Some 75% of product sales are generated from products that have not been created for rapid-growth markets
Despite the global recession, 87% of companies have grown their portfolio of products over the last three years, according to an Ernst & Young report Competing for growth released today. Companies have grown their portfolio of products in order to exploit the market potential of their current customers, reflecting the fact that incremental innovation has become a main competitive tool.
Jay Nibbe, Ernst & Young’s Markets Leader for Europe, Middle East, India and Africa, comments: “It’s really interesting to see that successful companies have actually expanded their product offering over recent years, to help them weather the recession. This is why we’ve seen an explosion of product development.”
The increase in speed is dramatic. Seventy-two percent of respondents report that they are faster in developing products and services than three years ago. Today some 75% of product sales are generated from products that have not been created for rapid-growth markets. However this is set to change, with companies increasingly dedicating R&D investment to rapid-growth markets.
Preferring India and China
India and China dominated the sales focus of high performing global companies, with 47% stating that India was the most important market for sales and 44% naming China. The importance of India and China remain the same, regardless of where the companies are headquartered. Outside the top two, it becomes apparent that priority markets vary by region.
Brazil continues to emerge as a favorite destination for investment, while Russia’s relative importance has declined. While it retains fifth position for European companies’ sales, it has declined for Asia-Pacific and fallen out of the top ten for companies based in North America.
Nibbe adds: “The term ‘BRIC’ has been superseded by a new dynamic. Post-‘BRIC’ we’re seeing that companies are adopting a more regional approach and a number of countries, including Poland, Mexico and Argentina are increasing in importance.”
Moving production closer to the target market
The top markets for production are China (30%), India (28%), Brazil 12%) and Mexico (12%). High performers have a much greater focus on India (43%) and China (41%), which almost exactly mirrors their sales focus. There are some differences by region. Companies from North America state that China is the top destination for production, whilst those from Asia-Pacific and Western Europe favour India.
Speed to enter but able to exit
Working with a local distributor was recognized by all respondents as the fastest way of entering a market. High performers, however, are both significantly more likely to focus on working with a sales agent and less likely to establish a joint venture partnership or make an acquisition than low performers. In this way, they are speeding access to market but with the least capital or contractual exposure.
“The growth agenda has become a global one for companies of all sizes and from most sectors” concludes Nibbe “but not all companies are well equipped for the many challenges that this implies.”