The Importance of Market Research and Business Intelligence
Overview
In recent years, the global economy has undergone transformational changes. Countries, which benefitted from industrialization and emerged as advanced economies, are experiencing a slowdown and their financial markets are under considerable stress. On the other hand, after many lost decades, a few other countries, now pegged as emerging economies, have started making remarkable progress on the GDP growth front. While some emerging countries in Asia, such as Korea and Taiwan, have made economic progress by latching onto the growth wave unleashed by the electronic, information, by the electronic, information, communication technology industry, others have made progress by expanding their trade1 with developed countries.
In the midst of these changes, the global economy also have experienced some major crises and resets, such as the Asian Financial Crisis, the U.S. housing bubble, followed by the global financial crisis, and the European sovereign debt crisis, with some of the above happening in quick succession. Due to these economic and financial crises, the real economy and financial markets suffered, people lost jobs, and growth slackened. As discussed in earlier chapters, while most advanced economies continue to struggle to recover from these developments, emerging economies have emerged more resilient;2 either they recovered more quickly3 or managed to avoid being hurt as much. Following the global financial crisis, some analysts even thought that the emerging economies could decouple and chart their own growth paths. However, later developments, such as the worsening of current account deficits for some emerging countries, such as India, a strengthening of the BRIC countries’ currencies resulting from U.S. qualitative easing (QE) programs, and their subsequent drastic weakening from the expected gradual withdrawal of QE, have clearly established that we are truly living in a flat and interconnected world. We believe these developments have reinforced the view that in the emerging new economic order both advanced and emerging countries possess complementary roles to play in achieving sustainable economic progress, and that they need to collaborate to stabilize the global financial system.
Gaining a better understanding of the global and country specific economic development dynamics is important both for developing growth strategies and for creating a more stable financial system. Collecting relevant data at the global and country levels and analyzing them to arrive at actionable information aids us in the progress of gaining a necessary understanding. Converting the actionable information into strategic decisions and implementation plans coupled with regular feedback analysis and corrections would require analysis that is specific to the concerned stakeholder. Our world is an economically interconnected one, where many forces are at play and constantly changing. This requires efficient data gathering, analysis, and generation of actionable information. The stakeholders may include business corporations, nation states, economic development and research organizations, and investors.
Several global organizations, such as the World Bank, the IMF, the OECD, and leading consulting firms, such as McKinsey and Pricewater-houseCoopers, publish numerous research and survey reports that provide data and other qualitative information about the economy, trade, and related topics relating to developed and emerging countries. In addition, various agencies release, at regular intervals, information relating to the comparative positions of various countries by metrics, such as the global competitiveness index, global innovation index, ease of doing business, nominal GDP, GDP growth rate, per capita income, export and import trade, demography, current account deficit, and others. While stakeholders have access to these metrics that provide macro data, they also require information and analysis specific to their needs. This is in fact one of our fortes at Marcus Goncalves Consulting Group (MGCG)*, as such specific and nuanced international market research needs would require custom market research and further business intelligence analysis in order to refine the macro data and thus generate actionable information, which supports the decision-making and related processes.
While the need for a research and analysis based approach is well underway and open discussions are taking place in numerous multilateral forums, the same is not true about reforms in the global financial system. We believe the global financial system is still very much the prerogative of the few developed economies, especially the United States, with the dollar as the world’s de facto currency, and continues to wield too much power. Regretfully, necessary informed discussions among monetary and other policy makers do not take place transparently. The growing disconnect between the financial economy and the underlying real economy is a source of serious concern that deserves the urgent attention of policy makers, if a total collapse at some future date is to be averted. Presently, policy makers are in a quandary and seem quite content with putting out one crisis after the other.
True success of market research depends first on an unambiguous definition of the purpose of the exercise, accuracy of the research, timeliness of the data, and proper selection of the firm to carry out the market research and deep collaboration (i.e., partnership) between the involved parties or stakeholders.
