Strong supply chain necessary for success in emerging markets

Many global companies are recognizing that their ongoing financial growth depends on succeeding in emerging markets such as China, Brazil, and India. In fact, the consulting company Accenture reports that its "Global Operations Megatrends" study found that 95 percent of the companies surveyed had seen growth from emerging markets in the past three years. The respondents were 1,014 senior executives, primarily at global companies from a wide range of industries including electronics and high tech, consumer goods and services, industrial equipment, banking, retail, and communications, among others. Just under half (48 percent) of the participating companies reported annual revenues greater than US $5 billion.

Some companies are experiencing bigger gains than others, realizing greater than 20 percent growth in emerging markets. These leaders are succeeding, according to the Accenture report Supply Chain Success Factors in Emerging Markets, because they have made significant changes to their supply chains to accommodate these markets' unique challenges.

According to the study, leaders recognize that the average customer in an emerging market has less disposable income than the average customer in a developed market. For this reason, the company will offer lower-cost versions of its products and services with fewer features and a lower level of quality. In India, for example, Colgate-Palmolive Company has replaced its toothpaste product with a "toothpowder" that is closer to the charcoal and brick dust that local villagers have traditionally used for cleaning their teeth.

Another unique challenge of emerging markets is that it may be harder to reach customers, as they may live in places lacking good infrastructure. In these locations, some leading companies are changing their distribution network and relying more heavily on distributors and third parties to perform activities that they would ordinarily do in-house.

Leaders are also more likely to invest heavily in their supply chain operations in emerging markets. These investments include not just expanding their physical infrastructure, but also improving processes, using customer analytics, deploying technology, and deepening relationships with local partners. Of the leaders, 46 percent reported that they plan to invest at least US $30 million in the next two years in emerging markets. Leaders are also twice as likely to extensively deploy technology in emerging markets—particularly mobile technology, but also manufacturing, enterprise resource planning (ERP), and supply chain systems.