Jan 182013
 

When developed economies slumped as a result of the financial meltdown which began in 2007, companies everywhere scrambled frantically to find new markets for their goods and services. Overnight, “emerging” markets (developing nations) became everyone’s target.

By the time of the crash, it was already clear that a massive economic shift was under way from the West to the East, and that future global growth would come more from developing nations rather than the established powerhouses: the U.S., Europe, and Japan.

From the earliest days of global trade, the lure of foreign customers in strange places has been a strong one. Following World War II, innovative technologies and logistics systems, the spread of democracy, and the increasing wealth of billions of the world’s citizens have led to fabulous opportunities for companies selling everything from cement to soap, from food to financial services. But it’s really only been in the past 30-odd years that emerging market mania has taken hold.

Ted Levitt at Harvard Business School alerted companies in 1983 to “The globalization of markets,” and the opportunities in marketing across borders. Jim O’Neill, chief economist at Goldman Sachs coined the catchy terms “BRICs” (Brazil, Russia, India, China) and “the next 11” (Mexico, Turkey, Egypt, Iran, Nigeria, Bangladesh, Indonesia, South Korea, Pakistan, the Philippines, and Vietnam). C.K. Prahalad wrote about “the fortune at the bottom of the pyramid.” New York Times columnist Tom Friedman’s books, The Lexus and The Olive Tree (1999) and The World is Flat (2005), were best-sellers. Many other observers spewed out analyses, reports, articles, and books on the same topic. And it gets hyped to the hilt at the World Economic Forum’s annual Davos get-together.

Growth in rich countries remains sluggish. All evidence suggests that developing countries are where companies will find the sales they need. So competition there will become increasingly hostile, and the demand for fresh thinking on it will rise fast.

But there are some realities that cannot be ignored.

A LITTLE THEORY GOES A LONG WAY

Interest in emerging markets has brought with it an outpouring of views on the attractions of specific countries and what it takes to succeed in them. Usually, these are couched in stirring tales of how this or that entrepreneur beat the odds to make a fortune in some poverty-stricken place; how companies from India, Mexico, or South Africa became admired multinationals; and how firms in rich countries found opportunities in poor ones. Much of what’s on offer is entertaining and even inspiring, but contributes little to a theory of emerging market strategy.

The need for advice on how to crack emerging markets is a big one, and its growth is explosive. So we shouldn’t be surprised if zealous researchers and managers underplay what is already known, and what expansionary firms have learned over many decades—even centuries. Breakthroughs are always more seductive than “the basics.”

A few experts have provided useful insights about emerging market strategy. But by and large, efforts to produce useful concepts or tools specific to this field have been less than fruitful, and will continue to disappoint.

As with other areas of management, there’s only so much that can be said. There will be some incremental advances, but executives should not expect revolutionary new models or frameworks. Those in the advice business will add most value by providing information about particular countries and sectors (context), and what it takes to win in them, rather than about strategy itself (concepts).

THE GLOBALIZATION OF … MANAGEMENT

As I pointed out in a previous post, virtually every market for everything is today an emerging market, in the sense that conditions are in flux, the future is unclear, competitive intensity is high, and the rules of the game are evolving. Strategies and business models that once worked well can quickly become recipes for failure, so both must be adjusted or maybe reinvented to meet new circumstances.

But it also means that whether you’re doing business in Europe or the U.S., or trying to get moving in Malawi or Myanmar, many of the challenges are fundamentally alike. And solutions to them will be much the same, too.

The principles of management that produce results are similar across industries. They’re also similar across countries. It may be fashionable to suggest otherwise, but the evidence is clear.

Management know-how has not only been commoditized, it has also been globalized. So instead of wasting time trying to reinvent this wheel, you can focus on the really hard work of getting to know the market you’re aiming at, and figuring out how to apply the best practices within it.

CONTEXT IS EVERYTHING

The first and most important question every firm must answer when it ventures into new territory is, How will we fit in? This is the make-or-break issue. Deep local knowledge makes all the difference. Personal relationships count for a lot. Most executives who’ve worked in developing markets talk about their steep learning curve, the time it took to gain traction there.

Wherever in the world you do business, you have to be wise to politics, culture, and economics; to the structure and character of whatever market you’re in; to customer expectations and behaviour; and to what competitors are doing. But in developing countries, three issues demand particular attention.

