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Innovation in Emerging Markets

Heightened publicity over product recalls has made product safety, as well as product quality and environmental standards, in emerging markets a hot-button issue. According to a new "Innovation in Emerging Markets" annual study by the Deloitte Touche Tohmatsu (Deloitte) Global Manufacturing Industry group, boards of directors, senior management and investors of global manufacturers across industry sectors are sitting up and taking notice. Roughly two-thirds or more of both developed market and emerging market executives surveyed by Deloitte said that over the last 12 months these issues had become more important when global companies choose emerging market suppliers. As a result, manufacturers are taking additional steps to address the risks.

The Deloitte study, which captures the views of more than 650 global executives, explores how manufacturers from developed and developing countries view and handle their exposure to risk stemming from sourcing in emerging markets - and how the most successful companies are working to manage this risk and turn it to a competitive advantage.

"Manufacturers are feeling the heat - especially with all the negative publicity related to issues of sourcing from emerging markets," says Hans Roehm, global managing partner of the Deloitte Global Manufacturing Industry group. "But the more successful companies are not avoiding the risks inherent in sourcing from emerging markets. Instead, they are intently focused on understanding and managing these risks in order to continue to reap the benefits that emerging market sourcing provides."

"Deloitte's research found that executives from both developed and developing markets anticipate a greater demand for higher standards and transparency," comments Craig Giffi, Manufacturing Industry leader for Deloitte. "In addition to upgrading standards and testing, many viewed the need to provide customers with more sourcing information to allay fears about safety, quality and environmental standards."

The study indicates that successful manufacturers have been engaged - or will likely engage - more rigorously in other risk management activities, including:
• More frequent visits to suppliers' facilities.
• Willingness to address managerial skills and working conditions   during visits.
• An expectation that testing levels will increase significantly.
• Contract requirements that call for more visits to facilities and   for the approval of subcontractors.

"Setting standards is one thing, but ensuring compliance to those standards over time is another," adds Giffi. "Monitoring emerging market suppliers is a real challenge, especially in light of 'extended enterprises' that rely on far-flung, complex webs of suppliers and strategic partners." The study reveals that although executives recognize the importance of effective monitoring of their supply chain, they also acknowledge there is significant room for improvement.

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