The recent cover story of Chemical & Engineering News titled “Chemistry Energizes China” has a pretty good overview of how China is charging ahead in the renewable energy space and how material companies are adapting to it. One of the comments that stood out for me was from Edward Frindt, CEO of Novolyte Technologies with reference to energy materials – “We see the U.S. as an emerging market and China as the established market”
And not just in the renewable energy space, these trends are increasing being discussed in emerging industries from water to advance transportation. China, India, and other emerging countries have been growth drivers in for past few years, and are forecasted to grow at near double-digit growth rates in the near future. Among several enablers, a couple of the key ones are millions of citizens coming into the middle class and clear government policies. At the same time, there are unique challenges like the low buying power of the consumers and weaker IP rights. So how will companies, large and small, will adapt to this changing dynamics?
1. Increased localization – Instead of transplanting products and technologies from developed countries to emerging markets, successful multinational companies have adopted local approach while leveraging their global capabilities. This has manifested itself not just having R&D and manufacturing capabilities on the ground, but increasing and more importantly, by also having product innovation and human talent developed for local markets. In the article, How GE is disrupting itself, authors provide great insights into how “glocalization” is driving GE’s growth and developing better products for both emerging and developed markets.
2. Clear & stable policies – Establishing a manufacturing or R&D presence in a new market is a hundreds of million dollar investment for a chemical company. Even with the access to millions of new customers, new and emerging sectors will likely need clear and stable policies to both create demand and for companies to justify large capex. Some of the countries are leading the charge, e.g. China’s goal of 5% alternate energy vehicle sales by 2011, India’s National Solar Mission to have 20GW of installed solar generation capacity by 2020; making markets attractive and decision making that much more clearer.
3. Improving intellectual property rights – The weak IP rights enforcement in some emerging markets has been a showstopper for moving product / technology innovation in those countries. Things are improving – a recent report in the Economist highlights the closing patent applications gap between US, Japan, and China. While the applications from the US or Japan have either remained constant or declined in past four years, China’s has surged and the it is poised to take #2 position from Japan.
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