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McKinsey Emerging Markets Report

Winning the $30 trillion decathlon: Going for gold in emerging markets

By 2025, annual consumption in emerging markets will reach $30 trillion — the biggest growth opportunity in the history of capitalism. To compete for the prize, companies must master ten key disciplines. A noteworthy review in McKinsey Quarterly

The Industrial Revolution is widely recognised as one of the most important events in economic history. Yet by many measures, the significance of that transformation pales in comparison with the defining megatrend of our age: the advent of a new consuming class in emerging countries long relegated to the periphery of the global economy.

The two shifts bear comparison. The original Industrial Revolution, hatched in the mid-1700s, took two centuries to gain full force. Britain, the revolution’s birthplace, required 150 years to double its economic output per person; in the United States, locus of the revolution’s second stage, doubling GDP per capita took more than 50 years.

A century later, when China and India industrialised, the two nations doubled their GDP per capita in 12 and 16 years, respectively. Moreover, Britain and the United States began industrialisation with populations of about ten million, whereas China and India began their economic takeoffs with populations of roughly one billion.

Thus the two leading emerging economies are experiencing roughly ten times the economic acceleration of the Industrial Revolution, on 100 times the scale — resulting in an economic force that is over 1 000 times as big.

CEOs at most large multinational firms say they are well aware that emerging markets hold the key to long-term success. Yet those same executives tell us they are vexed by the complexity of seizing this opportunity. Many acknowledge that despite greater size, larger capital bases, superior product technology, and more sophisticated marketing tools, they are struggling to hold their own against local upstarts.

That anxiety is reflected in their companies’ performance in emerging markets. In 2010, 100 of the world’s largest companies headquartered in developed economies derived just 17 percent of their total revenue from emerging markets — though those markets accounted for 36 percent of global GDP and are likely to contribute more than 70 percent of global GDP growth between now and 2025.

This essay and the compendium of articles it introduces (PDF-6,026 KB) describe, for senior executives, the most important priorities in emerging markets. It builds on an extraordinary foundation of research and experience. For more than a decade — starting with the 2001 McKinsey Global Institute (MGI) study of India’s economy — McKinsey has put emerging markets at the forefront of its research agenda.

Special issues of McKinsey Quarterly have focused on Africa, China, India, and Latin America. We have created more than 60 databases and conducted longitudinal studies on the behavior of consumers in Africa, Brazil, China, India, and Indonesia. McKinsey consultants also have been deeply engaged in helping clients address the business implications of the emerging markets’ rapid rise.

We wish there were a secret formula or key capability that could easily transform a company’s emerging-market efforts. In fact, our experience suggests the challenge in emerging markets more closely resembles a decathlon, where success comes from all-around excellence across multiple sports. Sitting out an event isn’t an option; competing effectively means mastering a variety of different capabilities in a balanced way.

As with a decathlon, there’s no single path to victory. In emerging markets, companies, like athletes, must learn to make trade-offs, taking into account their own capabilities and those of competitors. They must choose where it makes sense to differentiate themselves through world-class performance and where it is wiser to run with — or, ideally, a little ahead of — the pack. Both the rewards for success and the costs of failure will be large…..

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