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With global policy makers and business leaders predicting the emerging BRIC markets will remain the key source for growth in the crisis, a new study by Arthur D. Little explains that mature market multinationals must re-evaluate their outmoded globalisation philosophies or risk losing out to a new generation of ambitious, fast growing emerging market companies. The report, “The BRIC Battle - Winning the Global Race for the Emerging Middle Segment,” explores how to capture a significant share of the largest customer segment in these countries.
“Just a few days ago private equity house Actis announced it has raised £2.9bn for investment specifically in the BRIC emerging markets – proof positive that as the developed economies face recession in a post-credit crunch environment, emerging markets will continue to grow, albeit at a slower pace” reflects Kurt Baes, a co-author of the report and principal of Arthur D. Little’s Shanghai office. “Multinationals find themselves at a tipping point – they must either begin to re-engineer their engagement with the BRIC markets now, or risk being left behind.”
Growing middle segment
According to Arthur D. Little’s latest report, over the next 20 years Brazil, Russia, India, and China – the so-called BRIC – will account for 50 per cent of global incremental GDP growth. Based upon project experience and interviews with hundreds of leading companies in the US, Europe and Asia, the report’s authors found that mature market multinational companies (MNCs) currently operating in BRIC markets tend only to target the premium segment – leaving local competitors free to serve the lower and emerging middle market segments. The BRIC “middle segment” consist of those products with good basic functionality but without the ‘bells and whistles’ of excess packaging, branding, and differentiating features to which many mature market consumers and companies have become accustomed. As the emerging markets’ middle classes grow, so are the local companies that serve them. Hence the imperative for MNCs to address this market segment now.
"Unless the MNCs begin targeting the growing middle segment in the BRIC economies, they will not exploit the huge growth potential and risk losing ground to increasingly sophisticated local players, who are now taking the success gained in their home markets and translating that into rapidly expanding global offerings,” added Wilhelm Lerner, co-author of the report and Head of Arthur D. Little’s Central European Strategy & Organisation Practice. “As the economy enters a period of global recession where we are seeing developed nations hit the hardest, multinational brands must re-think their emerging market strategies and develop the product offerings and market knowledge to capture a larger share of the growing BRIC middle segment. That is their only chance to remain successful in the long term.”
Entering with caution
Western white goods giant Whirlpool, home furnishings retailer Ikea, detergent brand Unilever, fast food chain KFC, and car manufacturer Toyota are all developed market companies that have made an early and definitive decision to target the BRIC middle segment. The report outlines how each company faced significant cultural, technical, and geographic challenges in successfully capturing these markets’ middle segments, and offers businesses a new strategy for entering the emerging markets: BRIC 2.0.
Arthur D. Little’s BRIC 2.0 strategy is based on a double-rationale for why mature market companies must act now to drive growth in the emerging markets’ middle segments: to exploit the immense local growth opportunity and to protect their position in their home market. To achieve this, the report offers three ingredients to consider in developing a BRIC market entry strategy:
Forty years on and the Middle East’s oil and gas sector still relies on a highly paid, short-term, expatriate workforce to exploit development and exploration opportunities in the region, according to a new report released today by global management consultancy Arthur D. Little. Despite the region’s original intention of developing a local talent pool through a gradual and systemic knowledge and skills transfer, today the Middle East’s national oil companies (NOCs) continue to rely on expatriate talent. The report, “Expat Games,” warns that as NOCs seek to expand their presence in the global energy market against the background of an ageing expatriate workforce, the pressure is now greater than ever before to develop local capability and local opportunities. [...]
Arthur D. Little has measured operative expense ratios in 50 of Europe’s largest non-life insurers over a period of 36 months. As the immediate fallout from the credit crisis becomes evident, the insurance industry must shift its focus to more long-term financial sustainability. One way to view this is to measure cost efficiency. Having identified those providers with fundamentally low expense ratios, the report is able to predict which European insurers will be likely to perform reasonably well in the business down-turn and who appears to be more exposed. The new study reveals that Nordic insurance companies lead Europe in cost-efficiency, while their peers in central Europe lag behind. [...]
