EXECUTIVE BRIEFING Global Emerging Markets Establishing operations in emerging markets: Factors for success by Harsh Koppula finding new answers in business. 2011 CGN & Associates
Global Emerging Markets Establishing operations in emerging markets: Factors for success operations in emerging markets Once a company has successfully identified a new market and made plans to enter it, one of the next steps is to establish operations by developing manufacturing and supply chain capabilities. Companies are committing significant funds to build a critical component of their core operations in a new market, and the risks are significant. There are countless recent examples of companies that have invested heavily in emerging markets and failed to generate the output needed for a strong return on investment. Their challenges were too great and their implementation plans were insufficient. For companies to mitigate risk as they establish operations in emerging markets, it s important for them to carry over all of the sensibilities and intricacies they bring to project planning in domestic markets. Failing to devote the necessary time, planning and talent to emerging markets opportunities can be costly. Full commitment is especially vital today, as emerging markets are vastly more complex than they were even five years ago. The scale of operations is larger and more complicated; economies are more sophisticated; competition is fiercer; expectations are higher; and ever larger sums of money are at risk. As companies develop in emerging markets today, they must be capable of addressing myriad growing challenges: multiple stakeholders, complex procurement processes, evolving labor forces, unstable economic conditions and currency volatility. And they must be stable enough to manage complications both anticipated and entirely unforeseen. Anticipating the pitfalls The fact that emerging markets present numerous challenges is nothing new. But today s increased complexity has made these existing challenges more severe and has added new issues that organizations must confront. With so many companies now forced to lower their earnings goals because their global supply chains can t keep up with demand, it s important to review the common pitfalls that these organizations encounter. Most of their challenges fit into four established categories: government regulation, human resources, project management and budget management. Government Regulation Government incentives play a huge role in emerging markets, and organizations generally do a good job tracking regulatory issues. But they often underestimate the challenges that come with compliance. These include knowledge of unionization issues, licenses, permits, duties, draw back and approval time estimates. These challenges need to be factored into an organization s budget and timeline. And organizations need to develop strong relationships with government personnel to ensure they understand and follow the intricacies and demands of meeting local and national regulations. Human Resources Companies often enter emerging markets in search of costeffective labor. But filling the multiple ranks of an organization with these resources can prove to be challenging. Labor competition can be difficult to understand. Cultural differences can be challenging to navigate. And local talent may not always align perfectly with organizational needs from a global standpoint. In addition, organizations must also address training, retention and conflict resolution. Project Management While establishing operations in emerging markets, organizations can become effectively paralyzed by many factors. Most of these challenges germinate in the planning process and then manifest themselves later in the form of project management issues. Problems such as unilateral decision-making can paralyze an organization, as can a lack of key decision authority. Effective project management can mean the difference between success and failure. If teams or individuals are unclear about their roles and responsibilities, the entire project can suffer and momentum can cease. Budget Management Budgetary issues also often arise from a lack of planning. Whether the budget is undefined or the company is underresourced, the problem can most likely be traced back to the planning phase. Too often, organizations think they can EXECUTIVE BRIEFING: EB03 2011 CGN & Associates 2
do more with less. They need to be absolutely clear on defining realistic resource plans and implementation times to project a more accurate budget in advance of securing development funds. Obviously, some of these challenges can be identified quite easily. But the difficulty lies in properly addressing them before they evolve into significant risks. By anticipating and managing these common pitfalls and making sure you know and understand all of your shareholders and their needs you can avoid risk and position yourself for success in your emerging market. Figure 1. The common challenges of emerging markets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ssociates 3
Managing the project lifecycle Emerging markets require tremendous emphasis on developing, refining and strictly adhering to a plan that manages the entire lifecycle of a development project. This plan should span five major phases: initiation, planning, execution, control and closure. The below chart details what organizations need to address in each of these phases. Here are some of the most important considerations: Establish and communicate a project timeline Before you even enter an emerging market, it is absolutely imperative that you map out every step of the implementation process and communicate this plan to every stakeholder in your organization. A well-planned and wellexecuted timeline can mean all the difference for companies as they develop their manufacturing footprints in emerging markets. Figure 2. The 5- step program lifecycle management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ssociates 4
The timeline should run from initiation to planning to execution and should continue through the go-live date and beyond. Always keep in mind that your new facility will need to be fully operational from the moment it opens in order to be profitable. Every component of your timeline should be focused on that date, ensuring that your entire organization is striving to achieve the same goal. Your timeline should start with project initiation: Define your business objectives, build capable project teams and gather information on industry best practices. Move from there to the planning phase: Create a master plan and establish benchmarks, metrics and decision-making processes. Map out the implementation process, from selecting personnel to preparing your construction site. And build a post-construction plan to ensure quality control: Assess performance, review metrics and continually check your organizational structure for signs of fissure. Throughout this process, someone from your team must own and control every single aspect of your project. Everything is subject to scrutiny, from project scope to individual performance to revenue expectations. And you must go further by proactively and aggressively taking corrective actions to ensure the integrity and stability of your project. By meticulously mapping out your entire process and assigning stakeholders to manage each task, you can