A report from The Economist Intelligence Unit. Made to order. Customisation advances in emerging markets. Commissioned by

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1 PART OF THE GROWTH CROSSINGS SERIES A report from The Economist Intelligence Unit Made to order Commissioned by

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3 CONTENTS 1. Executive summary 4 2. Great expectations 8 3. Are supply chains up for the challenge? Scaling the barriers Conclusion: An opportunity waiting to be taken 22 The Economist Intelligence Unit Limited 2016

4 1 EXECUTIVE SUMMARY The rise of the sophisticated consumer is by now a familiar story in emerging markets. Technology-savvy and in possession of increasing disposable income, middle-class citizens of fast-developing countries in Asia, Latin America, the Middle East and Africa are proving to be discerning and demanding customers. Emerging markets are just as ready to embrace high levels of product and service customisation as those in the more mature markets of North America and Europe. In its various forms customisation has been practiced for many years, even centuries, in many parts of the world. The rapid growth of digital technologies, however especially the Internet and mobile devices along with rising wealth levels have made these options widely available to consumers and producers in emerging as well as developed markets. Companies from emerging markets are just as focused as their rich-world peers on meeting customisation demand. Their ability to do so relies on highly adaptive and flexible supply chains. The demands placed upon manufacturing facilities, supplier and distributor networks, logistics, financing and payment systems, and data Defining our terms Customisation defies easy definition. For the purposes of this report, we understand the term to encompass different degrees of product and service tailoring. At one end of the spectrum is personalisation, which involves the tailoring of products or services to the needs of individual customers. It occurs, for example, when customers add a monogram to a pair of jeans or a softdrink bottle, design their own mobile phone cases or configure the components of a new car. At the other end is mass customisation tailoring products to fit the needs of specific groups or segments of customers. The use of flexible manufacturing techniques enables customisation at mass scale, thus retaining many of the benefits of mass production. Examples include the selection of hard drives or screens of different sizes when ordering a laptop computer online, or of different collar or cuff types when purchasing a shirt. When appearing alone in this report, customisation is used as an umbrella term referring to all its forms, including mass customisation and personalisation. 4 The Economist Intelligence Unit Limited 2016

5 capabilities can be formidable especially when the supply chain extends across emerging markets. This report finds that companies emergingmarket supply chains are currently in a low state of readiness to support customisation strategies. Good intentions aside, only a small handful of companies in the survey are taking concrete steps to implement customisation strategies. These include making more features of their top-selling products customisable, and placing such initiatives at the centre of their sales growth strategies. Companies acting slowly may be missing a trick. Being a first mover can entail risk, but firms taking the lead expect to be able to earn a substantial premium (of 3 or more) over their standard product pricing. This window of opportunity may eventually close when customisation competition tightens. The sooner companies address their supply-chain challenges when it comes to pursuing a customisation strategy, the better. Other key findings from the research include the following: The global structure of customisation demand is shifting. Most executives, even those based as far away as Brazil, China and Japan, see demand for personalisation of goods and services to be highest in North America. That may change within three years, however, with markets in Asia overtaking North America in personalisation demand, and remaining ahead of Europe. Respondents currently see East Asia as the global hotbed of mass-customisation demand; expect South- East Asia to join it in three years. Supply-chain proximity to core markets will be a key advantage. Each country s respondents view their own regional and country markets as more ripe for customisation than any other. Experts interviewed for the study believe that in some Asian countries, local companies have a better ability than multinationals to meet customisation demand close to home. Emerging-market players should then have an advantage over overseas rivals if they invest in upgrading their local supply chains accordingly. Logistics costs are often lower, for example, when production facilities are located closer to end-customers and suppliers are nearby. Delivery issues are also more easily ironed out when suppliers and distributors are located in the same country or region. But difficult supply-chain challenges remain to be addressed. Relatively few companies believe the supply-chain components are currently in place in emerging markets to support any form of customisation strategy. All key areas of the supply chain are in need of substantial improvement; the toughest are proving to be companies data collection and analytics capabilities, their CRM systems, payments systems and supply-chain financing. Upgrading data capabilities is missioncritical. Generating better insight into customer demand is the most urgent supplychain challenge facing companies looking to pursue customisation in emerging markets. Effective customisation strategies cannot be executed without solid customer data, insightful analysis and good customerfeedback mechanisms. The Economist Intelligence Unit Limited

