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Contract Management and Emerging Markets

January 24, 2013

Personally, I have always been fascinated by international trade. it has so many more nuances than domestic relationships, especially when it comes to the commercial and contractual implications.

Some in the IACCM community share this passion, but not a majority. However, I am seeing more and more signs of a shift in interest and sentiment – and the reasons for this are spelt out in a recent article in The Economist, “Gold Hunting in a Frugal Age.”

The article observes that ‘the age of austerity shows no signs of waning’. An obvious consequence of the crisis in the major traditional economies has been a growing focus on expansion into new markets. But that is often not a simple proposition. There are fundamental differences, for example in the level of infrastructure, in business practices, in social structure, in sources of funding and disposable income. So the underlying business offering and commercial terms may need major adjustment, as do the approaches to questions such as distribution methods, the nature of commitments and the management of risks.

Working through these factors to develop appropriate commercial practices and contracting models is itself demanding for the contracts community. But there is another angle that lies at the heart of IACCM’s ethos and which at the core of The Economist article. That is the need to look at emerging markets as a source of inspiration and new ideas. Established Western companies have to adjust to a world where growth may be tipped on its head; where customers are in a permanent state of cut-back; where traditional funding is no longer readily available. By looking at the challenges of achieving sales in markets where relative poverty is the norm, companies devise new offerings and approaches. They also learn to think differently about market segmentation and in ways to use technology to support innovative offerings or expand sales.

One key area for consideration is related to competition. Companies that are based in these emerging markets already understand how to deal with many of the complexities associated with ‘frugality’. In some cases, this will equip them in their emergence onto the global stage – so be ready to face new, low-cost competitors about whom you have never previously heard and know nothing.

Contract and commercial managers really do have an urgent need to develop their global understanding.

 

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