Related Expertise: Emerging Markets, Go-to-Market Strategy, Consumer Products Industry
The global business landscape has changed radically since the financial crisis of 2008–2009. But a fundamental reality remains: despite their volatility and differing economic fortunes, emerging markets are critical to the growth of global companies. While the pace is slower than it was in the precrisis years, the aggregate GDP of emerging markets is projected to grow around 2 percentage points faster than that of developed economies for the foreseeable future. These markets will account for around 40% of all consumer spending—more than $20 trillion—by 2020.
As many established multinational corporations have learned over the years, however, winning in emerging markets isn’t easy. Business environments can be difficult, bureaucracies can be hard to navigate, and infrastructure is often poor. Yet some MNCs still manage to succeed where many others fail. In some cases, incumbents capture important growth opportunities despite intense competition from savvy domestic players.
The Boston Consulting Group has been documenting and analyzing the success formulas of global challengers originating in emerging markets for more than a decade. (See Global Leaders, Challengers, and Champions, BCG report, June 2016.) Recently, we have begun to more systematically study traditional MNCs based in developed economies that are succeeding in emerging markets. This work has revealed that these organizations get a number of things right. For example, winners typically have strong commitment from their boards to invest in emerging markets, they send top-notch managers into the field, and they excel at recruiting and grooming local talent.
We studied 55 MNCs, representing sectors as diverse as consumer and industrial goods, telecommunications, and health care, that have succeeded in one or more emerging market. In most cases, these companies are at least among the top five in their industrial sectors, both globally and in a specific emerging market or region. We also focused on companies that have a growing, or at least a stable, share of those markets. We identified common factors that distinguish winning MNCs:
Much of the success of winning MNCs can be attributed to smart strategies that tailor these success factors to the circumstances of specific emerging markets. These companies approach each market with a deep understanding of local conditions, consumer trends and sentiments, emerging opportunities, and the competitive environment. They carefully think through strategies and execution for each stage of their business engagement in that market. And they are ready to adapt and innovate as necessary.
A differentiated approach to emerging markets is all the more critical in a global business landscape that is being radically redefined by rising economic nationalism and the rapid spread of digital technologies. Companies must increasingly navigate a world in which growth is slower, more fragmented, and more multipolar. (See “ The New Globalization: Going Beyond the Rhetoric,” BCG article, April 2017.) Skilled deployment of digital technologies and social media is becoming increasingly important to success in emerging markets, where people and businesses are becoming more and more interconnected thanks to mobile devices and the internet.
When entering a new region, winning MNCs tend to begin in a mature market and then expand outward. Depending on the industry, the entry point for northern Africa is often Egypt or Morocco, for example, while many companies enter Nigeria before expanding into neighboring western African markets. In India, many MNCs begin in the subcontinent’s largest cities and then venture into smaller cities and rural areas.
In an example going back to the early years of the 20th century, Bosch opened its first Southeast Asia operation in 1923, in what was then the British colony of Malaysia. It was not until 1994 that the company formed a joint venture in Indonesia, as well as a representative office in Vietnam. After another wave of expansion, in Laos in 2012 and Myanmar in 2013, Bosch now has a presence in all ten ASEAN member nations, in businesses spanning automotive, consumer goods, and energy.
Another factor that distinguishes MNC winners is their flexible approach to launching or expanding businesses in emerging markets. Depending on location and circumstances, such companies may opt for joint ventures, franchises, mergers and acquisitions, or greenfield investments in wholly owned enterprises.
Schneider Electric has used a combination of entry and expansion strategies to build a large presence in India. The company formed a joint venture to manufacture circuit breakers in 1992 and opened a wholly owned subsidiary in 1995. Since 1999, Schneider has used a string of mergers and acquisitions to dramatically expand its energy management and automation systems businesses, which now include 29 factories and 61,000 employees. (See the sidebar “How Adept Acquisitions Made Schneider a Solar Power in India.”)
Olam International has likewise used several strategies to build its wheat and rice milling business in Africa, which accounts for more than 20% of the company’s total revenue. Since acquiring Crown Flour Mills in Nigeria in 2010, Olam has expanded in that country and has entered Ghana, Senegal, and Cameroon through both greenfield investments and acquisitions.
Upon entering a new emerging market, it is essential that a company bring products that are right for local consumers and the local environment—at prices that customers can afford. Many of the most successful MNCs offer both their existing brands and goods and services that are adapted to the needs and preferences of low-income consumers. Many have also found innovative ways to overcome the infrastructure challenges that are common in developing economies, such as limited access to electricity and good roads.
