Selling in Emerging Markets
Slowing growth in US and European economy has made companies look towards the emerging markets as a driver for their growth. In 2008, India and China alone accounted for a combined population of 2.4 billion – a good 30% of the global population. Size of these markets is the only one side of the story, growth is another influencer. While the developed markets have registered an average growth of 1% to 2% in last one decade India and Chinese combined economies have grown with an average 8% to 10%. Emerging markets cumulatively account for more than 50% of clothing and grocery demand. However, companies are facing tough challenges in tapping the potential of these markets in their current form.
What is that which companies need to do to sell in emerging markets? Key challenges for the global companies are cost barrier along with the differences in local taste of customers. Successful MNCs have been able to introduce the new product lines which cater to the emerging markets needs and appeal to the price sensitive customers. Apart from acquisition of local companies and integrating them with parent companies some MNCs have outsourced the complete product development, manufacturing and distribution to local partners. This has helped them overcome the challenges of low cost production, optimal sourcing of goods, marketing and distribution challenges. There are many examples of MNCs integrating their processes with local companies to leverage the synergies. Hershey's while entering in Indian market tied up with Godrej's food arm this helped them customize their products for Indian market and use a pre-set distribution channel in a tough market like India.
There are some key lessons which organizations can learn from the successes and failures of local and MNC companies in emerging markets.
1.Value at right Price: Customers in developing markets are tough buyers and like to bargain till the last point, they evaluate products across price brands and features before purchasing. A successful product should have mix of Brand, Value, Price and consumer appeal. Big companies have failed in developing markets because of not being able to catch the consumer nerves. Companies like McDonald have been immensely successful since they have adjusted their price value proposition according to the market conditions. At the same time there are many examples of globally immensely successful organizations who have failed to adapt in India and hence either quit the market – thinking it's not ready for their products, or are still struggling to make profits. One of the largest software product companies in the world is struggling to find its way in markets like India and China. The piracy rates of its products in these markets are up-to -90%. A key inhibitor is the prohibitive price of the products which is not able to provide the right value proposition for the customers.
2. Educate the Customer: When companies introduce new products or services in developing markets customers might not be able to strike a chord with the products. It can be because of the brand or the overall product idea. In such cases it becomes imperative that companies take 'Customer Education' as a key priority which can create a new market for companies. Products like Wrigley's Orbit have been able to create a significant presence of their product (a chewing gum) in developing markets on the basis of their campaign on dental care. Two decades back Videocon an India based home appliance educated the customers on how a washing machine is better than using a maid. This was an important message, as for those who can afford the washing machine also had maids. The idea clicked pretty well with customers and with in a decade washing machine became a common commodity in Indian house holds – with Videocon as a leading brand.
3. Design to Cost: Customers in emerging markets have different needs which mean some of the globally accepted features might not work in the emerging markets. Successful companies have shed of some of the globally sought after features from their products, to make them adapt to emerging markets. Hero Honda (India based Motorbike Company and the largest producer of bikes in the world) became the leader in Indian two wheeler market by shedding speed and design for mileage and cost. Another learning is using the local resource for manufacturing, developing countries usually have poor infrastructure in such cases centralized big manufacturing facilities are not profitable.
4. Integration with local eco-system: Integration with local eco-system for sourcing of goods, local skills, leveraging distribution channels helps organizations better serve the market. Companies like Kohler which is a leading faucet player globally have benefited immensely by setting up a manufacturing plant in western India and integrating their sourcing channels for local market. It's a similar case with merchandise companies like Reebok, Nike and Levis who have skillfully created a supply base out of Tiripur for their merchandize.
5. Distribution: Poor infrastructure and unorganized market poses challenges for distribution, Distribution in emerging markets is different and is best handled by third party vendors.
Emerging markets holds the key for the growth of global economy and hence for the organizations worldwide. Companies need to change the way they look at the opportunities in these countries, as more of it comes in very different form. There are MNCs who have burnt their fingers in the emerging markets, which makes these markets look risky.
RedSeer believes that Emerging markets are not more riskier than the developed countries. Companies need to evaluate their portfolio and be aware about the finer local details before making a plunge.