Fast-growing economies, robust GDP growth projections, and a burgeoning middle class over the next few years represent a significant opportunity for companies eager to sell products in China, India, and other emerging and developing markets. Sourcing talent, commodities, and products in Asia will also continue to offer cost advantages. These markets will be the key battleground for many U.S. companies in the years ahead, and those who are in the right place at the right time—with the right capabilities—will be among their industry’s high performers.

However, these markets are in flux. New challenges continue to arise alongside the long-standing challenges of understanding country-specific business practices and regulations, developing reliable partnerships, and finding talent. Rising labor costs, increasing shipping costs, the fluctuating value of the U.S. dollar, and shifting demographics are changing the equation for success in these markets. Conditions also shift as markets mature.

Our experience working with large multinational companies over the years has helped us to develop insight for mid-sized companies looking to take advantage of the opportunities in emerging and developing markets. Form our work, we’ve found that mid-sized companies need to build distinctive capabilities in four key areas to help ensure success: entry strategy, sales channel strategy, supply strategy, and workforce strategy.

Entering any market is never easy, but the biggest challenges in entering today’s emerging and developing markets are no longer finding a ready market and cutting through red tape. In highly populated and rapidly developing countries, competition is growing fierce for resources, partners, and buyers alike. The population growth is not taking place just within a few tier one cities, but also in tier two and three cities across the countries, which can raise distribution challenges and costs. Establishing a presence in these markets requires careful consideration for the best way to enter and work across the country.

With increasing competition from local and foreign companies, an accelerated market entry and growth strategy is imperative. Companies must decide whether to grow their business organically or grow by acquiring a local company.

For those companies that aim to grow organically, the focus must be on quickly grasping the business environment, the distribution channel landscape, and all regulatory constraints while building a sustainable local management team. This approach generally results in much more controlled growth as the company develops a deep understanding of the market needs, practices, and opportunities.

For those that aim to grow through acquisitions, finding the best acquisition and integrating that company successfully can drive value quickly. However, the challenge with the acquisition approach is again one of competition. Far more companies are looking to buy a company than to sell a company. A thriving local company may have little reason to sell. Those that are for sale may be troubled or not performing up to standard. However, it may well be worth it to acquire and revamp such a company to leverage existing infrastructure and business relationships.

Changing demographics are also changing channel strategy. While the majority of the people in India, China, and Vietnam reside in rural areas, rapid urbanization is changing the distribution landscape. Booming economies are producing a rising middle class with greater disposable incomes and an increased propensity to spend.

In many Asian countries, most products are sold to consumers through small shops located away from large cities. In China, the rise of a middle class is taking place not just in major coastline cities, but also well inland. By using a distributor with local knowledge of the various regions, the customary business practices and competitive pricing can speed distribution and growth. Delivering product to a distributor with a facility located outside the target country can take away the burden and minimize the delays that often come at the border.

A distributor may be operating from a 20 square-foot building or may have grown into a major player in the market, but few have yet to reach the level of performance that is the norm in the United States. Helping these companies become more efficient has been an option, but that hasn’t helped foster brand exclusivity in most cases. Some companies are taking back the sales and marketing from their distributors, relying on them only for their fulfillment capabilities. Cell phone companies, now that they have developed their knowledge and capabilities and as the markets have become more competitive, are moving to a direct model. Working directly with the customer or consumer builds relationships and strengthens loyalty.

Companies are also developing unique relationships to take advantage of the sales and distribution experiences of leaders in these markets and avoid overspending in infrastructure to support a small share of the market. One consumer products company is working with a larger, non-competitive global company, leveraging its sales and distribution infrastructure to establish a credible presence in a new market.

Entering or sourcing from any new market—emerging, developing, or developed—calls for a globally optimized end-to-end supply chain, simple on the inside and differentiated on the outside, delivering the right product or material at the right time with the right cost to the right place. The supply chain will also need the flexibility to cope with increasing complexity, reach, and volatility.

Clearly companies should consider leveraging the well-established global and regional distribution capabilities of the large third-party logistics (3PL) providers. Large, globally integrated transportation and distribution providers such as DHL, FedEx, and UPS support businesses of all sizes in entering and sourcing from a market quickly and reliably. (See list of the Top 50 Global 3PLs on page 56S.)

And as labor costs continue to go up in Asia, choosing the right 3PL to manage the flow of goods is becoming more critical. A provider may prefer to route goods through a port of exit or entry where they have made a significant investment in facilities and alliances. This approach ensures high quality services; but if the location makes it more difficult to get products to their ultimate destination, the increased costs of transportation may offset a dwindling labor cost advantage.

Many other changes are tempering the labor cost advantage. The volatility of commodity pricing, the declining dollar, and rising energy and transportation costs are shaping sourcing strategies. Sourcing and shipping goods from China to the U.S. may prove to be more costly than from Brazil. Asian companies are gaining in their ability to reliably produce higher value products.

For products like these with a higher margin, the labor cost advantage may still outweigh other costs—for now. Revisiting the total sourcing cost—not just the labor cost—every six months can help companies maintain an effective strategy.

Working with local talent is critical to the success of a market entry in Asia for a host of reasons, from language skills to market insight to just plain practicality. Many businesses realize the need to develop a distinct approach for managing talent in emerging markets.

While this approach can be coordinated with the home country’s talent management approach, many of the secrets of success in attracting, developing, and retaining talent in these markets are unique to the local cultures. As a matter of fact, many HR managers from more traditional markets who now serve the workforce in emerging markets have found the going rough when holding on to techniques used in the home country.

It is common among multinational companies to invest heavily in the development of a middle manager—and in creating a hot commodity in the local talent pool heavily fished by other companies with faster career paths. Leveraging a distribution or sourcing partner’s established networks can source the local talent needed, but distinctive strategies need to be in place to hold onto that talent. Empowering local talent with increasing levels of responsibility not only helps to retain employees but also brings their market expertise to the decision making process.

Mid-size companies looking to enter emerging and developing markets in Asia can learn from the established multi-national companies in those markets. Nonetheless, when working in countries with changing demographics, shifting economies, and unfamiliar government perspectives, the best plan is to regularly revisit the market strategy. Flexibility and adaptability must underpin every strategy to achieve high performance through emerging and developing markets.