Should US-based mid-market companies expand their emerging market footprints in this slower-growth environment? Can these smaller companies achieve profitable scale? At our very first Executive Roundtable for Mid-Market Multinationals on November 6th in Washington, D.C., representatives from this dynamic cohort answered both questions with a resounding “Yes.”
The National Center for the Middle Market defines this corporate segment as ranging from $10 million to $1 billion in revenue and reports that, of US-based mid-market companies, only 34% are currently international. Given as much, here at FSG we like to think of our vibrant Mid-Market Cohort as “The Bold Third.” Every year this fastest-growing segment of our client base posts among the highest growth numbers for emerging markets. Our mid-market clients are entrepreneurial problem-solvers determined to make their expansion plans profitable despite smaller teams and smaller budgets.
As a result, we were delighted to welcome 18 mid-market Heads of International* to our full-day Executive Roundtable, Managing Profitable Growth with Limited Resources. The agenda featured FSG’s global outlook for 2015, as well as lively discussion on best practice responses to these market changes, strategies, and actionable solutions. Of the many topics we discussed, three key findings stand out:
Key Finding #1: On the Mid-Market Footprint – Proximity and growth matter
Top growth opportunities reported by our Mid-Market Cohort for 2015 are China (47%) and Mexico (20%). Among top profit opportunities are Mexico (41%), followed by India and China (each with 18%). Not surprisingly, with the vastness of emerging market opportunities available, smaller operating budgets, and a US base of operations, no EMEA markets surfaced as top opportunities at any point during the day.
Key Finding #2: On Mid-Market Expansion – Structure effective partnerships to win market share
While our F500 clients resoundingly chose “Building a strong organization” as their #1 capability to develop for success in 2015 (53% in EMEA, 61% in LATAM, 44% in APAC), our Mid-Market Cohort, in contrast, selected “Structuring effective partnerships” in response to this question (47%), with “Securing resources for investment” and “Building a strong organization” tied for a distant #2 with 19% of the vote, each. Why? We know that mid-market multinationals, in many cases new to emerging markets, rely heavily on local distribution partners to get goods to market. In few cases are these relationships exclusive – in the vast majority of instances, the mid-market supplier competes with other suppliers for the distributor’s time and care. As a result, our Mid-Market Cohort relies heavily on strong contracts and relationships with local third parties to execute successfully on the ground.
Key Finding #3: On Mid-Market Capabilities – In 2015, close the execution gap, strengthen strategic thinking capabilities
In our afternoon session on contingency planning for disruptive events in 2015, executives considered the four pillars of organizations that outperform during disruptions to strategic plans:
- Explicitly documenting assumptions and risks
- Reviewing plan assumptions at least twice a year
- Strengthening local strategic thinking capability
- Using regional- and country-level scenarios
Among these four, our Mid-Market Cohort reported the third, “Strengthening local strategic thinking capability,” as the most difficult to develop and sustain. Could this be because so much local activity is outsourced to third-party local partners and distributors? Perhaps.
As our Mid-Market Cohort continues to mature and expand in emerging markets, a critical next step will be to consider further localization. Particularly in the current economic environment of low interest rates, the strong dollar, and low energy prices – and corresponding low asset and input costs – localization has never made more sense. If the mid-market can master the direct channel and/or local production in key countries, the resulting bottom line boost will quickly push cohort leaders out of the mid-market segment altogether.
*Clients had a range of titles, though the vast majority control P&L for a pan-regional, international footprint.