First, there’s the fact that “things don’t work”—or at least not as they do in developed nations. Companies are dogged by what Tarun Khanna and Krishna G. Palepu have termed “institutional voids”: poor infrastructure, dodgy regulation, weak capital markets, lousy services, a lack of skills, and much else. Unhelpful bureaucrats make things worse. Corruption may be a huge problem (although it also occurs in even the most advanced nations). Protecting intellectual property can be a nightmare.

Second, is the difficulty in connecting sellers and buyers. Informal trade is probably the norm; business ecosystems are ill-formed. There’s little information about customers or competitors. Promotions, logistics, and support all present hurdles.

Third, is the management of people. Individuals with appropriate capabilities and experience are in short supply. Productivity, quality, and customer service are not their priorities. They’re unfamiliar with sophisticated working methods. They have to be introduced to a host of new ideas—roles and responsibilities, technical systems, performance management, communication, disciplinary processes, and so on. So foreign executives need to be firm and persistent in providing new direction, while at the same time acutely conscious of local custom.

None of this should be under-estimated. No one should imagine that building a business in a developing country is a cake-walk. It’s folly to believe you can simply charge out of New York and set up shop in New Delhi.

Joburg and Lagos may both be in Africa, but South African managers who think they can easily crack the Nigerian market because “We are African, we understand Africa,” are in for a shock. Success in one country in Africa, Asia, or Latin America is no guarantee of success in others in the same region, let alone elsewhere. Sony’s notion of “glocalization”—”think global, and act local”—is as valid today as it was when it was coined about three decades ago.

Emerging markets—in the sense of developing markets in developing countries—offer exciting prospects for many firms. They differ in many ways from developed markets, but managers should not hope for fantastic new theories for entering them or competing in them. Instead, they need to do their homework, strike a careful balance between importing ideas that worked elsewhere and developing new ones, and recognize that as outsiders they have special responsibilities towards their hosts.

Strategy is always a learning process, and even more so in emerging markets. But emphasis needs to be on learning about these places, not about new strategy concepts or management tools.

IN SUMMARY

Success in these markets depends, more than anything, on putting the right people on the ground with all the support they need.

They should balance a core set of strategic principles and a proven management approach with a sensitivity to local attitudes, customs, and behaviours, and always be respectful of these.

They should understand the importance of local knowledge, and never stop searching for new insights.

And most importantly, they should couple these practical actions with a preparedness to do what it takes to fit in (within reason) and the determination to improvise through difficulties.

Tony Manning_Essentials for emerging market success

A CHECKLIST TO GET YOU GOING
  1. Mindset matters. Given the hurdles you’ll face, you and your people have to really, really, really want to try. You have to be bold, you have to be able to adapt, and you’ll need both courage and perseverance. Above all, you’ll need to be resourceful—your ability to “make a plan” will be constantly tested.
  2. Appoint people who’ll be happy there. Living in Luanda or Laos is not like living in Los Angeles or London. It can be tough. Especially on families. Everyone can’t do it. So give them every chance to understand what they’re taking on, and all the encouragement and support they’ll need.
  3. Go “where the warm armpits are.” As Ted Levitt liked to say, there’s only one way to really understand any market, and that’s to go there and immerse yourself in it. To watch the locals and listen to them. To get to know what turns them on and off, and to learn how things work.
  4. Remember the first principles. Just as focus, value, and costs must be your mantra in developed markets, so they must guide your every action in emerging markets.
  5. Explore, experiment and learn fast. No matter how you prepare, no matter how good your initial information seems to be, and no matter how carefully you think through your strategy, you will get things wrong. This is a fact of life in any market, and especially so in developing ones.
  6. Get stakeholders on your side. You have to gain the support of government, communities, workers—the same array of players you deal with in your home market. But in emerging markets you probably have to work much harder to educate people about business in general and your business in particular. They have to understand not just what you expect of them, but what you can do for them. “Out there,” they can make or break you.
  7. Develop local partnerships. In some countries, they may be mandatory. In many, they’re necessary to open doors, smooth your entry, build alliances, and facilitate your growth. Their knowledge, experience, and contacts can be invaluable and make the difference between success and failure.
  8. Clear values, no compromises. While adaptability is critical, you have to be certain about how you need to behave and what you will and will not do, or you’ll be jerked around constantly—and a sitting duck for crazy demands and corruption. So set the rules early, or someone with another agenda will set them for you.
  9. Be willing to build your own infrastructure. This may mean anything from a shopping centre to a power plant or a water purification facility, roads or runways, a sewage system, accommodation for your staff, or schools and clinics for communities. It could mean offering to train local officials or upgrade their IT systems. Or it could mean working closely with PR or advertising agencies, or other service suppliers, to develop their capacity.
  10. Try, try, and try again. Cracking an emerging market is not a quick process. It’ll take most companies a lot longer than they expect, and cost far more. If you don’t go in for the long haul, you’re wasting your time. If you can’t keep picking yourself up, and adjusting your strategy, you may as well stay at home.
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  •  18/01/2013
Dec 012012
 

