More than three-quarters of multinational companies, or 78 percent, expect to gain market share in emerging markets, yet only 13 percent feel that they have cracked the code to succeed against local competitors in those markets, according to a recent survey conducted by The Boston Consulting Group (BCG).
These findings highlight the mismatch between the aspirations of multinationals in emerging markets and what is required to win. Multinationals know that they need emerging markets to fuel future growth, but they have not yet mastered them. For example, although emerging markets contribute an average of 28 percent to the revenues of respondent companies, only 9 percent of the companies’ top 20 leaders are located in these markets.
The findings from the Globalization Readiness Survey are detailed in a new report, titled Playing to Win in Emerging Markets: Multinational Executive Survey Reveals Gap Between Ambition and Execution, which is being released at the World Economic Forum’s Annual Meeting of the New Champions 2013.
“Emerging markets are now responsible for nearly 40 percent of global GDP and an even larger share of GDP growth. Many of these markets are dominated by able and ambitious local competitors that often have superior local knowledge, stronger government relationships, and lower cost structures. Multinationals have their work cut out for them,” says Bernd Waltermann, a BCG senior partner and coauthor of the report.
BCG asked more than 150 executives to assess the relative importance of 13 capabilities in emerging markets and then to evaluate their companies’ actual performance against those dimensions. The most important capabilities turned out to be precisely the ones in which companies say they fall short.
Most notably, the respondents said that their companies demonstrated the largest performance gap in attracting and retaining local talent.
In addition, executives said that they need to improve their capabilities to develop strong local leaders, create localized business models, and establish growth targets and execution plans—all capabilities where the performance gap exceeds 20 percent. In fact, none of the executives said that their company had all the capabilities necessary for meeting their emerging-market goals.
“This research clearly highlights the challenges that companies feel in emerging markets and underscores the importance of addressing them,” says Rich Lesser, CEO of BCG.
Many Markets, Many Priorities
Despite slowing growth, China remains the most important emerging market for multinational companies. More than four out of five multinationals, or 83 percent, said that China is an important market.
Brazil and India were next in line, with 57 percent of multinationals citing each country as an important emerging market. Southeast Asia (46 percent) and Russia (42 percent) were the fourth and fifth most important emerging markets, respectively.
“By virtue of the size of its economy and the rapid growth of its middle and affluent classes, China remains the destination of choice for most companies,” says David Michael, a BCG senior partner and coauthor of the report. “Other markets will rightfully receive more and more attention, but China still offers plenty of opportunity.”
Almost one-third of participants cited Mexico as a major priority, while one-quarter rated the Middle East and North Africa; Latin America, excluding Brazil and Mexico; and Eastern Europe as either a major or a top priority market. Sub-Saharan Africa is also starting to receive attention: 17 percent cited it as an important priority.