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How to pick the next emerging growth hot spot


By Sabine Vollmer

The BRIC nations – Brazil, Russia, India and China – are losing some of their attractiveness, and multinational companies have started to look for the next global growth hot spots, research by Ernst & Young and the Economist Intelligence Unit suggests.

The BRICs are still major players in the world economy, but challenges of doing business – slowing GDP growth rates, rising inflation and labour costs, infrastructure shortfalls and bureaucratic hurdles – are looming larger than in the past decade.

“[L]eading companies are adopting a multi-market approach,” E&Y says in its research report, which includes a poll of 730 business executives from across the world. “While the BRICs remain critical to their strategy, they’re also looking closely at opportunities in non-BRIC emerging markets and developed markets.”

Rapid-growth markets. Malaysia, Indonesia and Vietnam are among the hot spots with the most potential, according to E&Y. Up to 39% of the executives in the poll said rapid-growth Asian economies other than China and India are highly important to their companies’ bottom lines in the next three years.

The three Southeast Asian countries scored high for their openness to cross-border trade on the E&Y’s 2012 globalisation index. Malaysia ranked 26th overall, just behind the US. Vietnam came in 36th, and Indonesia placed 57th out of 60 countries, mainly because of lower broadband penetration, less internet access and bigger cultural challenges.

Other rapid-growth markets that are becoming attractive to businesses are Mexico, South Africa and Turkey. Survey respondents pinpointed access to nearby markets as the biggest competitive driver for the three markets. Also important were Mexican labour costs, political stability in Turkey and technology infrastructures in South Africa and Turkey.

Developed markets. Companies from around the world remain focused on Western European markets, which are among the most globally integrated in the world, according to the E&Y globalisation index. Ireland, Belgium, Switzerland, the Netherlands and the UK ranked in the top ten. Germany, France, Austria and Spain made the top 20.

Thirty-nine per cent of the executives polled considered Western Europe a highly important developed market. Asian developed markets were important to 37% of respondents. North America was highly important to 32% of respondents.

Hong Kong and Singapore topped the report’s 2012 globalisation index. Taiwan came in 17th; Japan was 43rd; and Canada ranked 15th.

Long shots. Only three countries in Africa were listed on the E&Y globalisation index – Egypt (42nd), Nigeria (55th) and Algeria (59th) – and the scores of all three changed little from the previous year. Still, countries and regions in Africa have the potential to become some of the most attractive places in the world for investment, according to E&Y’s report. 

Other markets the report listed that have potential but are long shots are Peru, Colombia and Venezuela.

For some industries, long-shot bets are vital. Technology companies, for example, must establish a leadership position in a market early on, Alfonso di Ianni, Oracle’s senior vice president for the Eastern Central Europe, Middle East and Africa regions, said in the report. “We need to make sure that our technologies are taken first before the others.”

How to make the next big bets

Picking new markets to invest in isn’t easy. But rigorous and disciplined strategic planning, execution and learning increase the likelihood that the next big bet will be successful, according to the E&Y report. 

To accomplish that, E&Y suggests that companies:

  • Settle on a handful of investments that offer the best promise of growth.
  • Pick emerging markets in different stages of development to balance their investment portfolio.
  • Prepare for start-up losses and other short-term volatility.
  • Keep an eye on the bottom line and remain flexible to change course midway.
  • Tailor products in new markets to local customer needs.
  • Form close relationships with local officials and communities.
  • Manufacture locally or establish regional supply chains.
  • Empower local managers to make decisions.
  • Use global and local data to fuel planning.

A majority of survey respondents acknowledged that technology can support and enhance this approach. The survey found that companies plan to markedly raise technology investments – 71% to increase business intelligence and analytics, 64% to boost mobility solutions such as smartphones and 57% to improve business process management.

Related CGMA Magazine content:

CFOs Worldwide Become More Cautious About Where to Invest Internationally”: In the past year, CFOs worldwide have become less optimistic about the future success of their companies’ international expansion plans, a survey found. Discover which seven countries best meet their reduced risk appetite.

Mid-Size US Companies Continue to Look for Greener Pastures Abroad”: With the US economy still relatively sluggish, mid-size US companies are increasingly looking for opportunities to boost revenue overseas, a KPMG survey shows. Canada and Europe top their list of preferred locations, followed by China, Mexico and India.

The Most Business-Friendly Countries off the Beaten Path”: Small and mid-size companies looking for business-friendly markets overseas could check out a World Bank report that tracks regulatory reform efforts in 185 countries. Many of the top improvers are rarely found among up-and-coming economies.

Foreign Investors Keep a Close Eye on Middle East”: The Middle East has many qualities that draw foreign investors. A survey suggests that companies worldwide are keeping a close eye on investment opportunities in the region. But the survey also explains why many companies still hesitate to take the plunge.

Succeeding in the CIVETS”: Enviable growth and compelling demographics make Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, together known as the CIVETS nations, markets to be reckoned with.

Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.

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