth opportunities On the contrary, being positioned in a market as

it is about to take off can give companies first-mover advantages, such as a strong customer base and brand The timing, however, is critical because insurance has

a long growth phase Entering too early can be as damaging as entering too late

Institutional factors could stimulate demand ahead of expectations In the Netherlands, for example, the market penetration rate is substantially above what one would expect from the country’s income levels For an average household income of US$51,000 (the country’s average income) in 2009, the curve suggests that consumption (measured by

premia per capita) would be at US$680

In fact, it was around US$4,500 The difference is due to institutional factors The 2006 Health Insurance Act created

a universal health care system, in which all individuals were mandated to carry basic health insurance in the private sector, while the government subsidized low-income households.20 The country’s historic maritime links have created a strong tradition of insurance coverage, and the Netherlands is one of the world’s largest non-life insurance markets

Driving up the curve: Passenger cars

A snapshot of the current passenger car consumption curve (see Figure 10) illustrates how assessing market maturity in different countries can reveal powerful country groupings for strategic planning purposes The

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

US

Russia

Turkey

Figure 9: Non-life insurance consumption curve, 2008

Source: Oxford Economics, Swiss Re, Accenture

Figure 10: Passenger cars consumption curve, 2008

Source: Oxford Economics, World Bank WDI, Accenture

China 27Thailand 54Turkey 92Mexico 181Slovakia 272Croatia 346United States 451

US

China

Russia

Figure 11: Passenger cars: Expected change in car penetration, 2008-2020

Turkey Mexico

2008 2020

car markets in Mexico, Slovakia and

Turkey appear to be at similar growth

phases—rapidly growing markets

with car purchase penetration

increasing faster than income growth

A “maturing” cluster of markets is

also apparent further up the curve:

in these countries, a change in

income will induce a proportionally

smaller change in demand

Companies can use these patterns and

groupings to identify potential targets,

similarities and synergies For example,

many countries that are approaching the

“rapid growth” phase are also significant

automotive manufacturing hubs Mexico,

Slovakia and Turkey are fast becoming

hotspots for auto parts production

and assembly21 and are attracting

considerable investment.22 These markets

and their major trading partners may promise lucrative opportunities for the automotive sector, as well as for ancillary products and services

In maturing car markets, the next wave

of growth may be in electric or hybrid vehicles Although these vehicles still make up only a small proportion of total car sales, by aggregating similar markets, companies may uncover sufficient scale to build a profitable cross-country business case

The greatest value in consumption curves

is their ability to forecast over time By comparing market dynamics across time horizons and geographies, companies can paint more accurate pictures of where and when opportunities will arise These comparisons anchor a more effective

prioritization of investments across target markets For example, in 2008, the Thai market had not yet taken off But between 2008 and 2020, the car stock

is expected to nearly double to 103 cars per 1,000 people, and annual sales will average 560,000 cars (see Figure 11) By the same token, Turkey is further up the consumption curve and expects a much larger increase in consumption earlier

in the decade Penetration is expected

to increase by an additional 82 cars per 1,000 people—equivalent to annual car sales of 1.12 million These examples illustrate the value of more granular analysis: some companies may need

to prioritize today’s investment dollars between building a longer-term position

in Thailand and betting on Turkey’s more immediate window of opportunity

25

New players, new rules:

The new shape of

competition

This chapter looks at the important

dynamics reshaping the global

competitive landscape: the key players

and new competitive pressures that

make it more difficult for companies

to access growth opportunities

We introduce the players in this

new phase of global competition

and then look at how they are

changing the rules of the game

New players

Internationalization has never been a

simple journey The ability to become

relevant and respond to local needs

in new markets has always been a

fundamental challenge A major obstacle

is the strength of incumbents, with

their deep local-level relationships,

acute knowledge of local needs and

preferences, and enviable customer

loyalty Business school case studies and

media coverage are littered with praise

for companies that have managed to

effectively tailor their offerings to local

markets By the same token, companies

unable to recognize and adapt to

local circumstances are criticized

But companies looking to enter

high-growth markets today face a more

complex incumbency challenge than

ever before High-growth markets have

spurred growing levels of investment

and corporate activity over recent years

Many economies have actively courted foreign investment, and governments compete against one another to attract firms from around the world