Disruption must surely be the hottest strategy concept of the past decade. But it is less of a breakthrough than it’s made out to be. And it may unnecessarily impede your strategic thinking.

The idea grew out of a study by Joseph Bower and Clayton Christensen, both professors at Harvard Business School, which saw light in a 1995 Harvard Business Review article titled “Disruptive Technologies, Catching The Wave.” It was subsequently moulded into a theory by Christensen, making him a superstar and spawning many books and articles by him and others. Thanks to determined promotion, it’s now a term you hear in almost every management discussion—though it’s seldom used as precisely as Christensen proposes.

The gospel according to Christensen goes like this:

In their quest for the most profitable customers, companies innovate and improve aggressively—and give customers more than they need or will pay for. And the more intently they listen to their customers, the more they up their game and sustain that gap.

While they focus on the next-generation performance needs of the most attractive customers, guerilla competitors sneak in under their price umbrella and target less attractive customers who’re being overlooked, ignored or under-served. The upstarts ask, “Who is not getting attention?” “What is value to those customers?”

The customers they aim at aren’t in the market for state-of-the-art products. So these firms can ditch the bells and whistles and keep costs and prices low.

Initially, the leaders don’t see a threat. The challengers are of no appeal to their best customers and aren’t chasing them anyway. Those customers they do lure are likely to be ones who always want a deal, are satisfied with “good enough” offerings, and won’t be missed.

But this is just a lull before the storm. Quite soon, more mainstream customers are tempted by the no-frills competitors. They need to forego some of the “value” they’ve grown used to, but what they get does the job—plus it’s easier to use, more convenient, and more affordable. So it offers them value, albeit not the kind they’ve been used to.

Many established players have been hurt this way—think clothing, airlines, steel, medical devices, consumer electronics, autos, and so on. But then they make things worse for themselves.

In an effort to counter competitors who won’t play by their rules, they typically race even faster up the value path. They invest even more in innovation and pile on features and benefits. But in their efforts to stay ahead of their enemies, they also stay ahead of their customers; and the cost of their overkill forces them to keep hiking their prices.

Some customers stick with them because they don’t mind paying more for products that they perceive to be at the leading edge. But the pool gets smaller. And the harder these firms try to hang on to their traditional business, the more they lock themselves into their “superior” strategy—and the worse things get for them.

FEW OPTIONS

If the leader wishes to retain its low-end customers, it has three options:

  1. Pump up its promotional activities, to hopefully persuade those customers to stay loyal.
  2. Keep offering the same products, but at a lower price.
  3. Eliminate some features and benefits, and cut prices.

The problem with Option 1 is that if customers learn that a competitor’s low-end offering is OK and costs less, some will leave. No amount of hype will convince them to keep paying top dollar for “value” they don’t need.

Option 2 may keep customers coming back, but margins will take a hit and buyers who’d paid the higher price will feel they ‘d been screwed.

Option 3 will result in the loss of top-end customers. The company will cannibalize itself. By offering less and tacitly admitting to customers that they’ve been paying too much, it’ll drive them into the arms of cheaper competitors.

Faced with these unpalatable choices, and trying desperately to evade the pesky newcomers, firms tend to even more doggedly pursue their current customers—whose numbers keep shrinking. Meanwhile, their low-priced competitors improve their offerings, hone their processes, and become more and more dangerous. And as their sales and profits grow, they can afford to intensify their advance.

Market-leading firms attained their dominance by focusing on an attractive target market and working furiously to satisfy it. They have a lot invested in their current strategy—money, resources, capabilities, relationships, processes—and are weighed down by these sunk costs. But even more by their mindset. So they can’t suddenly or easily change. Newcomers, on the other hand, have little baggage and can switch tack with relative ease.

