SEATTLE - As global growth slows, emerging markets economies are catching up. And the result is a global paradigm shift of historical proportions.
This decade will see a bigger change in the structure of the global economy than any decade over the last 200 years, Anil K. Gupta, chair at the University of Maryland Robert H. Smith School of Business, told the audience at the IMCA annual conference in Seattle on Tuesday. But I might even venture to say any decade over the next 50 to 100 years.
Those changes will require all businesses to update their mindsets when it comes to how we view the world, Gupta said. When the iPhone was first set to debut, Palm CEO Ed Colligan asked, What does a computer company know about phones? But financial professionals can take another tack to how they look at new opportunities, Gupta said, and instead see it as a smart move to add the full functionality of a computer to a phone.
Aligning the right mindsets to change will be particularly valuable when it comes to the emerging markets economies growth, Gupta said. In 2010, emerging economies comprised about one-third of the worlds GDP.
That will all change in the next 10 years, according to Gupta. The biggest growth will come from Asia, including China, India and Southeast Asia, countries where there is the largest spike in population and economic growth.
When it comes to economic size, China will be, in 10 or 12 years, bigger than the U.S. and so therefore will be the largest economy in the world, Gupta said. And then emerging economies in total will actually be bigger than the developed economies.
Emerging markets growth could come in fits and starts, as has been seen with countries like Brazil in the past several years, Gupta admits. And the world will continue to face issues from countries including Afghanistan, Iraq, Iran and Syria.
None of these are in the process of being solved with any solution in sight, Gupta said. This is a dangerous decade, but its also an explosive growth decade, by historical standards, and the world in 2020 will look very different.
The companies that will build the strongest stories and make for attractive investments will have to learn some key lessons from the businesses that have come before them, according to Gupta.
Look at Competitive Advantage, Not Just Customers
KFC is greatly successful in China, but its business model does not include a proprietary recipe, Gupta said. The only thing that is unique about KFCs business in China is its brand and logo.
In a land of entrepreneurs, like China, the KFC model is totally, totally copyable, Gupta said. The companys strategy has been to occupy the best spots in the country, which has it to scale up its operational and supply chain processes. In a situation where a lot can go wrong, KFC has planned extremely well, Gupta said.
Start With a Beachhead
Companies that do well will be the ones that do not attack a market all at once, but identify one site to go and get traction and migrate to their true destination. McCormick, which has a retail spice business, contracts to supply McDonalds in China. Then they have employees on the ground, and can eventually grow to Chinese fast food chains and supermarkets.
Eventually 15 or 20 years go by and they are everywhere in China and very successful, Gupta said. But its a systematic risk reduction strategy.
Top Down MIgration Across Segments
If you look at emerging markets, affluence is growing, Gupta said. Brands looking to make a strong debut in new countries would do best to establish themselves at the top of the market and then migrate down to lower income segments.
This can be seen in India, where LG established itself in the market early and built an image as a middle income customers supply company. Samsung, in turn, subsequently debuted at the top as an aspirational brand.
You want to be in all segments, but you want to start at the top and migrate down, not the other way up, Gupta said.