Recent environmental and economic pressures have seen many utilities reconsidering the use of smart metering technology to end the high operational costs associated with traditional energy usage monitoring and enabling a broader range of service offerings to consumers. However, a report released today by global management consultancy Arthur D. Little warns that as smart metering gathers momentum, utilities must take extreme care to ensure deploying the new monitoring technology does not come at a business loss. The new report “Advanced Metering Management”, prepared by Arthur D. Little’s Energy & Utilities practice, details how mistakes made in the complex planning process for smart metering deployment will have a severe impact on the utilities provider’s logistics, economic planning, and organisational design in the long term. The report highlights a number of issues that must first be addressed before deployment to ensure a successful smart metering system. [...]
With the crisis in financial markets fueling increased merger and acquisition (M&A) activity throughout Europe's financial services industry, a new study by global management consultancy Arthur D. Little predicts that within the next three years, ten of today's top fifty European banks will have disappeared due to consolidation. With consolidation increasing and a track record of half of all mergers failing, a proactive post-merger integration strategy is critical to coming out as a winner. According to Arthur D. Little's latest report, "Driving Banks' Value through M&A," there are three major drivers to M&A that will continue fueling deal activity: geographic expansion into Central and Eastern European growth markets; consolidation in mature markets; and restructuring the value chain. The scarcity of risk capital required to decrease the leverage on the balance sheet in combination with a shortage of liquidity and funding will pose constraints on the weaker players and accelerate the trend in favor of the crisis winners. [...]
A new report from global management consultancy Arthur D Little warns businesses that a reactive response regarding water management can damage business performance. The report provides several illustrations of how water affects many businesses' financial performance. These include Électricité de France (EDF), which was hit by losses of approximately €300m when it had to close a quarter of its 58 plants due to water shortages and Anheuser-Busch, which suffered increased production costs due to water shortages in the supply chain. [...]
Despite progress in maximising operational efficiency, a new report released today by management consultancy Arthur D. Little found that financial services companies have much work left to do to optimise the support and back-office functions of their corporate headquarters. According to Arthur D. Little's latest report, "Rethinking the Corporate Center", treating support functions purely as cost centres can raise as many issues as it aims to solve, as cost-cutting models are demotivating and rarely live up to expectations. [...]
No longer limited to third world countries, according to a new report released today by global management consultancy Arthur D. Little, microfinance is thriving as it finds untapped demand within the European market. Founded on microcredits, microfinance programs extend small loans to the world's most basic entrepreneurs - the stall holders and craft makers selling products in the downtown area of every major city in the developing world. The new report, "Microfinance on the Rise", reveals how microfinance institutions (MFIs), having already lifted millions of poor microentrepreneurs out of poverty in developing markets, is now being more broadly offered in Western economies, reflecting rising demand from low income customers. [...]
Today ACQ Finance Magazine announced that Arthur D. Little have been honored twice in the publication's first annual country awards for achievement in the private equity field Arthur D. Little Nordic has been awarded the Swedish ACQ Country Award for Commercial Due Diligence, and the global management consultancy's French practice has been named Management Advisor of The Year. The ACQ Finance Awards were developed to recognise and salute leaders in mergers and acquisitions. [...]
Emissions trading has been described as the most economically efficient way to force carbon emission cuts, however, a new report released today by global management consultancy Arthur D. Little warns that uncertainty about the nature and scope of post-2012 global carbon trading policy has left businesses under-prepared for developing future carbon strategies that will leverage next-generation emissions trading opportunities. The report, "Carbon Futures", warns that despite the uncertain nature and scope of global, regional, and national emissions trading schemes post-2012, businesses across industry must take decisive action to address their future carbon trading and emission reduction now, or risk being caught unprepared and on the backfoot when the next generation of regulation and legislation takes effect. [...]
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