When it comes to hot markets, you can't leave China and India out of the discussion. They're not only huge consumers of products and services, but major semiconductor, wireless, and other American companies are finding they must spend millions to set up local design and manufacturing centers if they hope to establish themselves as major market players in these countries.
Indeed, the rate of U.S. companies announcing and establishing new R&D and manufacturing facilities in China and India is increasing. Indeed, India is making in-country manufacturing a requirement of making a serious dent in markets in that country.
Nearly all (95%) of the companies surveyed by Boston Consulting Group plan to increase their investment in sales activitities in rapidly developing economies, such as China and India, this year, with 67% saying the increase would be "significant." But supply-chain management is a big issue for manufacturers doing business in these countries.
According to the BCG, most multinational companies expect to derive more of their overall sales, sourcing, manufacturing, and R&D from rapidly developing economies. Yet many organizations are failing to allocate resources to these markets sufficiently and effectively enough to meet their goals.
"We see a mismatch between the oportunities rapidly developing economies offer and the level and approach or resource allocation," says Jim Hemerling, a BCG senior vice president in the firm's Shanghai office.
One of the bigger deals was IBM's sale of its PC business in May 2005 to the Lenovo Group of China. In February, STMicroelectronics inaugurated its design and development facility in Greater Noida, India. ST also plans to invest $30 million in local operations over the next two years and recruit 300 new engineers by the end of this year.
"The new facility truly underlines the growing importance of ST's India operations within our global R&D efforts," says Carlo Bozotti, the company's president and CEO.
Chip firms are especially high on opportunities in China. Research firm Gartner Dataquest estimated the total semiconductor market in China and Hong Kong alone at $69.7 billion for 2005. And it's growing. In March, after 11 years in China, software specialist SAP opened a new research operation in Shanghai in anticipation of growing staff, development, and support requirements.
In April, Nokia said it would further strengthen its R&D operation in China and expand its Chengdu R&D center to carry part of Nokia mobile network products development for global and local markets. Qualcomm also formed a new mobile software company in March with China TechFaith Wireless Communication Technology Ltd., one of the largest handset software providers in China.
And Arrow China, a part of Arrow Asia/Pacific, opened its first office in Shenzhen in 1994. It now has 18 locations in Mainland China, an office in Hong Kong, and five offices in Taiwan.
Consumer electronics represents one of the fastest growing market segments in China. In fact, China is the world's largest cell-phone and DVD market.