Capturing the Growth Opportunity in Emerging Markets

By Henry Egan and Armen Ovanessoff

Over the next five years, emerging markets will account for much of the globe’s economic growth. To compete on this terrain, companies in both emerging and developed markets must first grasp the true size of the opportunity, and then be prepared to act quickly.

Emerging markets are growing rapidly as a share of global GDP, but just how rapidly may come as a surprise. Consider that between 2010 and 2015, global economic output is forecast to rise by $8.5 trillion. Emerging markets are expected to account for about 62 percent of that growth. (See figure 1) In other words, emerging markets aren’t just growing faster than developed markets; they are set to contribute a greater share to the absolute expansion of the global economy than developed nations will. Just one snapshot: India will contribute more growth in this period than either Germany, Japan, the United Kingdom, France or Canada.

And that growth isn’t just coming from And that growth isn’t just coming from the BRIC nations – Brazil, Russia, India and China. Many indicators point to rapid and sustained levels of growth in many other emerging markets. For example, Argentina, Chile, Indonesia, the Philippines, Qatar and Vietnam are all expected to grow at more than 5 percent in 2011.1

While important at a macroeconomic level, this phenomenon is also visible in several industries. For example, in electronics and high tech, Accenture research indicates that emerging markets will account for 88 percent of the growth in mobile phone sales, 83 percent of the expansion in PCs purchased, and 66 percent of additional TV sets sold over the next five years.

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Companies based in emerging markets also gained strength during the downturn. Their numbers on the Fortune Global 500, for example, rose from 70 in 2007 to 95 in 2010. These companies are using their strong domestic base as a springboard for global expansion. In fact, the value of mergers and acquisitions originating in emerging markets surpassed that in developed markets for the first time in 2009. Such deals include Indian telecoms operator Bharti Airtel’s $10.7 billion purchase of the sub-Saharan assets of Kuwait-based Zain telecom, and the $1.5 billion takeover of Volvo by Geely, the Chinese automaker. In contrast, the downturn forced many multinationals from the developed world to retrench.

For companies across markets and industries, the message is clear: the new investment landscape necessitates a rethink. Those companies that are quick to re-evaluate the opportunity in emerging markets and organise themselves to seize it will be best placed to capture new sources of growth.




Five keys to success in emerging markets

How should companies respond to the changed landscape? While their decisions about growth will vary, the underlying questions that they are trying to answer – such as where, when, and how to compete – remain the same. Here are five imperatives that executives should consider when reassessing the emerging-market opportunity, regardless of industry or stage of internationalization:


1. Develop a granular knowledge of the opportunities

The indicators that many companies use to evaluate opportunities are often aggregate measures, such as GDP or average income levels. But these figures conceal a wealth of detail.

The task of sizing the opportunity in emerging markets is clouded by hyperbole. Take the much-discussed emerging middle class. It is estimated at anywhere between 500 million and 2 billion people, and some forecasts suggest it could double by 2030. But it’s often loosely defined. It’s unlikely, for example, that a middle-class household in India will be able to afford goods and services of the same quality that a middle-class family in the United States or Europe enjoys. These discrepancies and ambiguities matter for companies trying to figure out the most attractive markets for their products and services.

Aggregate figures can be deceptive in other ways. For example, while China is by far the biggest emerging economy (more than three times bigger than second-place India), when looking at the high-income segment, the picture looks very different. In 2010, there were an estimated 167,000 households in China with annual incomes greater than $75,000. This is fewer than in Mexico, Hong Kong, South Korea, Brazil, Singapore and Russia. (See figure 2.)




Our advice for sizing the opportunity in emerging markets: go deeper in your analysis of where to compete. For example, when assessing opportunities and designing strategies for larger emerging markets, companies should think in terms of regions and cities, not countries and continents. In China, as in many other emerging markets, there are big variations across provinces, in terms of incomes, demographics, religion, language and geography. There is no such thing as a national market, making China more like the European Union than the United States.

Another snapshot: In 2009, there were 109 PCs per 100 people in Shanghai, compared with 39 in Ningxia, a northern region.2 Companies targeting growth in Shanghai will probably face fiercer competition and slimmer profit margins. The tastes, preferences and attitudes of consumers are also likely to be very different, with Shanghai shoppers demanding the latest technology and models.

