What MNCs are planning for 2018 in EMEA

While 2018 comes with the promise of stable economic growth, less volatile exchange rates, and continued pockets of opportunity, the news for EMEA executives is not all good. While some companies hope that they are on the cusp of an acceleration in the recovery in the region, economic fundamentals point to the fact that we may well be at its peak. Many companies are assuming accelerated performance over the next two to three years, but fundamentals point to the risk of a slowdown or even recession by 2020, combined with significant geopolitical uncertainties. Thus, the current positive external environment is attractive, but fragile.

Combined with rising price sensitivity, increasing operating costs, and only modest improvements in demand, MNCs are in for a year that calls for business transformation and a strategic approach to growth, rather than pure focus on execution. In discussions with heads of EMEA across consumer goods, healthcare, B2B and technology multinationals, we see several clear patterns in how they are approaching their 2018 planning.

Polling data from FSG’s Senior Executive Roundtable (Oct. 2017)

Channel partners are increasingly important

In small, faster-growth markets, MNCs are outsourcing more of their operations to local partners as making the case for further geographic expansion is difficult. Companies rely significantly more on their distributors for local insights, demand generation, and brand representation. In core markets, companies are increasingly asking their partners to step up, for example, by encouraging them to develop more sophisticated skill sets such as key account management, market access, government engagement, and demand generation.

To prompt change among their channel partners, MNCs are investing in building their capabilities through shifts in KPIs, incentives, and support provided, as well as by introducing status-based incentive programs. Companies need to ensure they implement these changes relatively quickly, as the best partners will see additional investment coming from multiple suppliers in competition with each other.

Digitization is the elephant in the room

60% of EMEA heads we polled during one of our recent events said that the biggest concern for their business in 2018 is building a digital strategy. The challenge is manifold: companies have a global mandate to go digital, but implementation can be very different depending on the infrastructure and conditions in individual local markets in EMEA. A digital strategy that works in the US or even Turkey is unlikely to be of much use in Congo DRC. EMEA heads have the most diverse region globally, comprising markets as different as Norway, Uzbekistan, and Sierra Leone. Implementing a single digital strategy in an area of this complexity is a daunting challenge.

Furthermore, these variations in readiness extend to customers and local partners. One executive in the healthcare space recently spoke about how some of their local partners in the MENA region would be unlikely to implement advanced data tracking technologies, and online collaboration and sales platforms. They could theoretically be trained and incentivized to do so, but again this would be a long and complex process of change management.

Companies are seeking out untapped segments in priority markets

When investing in 2018, EMEA executives are in tight competition with other markets such as the US and China for additional resources. With investment funding limited, they are becoming more risk averse, driving investment resources toward the larger, more reliable markets in EMEA, and away from speculative bets on riskier, faster-growth markets. At our executive roundtable event, EMEA heads said they plan investments in Germany, Central Europe, Russia and parts of the Middle East, but even a market as large as Turkey was perceived as too risky for significant new investment from most of them. A full 50% said that capturing untapped customers in existing core markets presented the greatest growth potential in the region for their businesses. This is likely to result in continued strengthening of competitive pressures in core markets, but could also open up opportunities for firms that are looking beyond the usual suspects and are willing to commit to overlooked opportunities in the region.

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