Last Updated Jun 18, 2008 7:09 PM EDT
The update, by Harold L. Sirkin, James W. Hemerling and Arindam K. Bhattacharya, notes some interesting trends about the ever-changing dynamics that are bringing new power to economies in India, China, Russia, Brazil, Mexico and other countries. They detail how firms such as Brazil's Embraer came out of nowhere to set the new world standard in mid-range commercial passenger jets and how India's Tata family of companies has become dominant in global steel, car making, tea growing and consulting.
The new mold that the authors see emerging goes far beyond the old one of big, venerable Western firms offshoring to exploit cheap labor. Instead, local companies are appearing on the scenes as new champions.
As costs such as labor and fuel fluctuate, the old paradigm of basing decisions on labor rates alone is disappearing. In some cases, it is smarter for global firms to make decisions based on proximity to markets even if labor costs are higher, as in the case of Eastern Europe versus China. Plus, executives must be aware that developing economies such as India may not be the educational nirvana as thought. India actually produces fewer "engineers" who are up to Western standards than advertised.
Here are seven key points:
- Minding the cost gap: Low costs drive developing economies but the essential task of managing cost differences remains difficult.
- Growing people: Conventional widsom says that less developed economies are brimming over with educated and skilled workers. But maybe not, since standards vary, so in-house training is essential.
- Reaching deep into markets: Long time players salivate over large developing markets but often market only to the rich and don't reach deep enough to the millions of potential customers from other income levels.
- Pinpointing: Old-style offshoring was all about reducing costs. But smarter firms are starting to pinpoint markets that require a closer manufacturing presence despite costs.
- Thinking big, acting fast, going outside: Western firms have been stunned at the speed with which formerly state-owned or mid-sized firms from developing economies have become challengers.
- Innovating with ingenuity: New challengers tend to have gotten big by copying products but more are innovating and will be stronger still.
- Embracing "manyness:" One sized doesn't fit all. Players should deal with many countries, economies and cultures.