The impact on local competitive dynamics has been dramatic

Multiple layers of incumbencyFirst, companies must compete against strong local knowledge and the relationships that domestic players enjoy Second, many can expect to face Western multinationals that have expended significant effort to become locally entrenched These multinational players possess the scale and efficiency of global enterprises, some possess strong brands, and most have become leaner and more competitive in response to economic troubles in their home countries Finally, companies entering new markets will also face multinationals from emerging economies that can leverage scale advantages with low-cost capabilities and, in some cases, government support and funding Most companies are rightly daunted by the prospect

of having to take share from these incumbents It is no wonder that some firms feel they are already too late to enter these markets (For an example of how to respond to these pressures, see

“Cencosud: Retail relations,” page 30)

Emerging giants

Already 117 companies from emerging

economies are in the Fortune Global

500, a six-fold increase since 2000

This trend appears to be accelerating

Twenty-two emerging-market

multinationals replaced their developed

market peers on the list in 2011 (see

Figure 12) The emerging-market

companies are also quickly moving up

the ranks In 2011, 70 percent of the

Fortune Global 500 fastest-growing

companies (by revenue) were from

emerging markets

Companies based in emerging economies

often have an advantage in entering

and expanding in high-growth markets

For example, they may be more familiar

with serving low-income customer

groups or operating amid infrastructure

deficiencies The size of the prize is

evident, and the success stories are only

increasing China’s fast-growing Chery,

an automotive company, launched its

mini car, QQ, in nearly 80 countries,

most of them emerging economies

Chery is particularly successful in

Brazil In the first half of 2011, Chery’s

exports to Brazil reached 18,000 units,

a quarter of its exports.23 The company

has recently built a plant in Brazil to

meet the demand there and from other South American countries Embraer, the Brazilian commercial plane manufacturer, reports record profits through sales

of mid-size jets suitable for regional travel between emerging economies

SABMiller, a leading global brewer with roots in South Africa, recently built a brewery in South Sudan The company’s deep experience in emerging economies—it operates in 17 African countries—gave it the confidence to enter this unserved market, despite South Sudan’s severe infrastructure barriers

These examples of success in growth markets by companies from emerging economies exemplify a broader transformation in the global business landscape: the sharp increase in business activity between emerging economies

high-since the beginning of the downturn

China has displaced the United States

as Brazil’s largest trading partner China has also become India’s biggest trading partner, and the two countries have agreed to a US$100 billion bilateral trade target by 2015 But the story isn’t just about China India’s exports to Brazil increased more than tenfold from

2000 to 2010 and exceed those of Latin American economies such as Mexico

“The journey to multidirectional trade”

(see page 31) details this important shift and how rapidly intra-emerging market (“E2E”) trade has grown in just the past ten years to transform the global competitive landscape As emerging economies increasingly dominate global trade and investment flows, it is only a matter of time before the world sees a new global map of talent, innovation and industry standards

Seasoned global playersNotwithstanding the importance of competitors from emerging economies,

it would be wrong to assume that they will dominate the next era

of competition Some of the best examples of success in high-growth markets have been multinationals based in developed markets With a well-established presence in emerging economies, these companies are well positioned to combine their superior global scale and efficiency with their local knowledge and responsiveness Many solidified their position during the downturn as their gains in emerging economies made up for the pain felt at home For example, Figure 13 illustrates how, through its presence in emerging economies, Unilever sustained growth during the downturn despite shrinking

70 430

60 440

47

453

117

383

Source: Fortune Global 500, Accenture analysis

Figure 12: Fortune Global 500

2005-2010 change in revenue from emerging markets

Total revenue, 2010

2005 2006 2007 2008 2009 2010 Developed markets Emerging markets

Source: Unilever company reports

Figure 13: Unilever revenue growth breakdown (€ billion)