6 New financing strategies are needed to support customisation. Limited sources of short- and long-term financing perennial challenges in most emerging markets will hamper companies efforts to upgrade their supply chains. Working capital shortages are a particular problem, and the need to ensure more frequent payments to suppliers will add to financing complexity. Seven-in-ten respondents (more in China and South-East Asia) agree that customisation requires new approaches to supply-chain financing. Greater long-term capital investment will also be required to upgrade manufacturing plant, data capabilities and customer payment systems. The purposes of this study are threefold: to compare the prospects for growth of mass customisation and personalisation in emerging and developed markets; to assess the capabilities of companies supply chains to implement such strategies; and to identify the main challenges that need to be addressed to carry out these strategies. To achieve this, The Economist Intelligence Unit (EIU) surveyed 525 executives from 14 countries in Asia Pacific, Europe, North America and Latin America. We have also held in-depth discussions with senior managers at companies who are pursuing different versions of customisation in emerging markets, as well as with academics and consultants closely following these developments. 6 The Economist Intelligence Unit Limited 2016

7 About the study Made to order: Customisation advances in emerging markets is an EIU report, sponsored by Standard Chartered. It is part of the Growth Crossings series which examines emergingmarket supply chains. The report assesses the potential for product and service customisation in emerging markets, and the readiness of supply chains to support such strategies. The report draws on two strands of research for its findings: In December 2015 The EIU surveyed 525 business leaders in 14 countries: eight from the emerging world (accounting for 57% of respondents) and six from the developed world (accounting for 43%). Over half those taking part (57%) hail from Asia, while 14% are based in each of Europe, the US and Brazil. The sample is senior, with 5 of respondents holding C-level or board positions and the rest vice-presidents, business unit heads and other senior managers. (All play an instrumental role in product strategy, product development and/or supply chain management in their firms.) Survey respondents are distributed across ten sectors: the best represented are information technology (19% of respondents), industrials (15%), financial services (12%) and healthcare (1). The sample is evenly split between large firms, with annual revenue of more than US$500m, and small and mid-sized firms. In-depth interviews were conducted with the following senior executives and experts (listed alphabetically by organisation): Amir Sharif, professor, Brunel University Alejandro Arboleda, chief financial officer, Asia-Pacific, DHL Global Forwarding Duleesha Kulasooriya, head of strategy, Deloitte Centre for the Edge Robin Hales, vice-president, Asia, marketing and product, Interface Sohil Gilani, chief product officer, Lazada Group Emanuel de Bellis, project leader, Institute for Customer Insight, University of St Gallen John Davison, chief executive officer, Zuellig Pharma We would like to thank all interviewees and survey respondents for their time and insight. The EIU bears sole responsibility for the content of this report. The findings do not necessarily reflect the views of the sponsor. The Economist Intelligence Unit Limited

8 2 GREAT EXPECTATIONS Mass production may have dominated the manufacturing world for the past century, at least for large companies, but build-to-order a core customisation capability is becoming increasingly important for businesses of all sizes. Six-in-ten executives in our survey believe that in three years no producer will be able to compete without the ability to build-to-order. This is because they see demand for highly customised products, both in their home markets and abroad, as strong and growing. levels and burgeoning access to the Internet particularly using mobile devices are helping to fuel demand for high levels of customisation. Figure 1: Demand for product personalisation will soon be greater in emerging markets than it is in developed markets 16% 6% Not just a rich-world phenomenon Our research suggests that the global structure of demand for customisation is shifting. When it comes to personalisation of goods and services, demand is seen as highest today in North America, even by executives based as far away as Brazil, China and Japan. That is expected to change within three years, however, with markets in East Asia and South-East Asia overtaking North America in personalisation demand, and remaining ahead of Europe. To drive home this point, nearly eight-in-ten respondents believe it will not take long for emerging-market demand for product personalisation to overtake that of developed markets. Demand for mass customisation, meanwhile, is already deemed to be highest in East Asia; in three years the latter is expected to be joined by South-East Asia as the regions of highest demand. In both regions, steadily rising wealth Source: EIU survey 78% Agree Neither agree nor disagree Disagree Home markets are likely to be the focus for personalisation efforts. Each country s respondents expect their own regional and country markets to be more developed than any other in terms of personalisation. When it comes to mass customisation, demand is already focused in home regions, according to respondents, and will remain so. That emerging-market demand for customisation may surpass that in the rich world is no surprise to Duleesha Kulasooriya, head of strategy at Deloitte s Centre for the Edge. Speaking of Asia, he (continued on page 10) 8 The Economist Intelligence Unit Limited 2016

