I've long been intrigued by the idea that the booming services markets in emerging economies like China and India are creating a new class of consumers, a burgeoning class that the North American companies fueling these economies really shouldn't ignore.
Now more than ever, with American economic growth stalled, U.S. companies must globalize if they want to remain successful, said the Hackett Group's Michel Janssen and Erik Dorr in our recent interview. While economic growth in countries like China and India is down compared to the recent past, it is far outpacing growth in the United States. Said Janssen:
In China and India right now, they're having recessions, too. But their growth is going to go from 10 percent or 11 percent down to 7 percent or 8 percent. So those economies are still expanding. We haven't touched that kind of growth (in the U.S.) for a long time. The point we are trying to make here is that the growth for businesses is going to come in the global sphere. We're saying that globalization is what will drive America out of its recession, if we take it seriously. If we try to get protectionist, we will lose jobs over the long term.
Companies that continue to focus exclusively on the North American market are simply taking business from their U.S. competitors. And that's a highly limited game, said Janssen. So in a way, companies can create room for more U.S. business by looking to non-U.S. markets. He said:
The challenge in the U.S., with our shrinking GDP, if you go out and make more revenue, you're actually stealing it from another (U.S.) company. The pie is getting smaller. If somebody gets bigger, somebody has to get smaller, by definition. In the global theater, the pie is getting bigger due to population growth and improvements in standard of living. Companies need to go where the money can be had. The U.S. could be like Japan for 10 years. You need to go out and be competitive in the global market and figure out what the world is going to buy, what you can deliver to the world.
Dell is one company very much aware of this, as IT Business Edge blogger Rob Enderle wrote in late October. The company is launching a huge initiative in China, opening a design center in Shanghai and planning products designed for the Asian market. (This is a key distinction, as most Western companies simply remarket their North American products elsewhere, rather than creating new products for those markets.)
<strong>Cisco is another</strong>, as I wrote in July. Check out this quote from the company's CTO, which appeared in a Network World article I cited:
Traditionally, capital flowed from developed markets to emerging markets and emerging markets were passive recipients of innovation. That model will change in the next few years, where we'll have multiple centers of economic power.
Now, there's an even more interesting twist, as reported by the MercuryNews.com. A growing number of start-ups are creating products in Silicon Valley that are designed to be marketed elsewhere. Telegent Systems, which makes mobile-phone chips that enable devices to pick up analog television broadcasts, is one of several companies featured in the article. Why keep R&D in the U.S. while producing and selling products elsewhere? Maybe it's because, as I wrote in September, countries like India still lag behind the United States in innovation and product development.
Another California-based company, UTStarcom, last year sold a division that made mobile handsets for the U.S. market, so it could focus solely on its growing overseas business. Seventy-five percent of its $1 billion in annual revenue comes from outside the United States. Echoing Hackett Group's Janssen, UTStarcom's CTO said:
Especially in these down economic times, every company should be thinking: "Do I have my balance right?" Instead of spending so much money on marketing in some of these depressed markets, some of that should be diverted to parts of the world that are not as negatively impacted.
Yet designing products for and marketing them to emerging economies is difficult, acknowledge several experts interviewed in the article. As I wrote in 2007, even search giant Google has struggled to enter overseas markets, including Russia, home country of Google co-founder Sergey Brin.
The MercuryNews.com notes that U.S. companies with foreign founders, such as California's Legend Silicon, often have a competitive edge in creating products for emerging economies.