Source: Unilever company reports

Figure 14: Composition of Unilever’s revenue (percentage share)

revenue from developed markets In

2010, for the first time, the majority of

Unilever’s revenue was from emerging

economies (see Figure 14) The company

plans to increase this share to 75

percent by 2020.24

Companies such as Tesco in South Korea

or Coca-Cola in Brazil have shown that

being a foreign or “Western” company

is certainly no disadvantage These

companies possess strong competitive

advantages Their established brand

presence positions them well to attract

talent and customers They can also

draw upon their regional and global

networks and mechanisms to better

identify and rapidly act on local

opportunities What matters for high

performance is not a company’s country

of origin; it is the company’s strategic

and operational capabilities for success

Combining forces

Companies also have a greater appetite

for cross-border partnerships across

emerging- and developed-market

economies, built through joint ventures,

acquisitions and other models These

complementary capabilities, assets

and strengths can create a formidable

competitive force Tata Motors’

acquisition of Jaguar and Land Rover created a company with a range of high- and low-value offerings well positioned to compete at the opposite ends of the same market With these offerings, Tata Motors can also cater

to markets around the world at different stages of development

Such ventures can leverage their complementary strengths to rapidly build market share in home markets and form a springboard for global success

Some companies have used partnerships

to develop entirely new offerings:

Vodafone and Safaricom’s M-PESA money-transfer service acquired 14 million registered customers within four years (see “M-PESA: Creating new markets through innovation,” page 44)

New rules

As the key players in global markets change, so do the pressures that shape the rules of competition The location of

a company’s headquarters matters less than its ability to grasp opportunities while others watch and wait

The following three trends are increasingly shaping the competitive landscape

Capital, credit and corporate governance: The freedom to invest for the long termConstraints on capital investment and difficulties securing credit have hampered growth efforts in the wake

of the downturn Firms backed by state capital and sovereign wealth funds, meanwhile, have benefited in this environment as they have been able

to access investment capital largely unconstrained by the pressures on global capital markets

Consider the example of sovereign wealth funds in the Middle East, which have approximately US$1.7 trillion in assets under management.25 In 2010, as funds across the Middle East sought to diversify and invest in new high-growth markets, 49 percent of their investments were directed toward the Asia Pacific region—a significant leap compared with the 7 percent invested in the region from 2000 to 2008.26

Many of the fast movers into growth markets have been those that have had the freedom to take a longer-term investment perspective Ownership and governance structures

play a role here, as certain models

are less beholden to short-term

shareholder demands This freedom

provides a distinct advantage in tasks

such as product development or market

planning Of China’s 54 businesses in

the Fortune Global 500, 41 are

owned While the total number of

state-owned enterprises in China fell from

159,000 in 2003 to 114,500 in 2010,

the total assets of those under central

government control rose from RMB

3 trillion (US$473 billion) to RMB 20

trillion (US$3,150 billion).27 And though

many of Brazil’s large companies are

publicly listed, most of them are

family-owned The majority of India’s giant

conglomerates still hold family names,

and family members serve on boards

Access and preferential

treatment: The importance

of relationships

More and more, relationships are

shaping access to new market

opportunities: business-to-business,

business-to-government,

government-to-government, as well as cross-sector

relationships with civil society and

non-governmental organizations (NGOs)

The resources and extractives sector

is a case in point Mining rights and

access to natural resources are carefully

controlled by host governments and

are often granted to state-backed

companies on the basis of high-level

governmental agreements In exchange

for rights to extract more than 11

million tons of copper and 620,000

tons of cobalt in the Democratic

Republic of Congo, China has agreed

to build hundreds of clinics, hospitals

and schools, two hydro-electric dams,

3,300km of road and 3,000km of

railway there.28 As long-term investment

deals brokered by governments seeking

foreign expertise erect barriers to later

entrants, the path to new opportunities

for many companies may be blocked

In other industries, access to

opportunities may depend on cultivating

relationships with the right partners

In the banking sector, acquisitions and

joint ventures are a common route to

entry Banking has traditionally been

an industry where market share is

difficult to steal Africa, for example, was emerging as a compelling growth opportunity for global banks just

as the financial crisis struck Since then, companies less affected by the downturn have taken advantage

of Africa’s more open playing field and snapped up the most lucrative partnerships and acquisitions For example, the Industrial and Commercial Bank of China recently acquired 20 percent of South Africa’s Standard Bank and formed a commercial partnership for corporate banking services.29 And Bank of China partnered with Togo-based Ecobank, which operates widely across Africa, to facilitate trade and investments between Africa and Asia

