Soundview Executive Book Summaries
The Biggest Market Opportunity Of The 21St Century
So many international companies focus on the most affluent part of the world's population — the top 14 percent — that many of these markets have become oversaturated and overcompetitive. In The 86 Percent Solution, marketing experts Vijay Mahajan and Kamini Banga describe how global companies can make a profit and grow by serving the other 86 percent of the world's people. By presenting many examples of companies that have successfully reached out to the emerging markets of the world, the authors demonstrate how potential markets have been turned into profit by innovative companies that have grown larger by thinking smaller.
The authors have organized The 86 Percent Solution into a new set of "rules of engagement" that can help companies reach underserved markets with more appropriate products. These rules include, "Don't build a car when you need a bullock cart," "Think young," and "Bring your own infrastructure." By expanding on these rules with numerous case studies and statistics from around the world, the authors provide a blueprint for understanding the key drivers of today's and tomorrow's global economy.
Develop With the Market
To help companies keep up with change by recognizing and taking advantage of shifts in developing markets, the authors provide these eight strategies:
- Look for patterns of change. Opportunities can be found in markets that are moving from $1,000 per capita GNP to $5,000 and $10,000 per capita GNP. By looking at the histories of current developed nations, companies can pinpoint key transition points in a country of interest. The rise in prepared foods as women enter the work force is one example of a recognizable shift.
- Develop solutions with governments, NGOs and other players. The authors write that public-private partnerships are critical in addressing social and economic challenges. They explain, "As emerging markets develop, governments, foundations and nongovernmental organizations (NGOs) play a central role in the development."
- Export successes. When a solution in one developing market works, it can often be successfully exported to other similar developing markets. Fiat's Palio model was initially successful in the Brazilian market in 1996. Four years later, more than 1.5 million Palio models were sold to customers in 41 markets, including Germany, Italy, France, Spain, South Africa, Morocco, Russia, Vietnam and India.
- Look for opportunities for "reverse colonization." The authors write that "the remnants of earlier colonial periods can sometimes help in this process of global exporting." This strategy was employed in India when the high concentration of English speakers there — a remnant of the country's past as a British colony — helped to make it a hub of back-office service and call centers for U.S. companies.
- Address the "growing pains." Development often brings with it political and economic trouble, strains on an already fragile infrastructure, and environmental challenges. New roads, airports, railroads and seaports must be rebuilt to keep up with the growing needs of a developing country.
- Export products to the developed world. The authors write, "Developed-market segments that need rugged, low-maintenance or low-cost products might also turn to the solutions of the developing world." For example, Mexico's Cemex is now one of the world's top cement companies.
- Import customers from the developed world. The authors point out that digital technologies and inexpensive travel allow developing countries to import customers from the developed world. For example, the "medical tourists" who are flocking to Thailand, Malaysia, Jordan, Singapore and India come from both developed and developing nations.
- Utilizing old skills in new ways. There are many ways for companies in developing markets to utilize traditional skills in new ways. Global Digital Creations Holdings, a Chinese company, uses its low-cost advantages and skilled workers — who have been involved in film animation since the 1920s — to challenge Pixar and Disney in global animation.
Why We Like This Book
The 86 Percent Solution presents fascinating lists of strategies such as these in each of its 10 chapters on making headway in developing markets. Through colorful and timely examples from around the globe, the authors illustrate the opportunities that are available in the developing world while highlighting how many companies have grown while improving life in underserved markets. Copyright © 2006 Soundview Executive Book Summaries
Read an Excerpt
The 86 Percent SolutionThe 86 Percent SolutionHow to Succeed in the Biggest Market Opportunity of the Next 50 YearsPreface: Do You Want to Be in This Market? Can You Afford Not to Be?
Managers at a major U.S. office equipment manufacturer were considering how to market an overhead projector to the developing world when we asked a simple question: How would the overhead projector work without electricity? There was silence. It was a question that they had never even considered. But this is a question that must be answered every day in the developing world. By asking and answering this type of question, Hewlett-Packard has created battery-operated digital cameras and printing systems that allow entrepreneurial photographers to operate completely off the grid. Ask yourself: Do you know what an inverter is? If you don't, you probably haven't thought enough about the weak infrastructure and other distinctive conditions of emerging markets. These differences, and the strategies needed to address them, are the focus of this book.
