EMS


• Demand for high-tech products is secondary to survival necessities. If people don't have access to sanitation and clean water, they will not be able to buy electronic products.


• Just because a country has a lot of people, doesn't mean there is a demand for all types of electronics. GDP/capita, cell phone usage, and number of internet users are factors that help determine readiness for high-tech products, but more research into domestic demand for a particular country and product category is required.


• There are different types of customers in an emerging market: government entities, non-government organizations operating in the geography, multinational enterprises (MNEs) already operating in the region, and lastly the domestic consumer. Companies must have the strategy and the relationships in place within the ecosystem that make sense for their products.


• Cultural differences have the potential to impact markets for electronics. Companies must understand the culture in order to create appropriate products and to bring them to market in a way that is acceptable. It is likely that distribution channels available to domestic companies will not be as easy to penetrate for foreign companies.


• There often are two economies in operation in emerging countries: one for local citizens and one for foreign nationals. Companies usually need a local presence to thoroughly understand the interplay between the parallel universes.


• It is difficult, although not impossible, to do business in countries where the government is corrupt and where there is no rule of law.


Implications for mid-market vs. top tiers ("goliath fringe")


Global multinationals have created the goliath scale necessary to transcend boundaries of sovereignty. These companies are trading currencies, engaging in legal maneuvers to benefit from tax advantages, and profiting from other non-manufacturing activities. Smaller companies do not have the resources to operate in this fashion.


Furthermore, companies like Foxconn have tied up much of


the component supply chain, and have established vertically integrated and far-reaching distribution networks to support its customers. The playing field is certainly not level for midmarket companies entering the global market.


However, all is not lost.


Smaller companies have the flexibility and nimbleness to find and exploit a niche with little risk and fanfare, as described in this interview with Rick Steffens, who is a Senior Commercial Officer with the U.S. Commercial Service:


"Well, what I've noticed


about Ukraine is [it is] the land which the Fortune 500 forgot. So for example, we're working on a number of regional airport projects. These are $150 million projects, and I will talk to the big, famous American construction companies. I don't need to name them, but they're very active in Iraq. And they'll say, 'well, we don't really want to approach this. It's a very tricky market.We're busy.'"


"And so what happens


is, we get small U.S. companies, often companies [with] only 10 or 20 people, brand new to themarket, and they are becoming finalists for $150 million projects. So I think for companies, which are adventurous and want a new challenge, and want to get into what could potentially be a very rapidly expandingmarket, it's an excellent opportunity, but it's not for everybody," Steffens said.


www.charliebarnhart.com March 2011 | 29


5


issues


essential Five


A good understanding of the following issues in each geography is essential to success. Our report includes geography-specific comments related to each of them:


• Ease of doing business and Corruption Perception Index: CBA's report includes a ranking of 18 geographies based on IMF andWorld Bank data. These can be used to compare regions, to eliminate a region, or to adjust a strategy to deal with contingencies and risk.


• Market for electronics: In contrast to a few decades ago, there is now considerablemarket data available for nearly every country that is often broken down by industry segment.


• Geopolitical stability: Midmarket companiesmust not automatically avoid a region because of instability, but they must have eyes wide open and either hire local staff or partner with a company with local experience. Thailand, for example, has frequent political uprisings, yet has a lengthy history with precision manufacturing with few substantial disruptions.


• Physical infrastructure. Know whatmatters in precisely the region you plan to set up manufacturing.


• Supply chain infrastructure. Component availability, logistics and knowledge basemust be well understood.


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