9 Figure 2a: Regions where demand for mass customisation is greatest % of respondents Figure 2b: Regions where demand for personalisation is greatest % of respondents Central & South America Middle East & North Africa East Asia South Asia South-East Asia Western Europe Eastern Europe North America Source: EIU survey 9% 24% 28% 19% 22% Today 29% 18% 15% 17% 33% % 24% 3 15% 22% 21% In three years 13% 28% 22% 21% 18% 2 24% 25% 25% 23% 11% 14% 32% 33% Customisation-ready cultures? The proposition that the ground for customisation may be as or more fertile in Asia s emerging markets than elsewhere is entirely plausible to Emanuel de Bellis, project leader of the Institute for Customer Insight at the University of St. Gallen in Switzerland. Cultural factors play an important role in this, he believes. In much of East Asia, says Mr De Bellis, traditional collectivist attitudes have ceded ground to individualism, at least when it comes to people s consumption behaviour. Consumers in urban China and Singapore, for example, have come to love product customisation to a much greater degree over the past years. Consumer comfort with customisation is stronger in some Asian societies than others, however. In collaboration with fellow academics from the University of St. Gallen and Nanyang Technological University in Singapore, Mr De Bellis conducted field research (the results of which were published in 2015) demonstrating that car buyers in China and Singapore are much more likely to take advantage of customisation options provided by manufacturers than those in Japan and Taiwan. He and colleagues attribute this to a stronger penchant for uncertainty avoidance in the latter two societies. Mr De Bellis and colleagues conclude that Chinese and Singaporean consumers are comfortable choosing among numerous product options when customisation is available; Japanese and Taiwanese consumers, by contrast, feel intimidated by them. 1 1 Emanuel de Bellis, Christian Hildebrand, Kenichi Ito and Andreas Herrmann, Cross-national differences in uncertainty avoidance predict the effectiveness of mass customization across East Asia: a large-scale field investigation, The Economist Intelligence Unit Limited

10 says: If you go back maybe two decades in some of these markets, everything was personalised or customised. Mr Kulasooriya explains that prior to the advent of mass production in South Asia and East Asia, local demand for customised products existed and that local companies produced at small enough scale to satisfy it. These trends aren t brand new there, he says. The mobile revolution is another personalisation catalyst in emerging markets, according to Sohil Gilani, chief product officer of Lazada Group, a Singapore-based e-commerce firm. The mobile device is about as personal a product as you can have, and it has taken personalisation to a new level [in South-East Asia], he says. Mobile devices and applications also provide a major source of data about customers and their preferences, which companies use to formulate personalisation strategies. Setting the wheels in motion Large numbers of companies in our survey believe they are ready, or are gearing up, to meet such demand. Mass customisation and personalisation both figure strongly in companies product strategies over the next three years. More than half (51%) of respondents say their firms will pursue the former to some degree, and nearly as many (47%) say the same in regard to Figure 3a: China the customiser Business leaders who say mass customisation will be a part of their product strategy over the next three years (% of respondents) Europe 43% US 43% Brazil 44% South-East Asia 45% Japan 49% India 67% China 69% Figure 3b: The personal touch Business leaders who say personalisation will be a part of their product strategy over the next three years (% of respondents) China 33% Japan 41% Europe 45% Brazil 45% India 47% South-East Asia 53% US 63% Source: EIU survey 10 The Economist Intelligence Unit Limited 2016

11 personalisation. Mass customisation figures most prominently in the strategies of Chinese and Indian companies, while US firms are the most heavily focused on personalisation. Pursuing the latter requires well-developed online interfaces with customers supported by sophisticated CRM [customer relationship management] systems, areas where US firms traditionally Figure 4a: Personalisation plans Share of product features that could be personalised today and in three years (% of respondents) Developed markets Emerging markets Up to 1 of the features 4% 8% 8% 3% Up to 25% of the features 27% 37% 2 29% Up to 5 of the features 38% 3 38% 47% Up to 75% of the features 16% 21% 17% 23% All of the features (10) 5% 11% 6% 7% None of the features Do not know 3% 2% Today In three years Figure 4b: Customisation is coming Share of product features that could be customised today and in three years (% of respondents) Developed markets Emerging markets Up to 1 of the features 8% 9% 5% 5% Up to 25% of the features 42% 37% 44% 37% Up to 5 of the features 28% 3 35% 39% Up to 75% of the features 16% 17% 14% 15% All of the features (10) 4% 7% 3% 4% None of the features Do not know 2% 1% Today In three years Source: EIU survey The Economist Intelligence Unit Limited

