Looking beyond your own back yard – Serving the next three billion
(As originally published in the Financial Post, February 2013)
By Lily Adam, Partner, Assurance, EY
It’s not news to hear that the playing field for today’s businesses has no boundaries. Getting ahead doesn't mean just selling your ideas, products or services – it means being first to market, and daring to venture out of familiar territory.
The ability to see beyond your own back yard and be ready to leap from local to national to global can open the door to enormous opportunities for Canadian entrepreneurs. And when you get there ahead of the competition, you can make your brand top of mind for clients and consumers.
At a time when major developed markets are struggling to maintain stable economic growth, it’s easy to forget that business opportunities that are available in other parts of the world. Emerging markets in Africa, Asia, Latin America and the Middle East will continue to expand rapidly and take an increasingly dominant role on the global stage. Many of these economies are becoming key hubs of entrepreneurship, innovation and trade, attracting ever greater investment by multinationals from around the world.
According to a recent Ernst & Young report Innovating for the next three billion, The rise of the global middle class — and how to capitalize on it, the next decade will usher in changes in growth patterns as emerging markets steer away from dependence on infrastructure and exports and move toward economic models based on increased personal consumption.
In fact, in many parts of the world the rapid rise of a huge middle class that saves less and spends more is already apparent. These new consumers are creating big business opportunities for entrepreneurs that are innovative enough to serve them.
These markets are vast.
The middle class in Asia alone currently numbers some 525 million people, greater than the population of the entire European Union. Between now and 2030, an additional three billion people globally will enter this income bracket.
We believe that this emerging demographic group, which we call the "next three billion" offers companies a rare and highly valuable opportunity to seize a new market of unprecedented size by thinking differently about how they align their operations and innovate to meet these new consumers’ needs.
Innovating for the next three billion will require companies to develop a set of key capabilities. Our research has identified four that are particularly important:
- Customer insight: Companies need to get close to their customers and understand the problem that need to be solved. An understanding of local customers is essential.
- People and culture: Simply taking products from the developed world and hoping that customers in rapid growth economies will buy them is unlikely to be effective. Instead, companies need to adopt a culture and mindset that are willing to tailor products to customers' needs.
- Research and development: Companies must strike a careful balance between local relevance and global scale. A company's researchers must engage closely with local customers in a particular market, but may benefit from collaboration with teams in other markets to see how innovations developed with one set of customers in mind can be reapplied elsewhere.
- Operations and business model: Companies must consider changes to their pricing structure or business model when developing products and services aimed at lower-income customers. Some may decide to create entirely new products all together for these lower-income customers.
In a nutshell, over the long term this explosion of spending power has the potential to make a significant contribution to a long-awaited global recovery; one that Canadian entrepreneurs have the resourcefulness and the talent to ride the crest of the wave. Although the emergence of this demographic group is still at an early stage, Canadian companies must act now to adapt existing products and services or create attractive new ones and be first to establish a presence and build market scale.
By waiting too long to invest in their big bets, businesses will allow competitors to build a presence and market share in those areas, making it more expensive to commit resources and more difficult to compete effectively when they finally decide to take the plunge.
So, what are you waiting for?