OLD INSIGHTS REPACKAGED

Following Christensen’s thinking over the years, it’s hard to avoid a sense of deja vu. Even a quick glance back into the history of management thought makes it hard not to conclude that much of his “theory” is to be found in Marketing 101 and Strategy 101. And that it’s not all it’s cracked up to be.

Take, for example, the notion of “the job to be done”—a Christensen favourite that’s sure to crop up in any discussion about disruption. This is, in fact, one of the oldest ideas in the marketing playbook.

So old, in fact, that it’s impossible to pin down its origin. But I suspect it gained explicit understanding in the 1930s, thanks to a famous American sales trainer named Elmer Wheeler who coined the phrase, “Don’t sell the steak—sell the sizzle.” His point was that it’s not a chunk of meat that customers want, it’s the pleasure that goes with it: the sizzle and aroma from the barbecue, companionship and fun with family and friends, and so on. This lesson has been drummed into copywriters and sales people for years.

In “Marketing Myopia,” a HBR article that won the 1960 McKinsey Award, Ted Levitt made the then-provocative case that too many companies limited their growth by defining their industries too narrowly, and by being more concerned with what their products could do than what their customers want done. Discussing the oil industry, for example, he noted: “People do not buy gasoline. They cannot see it, taste it, feel it, appreciate it, or really test it. What they buy is the right to continue driving their cars.”

Peter Drucker told us in his 1973 book Management: Tasks, Responsibilities, Practices:“The customer never buys a product. By definition the customer buys the satisfaction of a want.”

Levitt echoed this in his 1983 book The Marketing Imagination, writing that “people don’t buy things but buy solutions.” To illustrate his point, he recycled a quote from one Leo McGinneva, who’d said that when people buy a quarter-inch drill, “they don’t want quarter-inch bits; they want quarter-inch holes.” (Something another marketing guru, Philip Kotler, had said in 1980.) Levitt also observed that “The customer may actually want and expect less.” (My italics.)

Within months of his book appearing, Levitt also published an article in HBR titled “The Globalization of Markets.” The basic argument was that by stripping away the features and benefits that made products particularly appropriate for particular markets, firms could sell them to many more customers across the world. Citing the example of Japanese firms, he said: “They have discovered the one great thing all markets have in common—an overwhelming desire for dependable, world-standard modernity in all things, at aggressively low prices. In response, they deliver irresistible value everywhere, attracting people with products that market-research technocrats described with superficial certainty as being unsuitable and uncompetitive….”

And what about Christensen’s observation that the more closely firms listen to customers, and the harder they work to deliver what those customers say they’d like, the more likely they are to offer too much? Or that to compete with disruptors, the leader should spin off a totally separate business unit?

Nothing new here, either. This, and much else that he says, has been written about for decades. That disruption, as described by Christensen, has become such a fetish is a sad indictment of academic thought and management practice.

DEFINE “DISRUPTION” WITH CARE

The theory of disruptive strategy that so many people swoon over offers a very narrow view of how market disruption may occur, which firms are disruptors, or what disruptive strategy might be.

Can you possibly argue that Apple, say, is not a disrupter, because it sells beautiful, innovative products at high-end prices? (No “good enough” thinking here!)

And what would you say about Elon Musk’s award-winning Tesla S car? Or Woolworths, Nando’s peri-peri chicken, Discovery Health’s Vitality programme, Emirates airline, or Reckitt and Coleman’s household products?

By Christensen’s criteria, none of these deserves to be called “disruptor.” These products are all excellent, and priced accordingly. Their target market is not the “bottom of the pyramid.” Cheaper, “good enough” options are available from other firms.

But all have challenged convention and redefined their categories. And surely, that’s what disruption means.

The fact that some of these big names may face competitors who offer “good enough” products doesn’t shift the disruptor label from them to those upstarts. To split hairs about an arbitrary interpretation of what a word means is ridiculous.

Christensen has chosen one interpretation of what disruption means, and made it his own. He has focused on one strategic formula which highlights a very serious threat to market leaders, and also offers challengers a way to take them on. But no established firm should imagine it’ll be bulletproof if it follows his advice exclusively. Neither should any ambitious attacker close off strategic possibilities. Most managers would do better with a broader definition.

To disrupt something is to overturn the order of things. So how could you do that? Surely, not only by offering cheaper but “good enough” products to customers who’ve previously been ignored or overlooked.