12 excel. Chinese and Indian firms, by contrast, may feel their existing capabilities better suit mass customisation tailored to specific customer groups rather than personalisation enabled for individual customers. Some companies consider both approaches to be integral to their ability to boost sales over the next few years. Product quality and price are naturally pre-eminent factors in any firm s ability to achieve this, and this is certainly the case for the survey respondents. However, one-in-five respondents considers mass customisation to be integral to sales growth in the next three years following in importance just after product variety and customer experience. The ability to personalise products to individual customers needs figures less prominently as a sales driver, but over one-in-ten respondents still cite it. Fewer than a third of executives say up to 5 of the features of their top-selling products can currently be tailored to the needs of individual groups; one-sixth report this for up to 75% of product features. More respondents expect that this will be the case in three years time. An even larger share of executives say their top products lend themselves to high degrees of personalisation today, or will in three years time. We have identified a cohort of survey respondents whose firms are currently using Customising to improve last-mile distribution of medicines National healthcare policies are by necessity designed with mass scales in mind to ensure that as great a percentage of the population as possible receive adequate care. Pharmaceutical companies usually produce medicines on mass scales, often taking their lead from national health departments. In emerging markets, says John Davison, chief executive of Zuellig Pharma, this is not always a recipe for success. Something like 5 of vaccines manufactured worldwide end up in the dustbin because they do not reach their point of usage in a safe and quality-managed manner. That statistic is something that we as stakeholders in the healthcare industry all of us need to drive down. In its Asian markets, Zuellig Pharma is responding with something closer to a mass customisation approach. For example, for the European pharma clients whose medicines it distributes, it breaks bulk production into smaller batches of packs that can be moved into markets with lower demand, such as Vietnam and Myanmar. It is also expanding its temperaturecontrolled facilities (cold chain) in South-East Asia and upgrading them to new international drug-storage standards being rolled out worldwide. And it has introduced a patented box allowing the storage of vaccines for five additional days at their original temperatures. 12 The Economist Intelligence Unit Limited 2016

13 mass customisation as a sales growth strategy; these are referred to as mass customisers. We have similarly identified a cohort of personalisers. They are a small minority of the overall survey sample (8% are mass customisers and 6% are personalisers) but arguably in the stronger position to take advantage of growing demand for highly customisable products and services. An important reward for those firms which are able meet this demand will be additional revenue from the premiums they are able to charge over the price of their standard product. Both mass customisers and personalisers clearly expect to reap this reward: more than half (51%) of the former group believe they can add a premium of 3 or more to the price of their flagship products or services in the next three years. This level of premium is realistic for 42% of personalisers. Such premiums will likely shrink, however, when more players in a market offer high levels of customisation, and personalisation or mass customisation become prerequisites to remaining competitive. Premium decline will happen sooner in some industries than others. Interface, a US producer of office carpeting, has been providing customisation options for its Asian customers for 20 years. According to Robin Hales, the company s vice president of marketing for Asia, the company s maximum customisation premium is 1, and often it charges none. Customisation for Interface, he says, is mainly a means of locking in customers and improving relationships. The Economist Intelligence Unit Limited

