The ambitions of Western firms in emerging markets far exceed their efforts

Multinationals in emerging markets
Must try harder
Sep 14th 2013 |From the print edition - The Economist





SPEAK to the boss of a big, rich-world multinational company and he will soon wax lyrical about the attractions of emerging markets. Even recent wobbles in some of these countries have not curbed vocal enthusiasm for the BRICS and other collections of high-growth markets, whose prospects have more than offset a gloomy prognosis for the maturing, growth-starved domestic markets of the developed economies. So, with the source of future profits so clearly identified, presumably such firms are doing everything possible to succeed in emerging markets?

Strangely, it seems they are not. Or so says a new report, “Playing to Win in Emerging Markets”, by the Boston Consulting Group (BCG). The consultancy polled over 150 executives from the world’s biggest multinational companies. So far, those firms have not done badly, earning on average 28% of their revenues in emerging markets. Yet nearly four-fifths of them expect to gain market share, which could be trickier.

Many multinationals base their entire senior management team at home, where they are too remote to tackle the challenges involved in conquering new territories. Those firms that have moved at least two of their top 20 executives to the new front line have outperformed their rivals by far, says BCG. Schneider Electric recently relocated several senior people, including the boss, to Hong Kong.

Global firms are also finding the going increasingly tough against local competitors. The domestic firm can focus better on its home market, adapt more swiftly to changing conditions and is often prepared to take more risk, says BCG. And nowadays it can tap the global market for the same people, capital and technology deployed by multinationals and attract talented local managers.

What can multinationals do to fight back? David Michael, one of the authors of the report, reckons they need to treat emerging economies as their “new core markets”, if necessary changing their entire business models to make themselves more nimble and entrepreneurial.

Why are multinational bosses not walking their emerging-market talk? One risk, as discovered last year by the (now retired) boss of Procter & Gamble, is that by devoting too much attention to emerging markets their company will lose focus on the rich countries that still, for now, provide the bulk of its profits.

From the print edition: Business