Wednesday, December 9, 2015

Future of Strategy: Thinking about Emerging Markets?

            Over the past decade, the emerging markets have received a lot of focus.  Be it India, Indonesia or South Africa to name a few; these countries pose a different challenge and opportunity to the business world. In these markets, demand is humongous due to exploding population rates; cost is the key to success; customers do not relate to brand or quality; they are easily attracted and distracted. So as a company should you enter this market?

            The article “Strategies That Fit Emerging Markets” clearly outlines the factors business must consider while evaluating to invest or not. These are political and social systems, openness, product markets, labor markets, and capital markets. Evaluating these factors for these markets can help companies decide if they can apply their business model to a new market, or they need to tweak it or they must not enter the markets.

            For example, when McDonald’s decided to enter the Indian market it realized that it needed to introduce a new range of products that would appeal to the Indian citizens. Their products reflected sensitivity to taste and were cost effective. They promoted a family – dining experience that was popular in the country.

            On the flip side, Wal-Mart faced significant challenges when investing in the same country.  Demand in the grocery market was high. However, regulations on foreign investments and inherent corruption in the system posed major roadblocks for Wal-Mart. A previous attempt to partner with a major local company failed. Only when the foreign investment regulations are relaxed now, Wal-Mart will be launching its first store soon.

            The reason I state these two examples are that they explore opportunities in the same country differently. As a company, it is essential to understand what strategy must you apply. It for sure that you must invest in the emerging markets due to the demand they have. According to the Economist, Western multinationals expect to find 70% of their future growth there—40% of it in China and India alone. Now that we have established the direction you must head towards as a company, what do you need to succeed?

            Understanding each market and how you fit into it must be crucial to your analysis. The key to success in these markets is accepting near zero profits and mass production to satisfy demand. You must find ways to optimize your business in ways you never thought were possible. Cheap labor in these markets can work in your favor. Evolve your business model. There really is no textbook solution in these markets. Be sure that you are ready to face aggressive competition. Interested to know Amazon’s success story in India? Read On.

            Amazon recently announced its 21st fulfillment center and has $2 billion in revenue in India. Amazon had a major strategic shift when it entered the Indian market. It’s core values focus on customer service. In India however, cost effectiveness outweighs any other parameters. The road network in India is poor and the range of products offered by Amazon is less compared to competitors. So, Amazon is aggressively expanding by finding opportunities to optimize its logistics by building more fulfillment centers closer to growing cities. It is able to provide cost differentiation forcing its competitors to rethink their strategies. Soon, Amazon will capture the lion’s share of consumers.

Sources:
3.http://articles.economictimes.indiatimes.com/2015-10-08/news/67999299_1_india-operations-india-bars-amazon-seller-services

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