The need for speed and agility in an ever changing world
The need for speed and agility in an ever changing world
Multinational companies are increasingly looking to emerging markets for growth opportunities. Technology is playing a key role in helping them remain agile to meet the demands of rapidly-moving markets. Jessica Twentyman reports.
With the opening of its first factory in Vietnam in April 2012, Finnish handset manufacturer Nokia achieved a major milestone in its plans to relocate its manufacturing operations to Asia.
The location of the facility in the Bac Nanh province, close to Hanoi, was not only chosen for its proximity to the suppliers who make components for Nokia phones and the availability of workers in the region, but also because it's close to the key Asian markets where Nokia hopes to see demand grow over the next few years.
In the same month, automotive manufacturer Daimler opened a new production plant in Chennai, India for manufacturing commercial trucks, hotelier Marriott International opened its first hotel in Huizhou City on China's Pearl River Delta and grocery retailer Tesco announced plans to open 300 more stores in Thailand by the end of this year.
Despite continued economic uncertainty, it's clear that multinational companies continue to look to emerging and developing markets for growth opportunities - and estimates from the International Monetary Fund (IMF) show why. These economies are expected to grow by 5.7% in 2012 and by 6% in 2013, according to the IMF's World Economic Outlook for April 2012. That's way ahead of worldwide growth figures 3.5% and 3.9% for 2012 and 2013, respectively.
In order to profit in growth markets, however, companies with global ambitions must identify those regions and countries that offer them the best access to new markets, new talent pools and new economies of scale.
That can be a considerable challenge, as a recent report on global strategy by management consultancy Ernst & Young points out: "The world isn't flat - it's curved, bumpy and you can't see what's ahead," says its authors.
In this report, The World is Bumpy: Globalization and New Strategies for Growth, they argue that succeeding in rapid-growth markets is becoming harder for a number of reasons. "Costs [of entry] are rising, competition is becoming more intense, and growth, while still rapid compared with that of the developed world, is slowing." Other risks include supply-chain disruption, poor visibility into the performance and ethical behavior of partners in new territories and a lack of flexibility to respond to new risks or opportunities.
In order to succeed, they will have to think differently, warns Ernst & Young Chairman and CEO, James Turley. "In any volatile situation, size and strength aren't advantages - speed and agility are. So companies must develop highly nimble new operating models that enable them to respond to new opportunities and new threats," he says.
That advice applies as much to CIOs as it does to any other executive. CIOs worldwide already know that enabling their company to enter new markets and geographies is a vital part of their remit. In fact, it's on their top ten list of priorities for 2012, according to a survey conducted by IT market research company Gartner.
But one of the biggest mistakes that some multinationals continue to make when weighing their prospects in new regions is giving insufficient upfront consideration to IT issues, says Steve Salmon, a principal advisor in management consultancy KPMG's CIO Advisory Practice.
Early discussions about new locations, he says, tend to focus on issues of market potential, supply chain and workforce availability. "Once a particular location is decided on, only then is IT brought into the conversation. And if the CIO then goes on to discover that connectivity is lacking in that new location, or needs a lot of work, the IT department is seen as holding the company back." A good international expansion plan, he says, considers IT from the start.
managed networks and cloud
The good news is that, in an increasingly networked world, the physical boundaries that have previously hampered the globalization of a company's IT infrastructure have all but disappeared.
At one time, the opening of a new office would have entailed costly investment in on-site IT infrastructure, as well as sourcing local talent to manage and maintain it.
Today, the availability of managed networks and cloud services has changed the equation for CIOs charged with getting voice and data services up and running in previously untested markets. They allow CIOs to provide access to services and applications held in a company's centralized data center as new global outposts come online.
Under this new, cloud-enabled model, says Salmon, the CIO's focus switches to ensuring that the company's network infrastructure is capable of supporting the "integrity, performance and user experience" of systems being accessed by staff in remote new markets.
At IT market research company Ovum, meanwhile, Principal Analyst David Molony says he observes a growing preference among multinationals for using secure virtual private networks (VPN) with guaranteed service levels from third-party providers to transport voice and data traffic. This is primarily because the public Internet still raises too many concerns over data security and performance.
"That's particularly true of multinationals with quite complex IT requirements that require an end-to-end approach to connectivity, rather than relying on a network of local providers in different areas of the world," he says. "These kinds of companies also require a network capable of delivering quality of service across a wide range of different data and voice services."
This could include hosted unified collaboration and communication (UC&C) packages to help colleagues in different offices - and different regions of the world - to stay in close contact. They combine document-sharing tools with various communication mediums (such as email, instant messaging, telephony and videoconferencing) and "presence" technology, which indicates the best way to reach a colleague.
One company that is relying on a managed network service to achieve its plans for international expansion into emerging markets is Aggreko. The UK-based company that supplies power and temperature control equipment to industrial sites, municipalities and major sporting events is expanding into South America, India and China.
It's already a highly distributed, international business - but employees at 132 sites across 31 countries all use the same systems and processes to get work done. They are able to access the company's core business applications (including enterprise resource planning software, financial and billing systems and business intelligence tools) via a managed IP VPN provided by Orange Business Services. Aggreko also has plans to roll out telephony and videoconferencing services across this network.
That's not to say that every application and process used by staff in a company's domestic market should be extended to employees in new markets. One of the key messages of the Ernst & Young report is that opening in a new market is an opportunity to "shed organizational baggage."
"Rather than migrating all existing processes and business models to new markets, companies should rethink their approach from the ground up and behave more like a start-up than an established multinational," say the report's authors. "This will give them greater flexibility and agility and put them on the same level with local companies, which are typically much younger and therefore far less unencumbered with organizational baggage and legacy processes."
In fact, when it comes to IT infrastructure, they may well find that those local competitors are already using the cloud, says Molony of Ovum. "Our research suggests that emerging-market companies are among some of the most enthusiastic about cloud services. Many have told us they're already adopting cloud or plan to do so, for the that they're small but ambitious and want to grow their operations fast," he says.
The incoming multinationals that hope to compete with them on their own turf may, therefore, be at a disadvantage if they aren't also tapping into the benefits that cloud computing offers, most notably rapid provisioning and the ability to scale up and down as business needs dictate.