The reality is that, in most markets, there are many ways to compete, many ways to upend convention. So strategic thinking should be about creating possibilities, not shutting them down. It should be about understanding the many ways you could be toppled, not just one.

If there’s one important thing all the chatter about disruption has achieved, it’s to focus managers’ attention on the three most critical strategy questions: who is your customer, what is value to them, and how will you deliver it? (Though you have to ask what else they’ve been thinking about!)

And yes, Christensen has added many examples of why this matters and some advice on making the most of your answers.

But three, five, or 25 years from now, will we look back on the Christensen era as a disruptive one in the annals of strategic thought, or one in which we woke up and went back to basics?

As Levitt said, “Man lives not by bread alone, but mostly by catchwords.” So it’s important to pick those catchwords with care, and to be clear about what they mean and how they might be applied.

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  •  01/12/2012
Apr 042012
 

When Samsung announced in mid-2010 that to grow its business in Africa, it would design products specifically for Africa, it confirmed two facts about global competition today:

  1. As growth in developed markets gets more difficult, firms must seek and exploit opportunities in developing markets.
  2. To succeed there, they need to “act local.”

Explaining Samsung’s plan, George Ferreira, COO of Samsung Electronics SA, said:

“In line with our key value of co-prosperity, coupled with our business and development sector partnerships, we have a vision of developing technology that is built in Africa, for Africa, by Africa”…We will over the next few years be allocating more local R&D investment for further local product planning, design and development.”

A press release from the company added:

“Samsung have undertaken extensive research and development (R&D) to develop technology innovations, specific to the African consumers’ needs. These include, TVs with built in power surge protectors, triple protector technology for air conditioners to ensure durability, power surge protection and safeguarding against high temperatures and humidity, deep foam washing machines that are 70% energy efficient – saving up to 30% water use, dura-cool refrigerators with cool pack – allowing the refrigerators to stay cool without power, as well as dual-sim technology and long battery life phones with battery standby times of up to 25 days.”

According to a report on Moneyweb, “The electronics group hopes to attract the African market with a range of television and refrigeration products that are designed to withstand power surges, dust particles and humidity and camera and camcorders that are designed to take “better” pictures of dark toned people.”

In one example of how it will pursue its strategy, Samsung has teamed up with the University of Cape Town (UCT) in South Africa and Strathmore University in Kenya to develop unique mobile phone applications for Africa. Such collaboration is sure to yield ideas that the company wouldn’t develop on its own, and to speed up the time-to-market process.

However, what the electronics giant did not say was that innovations in developing markets may prove valuable in developed markets (a process known as “reverse innovation” or “frugal innovation”). This has been the experience of companies producing products as diverse as soap, tractors, and medical scanners. And innovations may include not just new products, but also processes and business models.

Innovations from developing markets give firms new opportunities in developed markets by providing simpler, cheaper products

Reverse innovation will be one of the most important trends of coming years. It opens many new opportunities for developing markets and for the companies and innovators in them. And it provides new reasons to go to places you weren’t really sold on, to invest there, and to make a deliberate effort to learn whatever you can from being there.

Champion of the movement is V.J. Govindarajan, professor of international business at Tuck School of Business at Dartmouth College, and the first professor in residence and chief innovation consultant at General Electric. His October 2009 Harvard Business Review article, “How GE is disrupting itself,” co-authored with GE chairman and CEO Jeff Immelt and Chris Trimble, another Tuck faculty member, won the McKinsey Award. His new book, Reverse Innovation (co-authored again with Trimble), will probably draw similar praise—and stoke interest in the concept. They provide many examples of how firms have gone about it, plus advice for those who want to.

In an interview with [email protected] (April 2, 2012), Govindarajan explained some of the rationale behind the concept:

The fundamental driver of reverse innovation is the income gap that exists between emerging markets and the developed countries. The per capita income of India, for instance, is about US$3,000, whereas it is about $50,000 in the U.S. There is no way to design a product for the American mass market and then simply adapt it and hope to capture middle India. You need to innovate for India, not simply export to India. Buyers in poor countries demand solutions on an entirely different price-performance curve. They demand new, high-tech solutions that deliver ultra-low costs and “good enough” quality.”

“Poor countries will become R&D labs for breakthrough innovations in diverse fields as housing, transportation, energy, health care, entertainment, telecommunications, financial services, clean water and many more.

