ME Newswire / Businesswire
LONDON - Thursday, October 24th 2013
69% of CP companies still believe emerging Asian markets will be the main engine of both growth and profits over the next three years
Asia predicted to account for one quarter of the CP market by 2017, and generate 38% of growth
Disciplined execution needed to deliver consumer value and drive profitable growth
Despite recent reports of slowing growth, emerging Asian markets remain critical to the long term performance of consumer products (CP) companies. However, CP companies must rethink their approach, shaking off traditional mindsets and becoming more responsive if they are to unlock the profitable growth on offer in many markets.
According to Profit or lose, a new report released by EY today, succeeding in emerging Asia is paramount, with the region set to generate 38% of the sector’s growth by 2017 and account for 25% of the CP market, up from 15% in 2007. While many global CP companies have been operating in the region for decades, the days of chasing market share at any price are over and profitable growth is key. The report, which surveyed more than 250 senior Asia-based CP and retail executives and contains insights from some of the world largest FMCG companies, also reveals that only 20% of companies are currently high performers; generating accretive margins and sustained growth that are significantly higher than their peers.
Kristina Rogers, EY Global Consumer Products Emerging Markets Leader comments: "Almost every major CP company has already taken steps to capture the huge growth opportunity found in Asia’s emerging markets; but for many profitability has been a secondary consideration and making growth profitable in emerging Asia is far from straightforward. Consumer expectations are diverse and changing, competition is intense, and the complexity of doing business in the region significant – with key input costs, such as labor, high and set to rise even further.”
Andrew Cosgrove, EY Global Consumer Products Lead Analyst adds: "CP companies increasingly see emerging markets as the engine of profitable growth but to succeed in these tough markets they must become more agile and adapt their strategies and product portfolio. Companies can no longer succeed with a homogenous market share/growth mentality - they need to understand the real drivers of both growth and profitability at a detailed local level and empower local managers to make the fast, effective decisions they need to win in the market.”
Identifying where to compete, agility and local relevance critical to success
Slowing economic development, demand volatility, evolving channels, rising costs and increasing competition are making profitable growth in emerging markets more challenging. Companies need to prepare for growing complexity, volatility and disruptions by making more disciplined choices around where to play, giving local managers decision rights and designing supply chains that have the flexibility to both customize products and adapt quickly to changing demand.
Companies need to develop a deeper, more granular understanding of local demand and profit potential, often down to the city level and beyond. Data and analytics capabilities will become core elements of competitive advantage in this environment. With significant global and local competition chasing the same opportunities those companies who can best cater to local consumer and channel needs are most likely to succeed.
Although Asia’s emerging markets are diverse and at widely differing stages of development, high performing companies anticipate market change. "A market may be unique, but the evolutionary steps it will take are likely common to other markets,” comments Rogers. "Companies can predict and prepare for the decisions they will need to make.”
Establishing a trusted local team is critical. Local managers need the autonomy to react quickly but within a framework that ensures decisions are consistent with global strategy and values of the firm. High performers are increasingly giving more decision rights to local managers.
Underpinning this challenge is the war on talent in Asia’s emerging markets. In many markets companies face high staff turnover, rising labor costs and skills shortage. Even among high performers, just 18% report being very effective at developing local talent. It requires going the extra mile in creating an attractive working environment to both recruit and retain talent.
Looking ahead, Rogers concludes: "The enormity and complexity of the challenges facing global CP companies in emerging Asia are undoubtedly daunting, but they must be addressed. As economic weight shifts to emerging economies, achieving profitable growth in these markets has become essential to the long-term growth, and even survival of global brands.”
To download the Profit or lose report, which highlights the eight business imperatives for profitable growth, visit www.ey.com/GL/en/Industries/Consumer-Products/Profit-or-lose
The eight business imperatives that CP companies and retailers need to address are:
1. Empower local leadership to be agile
2. Disrupt traditional approaches for local relevance
3. Be granular in understanding current and future profit pools
4. Create scale by placing bets across categories, price tiers and channels
5. Balance efficiency with consumer immediacy
6. Cluster for synergies based on common characteristics
7. Flex the approach as the market develops
8. Create a culture that mandates disciplined execution
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.
EY Global Media Relations
+44 (0)20 7980 0552