14 3 ARE SUPPLY CHAINS UP TO THE CHALLENGE? Identifying demand for highly customised products is one thing; meeting it is quite another. A lot hinges on the adaptiveness and flexibility of the supply chain. In companies that have been in business for at least a few years, their supply chains have likely been geared to support the mass production of standardised products. Pursuing mass customisation or personalisation means the supply chain must support multiple and often very small scales of production, and on demand. To do so efficiently and economically, it should be able to secure inputs from suppliers on a just-in-time basis, and deliver final products to customers in a timely fashion. The requirements are demanding on all facets of the supply chain, says Amir Sharif of Brunel University. There must be sufficient investment in demand capture, enterprise resource planning and CRM, as well as all of the constituent parts of the production supply Figure 5: Supply-chain readiness How ready are your supply chains to support mass customisation in emerging markets? (% of respondents saying they are ready) Brazil China Europe India South-East Japan US Asia Manufacturing facilities 4 16% 23% 31% 47% 35% 23% Supplier network 33% 12% 19% 27% 39% 35% 27% Supply chain finance 31% 11% 2 24% 36% 31% 25% Distribution network 29% 15% 2 31% 32% 31% 2 Inventory management, warehousing 31% 9% 23% 28% 29% 27% 17% Online customer interfaces 28% 13% 28% 24% 32% 35% 28% Data and analytics capabilities 31% 11% 19% 21% 36% 29% 25% Customer relationship management (CRM) 31% 13% 17% 32% 36% 31% 29% Payment systems 35% 17% 2 25% 35% 32% 28% 5% 1 15% 2 25% 3 35% 4 Source: EIU survey 14 The Economist Intelligence Unit Limited 2016

15 chain inventory management systems, production planning, management systems, shipping, logistics, reverse logistics, warehousing. All of this needs to be in place. Relatively few executives in the survey believe their firms currently have the components in place in emerging markets to support a personalisation strategy. No more than onequarter, for example, say they have the data collection and analytics capabilities to do so. Only 3 say the same about their CRM and payment systems, and even less believe their supply-chain financing and distribution networks are ready to support personalisation. The numbers are similar (and in some cases even lower) for personalisers, which underlines how deep-seated most of these problems are even companies firmly set on personalisation are finding it difficult to address them. It is a similar picture with supply-chain readiness for mass customisation. In most aspects, little more than one-quarter of respondents believe they have the supply-chain components in place to carry this strategy off. The confidence levels of mass customisers are decidedly lower than in the rest of the sample. A plausible explanation is that this narrower group have closely studied the supply-chain improvements needed to implement the strategy and thus have a clearer view of the difficulties. How the West and East compare Western companies often benefit from greater penetration of enterprise technology in developed markets and their greater supplychain sophistication. But they do not necessarily have a higher degree of readiness to support customisation strategies. In many areas emerging-market companies confidence in the ability of their supply chains to manage customisation is as high or higher than that of their peers in the US and Europe. For example, respondents from South-East Asia, Brazil and India appear to have greater faith than US and European peers in the personalisation-readiness of their manufacturing facilities, inventory management, supplier networks and payment systems, among other facets. This helps explain why most respondents in the overall sample believe that businesses in emerging markets are better placed than developed-world peers to meet personalisation demand close to home. Figure 6: Emerging-market companies are better positioned than developedmarket companies to meet demand for personalisation in their markets 27% Source: EIU survey 11% 63% Agree Neither agree nor disagree Disagree The Economist Intelligence Unit Limited

16 Emerging-market respondents similarly express greater confidence in their supply chains masscustomisation-readiness than US and European peers in almost every aspect. (China is the notable exception to this see box.) Deloitte s Mr Kulasooriya sees a number of ways emerging-market companies can best their developed-market peers. One is the ability to produce at minimum scale. In the developed world, he says, incumbent manufacturers have the advantage of knowing how to produce at scale, but most are not set up to build small volumes. I ve come across some factories in China that are really focused on the minimum size batch. They re trying to build it to the smallest possible scale so that they don t have to produce 100,000 units at a time. Brunel University s Mr Sharif agrees that emerging-market companies may have a scale advantage over their rich-world peers. In the case of South Asia, he ascribes this to historical factors. Personalisation is an easier concept for firms in emerging markets than in the West because there is still a very strong ethos of artisan-based production. In India it might not be such a big leap for companies as for those in the West because they already have that ethos of personalising. Provided they upgrade their local supply chains, emerging-market players should enjoy an additional advantage over overseas rivals in pursuing customisation strategies close to home. One reason is that logistics costs are usually lower when production facilities are located closer to end-customers. Another is that personal relationships matter enormously between producers, suppliers and distributors in emerging markets, particularly in Asia. When delivery issues arise, they can more easily be resolved when the principals are located in the same country or region. Interface s carpet customisation strategy works, says Robin Hales, because it s key suppliers of fibre are located very close to its manufacturing plants in China and Thailand. We work very, very closely with them, he says. We couldn t do customisation any other way. China: big hopes, bigger challenges Executives of China-based companies are pinning high hopes on mass customisation higher than those from any other country in the survey as a means of increasing sales in the coming years. If the survey is any judge, however, they will encounter significant difficulties in making such a strategy work. When it comes to the state of their manufacturing facilities, their supplier and distribution networks and their inventory management and data capabilities across every key facet of readiness Chinese respondents uniformly express the least confidence of their global peers in their supply chains ability to support mass customisation. 16 The Economist Intelligence Unit Limited 2016