Reverse innovation has the potential to transform wealth in the world. Growth in developed countries has slowed down. Much of the growth is now in developing countries. The 2008 financial crisis and the more recent debt crisis [in Europe] have only exacerbated this situation. As such, we are likely to see the center of gravity for innovation shifting from rich to poor countries.”

Questions to ask now:

  • What will developing countries do to promote not just their market opportunities, but also their innovation opportunities?
  • What will local firms in those countries do to take advantage of this trend?
  • How will local universities and other potential partners respond?
  • How can you exploit this idea?

The entire world is a learning laboratory. No place has a monopoly on ideas. Today, it’s foolish—and potentially costly and risky as well—to be myopic.

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  •  04/04/2012
Mar 282012
 

If there’s one topic that gets more than its share of airtime today, it’s the shift in economic power from West to East, and the importance of emerging markets to companies seeking growth. This had to happen given that more than half the world’s population lives in those regions and have recently joined the mainstream of commerce. Three-and-a-half billion new customers are not be be sneezed at.

The Great Recession has given new urgency to capturing those shoppers. Hypercompetition affects all but a few industries, and managers everywhere are in a dogfight over customers. Sales have slowed in the big developed markets—the U.S., Europe, and Japan—so must be found elsewhere. Asia, Latin America, Africa, and central Europe now look particularly attractive.

Not too long ago, developed countries ran surpluses, while developing ones ran deficits. Now, the picture is largely reversed: many developing nations run surpluses and export capital, while developed ones have racked up huge deficits. And whereas infrastructure in many developed nations is in a sorry state, developing nations are spending vast sums on it. They’re also becoming more amenable to foreign investment, sucking up resources from everywhere, and rapidly advancing up the competitiveness ranks.

A key message from the World Economic Forum’s January 2012 Davos shindig was that emerging markets are where many firms will find their future growth. This is hardly news, as we’ve heard the same thing from countless commentators for at least the past 30 years. But repeating it yet again will surely spur more executives to leave their comfort zones and venture into new territory.

Before they rush ahead and do this, though, they should think hard about what it might mean. They should beware of doing it while starving the opportunities that exist where they already operate. They should be careful not to overlook the treasure that’s right under their noses in their own backyards. And they should ask themselves a critical question:

“Are the ‘developed markets’ we think we know not in fact ‘emerging markets’ that we need to learn about fast?”

A BRIEF LOOK BACKWARDS

The term “emerging markets” was coined in the early 1980s by Antoine Van Achtmael, an economist at the World Bank’s International Financial Corporation, to draw attention to investment opportunities in low- to middle-income countries. Then, after the Berlin Wall fell and eastern Europe opened up, and as southeast Asia began its own economic revolution, things started to get interesting.

Democracy and consumerism spread and firms became increasingly keen on globalization. They started to shift from focusing purely on exports to setting up their own facilities across the world. New technologies made it easier for them to coordinate complex networks of suppliers; and new logistical systems enabled them to move raw materials, components, and finished products swiftly to wherever they were needed.

In 2001, Jim O’Neill, chief economist at Goldman Sachs (he’s now chairman of Goldman Sachs Asset Management) invented the “BRICs” acronym—Brazil, Russia, India, China. These four populous and economically ambitious countries, he said, would propel the growth of the global economy in coming decades. So they offered huge opportunities for both investment and business.

That story got wide coverage and created a lot of interest. Then, in 2002, two business school academics, C.K. Prahalad and Stuart L. Hart, added both impetus and an important insight to it with an article in Strategy+Business which they seductively titled, “The fortune at the bottom of the pyramid.” Their unremarkable observation was that the populations of poor countries comprised a few wealthy people at the top of the pile, and untold millions mired in poverty at the bottom. Individually, the bottom lot had little spending power; but taken together, they made up an attractive target.

In 2005, O’Neill’s team sought to identify another group of developing countries that would follow the BRICs closely, and came up with the “Next Eleven,” or N-11—Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey, and Vietnam.

Six years later, O’Neill decided that “emerging markets” was no longer the right label for the BRICs or four of the N-11—Indonesia, South Korea, Mexico, and Turkey. “These are now countries with largely sound government debt and deficit positions, robust trading networks, and huge numbers of people all moving steadily up the economic ladder,” he says (Jim O’Neill, The Growth Map, New York: Portfolio/Penguin, 2011). “I decided that a more accurate term would be “Growth Markets.”