Modern Global Economic Evolution and Industrialization
Industrialization, which started around 1780 in Europe and North America, changed the pace of the global economic evolution. While technological inventions and breakthroughs spurred growth of the manufacturing industry, trade among countries, and economic activities. The global economic expansion resulted in the emergence of not only industrial centers of excellence and consumer demand centers, but also created markets for a broad portfolio of industrial products and goods that cater to basic needs and aspirational desires. Industrialization led to demand creation and fulfillment, increased consumption and investment, economic activity, and wealth creation. It set in motion a virtuous cycle of economic expansion resulting in job creation in manufacturing industries and growth of institutions and support services, such as banking, finance, insurance, and transportation, that either center around industrialization or are offshoots.
Industrialization was an inflection point in human history, which forever transformed our lives. Inventions and technological developments, such as the steam engine and the creation of railroads, development of the internal combustion engine, growth of the automotive industry, rapid expansion of information, and communication technology have all profited from what began as an invention of vacuum tubes and have revolutionized mass transportation, personal mobility, personal and mass communication, and information processing and computing. Such developments have created livelihoods and opportunities outside the traditional vocations, initially in manufacturing and subsequently in service and financial sectors. This occurred first in Europe, the birthplace of industrialization, and thereafter, in North America. As industrialization progressed, some of these countries emerged as advanced economies of the modern era and became the home of large engineering and business conglomerates spanning manufacturing, infrastructure, health care, transportation, and banking.
Industrialization created a new wave of aspirational wants among people and the disposable incomes in their pockets empowered them to indulge in discretionary spending. This led to a virtuous cycle of demand creation and fulfillment, increased consumption and investment, and wealth creation, starting in the real economy and after in the financial economy. Bain & Company’s report “A world awash in money” points out that while the rate of growth of world output of goods and services has seen an extended slowdown over recent decades, global financial assets have expanded at a rapid pace.4
Economic Growth Spreads to Asia
After incubating for decades in Europe and North America, industrialization spread to Japan and later to some other countries in East Asia, such as South Korea and Taiwan. While technological inventions and breakthroughs was the bedrock of economic growth in countries where industrialization took root, Japan took it to the next level though the path of productivity improvements by focusing on production processes, seen notably in automotive and electronic industries. Other countries in Asia, such as Singapore, South Korea, and Taiwan also latched onto the electronic and information technology industries’ growth momentum to emerge as high-income economies during the latter half of the 20th century. Later, the opening up of China’s economy and its integration into the global economy paved the way for it to emerge as the world’s factory.
The emerging economies’ development spurred consumption demand outside the advanced markets for a wide range of manufactured industrial products. Manufacturing moved away from a monolithic structure to become collaborative entities; each entity focused on what it does best at locations nearby to consumption centers.
Typical examples of collaborative and deconstructed manufacturing are the electronic and information technology industries, which largely contributed to the growth of Asian countries, such as South Korea and Taiwan. Large conglomerates dominate this industry. While integrated device manufacturers, such as Intel and Samsung design, make, and sell their chips, fabless* manufacturers such as Qualcomm and AMD only design and sell chips by outsourcing manufacturing to foundry companies. While Sony and LG Electronics are among the leading suppliers of consumer electronic goods, Lenovo and HP are top suppliers of personal computers. These companies then buy embedded devices from vendors such as Texas Instruments, and they in turn depend on companies such as Wipro and HCL Technologies to develop embedded software.
Companies such as Microsoft and SAP dominate the software market. Many of these companies and their affiliates have facilities in geographically dispersed locations. The expansion of the electronics industry, of which information and communication technology is comprised, not only helped countries in Asia to prosper but also resulted in increasing intra-regional and inter-regional trade. In the Working Paper,5 “Fragmentation and East Asia’s Information Technology Trade” published in 2004, the authors Carl Bonham, Byron Gangnes, and Ari Van Assche argued, “Over the past two decades, international production fragmentation by U.S. and Japanese IT firms has gradually turned developing East Asia into a global manufacturing base for IT products.” On one hand, this provided further impetus for the economic growth across countries in Asia, especially in ASEAN countries, and on the other to the consolidation of globalization trends. Countries and companies that successfully align their growth strategies with global trends reap the benefits.
