Low quality standards and thin profit margins are the main reasons. Considering doing business there? Think twice.

“There is a point of view that markets such as China and India represent an El Dorado for industrial companies, but I don’t agree with this, ” said the chairman of Nexans, in an interview to the FT. Low technical sophistication and lower incomes are big hurdles to these economies, according to him.

Perhaps businessmen are only realizing these problems now. Many engineering executives complain that their companies’ profitability in emerging economies are lower than they would like. 
Nexans – which has about 90 plants in 40 countries – is the world’s second largest manufacturer of electric cables. According to FT, of Nexans’ €4.3bn sales in 2010, the “developed regions” of North America, western Europe and Japan were responsible for about 65%, with the figure likely to drop to 60% in five years.

In 2010 China – commonly considered a big growth market for industrial groups – accounted for only about 3 per cent of Nexans’ sales.

So what’s his point? 

Companies overestimate the benefits that emerging markets’ growth translates into their bottom lines, hence making invalid forecasts and assumptions about local markets and culture …

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