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Profit or lose

We believe consumer products companies and retailers in emerging Asia need to implement eight business imperatives to achieve profitable growth.

 

Click on the segments for insights on each.

1 Empower local leadership to be agile

Empower local leadership to be agile but ensure they are accountable. The volatility and diversity of Asia’s emerging markets demands increasing autonomy at the local level. Our research found that high performers tend to give local managers greater decision rights across all aspects of the business.

However, companies must be disciplined and not permit complexity that destroys value. Local managers should be accountable for ensuring that decisions are consistent within the overall framework of the company’s strategic vision.

Questions for management

  • Which decisions need to be taken centrally, and which can be taken locally?
  • Is our decision-making fast enough to take advantage of market change?
  • Do we have a suitable governance structure to enable our markets and protect our business?
  • Who has the oversight for the new, emerging fast-growth markets and can manage the portfolio of risks and opportunities?

How effective do you consider your local management team to be at managing the following aspects of its business? (Chart shows percentage who believe they are very effective.)

EY - How effective do you consider your local management team to be at managing the following aspects of its business?

Profitable growth

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2 Disrupt traditional approaches for local relevance

Profitable localization requires multinationals to shake off traditional mature-market mindsets and operating models. Simply replicating these in Asian emerging markets is not sufficient due to the increasing variance of market needs as well as consumer and channel expectations.

Companies should disrupt their own offerings and operating models and rebuild themselves around what is needed to be locally relevant.

Questions for management

  • Which aspects of our product portfolio and go-to-market approach do we need to change to meet the needs of the market?
  • Do we have the appetite to change as well as the ability to change?
  • What cost structure will achieve profitable growth, and how can we achieve it?

How effective do you consider your local managementteam to be at managing the following aspects of its business?

EY - How effective do you consider your local managementteam to be at managing the following aspects of its business?

Profitable growth

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3 Be granular in understanding current and future profit pools

Markets, channels and consumer segments are at very different stages of development across Asia. A shift of emphasis from a homogenous market share/growth mentality to understanding the real drivers of growth and profitability at a detailed local level is needed.

Questions for management

  • Have we invested enough in the local market understanding to know where the best opportunities lie?
  • Are our data and analytics capabilities powerful enough to understand true category and channel profitability?
  • How will increasing competition and cost of natural resources affect our margins and business?

Do you agree that your global company can succeedonly if it focuses its emerging-market investments in a few priority markets? (Chart shows percentage who agree.)

EY - Do you agree that your global company can succeedonly if it focuses its emerging-market investments in a few priority markets?

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4 Create scale by placing bets across categories, price tiers and channels

Companies should create scale by adopting a portfolio approach across multiple market niches and flanking particular segments.

This approach should include balancing investments between those that are already profitable, those that will quickly reach profitability and those that are longer-term bets. High performers are more likely to participate in multiple product categories and utilize multiple channels than low performers.

Questions for management

  • Do we have a portfolio that combines products that can achieve quick profitability with those that may be a longer term play?
  • How do we determine the right width, depth and quality of distribution coverage?
  • Are we managing trade terms effectively and proactively across channels?

Which sales channels do you use in the market youmanage?

EY - Which sales channels do you use in the market youmanage?

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5 Balance efficiency with consumer immediacy

Localization is seen as the path to growth, but it has a cost. Although a focus on efficiency has long been an important driver of profitability, companies should not prioritize this over providing value for consumers.

Companies should expect and plan for the complexity, demand volatility and disruptions that are defining characteristics of emerging markets by designing supply chains that have the flexibility to both customize products and adapt quickly.

Questions for management

  • How do we ensure that we manage complexity, while not sacrificing consumer value?
  • Are we taking into account all costs - including distribution and logistics - when considering where and how to locate manufacturing?
  • Is localization in our company causing valid economies of scale to be forfeited?

Which of the following cost reduction measuresdoes your company consider the most important tools for improving margins?

EY - Which of the following cost reduction measuresdoes your company consider the most important tools forimproving margins?

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6 Cluster for synergies based on common characteristics

Cluster for synergies based on common characteristics, not just geography. Of our respondents, 65% believe they need to manage markets as a cluster in order to maximize synergies.

Companies should transcend geographical lines and instead cluster opportunities (cities, channels, consumer segments, etc.) based on their significance or common characteristics, leveraging best practices across the cluster.

