Competitive responses to obstacles in emerging markets

Successful emerging-market CEOs tend to identify potential risks, and leverage competitive responses into innovative differentiators that allow them to succeed in an environment of tightening competitive forces. Many successful companies get around a variety of inherent emerging markets limitations by making this innovative mindset a bedrock of their strategic thinking.

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Driver	Context	Competitive response
Financial strength	Financial resources are the lifeblood of a company. Without the ability to tap capital at an affordable cost, no company can remain competitive. Research shows that emerging markets are often starved for capital, because of thin domestic capital markets, weak banking sectors, and fickle flows of foreign capital.	Faced with real capital constraints, many corporations have still been successful at building capital reserves, and maintaining healthy credit ratings. They’ve also developed a disciplined approach to their financial structure, which can serve them well now that home markets are rapidly attracting new foreign capital.
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Brand	Brands are essential identifiers of a company’s goods and services; they set quality expectations, and differentiate a company’s offerings. Developed-country companies have invested large sums over many years to build global brands.	While building brand equity among global consumers remains a challenge, many successful emerging-market companies can find an edge by building solid reputations for reliability and cost effectiveness with the business customers they serve. Others build on their understanding of local consumers’ tastes and values, rather than trying to develop a global brand.
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People	Companies succeed or fail because of the people they employ—from the executive suite to the factory floor. While emerging markets are home to vast and inexpensive labour pools, the depth of talent with the skills and experience to face global competition is often much thinner.	Wage gaps and the availability of labour can be an edge in some markets. However, skills limitations do not necessarily translate into a workforce ready to compete globally. By blending an understanding of local culture with competitive in-house training and leadership development, emerging-market corporations can better differentiate themselves.
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Driver	Context	Competitive response
Customer processes	Identifying, segmenting, marketing and selling to customers is vital to translating value propositions into a sustainable, financially sound business. And emerging markets are home to billions of consumers ready to join the middle class.	Each emerging market is quite unique, for example, with regional diversity and with distinct purchasing behaviours. Local companies have a greater and more instinctive command of local consumer behaviour and are thus able to better develop products and services that address those needs. In doing so, they may create a scale and differentiation that can be extended in other markets.
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Supply chain processes	The supply chain is the inter-dependent set of internal and external activities that supply materials, goods, and services to one another. Supply chains often depend on collaboration among partners, as well as modern transport and communications infrastructures, which emerging markets often lack.	Local infrastructure limitations have driven corporations to become highly adaptable and creative in order to remain competitive. Having been suppliers to developed markets for decades, they can now apply their world-class processes and technologies to remain flexible while being cost competitive.
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Innovation processes	Innovation includes the vital process of new product and service development that ensures a company’s long-term sustainability. A leading source for innovation is R&D, where developed countries have traditionally developed competitive advantages due to their laboratories and research staff.	Emerging markets have a tradition of adaptability after circumventing local limitations for decades, and being accustomed to doing “more with less”. This and their intimate local knowledge translate into effective informal innovation processes. Many companies are now building on this and increasing their R&D spending and formal innovation processes, targeting key industries such as biotechnology.
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Driver	Context	Competitive response
Culture	Culture includes the attitudes and behaviours in a given labour pool, as well as the unique set of values that evolves in each individual company. Given the large differences in national culture among many countries, the cultures that spring forth in emerging markets and developed markets are likely to differ greatly.	Culture can have many angles, both positive and negative. Being more entrepreneurial, adaptive or committed are key attributes that may help emerging market corporations. Leaders may also be well served by a cultural openness that allows them to utilise the best traits of every nation in which they do business.
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Governance and structure	A company’s governance and organisational structure—including span of control and decision-making protocols—is a determinant in the flexibility and speed that a company can execute. Emerging-market companies are thought to be subject to command-and-control structures that are a legacy of family enterprises and state ownership.	Family ownership and clear hierarchies can be anadvantage in that they speed strategic decision-making.At the same time, many are decentralising their structures to flatten their organisations andimprove broader decision-making processes, while still remaining lean and agile.
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Business networks	A business network is a group of entities that transact with one another to produce capabilities that advance a set of shared business goals. In many senses, they are a non-linear advancement of the supply chain techniques pioneered by developed-market companies. They tend to provide flexibility to its members by distributing required investments but atthe same time increase the vulnerabilities associated with shared intellectual property and other risks.	Business networks can be a defining organisational C24 principle for emerging-markets companies. Limitations in scale and experience can be overcome by tapping into global partners, increasing the flexibility and scale a company might not otherwise achieve on its own. This may explain why emerging markets CEOs give more credence to business networks than there developed world counterparts.
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Driver	Context	Competitive response
Workforce development	While CEOs today are painfully aware that they are in the midst of a battle for talent, they are also increasingly aware of the role that government plays in developing—and maintaining—a nation’s pool of available labour, particularly through labour laws, educational support and health care. In fact, many CEOs who were part of the Survey remarked that labour laws and education were key areas for government reform and investment. This dovetails with the CEOs’ collective focus on people issues as major challenges.	Because labour forces in emerging markets often face particular challenges—such as employer-employee relationships, the sustainability of pensions and other benefit funds and the mitigation of regional hardships such as natural disasters and epidemics—it is vital that emerging market companies find ways to confront and solve such problems. Emerging market companies also have to deal with the issue of workforce health, which will become more and more of a competitive necessity.
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Enterprise development	Governments can be active in adopting pro-growth initiatives to spur economic development. Much private enterprise depends on an increasingly modern infrastructure, for example, including air, sea, rail and road facilities; Internet and telecommunications availability; consistent power sources; and clean water and sanitation services. Governments can stimulate development through financial subsidies without running afoul of trade agreements, for example, through R&D incentives in strategic sectors.	Emerging markets clearly need to be more concerned than their developed-market peers about threats to growth caused by the inadequacy of basic infrastructure. Although most major emerging markets have broadly similar infrastructure needs—power, water, roads, ports, airports there—are vast differences among them. CEOs from emerging markets might consider a deeper level of engagement with their respective governments to develop tax incentive schemes and ways to stimulate R&D and innovation.
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Regulation and taxation	There is a common perception that governments, generally speaking, offer more roadblocks than express lanes for private sector development in emerging markets. Certainly, emerging market CEOs more strongly factor in the regulatory framework than their developed-market peers when making business decisions, according to PwC’s Annual Global CEO Survey. In addition, emerging-market CEOs were just as concerned about the possibility of overregulation as chief executives from developed markets.	CEOs are quite conscious of the pro-growth initiatives taken by governments in emerging markets, not only to remove some of the roadblocks, but also to stimulate private sector growth. But more needs to be done to develop the tax systems of many emerging market countries. In fact, labour law reform and the tax regimes are among the top areas in which governments could make improvements. Another area that requires attention is the often arbitrary enforcement and unpredictable regulatory changes that burden businesses.
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Competitive responses to obstacles in emerging markets

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