Each issue, Kennedy Consulting Research &
Advisory (KCRA) offers a take on the current
state of the consulting profession
The Water’s Nice; Jump In
By Nathan Simon
Nathan Simon is
Research & Advisory.
For more information,
The market for new market entry strategy consulting is about resources and
incentives. It’s a not too hot, not too cold,
but just right equation. When business
in the home market is going great guns,
who has the time and inclination to look
elsewhere? But when companies have
their backs up against the wall, they are
focused on cutting, not growing. And,
besides, entering new markets costs
money and can take awhile to pay back.
When sales miss, companies need to plug
the gap this quarter; that means doing
more with less rather than investing in
risky long-term bets.
The global financial crisis was a cold
shower. In its wake, domestic and foreign
investment fell off precipitously as companies dialed back initiatives and focused on
shoring up the core business. That meant
lots of work for consultants who can help
cut costs and manage risk.
THE TEMPERATURE HAS BEEN RISING
OVER THE PAST COUPLE OF YEARS... It
worked. Corporate profits in the United
States, for example, grew at an annual compound rate of 15 percent from the trough in
the second quarter of 2009 to the fourth quarter of 2012. At the same time, private nonresidential fixed investment grew at only 5. 5
percent and compensation of employees at
less than 3 percent. So where did the money
go? Into the bank. The ratio of liquid assets to
short-term liabilities on non-financial corporations’ balance sheets was up 11 points from
2008, according to the Federal Reserve.
…BUT THERE’S A CHILL IN THE AIR.
The annual rate of corporate profit growth
peaked in 2011 and fell each quarter in
2012 as companies ran up against the limits
of cost cutting and sales growth declined.
That’s got companies looking elsewhere to
keep growth going. And they’ve got money
in their pockets to fund it.
THE WATER’S NICE IN PHUKET…
Companies’ go-to approach to finding
growth is to steal business from their
competitors or enter a nearby market space.
But companies have gotten good at gathering customer insights and turning out a new
SKU; it’s hard to move the needle that way.
And as competition heats up in increasingly crowded market spaces, those corporate
profits aren’t budging. Lots of companies
globalized their supply chains over the last
quarter century. Now they’re noticing that
the emerging market locations in their low-cost-country-sourcing strategy account for
two-thirds of global growth.
…BUT BE CAREFUL YOU DON’T
DROWN. It turns out, however, that it’s
not as easy as “if you ship it, they will
buy.” Over are the “land grab” days of
selling a product from your existing portfolio at a premium price point in an
emerging market. There’s no more room at
the top. And local players have followed
the “disruptive innovation” playbook; they
started at the bottom of the market and are
trading up the income pyramid with
increasingly sophisticated products well
adapted to unique local requirements.
The middle market is where the money
is, but competing there means getting local.
And that means setting up local operations,
partnering with suppliers and distributors,
and navigating unfamiliar competitive and
regulatory environments. Should companies make or buy? Should they bring a
trimmed down home country product or
develop something tailored to the local
market? Can they use their existing governance and operating models? And how
does all of this change their risk profiles?
The good news is that all this is standard
fare for strategy and operations consultants,
but they too have to adapt their assumptions
and methods to the new conditions.
May 2013 Consulting