Will emerging markets change the face of capitalism? Premium

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First seen as sources of cheap labor, then as uncharted markets, and, more recently, as sources of innovation, emerging markets are poised to take over as the world’s most dominant sites of value creation. Along with this shift in economic power come new game rules that are overturning Western ideas of business as usual. How can companies everywhere understand and adapt to the new world order of global capitalism?

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Adhering to a strict policy of maximizing financial returns to shareholders results in missed opportunities in emerging markets.

“By 2025, annual consumption in emerging markets will rise to $30 trillion, up from $12 trillion in 2010, and account for nearly 50% of the world’s total, up from 32% in 2010,” reports the McKinsey Global Institute. Consequently, large multinationals will increasingly target consumers in emerging markets. But what are the larger, perhaps less obvious, implications of what is arguably the greatest shift in global economic power ever to take place in the history of capitalism? Authors Christopher Meyer and Julia Kirby offer compelling insights into how this economic shift is aligning with technological and cultural developments to “change business everywhere.”

• Broader value creation: The increase in transparency of corporate social and environmental impacts requires companies to evaluate performance more broadly and responsibly than just in terms of basic financial metrics such as ROE.
• Overcoming “pseudo-competition”: Western markets are being undermined by “pseudo-competition”; such as advertising to drum up demand for what may or may not be a true value offering and making it harder for new, smaller companies potentially offering superior products and services to enter the market.
• Collective innovation: Prioritizing innovation over competition inevitably gives rise to more collaborative partnerships. The objective is using the wisdom of the crowd to co-create innovative new products.

Business leader testimony
Brazil’s homegrown Natura Cosméticos holds top position in the country’s thriving CF&T industry, since the mid-2000s outperforming large multinationals like Unilever and Avon. Its leaders attribute this success to a long-standing commitment to both financial and nonfinancial value creation — a commitment that has been strategically diffused throughout the company’s managerial ranks thanks to an award winning integrated reporting process.

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Will emerging markets change the face of capitalism?

Based on Standing on the Sun by Christopher Meyer with Julia Kirby, “Winning the $30 trillion decathlon: Going for gold in emerging markets” by Yuval Atsmon et al. and “Natura Cosméticos, S.A.” by Robert G. Eccles, George Serafeim, and James Heffernan.
Business Digest no. 229, October 2012.

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