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Archive for May, 2011

12 Tips to succeed in High Growth Markets

Thursday, May 26th, 2011

At the Annual Investment Meeting Dubai 2011, where our CEO, Peter Storm delivered a key-note speech on future FDI developments, we met with many CEO’s of multinational companies and high-ranking government officials from Emerging Countries, or, as they prefer to call themselves, High Growth Countries. One of the topics we discussed was the large variation in success achieved by multinational companies expanding into High Growth Countries and Regions.  I think that this exchange of ideas is worth sharing, so I’ll try to summarize the conclusions in this article.

Why are some companies more successful than others in establishing a market position in Growth Markets? Or  another way of putting it is: Why are some very well established companies not able to reach the same position in High Growth Countries? In this last statement you find the key to the mistake most commonly made: What works well in Established Markets, will also work in the New Markets. Said that, bellow you will find 12 Tips to succeed in High Growth Markets divided in 3 different areas: market entry, corporate control, and product development.

Market Entry:
•    Unless you are amongst the likes of Gucci, Ferrari or Prada, a brand name in the Western World is of little significance in an High Growth Country
•    When you enter a market early, a good branding policy and overall presence can give the perception of a market leader, also when you are not a world player
•    Branding and presence should preferably be done by staff originating from the market you are trying to penetrate, connecting to your potential clients is essential.
•    Set long term goals and do not expect positive returns any sooner than in your other markets
•    Expect economic downturns to be steeper than you are used to, but also the bounce-back will be stronger. Many companies gave up on the first local crisis because it looked so severe, keep thinking long-term

Corporate Control
•    Make sure that local management consists of local managers that you assign a coach from your international management. Give your local management team long term goals and a mandate to adept to rapid changing market conditions. Small, agile marketing teams with “room to manoeuvre” prove to be best performing in Growth Markets.
•    On Head-Quarter level, have a dedicated Director for High Growth Markets. Flexibility is the key to success here, long established Sales & Marketing routines will limit you too much.
•    As Mr. Kleisterlee, who just stepped down as CEO of Philips put it: “We only see significant growth possible in Emerging Markets, and we have to reflect that approach in our Board as well, I expect at least two members from Emerging Markets to join the Board of Philips soon”

Product Development
•    Set up R & D centers in the region that you want to penetrate, staffed by local employees. This gives you a strong connection to your potential clients
•    Set up brands that are perceived as local brands, consumers in High Growth Countries do tend to take pride in buying locally developed and produced products.
•    Include not only your product in “localizing” efforts. Packaging, Advertising and choice of Sales Channels are equally important to success
•    Consider to “downgrade” your product portfolio to serve market needs. Achievable products creating a quick win for their users will precede more complex and capable ones.

I hope this summary adds to your considerations and discussions in relation to how to succeed in High Growth Markets.

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Develop Talent in the High Growth Countries

Tuesday, May 24th, 2011

The only constant about modern business is change. Whilst change may be inevitable, it is not easy. In the past several years, the entire way that companies operate has been transformed. Things that used to be core competencies like manufacturing, design and sales have been outsourced. One major computer manufacturer notes that more than 75% of the computers that they sell are never touched by any of their employees: manufacturing is outsourced while sales and maintenance are provided by partners. A long, long time ago help desks were staffed locally; now they usually located (in a galaxy) far, far away.

Making this all work requires people. Traditionally, many of these people, especially in emerging markets, were expatriate managers. In a recent posting of McKinsey Quartely, called “Beyond expats: Better managers for emerging markets”,  Jeffrey A. Joerres, CEO of Manpower, introduced the concept of ‘reverse expatriation’ – and the coming end of the traditional western expatriate manager because:

  • It’s not scalable.

Increasingly different parts of almost every company’s value chain are done in different places. Simply speaking, there are not enough skilled people to sustain the expatriate tradition.

  • It’s not effective

High Growth market contributions are expanding so quickly that the knowledge and expertise necessary to productively manage the effort is more likely to be locally grown than externally injected.

  • It’s not smart

Limiting opportunity for local staff is a sure way to create an employee retention challenge. Many companies in emerging markets face employee turnover rates in the high double digits. Continuous replacement of trained and experienced employees with brilliant, but naive newcomers is not a recipe for success.

Joerres proposes formal mechanisms to bring the skills of the emerging market manager into the larger corporation.  The basic approach is to rotate local managers through corporate offices and functions.

I believe that it is equally important to rotate people from traditional offices through high growth market locations because people must be in a position to learn from each other. Companies will want to institutionalize their core values throughout their organizational domain whilst simultaneously discovering and embedding new approaches to, for example, improve execution.

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FDI in the Aerospace sector – prioritizing quality and guaranteed throughput

Thursday, May 19th, 2011

Airlines are now transporting more passengers at better yields and s they climb out of the doldrums caused by the global economic slump, changes – with relevance for the FDI market – are underway. As an insider of the airspace sector, I want to share with you my finding on the FDI trends within the sector – specifically in the areas of aircraft manufacturing and maintenance and repair organizations.

The Aircraft Manufacture and its risk-sharing partnerships

It may seem that commercial airplane manufacturing is dominated by two global organizations (Airbus and Boeing) surrounded by a handful  of, for the most part, regional aircraft in Brazil, Canada, China and Russia. However, aircraft development and production has evolved. All major players have put risk-sharing partnerships in place – partnerships that develop and build significant components and subsystems. This approach, which means that any component might be built anywhere, generates logical challenges while simultaneously offering significant business advantage. The approach provides opportunity for companies using innovative production techniques to become part of the supply chain of much larger manufacturers. The use of global supply chains makes it easier to rapidly utilize and and industrialize research anywhere in the world. An example is the cooperation between EADS (parent of Airbus) and GKN Aerospace to develop production of complex 3D shapes from powder material.  This was made possible by university research centers that created the ability to create lighter structures with less parts. Another good example is Stork Fokker in the Netherlands.

Maintenance and Repair Organizations (MRO’s)

Airlines are backing off from earlier approaches that pushed manpower-intensive maintenance to low-cost countries. The current preference is to keep maintenance close to the airline bases, in order to increase the availability of the airplanes. Higher wages for staff are one consequence of this change. The higher wages are offset using smart maintenance programs that are defined between airlines, aviation authorities and MRO’s. A smart maintenance program can provide significantly improved efficiency – especially for aging aircraft,. An example: Gol, Brazil’s largest airline, and Delta Airlines TechOps have a defined a cooperative effort wherein Gol will benefit from Delta’s quality standards and efficiency, while Delta benefits from high quality, but low-cost, maintenance performed on the Boeing 737 fleet in Brazil.

Component repair is another booming business as companies focus on very specialized work packages. This relentless focus allows these companies to optimize their specific area of expertise resulting in high quality, rapid delivery. The result are compelling enough to outweigh the logistics of having components sent to and from a remote facility.

The world is getting smaller. As long as an organization can deliver quality products that meet industry demand, they no longer have to be geographically close to their customers. Consistent quality and guaranteed throughput much more important. The aerospace industry is among the leaders in taking advantage of this change.

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