The FINANCIAL -- Despite
recent reports of slowing growth, emerging Asian markets remain
critical to the long term performance of consumer products (CP)
companies, according to Ernst & Young Global Limited.
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, 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.
“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,” Kristina Rogers, EY Global Consumer Products Emerging Markets Leader said.
“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,” Andrew Cosgrove, EY Global Consumer Products Lead Analyst said.
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, according to Ernst & Young Global Limited.
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.