How smart businesses are winning in emerging markets
As companies in mature markets compensate for modest growth at home by trying to boost their presence in emerging economies, they are encountering intense competition from increasingly confident local players. Aggressive and nimble enterprises in China, India and elsewhere may pose some threat, but the real challenge in these high-growth markets is more complex. And it is affecting companies from all markets, not just those in North America, Europe and other developed economies.
The important transformation in the global landscape is not so much the shift to emerging economies but the extraordinary growth in business activity among emerging market countries. When American companies target Brazil or India, for example, they should know that China has displaced the United States as the largest trading partner of both. We at Accenture predict that trade between emerging economies is about to overtake that between developed economies.
Thus, companies need to tackle the diversity of growth opportunities and the pace of change if they are to succeed. Clearly, emerging market companies have some advantages at home. They have established relationships and the ability to leverage scale advantages with low costs and, in some cases, government support. They have faced similar challenges in their home countries, such as dealing with infrastructure deficits and scarce or unreliable data. They are increasingly doing business with one another, growing across one another’s borders and gaining insights and experience on how to best serve one another’s markets. This gives them an inherent advantage over competitors from mature economies unfamiliar with operating in such conditions.
As these companies expand beyond their borders, the competitive picture becomes more balanced. The evidence suggests that business leaders – no matter whether they are from mature or emerging markets ‑ are not confident of achieving success. According to Accenture research on almost 600 senior executives from multinational companies around the world, 40 percent said they lack a strategy or the operational capabilities to grasp opportunities in these markets. More than half said they need to fundamentally rethink their strategies to compete in them.
What are the best ways to tackle emerging markets?
Rather than prioritizing traditional target markets, such as neighboring countries or countries with a common language, progressive companies identify consumer segments in particular cities or customer segments that may straddle national borders. For example, Procter & Gamble identified the needs of male consumers in areas with scarce water supplies and designed grooming products for this group in multiple markets. Within three months of launch, one shaving product became the best-selling product of its kind in India.
Local relevance is also critical, and some companies are pushing this to new levels. Haier tailors its products to local markets; in China’s rural Sichuan province, it sells washing machines designed and labeled to wash “clothes, sweet potatoes and peanuts.” In Brazil, Coca-Cola has used social media to better understand consumer preferences and has developed a successful local network to supply traditional Coca-Cola products as well as fruit juices tailored to local tastes.
Innovative distribution models have also been used by some to incorporate consumers into the supply chain. Peruvian soft-drink manufacturer AJE found success by mobilizing local micro-entrepreneurs who use their own transportation to reach untapped consumers in remote areas.
One starting point for these and similar strategies is sophisticated market intelligence. For example, analysis of projected demand for specific products and services in multiple target locations can help determine which groups to target and when. Companies will have to invest in analytics capabilities to maximize the value of existing proprietary customer data where market data is scarce. Powerful new mobile and social media tools can help improve the collection of reliable local data and insights direct from consumers. For example, Mexican retailer Grupo Elektra used detailed customer data to diversify into financial services and built a large network of bank branches to complement its retail chain.
The precision with which multinationals must assess customer segments will also need to extend to identifying geographic markets. Many continue to focus on the BRICS (Brazil, Russia, India, China and South Africa) and a few other economies. But the emerging-market growth story extends to pockets all across the globe, and offers a premium to fast movers. Accenture analysis shows that Kazakhstan will have more households earning at least $50,000 in 2020 than Indonesia, the Philippines, Vietnam, Pakistan and Egypt put together. And by that time, Turkey may see one of the greatest absolute increases in income for $50,000-plus households of any emerging economy.
For many U.S. companies, with uncertainty as great as it is, there’s a temptation to wait before exploiting these growth opportunities. But hesitation may be the worst option as nimble competitors snap up acquisitions and narrow the windows of opportunity. Funds, knowledge and foresight are not lacking: Excluding financial services organizations, U.S companies had $1.74 trillion of cash and other liquid reserves in December 2012. U.S. companies need to build the confidence to develop the appropriate skills and capabilities, and to strike while the iron is hot.
PHOTO: Brazilian Indian Chief Raoni drinks a soft drink before a protest at the Esplanada dos Ministerios in Brasilia May 7, 2009. REUTERS/Roberto Jayme