Yet there are huge opportunities in cities that many multinationals won’t have even heard of. Take Zhengzhou, capital of China’s Henan province. The Economist Intelligence Unit forecasts that by 2020 the city’s economy will exceed those of Sweden or Israel.3


2.Understand your industry’s “S-curve” of competition

Lifecycles of products and services generally follow an S-shaped curve: slow adoption initially, then a rapid rise that comes with higher incomes and consumer acceptance, and finally a tapering off in maturity. However, accelerating incomes combined with falling prices in many categories mean demand will take off more quickly and markets will become saturated sooner. With a narrower window of opportunity in emerging markets, companies have to be prepared to act quickly.

Many factors influence the path of an S-curve—everything from tastes and preferences to religion and regulation. However, the primary determinant of demand is normally income, particularly in emerging markets where many consumers are purchasing products or services for the first time. (See figure 3)




Of course, different products and services have different S-curves. For example, consumption of affordable consumer goods, such as soft drinks, will take off at much lower levels of income and reach maturity much quicker. Demand for luxury products, like designer handbags, doesn’t begin to accelerate until average incomes are quite a bit higher.

To complicate matters further, S-curves in many industries appear to be shifting. Commoditization and innovation continue to bring down the cost of products and services. The Tata Nano is a prime example. With a price of less than $2,500, the Nano will increase the affordability of cars, meaning that companies will see demand at lower levels of income, shifting the S-curve. Expected take-off and saturation points may need to be adjusted, as automakers are likely to find that demand accelerates and matures sooner than expected.

With a shrinking window of opportunity, companies that are slow to act may miss out. However, in industries with a longer growth phase, attractive opportunities may still exist for companies arriving late.

Industry S-curves can also inform decisions about how to enter emerging markets. For example, when considering a product or service in its initial phase in a particular market, it may make sense for multinationals to establish partnerships with local players. Where a product is in the mature phase, companies will face slower growth, fiercer competition, and more entrenched competitors. With less headroom for growth, market share becomes more important, making market entry through acquisition attractive.




3. Uncover cross-country segments

Today, high-income consumers in Mumbai have more in common with affluent consumers in Shanghai, Tokyo and New York than with consumers in rural India, whose needs and purchasing power are likely to be more akin to rural consumers in China or Africa. This creates a dilemma for companies that have traditionally designed their emerging-market strategies on a country-by-country basis.purchasing power are likely to be more akin to rural consumers in China or Africa. This creates a dilemma for companies that have traditionally designed their emerging-market strategies on a country-by-country basis.

Companies should identify segments that transcend national borders—groups of consumers with similar tastes and preferences regardless of their nationality or regional affiliations. Dabur, an Indian consumer-goods company, has adopted an international expansion strategy based on segments that cut across countries. The company found that hair-care preferences in other parts of South Asia and the Middle East were similar to those in India, and capitalized on this by launching Dabur Amla, its hair oil, in Bangladesh, Pakistan and the United Arab Emirates. The company has ambitious plans to capitalize on the huge Indian diaspora worldwide to further expand its international footprint.

A granular approach to growth—dissecting opportunities within markets—will be needed to uncover cross-country segments. Companies may also need to re-examine their customer segmentation techniques. Many still divide their customers into groups based on simple demographics, such as age or income, or into categories based on how profitable they are. These are important, but to help identify similar clusters of consumers across borders, it’s important to supplement this data with often-neglected behavioral and needs-based attributes such as time spent online or brand loyalty.


4. Use data as a differentiator

Good data is the key to good decisions, but data is notoriously difficult to get hold of and often unreliable in emerging markets. Companies that can find ways to overcome this can steal a march on their competitors by more accurately targeting customers and better identifying opportunities to improve efficiency.

There may be decent data for major urban areas such as Cairo, Delhi, Hanoi, or Rio, but it gets a lot patchier outside the big cities and can be non-existent in rural areas. Take the case of Experian, the credit ratings agency that is attempting to put together “credit CVs” for rural Indians to assess their credit worthiness. Experian is trying to collect data on customers, many of whom live in dwellings that don’t have house numbers or street names.

