By Nathan Simon
The market for new market entry strategy consulting is about resources and incentives. It's a not too hot, not too cold, but just right equation. When business in the home market is going great guns, who has the time and inclination to look elsewhere? But when companies have their backs up against the wall, they are focused on cutting, not growing. And, besides, entering new markets costs money and can take awhile to pay back. When sales miss, companies need to plug the gap this quarter; that means doing more with less rather than investing in risky long-term bets.
The global financial crisis was a cold shower. In its wake, domestic and foreign investment fell off precipitously as companies dialed back initiatives and focused on shoring up the core business. That meant lots of work for consultants who can help cut costs and manage risk.
The temperature has been rising over the past couple of years… It worked. Corporate profits in the United States, for example, grew at an annual compound rate of 15 percent from the trough in the second quarter of 2009 to the fourth quarter of 2012.
At the same time, private nonresidential fixed investment grew at only 5.5 percent and compensation of employees at less than 3 percent. So where did the money go? Into the bank. The ratio of liquid assets to short-term liabilities on non-financial corporations' balance sheets was up 11 points from 2008, according to the Federal Reserve.
…But there's a chill in the air. The annual rate of corporate profit growth peaked in 2011 and fell each quarter in 2012 as companies ran up against the limits of cost cutting and sales growth declined. That's got companies looking elsewhere to keep growth going. And they've got money in their pockets to fund it.
The water's nice in Phuket… Companies' go-to approach to finding growth is to steal business from their competitors or enter a nearby market space. But companies have gotten good at gathering customer insights and turning out a new SKU; it's hard to move the needle that way. And as competition heats up in increasingly crowded market spaces, those corporate profits aren't budging. Lots of companies globalized their supply chains over the last quarter century. Now they're noticing that the emerging market locations in their low-cost-country-sourcing strategy account for two-thirds of global growth.
…But be careful you don't drown. It turns out, however, that it's not as easy as "if you ship it, they will buy." Over are the "land grab" days of selling a product from your existing portfolio at a premium price point in an emerging market. There's no more room at the top. And local players have followed the "disruptive innovation" playbook; they started at the bottom of the market and are trading up the income pyramid with increasingly sophisticated products well adapted to unique local requirements.
The middle market is where the money is, but competing there means getting local. And that means setting up local operations, partnering with suppliers and distributors, and navigating unfamiliar competitive and regulatory environments.
Should companies make or buy? Should they bring a trimmed down home country product or develop something tailored to the local market? Can they use their existing governance and operating models? And how does all of this change their risk profiles? The good news is that all this is standard fare for strategy and operations consultants, but they too have to adapt their assumptions and methods to the new conditions.
Nathan Simon is Senior Analyst, Strategy and Operations Management Consulting for Kennedy Consulting Research & Advisory. For more information, visit www.kennedyinfo.com/consulting.
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