Capturing markets outside Asia and the developed markets
Markets outside Asia and the developed markets are becoming the new battleground for market share.
Our research found that regionally focused Asian companies rank MENA and Eastern Europe among their best growth prospects.
Interestingly, in specific sectors, neither Asian nor developed-market multinationals have a major foothold in these growing markets, so they are becoming the new battleground.
Developed-market companies should note that companies from rapid-growth economies might have certain natural advantages that enable them to compete effectively in these new markets. First, their products may be more suitable for economies that are at a similar stage of development and have similar per-capita incomes.
In Africa, for example, hundreds of Chinese companies sell white goods, consumer products, and telecom products and services – often under brands that are unknown in developed markets.
Second, their experience of operating in volatile, dynamic domestic markets is highly transferable when expanding into economies that have similar rates of growth and business environments.
“Asian companies are comfortable in markets like Africa or Latin America because of the similarities with their own domestic markets,” says Peter Williamson, Professor of International Management at the University of Cambridge’s Judge Business School.
“They know how to overcome difficulties with distribution, and have deep experience of navigating a challenging regulatory environment and building good relationships with local governments.”
Develop a clear understanding of the competitive landscape you are likely to face
Structure the investment so you can protect your assets, especially from a tax perspective
Developed-market companies must determine how to counter these inherent advantages. An essential step is to develop a clear understanding of the competitive landscape they are likely to face.
Better competitive intelligence will help developed-market companies prioritize investments in markets closely aligned with their own core competencies, products and business models.
“Companies from Europe or North America need to have boots on the ground in the regions of the world where growth is most likely,” says Allen Morrison, a professor at IMD, a business school in Lausanne, Switzerland.
“Very often, they fail to understand the drivers of cost in these regions and are not being sufficiently strategic in how they approach these markets.”
IP and tangible ownership and protection are also more complex in some markets, including from a tax viewpoint.
“If you’re a company investing in some of the more mature markets in Europe, for example, the rules regarding development, ownership and exploitation of IP are more established and hence the tax implications are clearer for a new investor,” says Yvonne Metcalfe, a Principal in Ernst & Young’s Tax Effective Supply Chain Management practice.
“In some of the emerging markets, there isn’t always a lot of precedent. In addition, laws can be subject to change or interpretation frequently. Intellectual property protection can be weak.
"You therefore need to think carefully when investing about how to structure that investment so that you can protect your IP, repatriate your excess cash and retain the flexibility to scale up, change the model or exit as appropriate as your business plans or needs change.”
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