Innovation takes a back seat

30 March 2012

BERLIN: A majority of brand owners are concentrating on existing products and markets rather than rolling out new lines or expanding overseas, a study has found.

Roland Berger Strategy Consultants surveyed almost 2,500 companies in Eastern and Western Europe, Japan and the United States, finding that 55% of the firms thought existing products in the markets they already traded in would be a key source of growth in 2012.

This proportion rose to 86% in Eastern Europe and 75% in the US, but fell to zero in Japan.

By contrast, 86% of Japanese organisations thought introducing established offerings from their portfolios in untapped countries was key to growth. The average was 63%, whereas the US logged 50%.

Innovation, however, seems set to play a more limited role in corporate strategies, despite the need to encourage customers to open their wallets at a time of financial difficulty in many nations.

As such, 42% of businesses believed "new products in existing markets" would be among the main drivers of progress. Firms from Western Europe were the most positive on 53%, but their Japanese peers posted just 17%.

Elsewhere, 46% of the panel afforded the same status to launching new lines in countries they did not trade in. Some 83% of Japanese enterprises favoured this model, falling to 25% for the US.

"This means that in most cases, companies are not planning to revitalise their product portfolios in the near future. This could weaken their innovative power and their long-term competitiveness," Jürgen Müller, project manager at Roland Berger, said.

When it came to inorganic strategies, 66% of brand owners were interested in making acquisitions. This proved attractive to all of the featured Japanese players, suggesting it will be the bedrock of foreign expansion.

Another 37% of corporations were considering forming joint ventures and 52% said the same for purchasing the operations of other firms.

"Contrary to expectations, the traditional growth regions such as the BRIC countries and Southeast Asia are less important in companies' growth plans," Müller added.

"The difficulty of recruiting qualified workers in the emerging and developing countries plus possible political changes play a key role here."

Data sourced from Roland Berger Strategy Consultants; additional content by Warc staff