Harsh investment realities in rapid-growth markets Singapore firms must know

Companies today, including those in Singapore, are facing up to two hard realities: first, they cannot sit back and hope for the recovery of mature markets; second, volatility on many fronts including domestic economies, currencies and commodity prices is a way of business life.

As companies face continued profit pressures, they are no longer wishful about a swift recovery of the mature markets. In fact, global executives admitted that pricing, cost-cutting and profit pressures are the biggest threats that they will face now through 2015, according to Ernst & Young’s Business Pulse: Exploring dual perspectives on the top 10 risks and opportunities in 2013 and beyond report.

The traditional response of price reduction and cost cutting is not sustainable: there is only so low one can go and how much one can cut.

Indeed, anemic mature markets has turned companies into battle-hardened realists as they look to new markets and emerging economies for expansion opportunities.

Though the recovery in rapid-growth markets (RGMs) is less-than-homogenous, or may have even shown signs of slowing, EY’s Rapid-Growth Markets Forecast report released in July 2013 estimates 4.6% growth across these economies in 2013, far ahead of the matured ones.

Already, two-thirds of the global consumer spending comes from RGMs. Naturally, companies are excited by the consumption potential from the middle class in RGMs. In 2011, exports from Eurozone to RGMs were worth US$895, up three-fold from a decade ago.

By 2016, emerging Asia will account for almost a-quarter of global consumer products market. Intra-regional trade is expected to see a boost as well.

Companies also recognize that the use of new technologies offers an explosion of promise in new marketing channels to tap this burgeoning consumer spending potential in RGMs. Social media penetration has hit new highs in RGMs.

For example, Indonesia has one of the highest social media penetration rates in Asia; the Philippines has also one of the most active populations engaged in social media activities; Thailand is one of the top growing countries in Asia in terms of e-commerce.

Further, recent developments in cloud computing, big data and mobile devices give companies greater maneuver in marketing, and it is no surprise that RGM respondents to the aforementioned Business Pulse survey place new marketing channels as among the top three opportunities.

That said, the pursuit for opportunities in RGMs is not without its risks and challenges. For example, in emerging Asia, political noise related to national elections and regulatory uncertainties in certain sectors continue to worry investors.

As well, China’s cooling economic growth and subdued economic activity in India are making companies nervous. Outside of Asia, Brazil’s recovery is still fragile; and emerging economies in Eastern Europe remain soft. Without a doubt, macroeconomic risks continue to loom.

In the past, risks from another region or economy didn’t necessarily have serious consequences elsewhere. Companies could rely on their corporate risk radar to assess their organization’s risk profile and determine growth directions and strategies.

But in an increasingly globalized and interconnected world, it is inevitable that the macroeconomic risks elsewhere have to be duly considered given their potential to upset a company’s overall strategy and operations.

Today, Singapore companies can no longer insulate themselves and operate within a cocoon. Taking a wider view of potential risks and opportunities and respond to them smartly and quickly is more likely than not the only way to thrive in such volatile environment.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.