As they reflect on Q1, EMEA executives can look back to better-than-expected macroeconomic performance, but also a continuation of risks and volatility in the region that make hitting ambitious 2018 targets challenging. Since December, all FSG forecasts for regional growth within EMEA have been revised upwards (see chart), yet companies are still finding that price sensitivity, geopolitical uncertainty, and challenges securing additional resources make it hard to take advantage of that additional growth.
Here are five things EMEA executives should think through as they head into the remainder of 2018:
- Making the case for resources has become even tougher…
Growth is solid in EMEA this year, but it is also strong in the US, as well as core emerging markets like China and Brazil, which are seeing a recovery this year. After several years of eroded profitability because of currency depreciations and demand volatility, EMEA leaders are still struggling to secure significant investments for core markets before they have demonstrated meaningful recovery in margins. This will be further exacerbated by competition with the US as a result of the attractive terms of the US tax bill and means executives will need to continue delivering results with limited investments. The question becomes whether this picture truly changes in 2019 – which seems largely as a continuation of this year. EMEA leadership teams need to start thinking early on this year about how they are going to secure more resources for their key investment needs in 2019 as competition for investment will be even more acute.
- …But investment remains much-needed in key markets to differentiate
Key emerging markets in the region – South Africa, Turkey, Saudi Arabia, Russia – are experiencing a combination of customer price sensitivity and rising operating costs that are making it particularly challenging to differentiate against low-cost competitors while delivering on profit targets. Businesses that are getting ahead in this environment are innovating in their product offering, solutions and services, and route to market, particularly to better align with customer needs and get closer to customers. This, however, increasingly requires additional investment in people, product innovation, and marketing. In the absence of resources to do so, companies are finding it challenging to avoid price wars or to take share away from competitors, and in the long-term, it puts them at risk of falling behind both local and foreign competitors. While 2018 may not be the year when these difficulties start to show up in financial performance, by 2019 and beyond they will become significant constraints and require proactive planning now by EMEA leadership teams and their country teams.
- It’s essential to avoid complacency despite solid growth
While regional currencies have strengthened against the US dollar, and oil prices are trending up (for now), a host of risks still loom across the region. Trump’s latest trade policies are one example of these, but there is also a host of domestic risks across EMEA that could disrupt MNC performance this year, in places as diverse as the UK, Iran, Ukraine, and West Africa. EMEA executives need to ensure local teams are carefully monitoring and flagging emerging risks, while the regional team is monitoring global disruptive events that could have ripple effects through the region.
- Finding ways to generate additional revenue growth remains a critical task
Companies are actively exploring ways to generate additional top-line growth through new channels (e-commerce is increasingly a priority in more markets within the region), new products or better-targeted products, as well as by making better use of existing non-core offerings. There is quite a lot of white space there. For example, our recent research on monetizing value-added services finds that 40% of EMEA clients we polled have yet to see value-added services contribute to profitability, while 60% of companies do not charge for at least some of their value-added services. Firms need to explore all possible avenues for improving performance, particularly so they can be prepared in case external disruption hurts their ability to execute in core markets, or they face softer macroeconomic growth beyond 2018, as FSG expects is increasingly likely.
- New opportunities will emerge as the region transforms
From expected increases in healthcare spending in Russia, to infrastructure projects in the GCC region and opportunities to sell services and solutions to companies across the region similarly looking to transform their business models, improve efficiency, and innovate around the changing operating environment, EMEA continues to offer significant opportunities that emerge as a result of the changes happening in the macro environment. Regional teams need to ensure local teams are monitoring these carefully and integrating them into a more targeted strategy that segments customers and opportunities in a nuanced way and that allocates resources with an eye toward building scale through selective prioritization rather than broad-brush large-scale approaches.
While these five factors should be top of mind for EMEA teams as they focus on completing a successful year, getting these right can also create a solid foundation for 2019 strategies.
For our latest updates and insights, FSG clients can view the EMEA Regional Leadership Briefing on FrontierView, or contact their Client Services Director for more in-depth briefings. Not a client? Please contact us to learn more.