Pearson on Excellence: Companies seeking success in emerging markets need strong supply chains

According to new accenture research, a small number of companies are enjoying returns of 20 percent or more on their emerging market investments. This month, I’ll provide an overview of that research and take a look at what these leading companies are doing to stoke emerging market growth.

The point of the research was to identify leading practices among global companies working in emerging markets. Just over half of the survey’s respondents were members of their companies’ C-suite, while just under half said that their companies posted revenues in excess of $5 billion. Industry representation was broad, with companies in electronics and high tech, consumer goods, industrial equipment, banking, retail, and communications each representing 10 percent or more of the response base.

Quite notably, 95 percent of respondents said that their companies have experienced some growth in emerging markets over the past three years. China, India, Southeast Asia, Eastern Europe, and Brazil were the top targets. The same five—in the same order—are expected to repeat as top growth markets over the next three years.

However, our survey also found that leaders are more than twice as likely as other companies to say that their supply chain organization has helped their enterprise achieve greater than 20 percent growth in their priority emerging markets. Much as DNA differentiates individuals, our analysis found that the leaders are differentiated by the way they invest in, leverage, and nurture their supply chain.

More precisely, we found that they’re more likely than other companies to employ four major supply chain practices as they invest in assets in the targeted regions, tap into existing operations and hire talent to manage their operations.

That is not to say one-size-fits-all. A myriad of approaches exist, and the right answer depends on the individual company, their objectives, the target market, and their risk appetite and ability to manage it, to name a few. But skimming the cream from the top, we find that the leaders were more likely to:

• Use a broad mix of approaches to support their emerging market initiatives. While they invest in regional assets, service these areas from already established operations, hire local talent, and extend strategic alliances to existing partners and set up joint ventures or partnerships with local organizations, they least frequently make acquisitions. But even then, 45 percent of the leaders included acquisitions in the mix as compared to 30 percent of others surveyed.

• Complement a low-cost structure with a focus on quality and market knowledge to differentiate themselves. Success in emerging markets requires more than a lean cost structure. Leaders were much more likely to measure their differentiated quality as an indicator of success, and they recognized the importance of understanding the market, its culture, and how business gets done in those markets.

• Use technology extensively to increase efficiency, improve flexibility, and enhance decision making. Surprisingly, use of technology was not as widespread among the surveyed companies. While 48 percent of the companies said that their supply chain uses technology extensively to support their emerging market pursuits, 45 percent said that their use of technology is only moderate. Leaders were actually twice as likely as others to use technology extensively.

• Continue to invest aggressively in supply chain operations to keep pace with changing market dynamics. In fact, 22 percent of the leaders invested more than $40 million in their supply chain operations as compared to 13 percent who invested at a similar level as they seek to achieve their growth goals. As they invested more, they also tended to spread more spend across key supply chain areas, including the pursuit of operational excellence through standardization of regional operations processes, streamlining, automation, shared services and IT systems, physical infrastructure, and the development of local supply chain talent—tomorrow’s leaders.

As any company that has considered emerging market expansion can attest to, these markets can be lands of opportunities, but can also present unforeseen challenges. In most cases, a company’s ability to maximize the potential upside while minimizing the risks is highly dependent on the strength of the company’s supply chain.

That certainly was true of the supply chain leaders who reported robust growth in their chosen emerging markets on the back of a high-performing supply chain. These organizations have created a supply chain that has exceeded their expectations by taking advantage of a variety of approaches, gaining deep insights into their target markets, making extensive use of technology, and investing aggressively in key areas of their operations.

As a result, supply chain leaders positioned themselves to gain competitive advantage as they go head to head in the marketplace with local companies that enjoy strong name recognition in the target markets as well as expansion-minded peers. In doing so, they rely heavily on their supply chain to help them navigate the uncertainty and volatility that exist in emerging markets.