This new language of “BRICs” and “BOP” (bottom of the pyramid), of the “N-11” and “growth markets,” has provided plenty of inspiration for new ventures. Executives trot the terms out at every opportunity. Companies that not long ago were nervous about operating in backward and unfamiliar places are now trying it. And every day there are more good reasons to do so.

The spread of industrialization is creating a new global middle class. Angola, Estonia, Cambodia, and Argentina are exploding with newly affluent shoppers.  More and more people, including large numbers are women, are finding steady employment. Income and education levels are rising in one country after another. Medical advances and healthier living mean more ageing people (many with savings, welfare support, or even pensions). And at the same time, new media, new distribution processes, and new branding strategies are changing buyers’ behaviour and encouraging them to experiment, shop around, and flaunt what they buy—and in the process, to keep moving the marketing goalposts.

These markets are a complex mix of young and old, rich and poor, sophisticated and unsophisticated consumers, who buy both branded goods and commodities. They’re mostly served by local businesses, but increasingly by outsiders, too. Their attraction is that they bulge with potential customers who’ve largely been overlooked or underserved. And a big plus is that competition may not be as tough as in developed markets.

There is absolutely no doubt about it: the BRICs and the N-11 merit close attention. As do many even less developed countries. And there’s a case for moving fast, for in no time at all the fight for customers in all these places will intensify.

But companies should not ignore the opportunities in their traditional markets. For that’s where they’re comfortable and where they earn the bulk of their profits today. That’s also where they are most vulnerable right now.

Customers in rich countries like the U.S., Europe, Britain, Japan, and Sweden have a lot of spending to do. Losing them will come at a heavy cost.

EVERYTHING IS UNFAMILIAR, EVERYWHERE
Anyone contemplating a foray into developing countries should consider two facts:
  1. Doing business there will be harder than you think.
  2. It will distract you and divert resources from where your priorities should be and where your best opportunities may lie—in the developed markets you already know.

Developing countries might look exciting, but they present a host of major problems: political interference, bureaucratic blockages, institutional voids, poor or nonexistent infrastructure, lousy services, entrenched social traditions, widespread poverty, health issues, security, crime, and corruption. Key skills are in short supply. Many industries are immature, and often hard to break into because of vested interests or old relationships. Supply chains are unreliable. Distribution channels and media are not what they should be. Protecting intellectual capital is a nightmare. Customers must be taught the value of new products and services, and companies must learn how to deliver them. So altogether, getting things done may be extremely difficult—especially for executives used to places where things work.

But look at the changes under way in developed countries. In virtually every market for every kind of product or service, the game of business is being turned on its head. “The new normal” is not “the old normal.” Conditions have changed in untold ways, and there’s novelty all around.

There are new political realities, new regulation, new infrastructure. Populations are ageing, shrinking, and moving; and migrants are radically changing their structure, language, beliefs, and habits. Old ways of life are giving way to new ones. Competition is hotting up and new strategies are making old ones obsolete. Technology makes possible new offerings and new ways of reaching and satisfying customers. And just as in developing nations, there are new customers with new needs, values, expectations, and behaviour.

Today, in the most advanced markets, there’s probably not a company whose managers can say, “Nothing has changed for us in the past decade or two.” Neither would they be smart to think, “There aren’t any major changes ahead, so we don’t have to do anything drastic.”

The reality is that selling almost anything, to almost anyone, anywhere in the world is a brand new challenge.

Few products or services—or the companies that sell them—have made it into this new era without significant innovation. Further progress will demand even more of it.

Yesterday’s business models can’t be expected to deliver the same results as they used to. The shelf-life of today’s models is limited. A tweak here or there will undoubtedly help some companies do better, but sooner or later more radical change will be vital. And for growing numbers of firms, the time for that is right now.

It’s time for a strategy reset!