Questions for management

  • Does our organizational structure focus management time and resources on the most important issues and opportunities?
  • Are we leveraging market similarities, rather than just allowing for differences?
  • Do we have the processes in place to identify best practices and transfer them to other markets?

Do you agree that, to maximize synergies, you needto identify similar markets and manage local operations inthose markets as a cluster/group?

EY - Do you agree that, to maximize synergies, you needto identify similar markets and manage local operations in those markets as a cluster/group?

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7 Flex the approach as the market develops

Operating and business models that were appropriate for one stage of development can quickly become obsolete.

Companies should build the capability to flex their approach as the local market develops, such as by moving from a reliance on third-party distribution partners to building the capability in-house.

Questions for management

  • Do we have suitable processes in place to determine whether our current operating or business model remains fit for purpose?
  • Do we have the flexibility to change the operating or business model when the need arises?
  • What are likely to be the biggest barriers to change, and can we overcome them?

How effective do you consider your localmanagement team to be at managing the following aspects of its business? (Chart shows percentage who believe they are very effective.)

EY - How effective do you consider your localmanagement team to be at managing the following aspects of its business?

Profitable growth

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8 Create a culture that mandates disciplined execution

The new importance of Asia’s emerging markets means that the ability to execute in Asia is now critical to the overall corporation’s long-term health.

This also means that local execution is now more scrutinized. Some Western multinationals are establishing a second home in Asia by relocating category leadership to the region. Companies should focus on creating a culture that prioritizes execution and places it within a robust framework of repeatable processes and governance models.

Questions for management

  • Do we have the right metrics in place to track and measure execution performance, and are they sufficiently granular?
  • Can we respond quickly enough when changes in the external environment require a different approach to execution?
  • Do we have the right oversight at a senior level to embed a focus on execution into the company’s culture?

How effective do you consider your local managementteam to be at managing the following aspects of its business?

EY - How effective do you consider your local managementteam to be at managing the following aspects of its business?

Profitable growth

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The center of gravity for consumer products has shifted to Asia.

Almost every major consumer products and retail company has already taken steps to capture the huge growth opportunity presented by Asia’s emerging markets. But for most, profitability has been a secondary consideration.

The role of these markets has changed and they are now at an inflection point.

In the past, companies were comfortable to focus their efforts on driving revenue growth and capturing market share. Today, as economic growth in Asia’s emerging markets decelerates, companies need this growth to be profitable.

Emerging markets now must become the engines of profitability, as well as growth.
EY - Share of the world CP market growth, 2012 to 2017, by region

The scale of Asia’s rapidly emerging middle class remains the number one opportunity for profitable growth for consumer products and retail firms. By 2016, emerging Asia will account for one quarter of the global consumer products market and generate 38% of total consumer products growth.

However, making growth profitable in emerging Asia is far from straightforward:

  • Consumer expectations are diverse and changing
  • Competition is intense
  • The complexity of doing business in the region is significant
  • Key input costs, such as labor, are high and rising even further

To overcome these challenges, companies need to walk a tightrope between several contradictions. They must:

  • Be flexible, but also efficient
  • Embed local autonomy, but benefit from global scale
  • Seek out both short-term gains and long-term opportunities
EY - Profitable growth in emerging Asia requires consumer products and retail companies to reconcile a number of apparent contradictions.

Resolving these contradictions is not easy, but it will be essential if companies are to profit, rather than lose, in emerging markets.

This report presents the findings from our survey of more than 250 senior Asia-based executives at multinational consumer products and retail companies. We also describe a set of eight business imperatives that we believe companies need to implement to achieve profitable growth in emerging Asia.

In this study, we have focused specifically on emerging Asia, but the principles apply equally to other emerging regions of the world, including Latin America and Africa. Only the local execution will need to differ.

As economic weight shifts to emerging economies, achieving profitable growth in these markets has become essential to long-term growth, and even survival.

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Share of the world CP market growth, 2012 to 2017, by region

EY - Share of the world CP market growth, 2012 to 2017, by region

Source: Ibid

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Profitable growth in emerging Asia requires consumer products and retail companies to reconcile a number of apparent contradictions.

EY - Profitable growth in emerging Asia requires consumer products and retail companies to reconcile a number of apparent contradictions.

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