A “two-speed” world has emerged, characterized by slow growth in the developed countries of Europe, North America, and Japan, and faster growth in rapidly developing economies such as China, India, and Brazil. To succeed in this “new normal,” companies must develop different strategies, innovative products, and new, low-cost operating models, explain experts from The Boston Consulting Group (BCG) and the Wharton School in a special report titled "Rethinking Operations for a Two-Speed World."
Building a low-cost global production network that draws on the strengths of each geographical region is critical. So too is innovating products, processes, and business models to stay one step ahead and increase margins wherever possible. One thing is clear, says Joe Manget, global leader of BCG’s operations practice. “You can't just export your operating model to an emerging economy. To compete successfully, you have to develop a fundamentally new model—one that embraces the differences in culture and growth.”
According to the report, companies need both lean products and systems that help them keep costs down, respond quickly to customer needs, and ramp volume up or down as needed.
In rapidly growing economies, companies must release new products and services while paying strict attention to costs, says the report.
“It sounds like a cliché, but companies really do need to master the ability to think globally but act locally,” remarks BCG senior partner and managing director Hal Sirkin. “Customizing everything for local markets is key.”
Manufacturers from developed nations have capitalised on the low labor costs of emerging economies for decades. But many of these same companies are now moving R&D, distribution, and sales offshore to capitalise on emerging markets where GDP is growing dramatically and household incomes are on the rise. In 2009, China surpassed the United States to become the world’s top market for new vehicles. And the large-cap companies of the S&P 500 that break out sales and profits earned abroad reported that 47 percent of 2009 sales (some $2 trillion) originated outside the United States, up from 45 percent in 2007. Many analysts expect that number to reach 50 percent soon.
As growth slows in developed nations and picks up speed in emerging economies, companies must balance the needs of both worlds cost-effectively. Success in each market requires different products, different ways of operating, and different ways of looking at the world, notes BCG.
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