identify potential challenges and address them before they occur. You can plan decisions months in advance to avoid scrambling or confusion. And you can ensure that every stakeholder in your organization is fully aware of and invested in the progress of the manufacturing implementation project. Of course, unforeseen challenges will surely arise, since you will be dealing with the increasing complexities of emerging markets today. But with a strong plan in place, you will have a solid foundation from which you can address any and all issues. Manage resources Do you know what your future staff utilization looks like? Do you know what kind of impact staff changes can have on future work? Do you know if your employees are spending more time than they should on assignments? Not enough time? If the answer to any of these questions is no, you need to shore up your resource management. Quality resource management enables you to make the most effective use of every person involved in your project. But it s not easy to achieve. Your strategy must be solid, allowing you to perform both long-range and short-range resource allocation. And your operations need to be transparent so all employees across projects and teams have visibility to availability, utilization and productivity throughout the organization. Manage risk Risk factors in emerging markets today can be unpredictable, unfamiliar and extremely volatile. To successfully manage risk, you need a solid, proven process one in which every possible factor is accounted for and monitored by someone within your organization. This includes cost, control, scheduling, collaboration and more. And one of the most effective processes for managing risk involves constant interpersonal communication. Companies often analyze risk on paper. They use metrics, reports and data but they rarely address it in conversation. Discussing potential risks at status meetings, weekly meetings and stakeholder meetings ensures that it stays topof-mind. And making it part of your everyday communications can help maintain risk awareness throughout your organization. Constantly monitoring risk allows you to identify, analyze and classify it and to quickly create mitigation plans when they are needed. Risk management can seem like an obvious step in the implementation process but companies often fail to realize the intricacy and high level of detail involved with risk management in today s emerging markets. Costs must be controlled obsessively throughout every facet of your organization. Schedules should be coordinated and painstakingly monitored to ensure an efficient and smooth workflow. And quality must be monitored closely to protect your organization s reputation. All of these measures will help manage and mitigate your organization s risk, enabling you to confidently and effectively implement your new manufacturing facilities in emerging markets. Manage stakeholders Because emerging markets are more complex, your management team needs to be stronger and more comprehensive to meet these challenges. And that all starts with planning. You had a team of talented professionals design and implement a strategy for entering the market. Now you need a team to help you successfully manage your project: its programs, its schedules, its costs and its processes. This team must collaborate effectively and be capable of reporting real-time project information to company stakeholders at any moment. Because, really, your stakeholders are your business and they are the most important of the five factors that you must manage effectively to successfully implement your project in emerging markets today. EXECUTIVE BRIEFING: EB03 2011 CGN & Associates 5
Since projects in emerging markets are more complex today, it follows naturally that your network of stakeholders will grow in complexity, as well. From finance and purchasing to IT and operations, your stakeholders are many and their needs can be difficult to meet. They require vast amounts of information, communication and training. Conclusion Organizations often begin establishing operations with a clear vision. But somewhere along the way to project completion, the vision becomes blurred, leading to missed deadlines, improper governance, customer dissatisfaction and, ultimately, project failure. That s why obsessively managing the project plan can prove to be just as important as meticulously creating it. The risks are extensive, but, if a program is executed properly, establishing and developing operations in emerging markets can reap tremendous rewards. EXECUTIVE BRIEFING: EB03 2011 CGN & Associates 6
CGN makes it possible for companies around the world to tran sform their organizations, improve their performance and become more profitable. We see the big picture, identify and solve core problems, discover new opportunities and implement the game- changing strategies that will deliver sustainable results. We use our niche experience and broad knowledge to solve complex problems in all areas of your business. We become a part of our clients teams creating the strategy and providing the expertise needed to implement high- velocity, breakthrough solutions. CGN is a global management consulting firm with offices in the United States, Europe, China and India. Our Focus Areas Global Emerging Markets Strategy CGN takes the guesswork out of new markets, with local teams that know their markets and use that knowledge to create a strategy for your successful growth and then work with you to execute it quickly and effectively. Our expertise includes new market analysis, market entry strategy, manufacturing footprints, network mapping, supplier development and supply chain management. Global Supply Chain & Operations We can turn your supply chain into one of your biggest assets. Our experienced practitioners look at your supply chain from end to end understanding your costs, identifying savings opportunities and developing a strategy to improve your overall efficiency. We help you develop an agile, responsive and flexible supply chain to manage the volatility in global demand and supply. Global Supplier Collaboration & Procurement Superior supplier partnerships can help you improve quality and efficiency throughout your entire supply chain increasing cash flow and productivity. We offer sourcing strategy and relationship support through our signature processes and tools, aiding you in supplier rationalization, cost modeling, product lifecycle cost management, supplier performance management, quality assurance and improvement. Organizational Transformation CGN will transform your business identifying needs to restructure, reposition and resize, developing the path, and executing with your team. We help you align strategic and organizational design, engage talent and build strong cultures, accelerate change and deliver breakthrough performance. Business Technology Integration CGN bridges the gap between business and technology aligning the two to ensure IT facilitates the successful implementation of your business strategy. We provide advisory, implementation and support services, including process and technology definition, governance support, systems integration and business intelligence. CGN & Associates, Inc. www.cgn.net contactus@cgn.net 1.888.RINGCGN United States Europe India China cgn.net finding new answers in business. EXECUTIVE BRIEFING: EB03 2011 CGN & Associates