Manufacturers must innovate in emerging markets

Over half of global manufacturers expect to substantially grow revenues in emerging markets over the next three years, with nearly three-quarters anticipating significant increases in China.


Over half (56%) of global manufacturers expect to substantially grow revenues in emerging markets over the next three years, with nearly three-quarters anticipating significant increases in China.



Twenty-three per cent are optimistic about prospects in developed markets, according to a new report by business advisory firm Deloitte.



However, 29% of the companies surveyed currently enjoy higher margins in emerging markets than in developed ones. Of those that do, 54% are providing different product features to the ones offered in their home markets.



Deloitte says it’s findings send out a clear message: that manufacturers must tailor their products, pricing and strategies specifically to Asian, Eastern European and Latin American countries, if they are to realise the enormous potential of these emerging economies. Half of the manufacturers questioned still provide uniform products across all markets, despite the fact that 40 per cent generate lower gross margins in emerging markets.



Jane Lodge, UK manufacturing industry leader at Deloitte, said, “Long-term success requires more than simply tinkering with existing products, lowering prices, and developing new sales channels. Manufacturers must understand the unique needs of each local market and develop new offerings accordingly.”



Key to achieving success in emerging markets appears to be research and development (R&D). Nearly half (49%) of the companies selling new products conducted the R&D locally. The executives cited the ‘need to understand the local market’, ‘faster time to market’ and ‘lower R&D costs’ as the top three reasons for investing in local facilities.



The responses from the UK manufacturers surveyed paint a similar picture. Sixty-four per cent of UK manufacturers expect to increase sales revenues in emerging markets over the next three years.




One in five UK manufacturers achieves higher gross margins in emerging markets than in developed markets; but only 5% said their emerging market operations sell products significantly different to those in their domestic markets.



Three-quarters of UK manufacturers questioned either have R&D operations in an emerging market already or are planning to set them up.



Jane Lodge added: “UK manufacturers know the price of failing to recognise challenges from the Far East and Asia, and now, the most profitable global manufacturers are using emerging markets as the catalysts for new product and service innovation.”



Gary Coleman, global managing director of manufacturing at Deloitte, said: “The most profitable companies are looking beyond traditional strategies to generate a continual stream of innovative products tailored to the needs of consumers and industrial buyers in emerging markets.



“The most successful manufacturers allow local autonomy while utilising the parent company’s governance, business processes, and management expertise to offer products at dramatically lower prices that match the lower purchasing power of most buyers in emerging markets.”


A free copy of the Innovation in Emerging Markets: Strategies for Achieving Commercial Success report can be found by clicking here.