Snapping up the most promising partners is a key advantage to moving fast in this sector

Global efficiency and local responsiveness: Dual imperatives, not a trade-offThe most astute competitors in today’s fast-evolving opportunities combine global efficiency and scale with local relevance and responsiveness For example, while Coca-Cola benefits from its global scale and brand, its local market understanding allows the company to offer 15 varieties of Fanta

in Mexico.30 Such success requires

a carefully designed international operating model: deep local market insights, such as preferences around packaging and the local palate, combined with flexible sales and distribution strategies that can respond

to the local retail infrastructure

Many companies grounded in efficiency advantages have built more targeted offerings to appeal to specific consumer groups Players such as China’s Haier, Taiwan’s HTC and South Korea’s Samsung and LG have moved beyond their initial low-cost offerings

to design products and services for a variety of income levels, cultural tastes and preferences Haier has driven international expansion by tailoring its products to local markets: in China’s rural Sichuan province, Haier sells washing machines specifically designed and labeled to wash “clothes, sweet potatoes and peanuts.” In Africa, its

high-capacity machines are equipped

to wash traditional gowns And when

LG expanded into the Indian market with a television set featuring on-screen display in the regional languages

of Hindi, Tamil and Bengali, the

“Sampoorna” sold more than 100,000 sets in the first year of its launch.31

With opportunity and competition difficult to evaluate and predict, companies often hesitate to invest

It is not surprising that the majority

of businesses believe they need to accelerate their efforts to build market share—or that it may be already too late As companies wait, they fear that the windows of opportunity are shrinking They know the opportunities lie in high-growth markets They know they need to accelerate their efforts But what exactly should they be doing? What are the capabilities they need to build

in order to succeed in high-growth markets? The following chapters seek to answer these questions.

Cencosud in Latin America established,

through a focus on strong relationships,

a regional foothold that is daunting

to potential competitors For

supermarkets, chances of success are

strongly influenced by access to the

infrastructure and ecosystems that

support their business Appropriate

real estate, and effective supplier

and distribution networks, can make

or break a venture The right

local-level relationships are critical because

control over real estate and supply

chains can sit in a small number of

hands in high-growth markets In an

industry where market share really

counts, relationships can provide the

access needed to unlock opportunity

and to establish a leading presence

Cencosud has long been one of the

key players in its home market of

Chile, and the company is building

on its domestic position to expand

across Latin America In stepping up

its regional expansion, the company

looked to acquire well-entrenched players in high-growth markets, such as the Wong Group in Peru, thereby gaining access to established infrastructure and relationships These acquisitions—13 in just 10 years—have enabled the company to expand rapidly across the region, driving year-on-year growth of more than 25 percent

Cencosud is now the leading or No 2 supermarket retailer in three of the four countries in which it operates.32

Cencosud’s competitive position is raising the stakes for other retailers attempting to gain a foothold in these high-growth markets New entrants, whether regional or global retailers, will

be pitted against Cencosud’s mastery

of local knowledge and relationships

Cencosud: Retail relations

A new map of global

trade and investment is

emerging The dominance

of developed economies

is being challenged,

and the last ten years

alone have seen a sharp

transformation in the

dynamics of global trade

The implications are far

reaching, not least in giving

a clue as to where the

future hubs of opportunity

and competition will lie.

