Strategy In A Weak Recovery

For much of the next decade, we can reasonably expect to see weak recovery across global growth, pressures from overcapacity, persistently high, unemployment, volatility in the financial markets, costlier capital, a greatly expanded role for governments, a much larger burden of regulation and taxation for all, and maybe even increased protectionism. If we experience a second crash, as some experts worry, these conditions could all worsen.

Most companies' global strategies have been based on a vision of a world that's steadily, even rapidly, becoming more integrated, where the key challenge is keeping up with that integration. But given what we've witnessed in the past two years, it makes more sense to adopt a vision in which national differences remain pronounced (and may become even more so), and managing those differences is the primary challenge. Companies whose strategies currently emphasize smoothing differences and achieving economies of scale across national boundaries may need to shift toward adapting to local conditions.

Companies also need to widen their competitive focus.

When it comes to customers and product choices, three main changes are likely. First, multinationals from advanced economies will have to rethink their customer targeting. In large emerging markets they have traditionally focused on the urban elite, who can buy premium products in upscale retail outlets. Going forward, companies will need to penetrate more geographies, channels, and income levels.

Second, most markets will experience pressures on pricing. Economic weakness and extra capacity, and possibly a shift in the zeitgeist from excess to frugality, have already pushed prices downward. Expansion into poorer markets at home and abroad will intensify this trend. This will require companies to do some repositioning.

Finally, multinationals will have to develop products and services that are fundamentally different from what they're used to selling, as well as regional varieties of offerings, as local differences in, for instance, taste, price sensitivity, and infrastructures for service and delivery become more important.