EBf
EUROPEAN BUSINESS FORUM
Observations
The European perspective on management www.ebfonline.com
Adapting for
emerging markets
popular local brands, both in price
edge. Often, it requires fundamental
and taste. They adapt Western
changes to the product offering,
marketing and management
such as switching to smaller pack
practices to local customs. And,
sizes, using unconventional
where infrastructure is poor, they
distribution channels, or developing
develop work-arounds to distribute
products in local flavours. In Russia,
The village roads can be impassable,
their products – such as Unilever’s
P&G surmounted the distribution
home cooking is still a way of life,
use of motorcycles to reach obstacles of breaking into that vast
and local products often have
remote villages in Indonesia.
market by investing $40m in a van
T
generations of loyal customers. But
The rewards can be substantial.
and car fleet that often delivered
emerging markets in Eastern Europe
In some categories, growth in
products directly to stalls in open-air
and Asia are delivering some of the
emerging markets is three times that
marketplaces.
strongest growth for global makers
of developed markets. Each market
of fast-moving consumer goods –
requires different adaptations, but
growth in the Russian soft drinks
everything from snacks to toothpaste
there are some common practices.
market by acquiring the second-
– despite concerns that lower prices
Multinationals used to Coca-Cola accelerated its
largest Russian fruit juice maker,
target premium segments with
Multon, positioning itself to exploit
higher profit margins in developing
the popularity of fruit juice drinks.
Coca-Cola, Unilever, Danone, and
nations. But now leading firms Russia is the largest producer and
Pepsi now earn five to 15 per cent
have started selling brands aimed
consumer of fruit juice in Eastern
of their total revenues from the three
at the mainstream – a strategy Europe, where sales shot up 64 largest emerging markets in Asia –
that allows them to drive down per cent between 1998 and 2003.
China, India and Indonesia. And the
the costs of their premium products
trend is likely to continue: the GDP
and achieve economies of scale high- and low-end market segments
of emerging markets equalled that
in manufacturing, distribution, and
is the large and flourishing market
of advanced nations for the first time
brand building. Cosmetics giant
for what we call “good-enough”
in 2006, with much of the growth
L’Oréal took this approach in
products, with higher quality than
coming from Brazil, Russia, India,
Eastern Europe, introducing a
low-end goods, but affordable
China, Eastern Europe and Turkey.
diverse line of facial and body-care
prices that still generate profits. brands targeted at the mass
Feeding this market requires that
would mean lower profits.
Emerging market leaders like
With growth slowing in the
In between the traditional mature markets of North America
market, as well as its affordable
companies aggressively manage
and Western Europe, some FMCG
“luxury” skin care brands. In the
costs. Among the techniques:
companies have figured out how first half of this year alone, L’Oréal
taking advantage of used plants,
to tap into the purchasing power saw its Eastern European year-to-
local suppliers, and outsourcing. of a growing middle-class with rising
year sales jump 30 per cent.
It also means reducing fixed income, credit cards and access to
Home-grown competitors have
personal loans. What separates the
several built-in advantages, including
For multinationals catering to the
winners from the losers?
consumer loyalty and lower costs.
premium end of the market, a
But by taking the time to learn and
strategic acquisition can help slash
The successful firms reconfigure
master local market complexities,
costs enough to compete.
global products to compete with
multinationals can gain a competitive
Flexible thinking, to begin with.
costs and localising management.
republished from EBF Issue 30, Autumn 2007
Unilever’s India subsidiary,
Observations
Hindustan Lever, used aggressive
loyalty by empowering local teams
of international management talent
cost management – making
and providing them with global
that it deploys across Asia, Africa
changes in production, packaging,
opportunities. It’s a talent pool they
and Latin America. It recognises
distribution and marketing – to help
can tap when entering other
the difference between emerging
create a low-cost alternative
emerging markets. Consider P&G,
and developed markets, and has
laundry detergent line to compete
the most successful consumer
developed distinct approaches.
with a popular new domestic
products company in China: 98 per
brand. By hitting the pricing sweet
cent of its employees are Chinese.
spot, Hindustan Lever has gained A strategic acquisition can
With consumer markets in Asia
and Eastern Europe growing at
double-digit rates, multinationals are
a 36 per cent market share in the
accelerate a multinational’s entry
moving fast to build their brands,
laundry detergent segment.
into an emerging market by adding
and the expertise to manage them.
popular local brands to its product
Succeeding here is essential to
Too often, multinationals count
line-up, broadening its reach defend – and increase – their stakes
into emerging markets, an approach
with a stronger distribution
in the global market. Ultimately, how
that can backfire. Expatriates network, providing a local talent
they fare in emerging markets is a
can drive up costs and frequently pool, and lowering operating costs.
key indicator of how they’ll perform
on expatriates to guide their entry
everywhere else.
fail to deliver the deep market
The leaders maximise their
understanding offered by local
investments by building dedicated
managers. A strong local team can
emerging markets capabilities.
Nicolas Bloch is the head of Bain &
offer the kind of market insights that
British American Tobacco – one Company’s European consumer products
provide a competitive edge in
of the most successful consumer
practice, and a Bain partner in Brussels.
product design, promotion, and
goods companies in emerging
Satish Shankar and Robert Schaus are
distribution. Market leaders foster
markets – has long had a stable Bain partners in Singapore and Kiev.
republished from EBF Issue 30, Autumn 2007