Wednesday, November 11, 2015

Tailoring a Strategy to Capture Emerging Markets
(Ben Peters)

Emerging-market economies’ rise to prominence is no secret amongst strategy makers at most of today’s top corporations. According to the McKinsey article, “What happens next? Five crucibles of innovation that will shape the coming decade”, the size of the world’s middle-class will rise from less than 20% in 2010 to around 40% by the end of the decade. This presents a tremendous opportunity for businesses to reach out to new global markets.

These new markets may appear to be low hanging fruit at first glance, but some companies have found out the hard way that these new markets can be incredibly diverse and competitive. It has become clear to many multinational companies that a once-size-fits-all strategy will not help them tap into these emerging markets. It has also been determined that a country wide strategy is not specific enough to effectively capture market share in emerging economies. Another McKinsey article, “Is your emerging-market strategy local enough?”, mentions that within China, 22 different city clusters were identified to be diverse enough to require their own unique strategy. The same applies to many other emerging-market countries. The key to success in these countries is being able to accurately identify the sub-markets within the nation, and creating a targeted strategy for each. It is also important to identify which of these sub-markets has the most potential for the company to succeed, as many of the sub-markets may be overflowing with competitors and offer little room for a new entrant.  

Once a company has identified the sub-markets with the most potential, it can begin to analyze the cost-to-serve in these markets as a percentage of sales. Some markets can be much more costly to serve based on distribution channels, geography, and policy issues. It can often be hard for outside corporations to compete with domestic firms who are more informed and better at targeting the local population. In many cases, the key to success in emerging markets is knowing your customer, and being able to identify growth opportunities before your competitor.

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