Diageo has found big growth opportunities at the “bottom of the pyramid” in East Africa through smart product and price strategies. The company commands a major share of the lager beer market in Ethiopia, Uganda, and Kenya, in large part thanks to its Senator Keg brand. The beer is made of locally grown barley, sells for only 40 cents for a 500 milliliter serving, and tastes good without refrigeration. (See the sidebar “How Innovation Enabled Diageo to Capture East Africa’s Lager Market.”)
Similarly, Unicharm, which controls two-thirds of Indonesia’s baby care market, illustrates the power of product innovation in local markets. One key to Unicharm’s success is mass-market diapers that cost 40% less than major competitors’ products. To cut costs, Unicharm uses different materials and production equipment than its competitors and relies on local suppliers.
Another common differentiator of winning MNCs is their keen understanding of customers in individual emerging markets—knowledge they use to build their brands. Brand loyalty can be far stronger in emerging markets, where households entering the middle class and the ranks of the affluent are purchasing certain categories of products for the first time, than in mature markets.
Savvy marketing and branding strategies have been key to Starbucks’ impressive success in China, where it has enjoyed rapid growth despite mounting competition from copycat coffee shop chains. Starbucks has been especially skilled at using digital marketing tools, such as online promotions, social media communities, and strong mobile apps for locating stores, processing payments, and managing membership rewards. (See the sidebar “How Innovative Marketing Helped Starbucks Expand in China.”)
Smart marketing can also help an MNC turn around a struggling business. Gillette, for example, initially had limited success in India. But it went on to capture 70% of the country’s razor market after it introduced Gillette Guard, a razor tailored to Indian consumers that is much easier to clean and costs much less than the company’s conventional products. Gillette also de-emphasized complex digital marketing campaigns and switched to more traditional TV and movie theater ads featuring Bollywood stars, which Indian consumers still prefer.
Even when companies have the right products, getting them to consumers can be a significant challenge in developing economies that have inadequate transportation infrastructure, especially beyond the major cities. A number of winning MNCs have found creative ways to distribute in rural areas. In many cases, they invest to develop their own distribution networks.
Coca-Cola’s strength in supply chain management, for example, has been instrumental to its success. In Mexico, where the company has a leading share of the soft-drink market, its eight bottling companies distribute Coca-Cola products in rural areas. In Africa, by contrast, the company has set up microdistribution centers that it supports with small loans, training, and advertising programs in order to cover difficult-
to-reach locations.
Winning MNCs also make innovative use of digital technology and media to reach emerging-market consumers. L’Oréal is maintaining its lead in China, for example, with the help of local e-commerce partners such as Tmall and Alibaba. L’Oréal’s Makeup Genius app allows women to “try on” cosmetics virtually on their mobile devices; the app has been downloaded by 5 million users.
Execution in emerging markets depends heavily on the quality of talent and the local organization. Winning MNCs invest in attracting and developing local talent at all levels. In addition to training, some MNCs offer programs to encourage the personal growth and long-term success of employees.
A good example of effective people management is the logistics company Bolloré, which is making big new investments in African shipping ports. The company employs 25,000 people in 45 countries on the continent and invests heavily in training to support its long-term growth. Bolloré has trained more than 700 people since 2008 at its Pan-African Training Center, the first of its kind in Africa. Another example is General Electric, which partners with the African Leadership Academy to train leaders on the continent, one of the company’s strongest growth regions; GE has also launched an advisory board to consult on the development of technical engineering skills in Africa.
Many of the winning MNCs we have studied forge strong relationships with local and regional governments and other community stakeholders that prove invaluable to their long-term success. They also align their activities with the sustainable-development goals of local leaders and embed corporate social responsibility into their strategies.
Close collaboration with Brazilian government agencies has been key to the steady growth in South America of Bayer CropScience, a division of the German chemical and life sciences company that provides crop management services. Bayer CropScience is helping develop innovative digital farming solutions. The company uses tablets to collect and share data from farms in real time, for example, and maintains large research centers across Brazil to experiment with growing soybeans in different climates.
Philips Lighting’s business in Africa has likewise found innovative ways to overcome infrastructure problems and meet local needs. In addition to developing low-cost LED and solar-powered lighting solutions, the company has begun to establish 100 “community light centers” across the continent that both sell its products and help low-income populations not connected to power grids.
The global business environment is becoming more complex, challenging, and brutally competitive. But the experiences of a number of MNCs show that emerging markets still abound in growth opportunities for companies that adopt the right business models. The success formula will vary from market to market and from industry to industry, and often must be adapted to a rapidly shifting landscape. To succeed in emerging markets, companies should be flexible, have a deep understanding of local opportunities and conditions, and be ready to innovate boldly.
Managing Director & Senior Partner; Global Leader, BCG Henderson Institute; Global Vice Chair, Global Advantage Practice
Munich
Alumnus
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