Building an emerging market, Bric by Bric

“Most emerging markets are highly sensitive. They’re emerging because for years, they’ve been colonised. That has left its own suspicions and distrust about foreigners.” This statement by the executive of a multi-national corporation (MNC) may or may not set alarm bells ringing in MNC corridors, but it most likely summarises in three sentences, the apprehensions, anxiety, curiosity, eagerness, excitement, and all other emotions that MNCs looking towards entering developing economies are experiencing.

At a time when the Bric (Brazil, Russia, India and China) countries have transformed from being a mere acronym to a crucial component of MNCs’ expansion game plan, here comes Tarun Khanna and Krishna G Palepu’s book Winning in Emerging Markets—A road map for strategy and execution, explaining in great depth the manner in which MNCs should ideally be jumping over fences and sharp edges that would hinder their progress into emerging markets.

Even though the focus of the developed world is getting more and more skewed towards developing countries, the challenges that would erupt before MNCs seeking entry into the emerging countries would come in diverse hues, and in different proportions.

The authors, faculty at the Harvard Business School, clearly demarcate and explicate the pathways that MNCs need to chart out to successfully role out their businesses in emerging countries. Conversely, the authors also explain the methodologies which emerging giants from developing countries need to adopt to compete on a global footing.

As the authors say, “The lack of market research makes it tough for multinational companies to understand customers’ tastes and limited distribution networks often prevent them from delivering products to customers outside large urban centres and thereby reach the local segment.” 

A Goldman Sachs report of 2003 forecasts the Bric economies to collectively grow larger than the G-6 economies (US, Japan, UK, Germany, France, Italy) in US dollar terms before the middle of the twenty first century.

However, say the authors, the most important feature of any market is the ease with which buyers and sellers can come together with the support of intermediaries providing the requisite backbone for transactions. But the presence of intermediaries is minuscule in developing economies, thereby creating institutional voids that can be hurdles for MNCs. Developing economies don’t quite have the infrastructure needed for smooth functioning.

Khanna and Palepu go on to explain how consumers in emerging economies can be divided into four main segments — global, emerging middle class, local, and bottom segments.  Global consumers are those who want offerings having the same attributes and quality as products in developed countries and are willing to pay global prices for them, while emerging middle class- consumers are those who demand products having a combination of global and local price, quality and features, say the authors. Local consumers would be those who are happy with products of local quality at local prices, while finally, the bottom segment would consist of consumers who can afford only the least expensive products.

Thus to traverse through the maze of four distinct consumer segments, MNCs would need to introduce products and services customised to suit the financial and cultural requirements of consumers, without compromising on quality, advise the authors. Furthermore, MNCs might also have to enter into partnerships or buys in the emerging markets for registering quicker growth.
The book is peppered with multiple examples of MNCs emerging victorious in developing markets devising unique strategies and formulae to penetrate developing countries.

The authors also go on to explain the techniques which emerging giants — globally competitive companies from emerging countries need to incorporate to compete on a global footing.

They recommend emerging giants should capitalise on their available capabilities and harness it to scale the global platform. Like India’s IT firms which capitalised on the country’s massive manpower supply to establish global reputations, or like Israel’s drugmaker Teva, which harnessed the Israeli scientific research community to consolidate its worldwide presence.

Other methods such as getting listed on foreign stock exchanges, making foreign acquisitions, seeking patent protection for innovations in international markets, say Khanna and Palepu, are other ways for emerging giants to spread their wings round the globe.

An exhaustive book, filled to the brim with examples of various corporations, and laced steadily with market data, the book overall is an interesting read.