Seven specific countries - China, India, Turkey, Vietnam, Russia, Romania and Bulgaria - now offer the very best investment opportunities for retail and consumer companies, according to a study by PricewaterhouseCoopers.
The PricewaterhouseCoopers (PwC) study, entitled 'From Beijing to Budapest: Winning Brands, Winning Formats', found that Russia, Romania and Bulgaria had joined the list of promising countries for the first time. While achieving a presence in these transitional markets can be challenging, companies that develop new products and new formats tuned to the quickly evolving tastes of customers are likely to be successful, PwC asserts.
Jacques-Etienne de T'Serclaes, PricewaterhouseCoopers' global retail & consumer leader, said: "Adopting a policy of expansion into one or several of the high growth markets is a strategic must for retail and consumer companies. To succeed in transitional economies, companies must consider the specific challenges they face in expanding before realising the opportunities that lie ahead."
The report also provides a broad picture of the economic, social and cultural backgrounds of 20 transitional economies in Asia, Central and Eastern Europe, and highlights both challenges and opportunities for companies planning to invest in those markets. The twenty countries with the highest growth potential in the report are:
- South Korea
- Czech Republic
- Slovak Republic
As they stand now, the emerging markets (in particular China and India) demonstrate the growing perspectives for strong international development in these regions, the report says. Hypermarkets, discount stores and specialised outlets are the main formats dominating the retail scene in both regions.
Challenges and opportunities
For both new and foreign entrants, and for investors wishing to consolidate their operations in the transitional economies, partnering with local firms remains the most viable strategic option. As their current markets mature, retail and consumer companies will be exploring the opportunities that exist a little further afield, as well as examining the future potential of the Internet and mobile telephony. According to PwC, one of the most significant management challenges remains that of attracting, recruiting, training and retaining good staff.
"The retail and consumer sector is undergoing a period of immense change," said de T'Serclaes. "The centre of economic gravity is shifting toward Eastern Europe and Asia. The virtual world of IT plays an increasingly important role in today's economy, bringing instant connectivity, higher speed, more transparency, knowledge, and communication. The result is a new business landscape � one from which retail and consumer companies cannot afford to be absent."
A key point stressed in the report is that participation in these transitional economies requires foreign retail and consumer companies to create new products and new formats geared to the consumers of these markets. Ongoing innovation and cross-fertilisation are enriching the products and services offered not only to customers in these new markets but also in more traditional markets worldwide.
And the successful development of brands in transitional economies lies in finding the right balance, blend, and mix of products, the report says. The global image of world-class brands needs to be balanced with a keen sensitivity to local tastes. A careful blend of cultures has to be fine-tuned, and, the right mix between traditional and modern products carefully nurtured.
Price and class
Extreme price sensitivity at one end of the market, and a move toward upscale products at the other is leading to consumer dichotomy and market polarisation. Therefore, premium brands, private label and value low-price labels are all being developed equally successfully.
The polarisation of formats between discount and upscale stores is a general trend across both the Asia and Central and Eastern Europe. This consumer dichotomy directly corresponds with the "newly rich" consumers, and often also ties in with a split between urban and rural populations.
Finally, infrastructure remains a major problem in many transitional markets but it is quickly being addressed as governments see the significant political and economic advantages of local sourcing and the creation of regional sourcing hubs.
The full report has been made available as a free download from the PricewaterhouseCoopers web site (registration required).