To appreciate the complexities of these markets and solutions designed to meet their needs, consider the toilet. China is now second only to the U.S. in web users. It is expected to have more broadband and mobile-phone users than any other nation by 2006. Yet more than 60 percent of Chinese citizens do not have access to proper sanitation. This means about 700 million people in China (along with another 700 million in India) do not have a basic toilet. Think about that. Researchers at MIT's Media Lab are creating wearable computers, but wouldn't a computer built into a toilet be a more appropriate solution for the developing world? The airport in Frankfort, Germany has toilets that automatically clean their seats and flush themselves. South Korea, as the logical outcome of a national obsession with technology, has set a goal of having 10 million "smart homes" online by 2007, including toilets that relay body temperature, pulse rates, and urinalysis results to your doctor. Yet a market of more than a billion people has gone virtually unmet. Where are the innovations focused on the parts of the world that lack sanitation?
This is not about altruism. In creating solutions for the developing world, companies can solve one of the most pressing problems facing them today: sustaining growth. IBM's Global CEO Study in 2004 found that four out of five CEOs believe that revenue growth is the most important path to boosting financial performance.1 Where will this growth come from? With the largest populations and fastest growth rates on the planet, developing markets represent the future of the global economy. To seize the opportunities of these 86 percent markets, we need different mind-sets and market strategies. We need managers who can envision creating a business selling sachets of shampoo for pennies, distributing products in stores the size of phone booths, or offering credit cards to people whose idea of banking is storing rolls of coins in a money belt. As you will see in the following pages, the creative companies that serve these markets are willing to provide refrigeration along with their bottles of cola and design cars that are modeled after bullock carts. They can sell a product to a customer in California that is picked up by a relative in Mexico City. In short, they have used a distinctive set of market strategies to recognize and realize the opportunities of these 86 percent markets.
This book is designed to challenge the thinking of managers from developed markets about strategies that have worked well in the past. Managers in developing countries will find some new insights from different parts of the developing world that will very likely work in their region. Entrepreneurs will see the rich opportunities in the emerging world. Finally, leaders of governments, nongovernmental organizations (NGOs), and other organizations can gain insights into the dynamics of business in this environment.
This book started with a phone call to Vijay in the mid-1990s from Wharton Professor Jerry Wind, who had been contacted by the organizers of a conference at the United Nations. They were looking for creative strategies to encourage developing nations to stand on their own two feet rather than relying on handouts from the developed world. The question was insulting. Many hugely successful companies have grown up in these developing nations. Entrepreneurship is alive and well. While well-meaning people in developed countries were discussing foreign aid, industrious citizens of the developing world have left their homelands for jobs in the developed world and were already sending billions of dollars back home. How could these compassionate and intelligent people from the developed world not see this?
After this discussion, Vijay, Jerry, and Marcos V. Pratini de Moraes, then minister of agriculture for Brazil, joined in writing an article on principles for reaching the forgotten 86 percent of the world in "The Invisible Global Market,"2 published in 2000 in Marketing Management. Vijay continued to study this topic at the University of Texas at Austin and as dean of the Indian School of Business in Hyderabad, writing a second article on "The 86 Percent Opportunity" in India.3 He spoke with executives and government officials in several developing countries. The growing interest in these ideas was so encouraging that he decided to work with Kamini on this book. As a consultant, Kamini is in direct contact with diverse businesses in India that are applying new strategies for these developing markets. We have seen firsthand the creative strategies they are using.
Around the same time that we were engaged in this work, C.K. Prahalad and others were focusing attention on the same areas of the world from a different perspective. In his insightful work The Fortune at the Bottom of the Pyramid, he points out the potential of the poorest citizens of the world. But the poorest of the poor are just one segment of these markets. Will you know how to meet the needs of the growing middle class or luxury segments? In 2004, a single Rolls Royce was sold in India for more than $700,000, some 1,500 times the average per capita gross national income in that country. This book focuses on the entire spectrum of business opportunities in these emerging markets, for both very poor and more affluent consumers. It also discusses the characteristics of these markets that must be addressed in market strategies.
In addition to the specific strategies explored in this book, we hope the examples in the following chapters will encourage you to think more broadly about the approaches that might work in your part of the world. Every day, innovative companies are coming up with new ways to address or overleap the limitations and respond to the distinctive needs of emerging markets. They are developing the 86 percent solutions. Challenge your thinking, and you can do the same.
Vijay Mahajan, Austin, Texas
Kamini Banga, London
- "Your Turn." The Global CEO Study 2004, IBM Business Consulting Services, IBM Corporation, 2004.
- Vijay Mahajan, Marcos V. Pratini de Moraes, and Yoram Wind. "The Invisible Global Market: Strategies for Reaching the Forgotten 86 Percent of the World." Marketing Management, Winter 2000, pp. 3135.
- Mahajan, Vijay, "The 86% Opportunity," The Smart Manager, Quarter 1 (2003) 17-25. Reproduced in Business Today, (India), Collector's Edition, 4 (2003) 50-58.
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