Private companies being lured to emerging markets for its growing consumer base: PwC report
A PwC global report shows that private companies are less interested in making goods in emerging markets than they are in selling them there.
The report, “Building a presence in today’s growth markets,” says this shift in focus reflects how rising wages in emerging and fast-growing markets (EFGMs) are not only making new consumers, but also making those individuals more costly for foreign manufacturers to employ. According to the report, some top reasons for investment include:
- 82% market growth
- 51% economic slowdown
- 49% increased competitive pressure
- 45% lower cost base
- 42% access to nearby major markets
“Another big motivator has been the introducing of policy reforms that are aimed at creating a friendlier business environment. We have seen this, for example, in places such as Brazil and Mexico,” says PwC Canada’s Private Company Services leader Tahir Ayub. “As well, private companies are growing more adept at dealing with the challenges in emerging markets as their exposure to these markets increases.”
Private businesses operating abroad consistently project higher revenue growth than their domestic-only peers, as well as report higher gross-margin increases. Eighty percent of respondents report average annual revenue growth of more than 5% in EFGMs in the past three years, while 40% enjoyed annual growth of more than 15%. Performance is expected to improve further over the next three years: 84% of survey-takers expect average annual revenue growth to exceed 5% in EFGMs where they have already invested; 57% expect revenues to grow more than 15% per year.
The most sought after destinations are the BRICs: Brazil, Russian, India and China. But private companies have also begun to seek business opportunities in a second set of rapidly ascending markets in Mexico, South Korea, Turkey, Poland, Indonesia, and South America.
The report explores risk factors involved with entering fast growing emerging markets. It notes that the risk of doing business in these countries is declining—in such areas as inadequate infrastructure to legal and bureaucratic hurdles, economic and political instability.
Some of the report’s suggested best practices for entry into these EFMG countries are:
Build strong networks. Developing networks of advisors, partners and government contacts help to ensure you go into markets well informed of operating realities as well as identifying opportunities and risks.
Tailor your strategy. One strategy won’t work in different countries and sometimes different regions and submarkets. Customize to local customer tastes and operating conditions.
Cultivate local talent and partners. Local management and partners can help tailor your approach to specific to fast growing emerging markets and help navigate obstacles.
Build a strong due diligence process. Conduct preliminary investigations to learn how the local culture and business environment might affect operations.
Plan careful but be flexible. Good planning entails constantly refining strategies to meet local needs, to keep pace with competition and changing government policies.
The survey was conducted by the Economist Intelligence Unit on behalf of PwC and was designed to discover why and how non-financial private companies are investing abroad. A total of 158 corporate chiefs, directors, and senior executives of non-financial private companies from around the world participated in the survey. The report contains the survey findings as well as commentary from PwC Partners from around the globe and with a special focus on Brazil, China, India, Indonesia, and Mexico. The survey is available at www.pwc.com/ca/emergingmarkets
About Private Company Services (PCS)
More than 65% of PwC Canada’s clients are private companies, ranging from high net worth individuals to owner-managed family businesses and large, professionally-managed businesses. PwC’s Private Company Services (PCS) group is a dedicated team of business advisors who help private company owners resolve day-to-day business issues and achieve long-term success. PCS offers the perspective of a third party with professional industry knowledge, business consulting, tax and accounting expertise.For more information about PwC’s Private Company Services, please visit http://www.pwc.com/ca/en/private-company-services/index.jhtml
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