New Economic Order and Financial System Vulnerabilities
When economic growth began to spread across countries in East and South East Asia, by mid-1990s the Japanese economy began to show signs of slowdown, driven by various factors including U.S. pressure. Later, loss of trade due to the emergence of China as a low cost manufacturer and demographic influence on the country’s labor further accentuated the situation. In addition, Japan also experienced an asset price bubble resulting in plunging stock and asset prices. Since then, Japan has not been successful in reviving its growth, and in 2010 the country ceded its moniker as the world’ second largest economy to China. It may be safe to hypothesize that Japan’s protracted slowdown is among the first indicator of two developments; one, the emergence of a new economic order in the shaping of which emerging markets would play a significant role and two, the vulnerability of the global financial system.
Figure 12.1 show how the Chinese economy has overtaken the advanced economies of France, UK, Germany, and Japan, and how the Japanese economy remained stagnant for well over a decade while China was expanding.
Due to increased economic development in emerging countries the world is witnessing the emergence of a massive middleclass population with significant disposable incomes and a robust appetite for aspirational wants, such as automobiles and consumer durables. If their demands are to be satisfied, these countries need a robust manufacturing industry, which many lack. Typically, emerging countries continue to struggle in overcoming the initial mover advantage that advanced countries continue to enjoy in the industrial sector. A few are in a position to grasp the technology, have acquired negotiating power due to their recent achievement of economic growth, and have become attractive to would be global investors.
Figure 12.1 China’s economy has overtaken France, UK, Germany, and Japan, the advanced economies
Sources: The World Bank, IMF
The importance of the manufacturing industry in spurring growth in emerging countries cannot be overstated. A McKinsey report6 “Manufacturing the growth: The next era of global growth” says very aptly “... manufacturing remains critically important to both the developing and the advanced world. In the former, it continues to provide a pathway from subsistence agriculture to rising incomes and living standards. In the latter, it remains a vital source of innovation and competitiveness, making outsized contributions to research and development, exports, and productivity growth.” It is important to add that sustainable growth is possible only when all other industries work together in supporting the framework, including the service industry, banking and finance, law, and a national policy on taxation and trade. As economic prosperity expands, the aspirational demand for services increases and the service industry expands. In their book,7 “Beyond Economic Growth,” authors Tatyana P. Soubbotina with Katherine A. Sheram, underscore this thought; “As incomes continue to rise, people’s needs become less ‘material’ and they begin to demand more services—in health, education, entertainment, and many other areas.”
Resulting from the spread of industrialization and wealth creation, we are witnessing the emergence of new economic order in which emerging countries would play an important role. The formal recognition by the G-7 countries, discussed in earlier chapters, verifies that close integration of their economies with emerging countries, and effective collaboration with them, is necessary to sustain the long-term global economic growth strategies, and led to the creation of G-20.
Despite the exclusion of some large economies, G-20 acts as an excellent platform to deliberate and decide on mutually beneficial economic growth and financial strategies. Of course, advanced and emerging countries have other platforms, such as trade agreements and groupings like Transatlantic Trade and Investment Partnership (TTIP) and ASEAN in which to achieve national and regional economic objectives.
G-20’s deliberations include, apart from economic growth and globalization issues, matters relating to the international financial system. The U.S. subprime mortgage crisis in 2008, the banking crisis in Ireland, and the European sovereign debt crisis, which began in 2009, have brought to the fore the weaknesses in the financial system. Figure 12.2 illustrates the global capital pyramid and the magnitude of its impact on global GDP growth.
As depicted in Figure 12.2, with the current financial assets at nearly 10 times the value of the global output of all goods and services,8 the relationship between the financial economy and the underlying real economy has become unformulated and unstable. The financial assets, subjected to speculative forces, keep expanding. While getting divorced from the real economy of the common people, who constitute the majority, the expanding financial economy is beginning to affect them profoundly. It accentuates the normal business growth and downturn cycles, creates asset bubbles, and leads to currency fluctuations. Resulting from the financial economy’s growing disconnect with the real economy it has reached a decisive point which calls for the financial market participants and other policy makers to initiate corrective measures.
Figure 12.2 A $27 trillion growth in global GDP will support a $300 trillion increase in total financial assets by 2020
Source: IMF, OECD, Bain
While discussions relating to the role of emerging countries in ensuring sustainable global economic growth and global trade continue to make progress, discussions on the appropriate steps for ensuring the stability of the financial system have not. In order to move forward, stakeholders must make serious efforts to address the core issues instead of short-term fixes.
