Why profitability in emerging markets is a must for CFOs
Most multinational organizations have made moves to capture some of the growth potential of emerging markets in recent decades. Few, however, have been successful at turning the growth they have achieved into profit.
In today’s increasingly competitive emerging markets, profitability is more difficult to achieve than ever. Here are some of the reasons why CFOs need to focus their organizations on achieving profitable growth, and not just growth, in emerging markets.
Profitability in emerging markets - find out more
EMEIA Profitability in emerging markets - find out more. [See a transcript of this video]
Emerging market performance is becoming more visible.
In a recent EY survey, 69% of corporate respondents said that they expected the emerging markets to be their main source of profit and growth in the next three years. However, only 20% are managing to achieve the balance between investing enough to realize their growth potential while also being profitable. As emerging market investments become an increasingly significant proportion of the overall portfolio, they are becoming far more visible on the balance sheet than they once were.
Costs are increasing.
In a recent EY survey, over a third of CFOs said they had underestimated the cost and time it had taken them to enter emerging markets. As the standard of living gets higher in many emerging markets, so do labor costs, commodity prices and the cost of capital. Annual labor inflation in India has reached as high as 15% according to the Federation of Indian Chambers of Commerce and Industry. These increasing costs are squeezing the profitability of all investments in emerging markets, so they need to be tightly managed.
Competition is becoming more intense.
In many emerging market locations, the competitive landscape is made up not only of multinationals, but an increasingly large number of regional and domestic players. Companies now need sophisticated strategies to achieve the top-line growth that was more easily achievable in the recent past.