How can businesses utilize emerging market potential?

How can businesses utilize emerging market potential?

There are many MNCs which do not understand the pulse of the local market and fail to grow in the local markets.

But on the other hand there are great success stories like Nestle's MAGGI , PEPSI's Kurkure and NimbooZ which have been great local successes and then went on to become international successes

 

An in-depth understanding of the economic and social differences of emerging markets is required to tailor operating models 

Underpinning successful operation in emerging markets must be an in-depth understanding of the market and operational landscape of these economies. Businesses need to understand the fluctuations in emerging market dynamics and should adopt flexible strategies accordingly, tailoring existing businesses models and organization structures to realize competitive advantage in these new markets. This will support them in utilizing the many opportunities arising in emerging markets, which include the existence of large infrastructure gaps, expected shifts in demographics and consumer demands, and the emergence of new technologies and operating models. 

In order to succeed, companies cannot withhold investments and adopt a ‘wait and see’ approach or they risk losing out to more nimble domestic and foreign competitors .

Rather, companies should adopt flexible, robust and innovative business models, which in many cases may be fundamentally different to those used in developed markets as discussed further below.

Let us look at few examples 

Walmart provides an example of a firm which only succeeded in an emerging market after completely changing its business operating model to suit the requirements of the Brazilian market.   

Walmart was optimistic when it entered the Brazilian market in partnership with Lojas Americana's, the country’s leading department store chain, as it sought growth outside the relatively saturated US market. The firm invested $120m in its first year in the market, seeking to make the most of its buying power, efficient store management and the effective use of technology in supply chain management. However, despite high demand for its low price products, the company registered a loss of $16.5m in its first year, as some products were left untouched and sales managers were incentivized to decrease prices below their optimal levels. 
The overarching problem facing Walmart was its failure to adapt its operating model to adjust to the needs of the Brazilian market. Firstly, consumers visited department stores less frequently and were accustomed to dynamic ‘high-low’ pricing strategies common to many Brazilian retailers, in which products were originally sold at a premium price and heavily discounted in due course. Finally, these problems were compounded by the institutional voids referenced above, such as the relatively poor technology of local Brazilian suppliers and the lack of coordination amongst local distributors. 
To resolve these issues, Walmart focussed on the areas in which it possessed competitive advantage such as superior customer service and a broad merchandise mix. It employed local workers and developed local advertising to successfully launch private labels. Following these changes, Walmart became Brazil’s third largest supermarket chain, with sales of $7.5bn in in 2013, serving an average of 1 million customers daily. Only after overhauling its operating strategy did Walmart succeed in the Brazilian market.



Kellogg is anothr example how it re-positioned its products to succeed in the Indian market
Kellogg’s, a leading producer of cereal, ventured into the Indian market in 1994 as a result of rising competition and stagnating demand in its key Western markets. Initially, the company adopted a similar marketing strategy as in the US and the UK, positioning its cornflakes as a healthier breakfast option. However, this strategy did not appeal to Indian consumers, who were more accustomed to hot breakfast foods. By April 1995, monthly sales in India had declined by 25%, failing to retain customers as well as costing more than other local options. 
The company then began to modify its businesses strategy, aligning it to the local market. To attract new customers, Kellogg’s began to offer introductory promotions, lowering prices and repositioning products as “fun” cereals, rather than nutritious ones. Kellogg’s also successfully localized the brand by adopting more local words such as Iron ‘Shakti’ and Calcium ‘Shakti’. To support this new brand positioning, the company launched new sugar-coated products, such as Frosties. Regarding operations, the company shifted all sourcing, including packaging, to India. This both reduced costs and helped to consolidate its market position by widening its distribution presence.
Kellogg’s went on to play a major role in quadrupling the size of the Indian breakfast cereals market from INR 150 million in 1995 to INR 600 million by the year 2000, moving on to acquire an almost two-thirds market share by then. Kellogg’s has maintained its market lead and is setting up an R&D center in India to further strengthen its technical capabilities and successful tailoring of products for the Indian market.

 

 And last but not the least how General Motors adopted a local focus in China

Since 2001, General Motors (GM) has adopted a more locally-focused operating structure by developing regional production facilities, which enables it to serve consumers more quickly and maintain a lean inventory with efficient local logistics. In addition, it has also adapted its sales and marketing approaches to be more locally appealing whilst retaining certain functions at a global level to maintain economies of scale.
In line with this general approach, the ownership and responsibility of GM’s operations in China are divided across three entities: GM Headquarters, GM China and its joint venture Shanghai GM (SGM, with the Shanghai Automotive Industry Corporation). GM Headquarters still retains control for many key capabilities, such as technology innovation, quality standards, market research and segmentation as well as product design and global brand management.
                                                            The Chinese regional entity, GM China, has the responsibility to develop product and portfolio plans for the region and executes the global brand strategy to be locally relevant and appealing. However, it is GM’s local joint venture, SGM, which has the responsibility for the day-to-day manufacturing operations and the autonomy to manage the pricing and promotion strategies and local dealer relationships. 
In addition to developing an effective regional operating model, GM has also managed to navigate the challenges of IP and technology protection to enable it to be the leading foreign original equipment manufacturer in R&D and production across China. GM in China has surpassed US sales and is capturing 13% of the Chinese market. China is now also a key sourcing hub for GM, with 50% of all production being sold abroad.

Businesses need to adopt flexible, dynamic and patient strategies to navigate these rapidly evolving and maturing emerging markets 
It is clear that emerging markets are evolving and have a number of distinctive characteristics. This requires companies to strengthen their core capabilities through continuous improvement of the productivity of their existing systems and processes in often rapidly changing markets. This will involve a combination of applying global best practices while also remaining flexible to local conditions as Walmart did in Brazil.
In addition, R&D may provide the key for large multinational firms struggling to match the activities of smaller, local entrepreneurial enterprises, and helping to adapt products to the nuanced preferences of local consumer segments as Kellogg’s did with its cereals in India.
Finally, companies may have to reposition their go-to-market strategies in order to successfully appeal to quickly changing consumer preferences and buying habits. This requires an agile business model and the use of local partnerships, as GM did in China, to navigate the complex dynamics of emerging markets.
Combining these capabilities can provide a strong foundation for successfully operating in emerging markets as they grow and mature. Business strategies need to be flexible and dynamic as our case studies illustrate, but also patient enough to ride out the political and economic storms that will inevitably affect many emerging markets from time to time. This would, for example, apply to economies like Brazil, Turkey and Nigeria today, which have been through a period of turbulence recently but, as our projections show, still have considerable long-term growth potential as consumer and business markets. 

But it is the same General Motors which exited from South Africa and India both.