17 The Economist Intelligence Unit Limited

18 4 SCALING THE BARRIERS There are few illusions among businesses about the challenges that must be met to support customisation strategies. These are numerous, ranging from poor Internet connectivity to inadequate financing options. Some are within the power of companies to address; others are more intractable and require action by governments and other external stakeholders. Foremost among the challenges are insufficient insight about customer demand, a shortage of reliable distribution options and a lack of working capital. Delivering insights from data The lack of insight about customer demand is largely a result of inadequate data and analytics. Effective customisation strategies cannot be conceived without solid customer data, insightful analysis and good customer-feedback mechanisms. The ability to deploy analytics tools, and make decisions based on their results, are fundamental to understanding the specific product and service features that customers desire, whether customer segmentation can be refined, and how new Figure 7: The biggest obstacles to mass customisation and personalisation strategies % of respondents Lack of quality transport infrastructure 17% 15% Mass customisers Personalisers Inadequate payment systems 15% 2 Lack of working capital 22% 33% Lack of reliable distribution options 37% 36% Inadequate Internet connectivity 15% 27% Lack of customer insights 49% 48% Shortage of local production skills 27% 41% Shortage of local marketing skills 34% 33% Inadequate/insufficient financing 1 27% None of the above 3% Source: EIU survey. Note: The cohort of mass customisers is comprised of respondents who deem mass customisation as critical to their firms ability to grow sales, and are also well along the way in making the features of their top-selling products customisable. Personalisers are those who deem personalisation as critical to sales growth and whose top products lend themselves to a relatively high degree of individual tailoring. 18 The Economist Intelligence Unit Limited 2016

19 segments or individuals can be marketed to. This is a challenge in emerging and developed markets alike. Insufficient insight into customer demand is the top-rated personalisation and customisation challenge among both Chinese and US respondents, and also of great concern to those in India. Emerging markets may, however, have particular difficulties dealing with certain aspects of data analysis due to the lower penetration there of advanced analytics tools. For Lazada Group s Sohil Gilani, the lack of structured data is a big challenge in this area. He points out, for example, that most of the products its sellers in China and other Asian countries provide may not have a barcode; the company uses a mix of image recognition and other mapping technologies to provide incremental product information critical to its users. There is no shortage of data in this region, Mr Gilani says, but too much of it is unstructured and thus difficult to mine. New technologies only becoming available now are helping us to get around this problem. Financing customisation In many emerging markets, limited sources of both long and short-term financing have often hampered the development of companies supply chains. Those pursuing customisation are likely to find the financing challenges getting tougher, because it requires the types of flexible financing options that have not generally been available there. Seven-in-ten respondents (eight-in-ten in China and South-East Asia) agree that such strategies require new approaches to supplychain financing. Extremely low interest rates are currently a boon to some manufacturers pursuing customisation, making it less costly to hold inventory than it has been for some years. But Alejandro Arboleda, chief financial officer in Asia-Pacific for DHL Global Forwarding, also believes low financing costs have removed some of the impetus in Asia for financing innovation. Figure 8: Mass customisation and personalisation require new approaches to financing supply-chains Customisers vs non-customisers 3% Personalisers vs non-personalisers 7% 26% 15% 25% 15% 6% Customisers Personalisers 85% 71% 79% 68% Non-customisers Non-personalisers Agree Neither agree nor disagree Disagree Agree Neither agree nor disagree Disagree Source: EIU survey. Note: See Figure 7 for an explanation of what constitutes mass customisers and personalisers. The Economist Intelligence Unit Limited

