Political Risk Latin America Blog @PolRiskLatam

No easy profits for new entrants in EM

Posted in News and Articles, Political Risk by politicalrisklatam on November 8, 2010

by Barney Jopson for Financial Times – Beyond Brics, November 8th, 2010.

The association between “emerging markets” and “growth” these days is so commonplace it feels like part of the natural order, especially if you listen to the quarterly results of big US companies. But what about “profitable growth”? That’s a different matter.

Ernst & Young makes the distinction in a new report that pours some cold water on the buzz over emerging markets. It reminds us that higher sales do not always translate into higher profits – and reveals that this is especially true when you try to break into new markets.

The accountancy firm has surveyed more than 1,400 senior executives around the world and reported back with an unexpected conclusion: if you want to secure profitable growth, rushing into emerging markets is not the best way to do it.

Instead, executives are focusing on their existing markets, even if they happen to be in the “declining” economies of the Old World. As Andrew Shaylor of Ernst & Young, one of the report’s authors, told beyondbrics:

Whilst it’s true that interest in India and China is up, it’s still the case that most companies are focused on their current client base and improving services to them.

Executives have realised that by doing so they can often get a better return – or a more immediate one – on their investments of time and money. It may also signal their aversion to risk taking in these uncertain economic times. (continue reading… )

 

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