So how should companies go about getting the data they need? Given the razor-thin margins that companies face beyond the big cities, expansive market research efforts aren’t an option. Hindustan Unilever (HUL), India’s largest fast-moving consumer-goods company, is using mobile technologies to get information on demand patterns and consumer trends in remote areas. As part of a trial, HUL is providing some of its rural distributors – including traditional mom-and-pop stores – with mobile devices to capture and relay information about its products, such as levels of stock and pricing. The resulting real-time stream of information can be used to better predict demand and manage inventory, develop new products and services, and craft targeted marketing messages. AC Nielsen, a research firm, estimates that better demand forecasting has allowed HUL to increase sales in rural stores by around one-third.4

Collecting proprietary data about customers can be incredibly valuable, even providing the basis for entirely new businesses. Grupo Elektra, a Mexican retailer, started offering credit to consumers who did not have a bank account and, as a result, it collected a wealth of financial information about its customers. To utilize this data, it decided to move into financial services, and now has one of the country’s biggest networks of bank branches to complement its popular retail chain.

Expanding into emerging markets can be risky. High performers excel at identifying and managing risks; in fact, they increasingly use risk management as a competitive differentiator.

5. Compete on risk management

Expanding into emerging markets can be risky, especially for companies that are more accustomed to the safer surrounds of the United States and Western Europe. High performers excel at identifying and managing risks; in fact, they increasingly use risk management as a competitive differentiator.

Before the recent dramatic events in Egypt, the country’s strong economic growth, relatively well-educated population, large domestic market, and pro-business reforms made it attractive to multinationals. Between 2005 and 2009, foreign direct investment into Egypt doubled, making it North Africa’s most popular investment destination.5However, the impact, speed and unpredictability of the political upheaval highlighted the huge risks that still accompany investments in many emerging markets.

Working in emerging markets, companies are also often faced with underdeveloped infrastructure, weak protection of intellectual property rights, unpredictable regulation, and greater financial volatility. (See figure 4.) Several companies have been caught short over the past few years. High-profile examples include Vodafone’s tax dispute in India, the breakdown of Danone’s joint venture with Chinese food and beverage company Wahaha, and the cyber-security threat that Google has faced in China.




Most Western multinationals without a long history in the emerging world are ill-prepared to deal with the broader range and heightened levels of risk they face. Risk practices are honed for their home markets or similar developed countries, and the major cost-cutting and organizational reshuffling in response to the downturn have left the operations of many companies vulnerable. Rapid internationalization has left them further exposed; many have focused on the opportunity at the expense of the potential risk. For example, in an effort to quickly scale their businesses across borders, some have reduced the importance of their country managers in favor of product-led business units that span geographies.

At the same time, as the opportunities become more accessible thanks to new technologies and market liberalization, risk management can become a competitive weapon. Walmart is exemplary in this regard. Thanks to its meticulous contingency planning, the retailer has historically gained market share in the wake of natural disasters. It is almost always able to recover from temporary supply chain shocks more quickly than its rivals and reopen its stores more rapidly. Not only does it capture more sales but it also generates goodwill by helping disaster-hit communities in a timely manner.6 To compete on risk, companies must strengthen their risk-management capabilities. They need to build their capacity to identify risks, assess the potential impact across the entire organization, and monitor and mitigate the effects.

The next round of global competition promises to be eventful. Growth is on the minds of executives everywhere. But most companies still need clear strategies that look beyond the fog of economic uncertainty and invest to achieve sustainable, long-term growth.

What’s certain is that emerging markets will take on even greater prominence in the years ahead. For multinationals in many industries, emerging markets will be where the greatest opportunities lie, but also the greatest risks. Those companies that are quick to re-evaluate the size of the opportunity in emerging markets and organise themselves to seize it will be best placed to compete.

About the authors

Henry Egan([email protected]) is a manager in the Geographic Strategy team within Accenture’s Growth & Strategy function. The team advises Accenture’s leadership on the company’s geographic footprint, with a focus on emerging markets. He previously worked for the Accenture Institute for High Performance.

Armen Ovanessoff ([email protected]) leads the Emerging Markets programme at the Accenture Institute for High Performance. His focus is on macroeconomic, geopolitical and business trends that affect multinationals active in emerging economies; publishing and speaking on the business realities of globalisation. He also manages Accenture’s strategic partnership with the World Economic Forum.


1. Economist Intelligence Unit
2. National Bureau of Statistics of China, “China Statistical Yearbook 2009”

3. Economist Intelligence Unit, “CHAMPS: China’s fastest-growing cities”, 2010

4. Forbes India, “Hindustan Unilever’s Bharat Darshan”, 22 September 2010

5. United Nations Conference on Trade and Development (UNCTAD)

6. Accenture Outlook, “It’s all about balance”, 2010




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