Need for Market Research and Business Intelligence to Succeed
Numerous global organizations, such as World Bank, the OECD, and leading consulting firms such as McKinsey and Boston Consulting, develop research and survey reports that provide data and qualitative information about the global economy, industry, and topics relating to advanced and emerging countries. In addition, various agencies release at regular intervals information relating the comparative position of countries by metrics, such as ease of doing business, global competitiveness index, nominal GDP, GDP growth rate, per capita income, export and import trade, demography, current account deficit, and global innovation index.
Stakeholders, such as the business corporations, nation states, consultants and analyst firms, institutional and private equity investors, and economic development and research organizations interested in global economic development and in ensuring the future stability of the financial system, need not only macro level data and basic information, but they need it in granular detail. With the help of analytics and business intelligence tools they can generate actionable information that help them make informed investment decisions. Business intelligence tools also could help them to perform what-if analysis under changing economic scenarios.
Succeeding in business, formulating a country’s growth strategies, making the right investment decisions, developing and introducing the right product, and advising clients about business transformation are complex and require real time information gathering and analysis with powerful algorithms.
Qualitative and quantitative information gathering or market research, both primary and secondary, is required to identify market needs, opportunities, and threats, to make informed decisions. It is the minimum required to maximize the probability of success and minimizes risks. The type of information required would depend on the stakeholder’s specific needs. For example, an automotive company from a developed country, interested in establishing its business presence in an emerging country, might like the research for information, such as the country’s demand projection, growth prospects, competitors profile, import policy and tariffs, acceptable price points, buying pattern, and business nuances. Its initial interest may be to shortlist few countries out of list of probable countries that have business potential and a high probability of success.
In order to select the country or countries, the company would invariably need information, such as the country’s market size, GDP, and per capita income growth rates, demography, import–export trade, currency rate, economic, and political stability. The required information is customized to the stakeholder’s needs and the information gathered is country and timeframe specific. After deciding upon the country in which to expand, the company may shift its focus to select potential partners, necessitating operational, financial, and legalese requiring extensive detailed data gathering and information analysis. After establishing a presence, the company might like to have research about brand acceptance, customer satisfaction, its market share, and prospects of launching a new product into the market. On the other hand, a developed country’s automotive industry association, wanting to estimate the business potential for its members might require more broad based market research to gather information, such as current status of the industry, demand patterns and growth potential for compact cars, trucks, sport utility vehicles, and sedans in selected countries.
If, instead of the automotive company, a consumer durable manufacturer from a developed country wanted to explore the feasibility of entering an emerging market, the research requirements would be very different. Typically, a consumer durable manufacturer would be offering a broad portfolio of products ranging from simple generic models to feature-rich high-end products. Therefore, the company may need information that would facilitate decision making on matters relating to sales channels, which products to offer initially, branding strategy, distribution logistics, and best location of the company’s production facility.
On the other hand, if a developing country wants to draw up the country’s industrial roadmap, it would probably start by researching the country’s developmental needs and priorities, its industry’s capacity to absorb the technology, and skill availability.
The need for research-based data and information gathering and the use of business intelligence and analytics to analyze and generate actionable information to track the efficacy of the actions is that much greater in a world on the threshold of entering a new economic order. The lingering perception is that organizations and institutions operating in the realm of a real economy more often resort to a research and analytical-based approach in comparison to those belonging to the financial economic fraternity.
The capture of accurate qualitative and quantitative information is important. Stakeholders must also clearly define upfront the purpose of the exercise, as that will decide the research methodology and the information to be gathered and analyzed. They must be clear in stipulating what data and information they need, why they need it, and how they intend to use it. The answers to these questions would determine the type, either primary or secondary, and in the case of primary, the questionnaire design, mode of data and information collection, and the responsible agency. In the case of secondary research, the sources, its time relevance, and reliability would be important. Market research requires that it be both systematic and objective to serve the intended purpose. Prior to analyzing the data and information, it is necessary to validate it.
Selecting and appointing the firm to carry out the market research plays a crucial role in a project’s success. This process involves evaluating the past performance of the market research firm and whether it has the necessary resources, such as the required field staff, domain knowledge, and expertise. It is important for the stakeholder commissioning the market research to be completely involved during each phase of the market research, such as formulating the questionnaire, the data, and information gathering methodology.
* Without silicon wafer manufacturing facilities.