The recent financial crisis has led to a time of intense reflection and transformation for most organisations globally. The lack of credit and the lack of demand combined to create a once-in-a-millennium ebb of economic conditions not seen across the world since the Great Depression of the 1930s.
The Great Recession – as it is now being called – has caused firms to take a long hard look at their business value chains and make new plans for the future.
In such times, managers look to their peers – in competing firms, across verticals and regions – to learn, evaluate and act. A lot of our customers have asked how we see the global marketplace and where other multinational companies (MNCs) are looking for the next growth phase.
We commissioned a survey of key business decision makers from 300 multinational corporations based in the US, Europe and Asia. Only the highest level business decision makers – from sales, finance, IT and marketing - from large corporations with global operations, investments and ambitions, were included in the survey.
These key decision makers are at the core of global business confidence indices and investment decision cycles. Their consolidated view of the potential of emerging markets reveals a strong and sustained trend to invest for growth in these regions in the short and medium term.
The Fastest Growing Market Is . . .
In response to the intuitive initial question on the ‘leading’ emerging market, an overwhelming number of senior executives voted for China to continue its remarkable growth rate.
However, the interesting part was that only 7% of the Asia Pacific business decision makers queried thought China would be the fastest growing emerging market (Refer to Table 1). India, Eastern Europe, Russia and even Brazil rated higher in their view.
Which of the emerging markets do you expect will experience the most growth in the next year?
other than Russia
S. America other
The other significant trend was the emergence of Eastern Europe as the most preferred ‘non-Asian’ region in the list. The growing perceived potential of that region is possibly because many of the Eastern European nations are joining the European Union, have a highly skilled workforce with global aspirations, and seen as having very supportive, market-driven administrations.
The Middle East and Africa ranks relatively low on the priority list of investors – with European corporations (geographically, the closest to these markets) seemingly the most conservative.
This may have something to do with the fact that many European corporations invested in the Gulf States at the height of the boom in 2006/07 – and may have suffered reverses, especially in highly leveraged and saturated territories such as Dubai.
But other oil-rich markets in the region such as Bahrain, Abu Dhabi and Qatar are still on an upward growth trend.
Further, the potential for growth in less saturated and relatively less oil-dependent Middle Eastern markets such as Turkey, Oman, Yemen, Lebanon and Syria remain high. With well-educated and globally inclined populations and increasingly open administrations, these markets may soon be expected to see high growth rates.
Home or Away?
Asked whether their corporation will focus on their home markets, only 41% of the executives said they would (Table 2).
The logic to this finding is clear. As companies invest outside their home markets and set up manufacturing, sales, and service organisations across the globe, it is the non-domestic markets that are becoming strategic to the long-term growth of the business.
Which of your existing markets are you likely to concentrate most effort in, in the coming 12 months?
Other: BRIC; Central Europe; Eastern Europe; Europe; France; Russia; South America
China and India still top the list of popular ‘non-domestic’ markets for US and European-based multinationals. At least 55% of respondents state that these two countries were critical to their growth.
In addition, intra-Asia trade and commerce seems set for a boost. More than 60% of all Asia Pacific executives say they will look at other Asian markets (outside their domestic market) for continued business expansion.
There are a number of reasons why Asian markets – not just China and India, but also the South East Asian Tigers – are regarded higher than other global markets.
These include enabling legal and regulatory structures, availability of skilled manpower, supportive governments, significant consumer markets with growing disposable incomes and the availability of reliable and secure telecommunications links.
Markets such as Vietnam, Philippines, Malaysia, Thailand and Indonesia are identified as key potential investment destinations over the next 24 months.
The attractiveness of emerging markets as an outsourcing destination stays intact. Organisations now have more choice than ever. Southeast Asian markets and Eastern European nations, in particular, are seen as becoming viable options as potential commerce destinations and centres for global outsourcing and non-core business process management.
Another revealing statistic is the perception of the Middle East and Africa as key markets of the future. Approximately 70% of the companies surveyed from Asia Pacific showed great intent to grow in these regions, with most of them expecting to set up operations or grow their existing presence there during the next 18 months.
European and North American corporations are a little more reserved on the potential to grow in Africa in the medium term, and express concern about the lack of infrastructure in this region.
The fact, though, is that Africa is one of the biggest untapped markets in the world. The continent recorded strong overall economic expansion - at an average 5.9% annually - between 2001 and 2008.
There’s a burgeoning middle class in Nigeria, Kenya, Ghana and South Africa, among others. Demand for goods and services is on par with the rest of the world. Africa also has significant human capital available at reasonable cost – a case in point being the growth of call centres in Ghana, where people are highly educated and have good English skills.
Africa has seen significant submarine cable investment in the region in the last couple of years. Five new cables are due to go live in the next 18 months to two years, including the recent West Africa Cable Systems (WACS).
Businesses run the risk of missing out on the many benefits offered by not investing early and expanding in the continent.
This research corroborates a trend that Cable&Wireless is already seeing in its own business. Multinational customers are demanding robust business critical communication links that seamlessly, and reliably, link up their operations across the world.
Business critical trans-continental communications are now even more essential, as global corporations look outside their domestic market for growth in the next 12 months. The role of the network as the most critical organisational asset is therefore increasing.
Overall, the maturity among businesses globally – in looking beyond the current troubles, to the inevitable growth curve beyond – is evident from the survey results. This is further corroborated by the news we’ve heard in recent weeks; already, we’re seeing green shoots of optimism across much of the world.
It’s still going to be slow and low growth, but it is expected to be steady.
Most times, crisis is as much about a depressed business sentiment as it is about real business failures. Firms that are on the brink due to bad management or speculative acquisitions ought to look at these times to course-correct and re-evaluate business models.
Indeed, a small number of these firms created the collective crisis that we faced in much of 2008-09. But in the main, large corporations are responsible and well-governed and also understand the clear blue water that lies ahead.
The business sentiment is reversing and most believe that recovery is now on the cards. It is just a matter of when it will materialise.
About the Author
Nick Lambert is managing director of all Cable&Wireless Worldwide’s global market operations outside of the U.K., including Africa, Asia, Continental Europe, Ireland and the U.S. He is also president of Asia Pacific, a post he has held since October 2007. He graduated from the Victoria University with a bachelor’s degree in Biology and attended the Wharton Business School of the University of Pennsylvania as well as the Boston University Executive Management Programme.