The journey to

multidirectional trade

over the past decade

has three distinct phases

(see Figure 15)

Phase 1

Before 2002, the majority of global trade took place between developed economies For example, just ten years ago, 47 percent of world exports excluded emerging economies completely Exports between emerging economies accounted for just 15 percent of total exports in 2000

Emerging economies were largely perceived as sources of raw materials

The triad economies of the United States, Japan and the European Union determined the norms and rules of business However, China’s accession

to the World Trade Organization in

2001 marked a turning point, opening

up China’s vast potential as an exporter, particularly of manufactured goods, to the rest of the world

to the second-largest contributor

to international exports, just behind D2D (developed market to developed market) exports Our estimates suggest that if E2E exports continue to grow

at the average annual rate they experienced from 2000 to 2010, they could overtake D2D exports by 2013.The journey to multidirectional trade

Figure 15: Journey to multidirectional trade (LHS: Export value, US$ billion; RHS: Indexed export value, 2000 = 100)

Source: IMF Direction of Trade Statistics

Phase 1 Phase 2 Phase 3

Developed to Developed (D2D) Emerging to Developed (E2D) Developed to Emerging (D2E) Emerging to Emerging (E2E)

Emerging economies

are becoming the key

shapers of global trade

and investment, both as

sources and destinations.

From being the smallest

component of global

exports only a decade ago,

E2E exports have grown

dramatically to become the

second-largest contributor

to international exports.

Our estimates show that if

E2E exports continue to grow

at the average annual rate

they experienced in

2000-2010, they could overtake

D2D exports by 2013.

This transformed landscape of competition

is characterized by a more diverse set of competitors and a more varied range

of strategic motives and organizational behaviors.

The implications are fundamental; from a new global map of talent and innovation, to new industry standards and norms.

Rethinking capabilities:

The roadmap to success

Business leaders realize that they need

to step up their search for growth—and

that old approaches will not be suitable

for the new competitive landscape Some

57 percent of respondents to our survey

acknowledge that they need to “reassess”

or “fundamentally rethink” their

approaches and capabilities to compete

and win in high-growth markets

Moreover, our research unearthed key

differences between successful and

unsuccessful companies in high-growth

markets Successful companies think

differently about the capabilities critical

for growth and prioritize investments in

different ways

In our research, we were keen to understand the perceptions and the actions of two particular sample groups:

Successful globalizers

We looked at companies that have had a track record of successful performance during recent years and are also confident and committed about their future growth in high-growth markets

Specifically, they are defined by the following characteristics, based on their responses to our survey:

• They are primarily looking at emerging economies for their next stage of growth

• They are planning to increase investment in their target high-growth markets over the next three years

• They believe they have an accurate understanding of the size of

opportunities in emerging economies

• They believe they fully understand the competitive dynamics that they face in these markets

• They believe they possess the strategic and operational capabilities to fully grasp those opportunities

• In the past three years, their company revenue and profits in high-growth markets have developed in line with,

or faster than, their expectations

In 2010, 61 percent of these successful globalizers experienced global revenue growth of 5 percent or more

Disappointed globalizers

We also looked at companies that are committed to growing in high-growth markets but that have been disappointed by their performance to date They are defined by the following characteristics:

• They are primarily looking at emerging economies for their next stage of growth

• In the past three years, their company revenue and profits in high-growth markets have developed slower than they expected

Keys to high performance

Our research uncovers three capability areas that successful globalizers excel at relative to their peers, particularly in comparison with disappointed globalizers:

1 Sizing the future: The ability to

accurately size, time and prioritize demand opportunities around the world.

2. Shaping the future: The insights and

capabilities to cultivate and protect future demand in high-growth markets

3. Seizing the future: The

operational agility and flexibility

to adapt and reorient the company to grasp opportunities across high-growth markets

The following chapters look at each

of these capability areas in depth

Accenture conducted an

extensive research program

to investigate the keys to

success in today’s

hyper-competitive high-growth

markets

The main elements of research include:

• Household income analysis, in

collaboration with Oxford Economics

We created five standard bands of

annual household income and, for each

of 64 countries, estimated the number

of households falling into each band in

2010, 2015 and in 2020 All forecasts

are measured in real terms, and at

market exchange rates

• Industry consumption curves, in

collaboration with Oxford Economics

This unique research maps the evolution

of a select group of industries across the

world It also includes scenario-based

sensitivity analysis that assesses the

impact of changes in the business and

policy environment

• A survey of 588 business leaders,

across 85 countries and 22 industries,

conducted by the Economist Intelligence

Unit Business leaders were asked about

their perceptions of the competitive

landscape, their company’s plans for

growth and the capabilities important

for success in these markets

• Conversations with clients and

experts across industries and extensive

secondary research, including company

case studies and analysis of greenfield

and M&A investment data

Our research suggests that successful

globalizers in high-growth markets

adopt new approaches to assessing

potential market opportunity The

distinction becomes clearer when

we compare them with firms that

have been disappointed by their

performance in high-growth markets

Traditionally, companies looking to

enter new markets might construct

country-by-country business cases,

or segment opportunities by common

language, for example Successful

globalizers take a more dynamic

view that incorporates flexibility and

foresight into strategic planning

First, they are more adept at examining

global opportunities through multiple

lenses, to find where and when demand

will arise Witness companies that

have successfully targeted diaspora

communities scattered across the world,

or specific high-potential customer

segments, such as those in

water-scarce areas, rural communities or

newly-empowered female populations

In this way, successful globalizers

develop a more complete and realistic

understanding of the markets in

which they intend to operate

Second, in a rapidly-changing business

environment, these companies

understand better than their competitors

the importance of planning over time

horizons, allowing them to sequence and

prioritize their investments Our research,

conducted in partnership with Oxford

Economics, illustrates the importance

of identifying where different markets

will sit in terms of their consumption

of specific products and services How

close are they to reaching a point

where demand rapidly takes off? How

close are they to market maturity?

What are the opportunities of different

markets over different time horizons?

This deep understanding of their target markets allows successful globalizers to become masters of strategic positioning:

to be not only where opportunities are today, but where they will be tomorrow

Through their superior ability to discern the size, location and timing of opportunities, these companies make more informed decisions and trade-offs around where and when to invest, and remain several moves ahead of the competition

Getting the “where”

and the “when” right

Sizing and timing opportunities across high-growth markets is complex The evolution of household income over the next decade—an indicator of potential consumer buying power—underscores its importance For example, from 2010

to 2020, Turkey’s share of households with an annual income above US$50,000

is estimated to nearly double, from 18 percent to 34 percent This translates into

an additional 3.6 million households in that income segment, representing total household income of US$380 billion

But the accurate assessment of addressable opportunities is only a first step Planning over time horizons

is becoming a critical capability, as consumption levels evolve at a variety

of speeds around the world In this complex and volatile environment, understanding these dynamics, and using this understanding to evaluate trade-offs and guide decisions about when, where and how to enter high-growth markets, will be critical to success Some markets may offer immediate opportunities, while others may be poised for more significant growth in the longer term

One way to build this understanding

is through in-depth analysis of consumption curves for companies’

products and services By analyzing consumption curves, companies can identify the optimal entry point for a particular target market For example,

in our analysis “In focus: Consumption curves” (see page 23), we see that the non-life insurance market has a long growth phase Entering too early can

be as damaging as entering too late This type of analysis also offers clues to appropriate routes of entry For example,

in a country where demand is still in its infancy, companies have more time to build partnerships with local players and gradually cultivate their customer base

In a more mature market, entry through acquisition might be more attractive.Cross-country consumption forecasts can also identify countries at similar stages of market development Such insights open opportunities to share lessons across markets and to build scale and synergy into market entry plans For example, our analysis shows that Mexico, Slovakia and Turkey are on the cusp of rapid demand growth for passenger cars.Successful globalizers recognize that superior market assessment capabilities, such as analysis of household incomes and product consumption curves, give them an edge For example, 75 percent

of successful globalizers said that looking at the size of potential consumer purchasing power is critical for growth Among disappointed companies, only

42 percent had similar feelings

We now look at some of the specific ways in which successful globalizers differentiate themselves and build an in-depth understanding of their target high-growth markets

35

Sizing the future: Assessing where and when to act