INDUSTRIES IN TURMOIL

To make the point, some examples:

  • Think media—where’s it headed? Do newspapers have a future (and what about the paper industry and the printing press manufacturers that serve it”) What further impact will technology have on it? Where are social media taking us? What about “citizen journalism”? How will the widespread availability of ultra-fast wi-fi change things?  What’s the future of television in an age of Tivo, PVRs, and streaming video?
  • Think photography—How will cell phones with high-resolution still and video cameras affect makers of stand-alone digital cameras? What breakthroughs lie ahead in lens technologies, sensors, and storage devices? What new post-processing software is on the way?
  • Think laptop computers—who needs them when tablets are so handy? What might they be used for tomorrow? What will new processors and memory technologies enable them to do? How much smaller can they get, and how much sharper and brighter can their screens become? What new battery technologies can we expect? How will applications be sold?
  • Think fast-moving consumer goods—what’s going on with formulas, packaging, distribution, promotions, pricing, recycling? What will be the impact of new health concerns? How important will store brands become?
  • Think autos—how much smarter, lighter, more economical, and safe will they become? What new energy systems can we expect (and what is the prospect for “green” cars?) Where will vehicles be produced? What further mergers and acquisitions can we expect, and how will they alter the industry’s structure? How will traffic congestion be managed, and what might that mean for vehicle makers?
  • Think clothing—what are the fashion trends to watch … and what can be ignored? What new fabrics are coming? What new production technologies lie ahead, and where will garments be made?  How much more time can be cut between design and in-store display? What will be the future role of haute couture and fashion shows?
  • Think retail—what shopping trends are emerging, and what might be next? What are the prospects for online sales, and what changes will we see in that area? What’s the outlook for malls … big discounters … speciality retailers … small independent stores? What new stock control systems are down the line? How will customers pay?

These questions address just a few of the changes already under way. And of course, there’s also the impact of new regulation, of environmentalism, and  of a host of other factors that are restructuring the business landscape. So this you can be sure of: there’s massive change to come. The market you’ve come to know so well—whatever sector you’re in— is not the one you’ll play in tomorrow.

Much of what we though we understood about “developed” markets is no longer useful. Almost all of them are today, in effect, emerging markets. Not in the sense of being poor and backward, but rather in the sense of taking shape, of not being fully understood, and whose potential is unclear.

This process has been under way for some time. Buyers of everything have been learning about new ways to satisfy their needs and wants, communicate and participate, enjoy and express themselves, and shop and pay. They’ve discovered that just as quality should be a “taken-for-granted” fact, so should low price. They’ve taken to buying portfolios of products and services, some bearing names like Louis Vuitton, Ford, Swatch, Tumi, Gap, Hyundai, or Samsung, and many with names you’ve never heard of, but offering “good enough” design, feel, durability, and so on—often at rock-bottom prices.

Recently, the spread of financial trouble has had a dramatic impact on customer behaviour. Collapsing asset prices, government austerity programs, and rising unemployment have forced shoppers to save rather than spend. Companies serving them have had to do the same. So prices and costs have become more important than ever. Buying down is the new norm. “Frugality” is today’s reality.

 HOW (AND WHERE) WILL YOU COMPETE TOMORROW?

Dramatic changes are under way in even the richest, most developed parts of the world. They present both breathtaking opportunities and deadly threats to virtually every business. And the one thing you can be sure of is that the situation will get more challenging.

Today, there’s no shortage of new market possibilities. The growth prospects offered by what we call emerging markets are phenomenal. But developed markets are the most important markets for most major companies today—as they will be tomorrow.

Your traditional competitors are not the only ones you should worry about. You’re probably surrounded by upstarts from down the road. Emerging market multinationals are swarming into rich nations fast and aggressively to eat the lunch of local champions. Protecting yourself in your backyard is getting harder by the minute—but doing so is imperative. This is a turf war you shouldn’t lose.

So how will you compete tomorrow? Which customers should you focus on? What do you need to learn about them (what do they value?… how, when, and where do they shop?… what media do they use?… what influences their decisions?) How should you reach them? What should you promise them? What kind of business model do you need to capture and keep them?

For many firms, developing countries are where the future lies. But think before you label those “emerging” and the ones you’re in right now “developed,” “traditional,” or “mature.” There are obviously differences, but here’s what’s the same everywhere:

  1. The rules of tomorrow’s game aren’t clear.
  2. You don’t understand them.
  3. They will keep changing.
  4. You will face more competition—and more hostile competitors from all over the world—than you think.

Developing regions that you don’t know may look extremely appealing. But the ones you’re familiar with—those where you trade now, that you see as “developed,” and that maybe bore you—have their own possibilities. However, to take advantage of them, you need to start by accepting that you don’t really understand them, and then spend the time getting to know them from scratch.

Every market is now an emerging market. We’re all feeling our way into the future.

WHAT”S YOUR NEXT MOVE?

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  •  28/03/2012