Resilient businesses must seek growth opportunities in new and emerging markets when growth in the domestic market is slowing. Jeremy Butler, of KPMG’s New and Emerging Markets team and based in Birmingham, explains
For some local companies entering new markets tends to only be carried out when domestic economic growth is strong.
However, with the recent growth of economies in emerging and fast-growing nations, this no longer needs to be the case. With UK economic growth softening, emerging markets could present a much-needed opportunity to boost growth during this slowdown.
The emerging markets and fast-growing nations are becoming global economic powerhouses.
With sustained double-digit economic growth, countries such as South Korea and Japan are offering Western companies opportunities that didn’t exist a decade ago.
Indeed, the Brazilian economy has registered double-digit growth rates in foreign trade in the first half of the 2007 and imports rose by more than a quarter, breaking through the $50?billion half-year threshold for the first time.
Furthermore, according to the KPMG Business Outlook Survey, which surveys 1,400 service sector firms across the Bric – Brazil, Russia, India and China – region, managers remain confident regarding their business prospects for the next 12 months.
India remains one of the most optimistic nations with robust growth anticipated in the Indian service economy over the coming 12 months. More than 60 per cent of service providers – the highest of all four Bric countries – expect an increase in the levels of business activity.
Meanwhile in China, further rapid growth is expected during 2008 and 2009 with companies widely predicting higher levels of business activity, revenues, incoming new work and profits, with strong domestic demand remaining the principal driver of expansion.
Optimism in Russia also remains high, with around 62??per cent of firms anticipating growth in activity, with expansion set to be powered by robust demand and continued improvement of the domestic economy.
Brazilian service providers also remain confident with higher levels of activity set to be underpinned by an expected increase in new work received.
In each of these countries, the average consumer is getting richer too.
Historically, having low levels of disposable income, the emerging market consumer is now spending freely.
It is for this reason that the current turbulence on the global financial markets is currently having little impact. As a result, domestic growth is still increasing.
Goods produced by Western companies are a key target for this spending.
Many Western brands are seen as prestigious and are very much in demand – the same applies in the business to business market.
With this level of spending, local companies cannot afford to ignore these markets, especially at a time of slow economic growth in the UK.
Every Midlands business has to consider whether these markets truly present an opportunity, and some degree of detailed and objective analysis is required to form a considered view.
A second consideration must be how the business will be impacted should an operator from one of the emerging or fast-growing nations enter the UK.
Recognition of the opportunities presented by these markets is vital.
Taking a strategic decision on action or defence will be crucial as there is no doubt that these markets will impact upon a local business in some way.
Suppliers, customers and competitors are all likely to feel the difference made by a company from one of these nations, whether through lower costs or, in the case of competitors, increased profit as a result of a joint venture, strategic alliance or exporting into these countries.
With economic conditions in the UK taking a downturn, local companies must get to grips with what emerging markets have to offer or see their customers or competitors benefit.