Global Innovation & Offshore R&D

Source: Business Standard, 26.04.2010

The downturn has made companies the world over more sensitive to the way they manage and grow business. Aware of the uncertainties of today’s business environment, they are taking every step with caution. Yet they are eyeing growth and see emerging markets as their playground. Sylvie Ouziel, group chief operating officer for management consulting, Accenture, spoke to Amit Ranjan Rai on some of the key issues companies are facing post-recession, the growth opportunities for businesses in emerging markets and how the business of consulting is changing.

Q. Companies are today looking at emerging markets for growth. Do you see a change in the process of globalisation?

Globalisation today is in a totally new phase. It is no more about emerging markets being the factories of the world, which was the first phase of development. Globalisation today is much more multidirectional. The world today is multipolar. If you look at emerging markets today, they are made of a new set of consumers, and the internal demand is huge. So the internal market is a huge opportunity.

Emerging countries themselves have rising multinational companies which are global players. It you look at the global workforce growth in the next 10 to 20 years, all of it is happening in the emerging markets. Of course, these economies will require a lot of natural resources and cash. Both China and India have emerged as players in the global economy.

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Q. So there is a clear shift from the West to East and North to South?

It is not really the shift it used to be in the past. It’s more a multidirectional game. An Indian company would need to be strong in India, strong in other emerging markets using a similar recipe to what it has done in India, and then it has to be strong in the developed market as well having some local presence and roots and connecting to the local market and consumers.

What Indian companies should also do is export to the developed markets the innovation they have done in India for Indian purpose. If you’ve innovated under more difficult conditions and come up with robust, smart and very cost-effective products, then these products also make a lot of sense to the Western world. So if GE is innovating on medical devices that are smaller and cost-effective in India for emerging markets, these are equally beneficial to the US and European markets where the healthcare system is under pressure. What Tata has been doing with local acquisitions, acquiring strong brands, connecting with consumers and distribution channels in developed markets is another good example.

A lot of companies in emerging markets today are also moving up the value chain from just being, at times rather anonymous, a low-cost manufacturer of products. They are moving up in terms of adding value to their products, improving quality through innovation, working on the brand image and so on. Many Chinese brands which were rather unknown outside the country are establishing themselves in the West and emerging markets. For instance, Hisense, an anonymous Chinese electronics company to the rest of the world a few years ago, is reaching out to the global market with branded stores in cities like Milan, Paris, Los Angles and so on, building a direct connect of the brand with the consumer. This also means you can have higher margins because if you just subcontract, your margins are squeezed.

Companies need to have the broader part of the value chain — from innovation, design to distribution — instead of just having one piece. That will help them with a solid strategic position in the market. If you are doing just a part of the value chain, that part may well move from, say, India to Vietnam depending on market conditions, and you will suddenly lose business. So if you have a hold on the entire supply chain, it is more profitable today. Chinese companies are clearly seeing that as their growth slowed down before the crisis in 2005 and their profitability never reached the European standards. Many of them are today upscaling from design to distribution and building brands that are synonymous with quality and building direct links to consumers in the West.

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Selected excerpts. For complete interview see: Business Standard, 26.04.2010.