Diverse economies and societiesA common error in international growth planning is the assumption that recent trends can be extrapolated indefinitely into the future. but the nature of the globalization process is unexpected and dramatic shifts. New trends have emerged but the fluidity of regions and markets means that trends must be used very carefully as forecasting guidelines.
In particular BRICs, CIVETS, "growth markets", N-11, etc. are not monolithic blocks. There is substantial variation between emerging economies in nearly every metric. One must very carefully guard against becoming so enamored of the "emerging" story and headlines that warning signs are overlooked.
Not a straight lineEven in the best of circumstances markets don't realize straight line expansion. The zigs and zags may appear minor, or prominent, in the context of the trend, but dips and plateaus are part of any development. Of course, reductions in growth rates may not be a reason to avoid a market or reduce commitment to its development. But one of the foundational principles of a sound international business development strategy is to make decisions intentionally rather than by default. And decisions, once made, should be regularly revisited and tested, and care must also be taken not to allow "sunk costs" to inappropriately influence future focus and allocation decisions.
So the point is that markets will evolve. That evolution may or may not impact strategy, but must be recognized.
Vietnam - demographics and productivity
McKinsey Quarterly recently published a report Taking Vietnam's economy to the next level. In a well constructed analysis, authors Breu, Dobbs & Remes postulate that structural reforms are required for Vietnam to continue recent growth trends. They highlight the impact of a slowing from ≈7% growth to even an enviable ≈5% - a GDP only 70% of its potential size come 2020. Demographics remain supportive, but migration and inflation will change the manufacturing calculus.
They argue that state-owned enterprises must become quickly less ossified and market driven. Multinationals must account for training and retention and assumptions regarding low-cost manufacturing need to be tested against models. And sales models predicated on ever-expanding consumer disposable income and consumption should be similarly vetted.
But the real opportunity lies in the private sector where management traditionally focuses on price based competition and family based businesses often resist management with broader perspectives and "best practices" experience.
Finding opportunitiesOf course the easy take away is that the shine is coming of the amazing Vietnamese apple. If your goal is to just hang out a shingle and harvest business, that may be correct. But the compelling takeaway for american companies should be this. Sell efficiency!
We know that our manufacturing output has grown steadily which manufacturing employment has fallen. The key? Productivity and efficiency. American companies are extraordinarily good at wringing efficiencies out of operations. And companies which sell machinery, products, consulting and services which facilitate this, know well how to sell the value of their contributions.
So go do it! Start exporting. Stop thinking of Vietnam (and other emerging markets all of which are facing the same general challenges) as just a bunch of new soda drinkers and iPod carriers, but think of a business environment that needs to get efficient and boost productivity while maintaining their cost edge. They need your help! It won't be straightforward. You'll have to educate them and the mindset which you take for granted hasn't taken root yet. But what could be more energizing and lucrative for a business than to participate in creating the "paradigm shift" and reaping the rewards?
Don't think solely in terms of "countries"And, in fact, stop thinking solely in terms of "country buckets." Metro areas are another market category to consider for specific focus, and regions are similarly helpful. A recent Bloomberg article on Thailand's amazing recovery from recent floods and the opportunity that has uncovered speaks to the importance of regional activity. ASEAN is a dynamic region; and the dynamism is reinforced by US Govt. re-prioritization of focus. Instead of obsessing over Vietnam or Thailand, as an example, commit to ASEAN. Pick an entry market and expand from there. Realize the value of both Vietnam and Thailand, diversify your interests against difficult to forecast trends, and experience tremendous export success.
Consilium Global Business Advisors assists companies in developing and refining their international business development strategies. We focus on market selection and channel development and assist in all phases of the process. Interested in exploring how Vietnam or other emerging or established markets could be your growth path? Read why we think this region will be a dynamic market and why we believe demographics are a key metric.