Emerging Market Executives Will Navigate New Global Challenges in 2017

As multinationals look to 2017, emerging market executives will need to rebalance their market portfolios toward markets demonstrating strong resilience and good governance, invest in market monitoring capabilities, adapt their pricing policies to enhance localization, and optimize their channel economics to ensure continued strong performance in emerging markets. Global growth drivers will offer limited uplift for emerging markets in 2017, as governments, companies, and consumers in emerging markets confront increasingly complex global growth drivers and the potential for severe disruption driven by increasingly contentious developed-market politics and growing adjustment challenges across their emerging market portfolios.

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Key Driving Forces for the Global Economy in 2017

Emerging market executives confront two dynamics that will drive new growth opportunities and financial volatility through 2017:

  • Developed Market Politics: Persistent economic stagnation in developed markets is driving a growing backlash against globalization, and policymakers have limited tools to push up growth. Multinationals have confronted both the vote for Brexit and Donald Trump’s presidential candidacy this year, and next year offers new electoral opportunities for populist forces to gain ground in Europe
  • Emerging Markets Adjustment: Emerging markets will experience widely diverging recoveries, with persistently low commodity prices and growing internal pressures reshuffling growth prospects. Multinationals can expect a return to mild growth in markets such as Russia and Brazil, but other emerging markets will need to improve policies and prove their resilience to external and internal shocks in 2017

Growth drivers will provide limited uplift

While emerging market growth will improve from 4.1% to 4.6% next year, traditional global growth drivers will offer limited support:

  • Global growth demand engines will remain muted: Chinese growth will continue to slow next year, while developed markets as a whole will largely continue to confront secular stagnation
  • US interest rates will increase moderately: Multinationals should expect that continued Federal Reserve tightening will continue to put pressure on emerging market currencies, while other central banks will pursue a more dovish line
  • Commodity prices will see moderate increases: While many commodity exporters would prefer to see a significant increase in commodity prices to support export growth and government revenues, commodity prices will see limited growth improvements, with demand likely to improve marginally in 2017. Oil prices will average US$47.5-55, even if an OPEC-Russia production cut agreement bears fruit

Diverse growth paths for emerging markets

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Slow and uneven recovery of global growth will require significant market prioritization and consistent market monitoring by multinational executives. Multinationals pursuing sophisticated and targeted portfolio prioritization will outperform in 2017, and should carefully pressure-test their assumptions about market performance in each region:

  • Asia Pacific: Markets such as China, India, and in ASEAN will continue to be significant drivers of global growth, but multinationals should carefully select where and how they compete in the region as profitable growth becomes more difficult to achieve, and target key growth markets in Southeast Asia as well as subnational pockets of opportunity in China and India
  • Western Europe: Multinationals will need to monitor political events in Europe more closely in 2017, with pivotal elections in France and Germany likely to determine the direction of the Eurozone. The potential for persistent pressures on the banking sector will also need to be carefully monitored
  • Central Europe: Increasingly firm consumer demand, government spending, and private investment leave Central Europe as one of the best investment target regions for emerging market executives. The region’s relative stability (with the significant exception of Turkey) augurs well for its performance in 2017
  • CIS: A mild recovery is in store for CIS, but the unlikelihood of a stronger recovery over the next few years will lead emerging market executives to reassess their footprints in the region. Russia will experience a mild recovery in 2017, but higher growth prospects will be difficult without new growth drivers
  • Middle East and North Africa: Multinationals will need to adjust to rising competition, changing consumer habits, and the impact of reforms on addressable market opportunities across their MENA portfolios
  • Sub-Saharan Africa: Multinationals will need to tailor their strategy to the new winners and losers in Sub-Saharan Africa’s new normal. The poor performance of major markets such as Nigeria and South Africa should not negate the much better prospects of East African markets such as Kenya and Uganda
  • Latin America: Central America, Peru, and the Dominican Republic will lead growth in the region, while Argentina and Brazil will experience a slow recovery

New Priority Actions for 2017

Emerging market executives will need to proactively work to address the new realities of global growth to protect margins and ensure continued market share increases:

  • Revisiting your fundamental assumptions: Multinationals will need to revisit the fundamental assumptions of what they see in emerging markets, and evaluate how they need to adjust their value propositions through pricing policies that are more closely aligned with local contexts. By both rebalancing your market portfolio toward more resilient pockets of opportunity, while providing local teams with enough strategic guidance and pricing flexibility, executives will be well-placed to outperform
  • Build underdeveloped capabilities: Multinationals need to reevaluate their current channel management capabilities by assessing the impact of channel partners on margins, building on your distributor’s capabilities, and professionalizing channel management within your organization. Furthermore, companies need to invest in bottom-up market monitoring capabilities and processes that allow for well-aligned course corrections through incorporating leading external indicators into forward-looking management dashboards and business reviews

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