Wednesday, May 1, 2013

Strategies of MNCs in Emerging Markets

Many multinational companies have fared poorly in developing countries because of institutional voids - absence of specialized intermediaries, regulatory systems, and contract-enforcing mechanisms in emerging markets. If Western companies don’t develop strategies for engaging across their value chains with developing countries, they are unlikely to remain competitive for long. More than anything else, it is adopting the culture of the emerging market region an MNC invests in.

Rather than prioritizing traditional target markets, such as neighboring countries or countries with a common language, progressive companies identify consumer segments in particular cities. 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. One starting point for similar strategies is obtaining sophisticated market intelligence which is a major challenge in emerging markets due to lack of skilled market research firms. Therefore, at times, companies have to invest in analytics capabilities to maximize the value of existing proprietary customer data where market data is scarce. But recently organizations have come up with innovative ideas which leverage popular mobile and social media tools to help improve the collection of reliable local data and insights directly from the consumers. 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.

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.” 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.

Many organizations continue to focus on 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. That is the reason why, companies these days often local CEOs/Business Heads when establishing business units in emerging markets.



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