20 Working capital shortages are the most problematic area of financing for personalisers, and in some respects for mass customisers, felt keenly by executives in South-East Asia and Brazil, but also in developed markets such as Japan. With working capital tight, firms can ill afford to tie up too much of it in inventory (although low interest rates mean they have more flexibility with inventory today than previously), yet they also need to hold enough inputs to respond efficiently to highly customised orders. More flexible terms of working capital finance are likely to be required. Businesses pursuing customisation will also need to be able to pay suppliers at more frequent intervals and in some cases in close to real time to accommodate on-demand and just-intime delivery of inputs. At the same time, many firms are looking to lengthen payment terms to their suppliers. Mr Arboleda observes that standard terms today are 60 days rather than 30 days as had been the case in previous years. We continuously see extremely high pressure from customers to increase their credit terms, he says. In short, supplier financing needs are becoming more complex thanks to customisation, and companies will need new options to meet them. Figure 9: Financing needs % of respondents Increase the need for real-time payments to suppliers 34% Require more flexible financing options 52% 41% 3 42% 29% Lead to increased frequency of payments to suppliers 33% 29% 39% 42% Require higher borrowings for working capital 45% Lead to longer payment terms to suppliers 46% Require more long-term capital investments Mass customisation will: Personalisation will: Source: EIU survey. Note: In the graphic, blue data points represent the results from the cohort of personalisers and green data points represent the mass customisers. Figure 7 for an explanation of what constitutes mass customisers and personalisers. 20 The Economist Intelligence Unit Limited 2016

21 Greater long-term capital investment will also be required. Manufacturers, for example, will need to re-tool their existing equipment or purchase entirely new equipment to accommodate flexible and smaller-batch production. Firms will also have to invest in the advanced data-analytics systems required to generate customer insight, as well as the web interfaces that support sophisticated customer interaction. Customisation will also require some innovation in customer payment systems. The inadequacy of existing payment systems threatens to derail some companies efforts to pursue personalisation strategies. Lazada s Mr Gilani says customer payment is a unique personalisation challenge his company faces. In the West it s given that if you buy online you ll usually use a credit card. In South-East Asia, everything from cash at the counter, ATM bank transfer and credit cards will be used. While we strive to make all payment channels available to everyone, we encourage customers to make greater use of online payments, because that will further facilitate personalisation. Infrastructure: not up to it Poor transport infrastructure is a significant external impediment to customisation in some countries. It is likely to be one reason why both mass customisers and personalisers cite a lack of distribution options as a key obstacle to their success in emerging markets. In emerging markets, says Brunel University s Mr Sharif, This is where reality hits. Last-mile logistics, getting the product to your customer, hinges on the quality of the transport infrastructure, even of fuel and energy availability, and emerging economies clearly have major challenges here. Worries about transport may help to explain why survey respondents point to a lack of reliable distribution options as a serious customisation challenge. Respondents in India, China, Brazil and South-East Asia feel this problem particularly strongly. If you don t have good quality transport infrastructure, says Mr Sharif, if you don t have a sustainable and secure supply of fuel to power your trucks, or to transport goods via train, plane or other means, you won t have a personalised product because you ll never be able to deliver it in good time. The Economist Intelligence Unit Limited

22 5 CONCLUSION: AN OPPORTUNITY WAITING TO BE TAKEN While many companies see opportunities to expand sales in emerging markets by pursuing mass customisation or personalisation strategies, only a handful are taking concrete steps in this direction. The experts we have interviewed believe the hopes of this select few are not misplaced, and that in several emerging markets notably in Asia consumers are ready to take up such offers. If they are right, mass customisers and personalisers look likely to benefit not only from better customer relationships but more tangibly from revenue growth, as the price premiums they are able to charge are likely to be sizeable. Not all products and services, of course, lend themselves to customisation. But in markets where they do, such practices will eventually come to be commonplace, in the emerging as well as the developed world. At that point, offering customers the ability to customise products or services will be a core requirement to compete in the market. All businesses should prepare for this; those who wait will miss the first-mover and revenue growth opportunity. Yet grasping the opportunity will be much easier said than done. The toughest challenges for mass customisers and personalisers lie less in developing consumer awareness and more in priming their supply chains to support such efforts. Particularly hard work lies ahead in upgrading their data, distribution and logistics capabilities, and getting all their financing mechanisms in order. Being a first mover usually involves upfront costs and risks. Companies will eventually need to bear the costs of making the supply chain customisation-ready, however. The greater risk in this case may be in waiting too long and missing the existing window of revenue opportunity. 22 The Economist Intelligence Unit Limited 2016

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