The rise of emerging markets is rapidly changing the structure of the global economy. Many of the emerging markets are no longer small. They already constitute 8 of the world’s 24 largest (and 4 of the 12 largest) economies. By 2020, emerging markets will account for half of the world’s GDP, up from about a third today and less than 10% in 1980. Emerging markets are also becoming the launching pads for a new generation of fearsome global competitors. Of the world’s 500 largest corporations by revenue, 67 are now headquartered in the BRIC countries, up from just 7 in 1995. Looking ahead, given the likely growth rates of emerging economies (3X that of the developed ones), it is all-but-certain that the shift in the world’s economic center of gravity will accelerate over the coming decade. In short, for most companies, ignoring or even giving peripheral treatment to emerging markets is no longer a viable option. One does so at grave peril to one’s future.

How should established multinational corporations (MNCs) think strategically about emerging markets? First, let’s look at what they should not do. The worst mistake that an MNC can make is to think of emerging markets as an incremental phenomenon i.e., to develop a "strategy" for emerging markets and add it as an addendum to their strategy for developed markets. The world is becoming not only increasingly multi-polar but also increasingly integrated. In this new era, business leaders need to derive answers to key questions such as "what strategic markets must we dominate," "what should be the architecture of our global value chain," "what will be our sources of major innovation," and "how will we attack and beat competitors" on a global basis rather than on a country-by-country, region-by-region, or developed vs. emerging markets basis.

Second, business leaders need to develop a sophisticated understanding of some of the key features of emerging markets, such as: (a) Emerging markets constitute a diverse bunch. The combined GDP of the five biggest emerging markets is well over half that of all other emerging markets combined. Even within the top five, China towers over the other four. Thus, companies need to prioritize across emerging markets. (b) Given their rapid growth, the internal structure of emerging markets is changing very rapidly. Thus, companies do not have the luxury of moving slowly and targeting different income segments serially. Unless they’re niche players, they must attack - or, if they’re B2B players, enable their customers to attack - the top, middle, and the bottom of the pyramid in parallel. (c) The major emerging markets, especially China and India, represent multiple stories (market opportunity, efficiency opportunity, innovation opportunity, low cost capital, and competitive threat), each crucially important. Thus, companies need to develop multi-faceted strategies towards these markets, especially China and India.

Finally, moving from the big picture to concrete strategy development, given below are some of the key questions, answers to which would constitute the major elements of any company’s emerging markets strategy: (a) Five years from now, what market positions must we have in each emerging market that we deem to be strategic for us? (b) How should we integrate our global capabilities with local knowledge to design, produce, and deliver products and services that represent meaningful solutions to local problems while being economically attractive for us? (c) For which activities in the value chain, can we position one or more specific emerging markets as global or regional hubs? (d) How can we access the large, well educated, and low cost talent pool in specific emerging markets to increase the pace and productivity of our global R&D efforts? (e) How can we globalize the innovative business models coming out of specific emerging markets to broaden and deepen our market penetration in other developed and developing markets? (f) How can we slow down the pace with which new players from specific emerging markets become serious competitors to us, regionally or globally? As we noted earlier, answers to each of these questions must be derived by looking at emerging markets as an integral part of the global economy.