Multinationals Turn to China & India to Fight Recession

With developed markets reeling in recession, global companies are looking more to emerging markets, launching tailor-made products and services

K.P. Unnikrishnan, Sun Microsystems' regional marketing director of emerging markets region, said in an e-mail interview: "Emerging economies are changing the global business landscape, providing incredible opportunities for companies like Sun."

Concurred Manish Bahl, research manager at Springboard Research: "Looking at the current global situation, we believe the strategy to focus on India and China is considered to be a safe and viable option for multinational companies (MNCs) that want to expand operations and even for those who plan to enter these markets."

In July 2008, Sun made a strategic business decision to strengthen its presence in fast-growth markets such as India and China. To closely align sales with key growth areas, Unnikrishnan said it created a business division focusing on emerging markets sales region, which includes Latin America, Greater China, India and SEE (Russia, Balkins, Africa, the Middle East, Turkey and Greece).

Manufacturers of consumer durables, car, telecom and infrastructure companies are also focusing more on emerging market in these tough times. For instance, LG Electronics India expects 15 percent growth in 2009 and believes India is not as badly affected by recession.

This month, IT security company Trend Micro set up three technology support labs in India as part of its Affinity Partner program. Amit Nath, the company's country manager for India and SAARC, said Trend Micro will continue to develop in India and work with its customers and partners in order to provide "the best-of-breed secure content management solutions".

Nath told ZDNet Asia in an e-mail interview: "There are not too many economies in the world that will grow at 7 percent."

Booming markets

The optimism over India and China is manifested in foreign direct investment (FDI) inflows. While China registered a total FDI inflow of US$92.4 billion in 2008, up 23.6 percent from 2007, India's FDI inflows rose from US$19.1 billion in 2007 to US$32.4 billion in 2008.

India and China had attracted the attention of MNCs way before the onset of the economic crisis. However, with the recession having a relatively lesser impact in these countries, it made sense to focus more on these booming markets.

Bahl said: "Favorable economic indicators such as rising per capita income, increasing domestic demand for goods and services, change in spending pattern of consumers as well as factors like well-controlled inflation, only go on to prove that a sharper focus on these economies can bring better growth for MNCs."

The results are already visible. For instance, Sun's emerging markets sales region reported revenues of US$1.969 billion in its financial year 2008, an increase of 13.8 percent over 2007. Total revenue for the emerging markets region in the second quarter of 2009 was US$558 million, up 20.5 percent from US$463 million in the first quarter of 2009.

Unnikrishnan said: "The emerging markets sales region opens more opportunities for Sun [to work] with governments, businesses and developers. This allows Sun to serve the unique needs of customers in these markets where infrastructure growth demands are very strong."

The flurry of new product launches and initiatives for emerging markets only goes on to reinforce this trend. For instance, Microsoft India recently showcased a host of custom-made offerings for the Indian market.

These include initiatives such as language interface packs (LIPs) in 12 Indian languages, and Windows Live, which includes e-mail, instant messenger, online storage, photo gallery and social networking, in seven Indian languages.

Consumer durables company Philips, too, has created an emerging markets model.

Gerard Kleisterlee, president and CEO of Royal Philips Electronics, said at a press conference last year: "Executing on our strategic decision to scale up our presence in emerging markets has been an important element of Philips' transformation into a focused, less-cyclical company in recent years."

Last year, it acquired two companies in India in the healthcare domain—Meditronics and Alpha X-Ray Technologies—in order to step up its focus on emerging markets. Philips chose to focus on healthcare since it is a recession-proof industry. The Dutch global major hopes to generate maximum revenues from this sector over time.

Anjan Bose, Philips Healthcare India's senior director and business head, said: "In 2007, almost 40 percent of our revenues came from emerging markets. Going forward, emerging markets, especially India, will play a significant role for Philips."

Similarly, in December 2008, Sun rolled out a telecoverage model in the emerging markets. The model is aimed to help Sun reach out to high growth small and midsize businesses (SMBs), startups and Web 2.0 companies in these economies, thus optimizing its drive to success and profitability.

Ensuring faster recovery

India and China, however, are not completely free from recession.

Bahl said: "High domestic demand, coupled with the governments' spend on infrastructure, is largely helping companies to resist the recession."

Unnikrishnan added: "People need innovation in crisis. As companies face challenges, they need new ideas to overcome difficulties. IT companies could possibly survive the crisis if they innovate in the emerging markets."

In 2009, Sun sees businesses and governments in emerging markets increasingly using the latest open source technology to innovate at minimal cost.

Vivek Wadhwa, executive in residence at Duke University's Pratt School of Engineering, said: "I see China being in more trouble in the short-term because of its dependence on manufacturing. But, since they have such deep pockets, China may be able to spend their way out of the downturn.

"The Indian industry is taking a hit in the short term, but is likely to benefit as the economy recovers because it offers lower R&D (research and development) costs," Wadhwa told ZDNet Asia in an e-mail interview.

Bahl said emerging economies are expected to recover faster from the ongoing global recession. Of all the major economies, only India and China are projected to have a healthy GDP (Gross Domestic Product) growth rate of 7 percent and 8 percent, respectively.

"Therefore, India and China have much higher chances of emerging as stronger markets, post the recession," Bahl added.

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