Praise for THE NEW EMERGING-MARKET MULTINATIONALS
One of Strategy and Business’s Best Business Books of the Year
"This book is a real eye-opener. It will forever change your assumptions about international economic competition and who the winners will be."
PHILIP KOTLER Kellogg School of Management and author of Winning at Innovation
"An insightful readessential for those wishing to understand the evolution and growth of emerging-economy EMNCs and how they will reshape global market structures."
ANAND MAHINDRA, Vice Chairman and Managing Director, Mahindra Group, India
"As this timely book so insightfully points out, the rise of emerging-market multinationals is shifting the global competitive landscape and forcing us to think hard about new growth, strategy, and talent equations. A must-read for business leaders responsible for navigating today's global environment.
MUHTAR KENT, Chairman and Chief Executive Officer, The Coca-Cola Company
"This book offers an array of fascinating examples and an interesting framework for stimulating thinking about EMNCs' strategic options."
PANKAJ GHEMAWAT, IESE Business School, and author of World 3.0
"A must-read. The book is well researched and provides compelling case illustrations. I highly recommend it."
W. CHAN KIM, Professor, INSEAD; Codirector, INSEAD Blue Ocean Strategy Institute; and bestselling author of Blue Ocean Strategy
"This is the future of global competition. You need to understand it if you aspire to be a player or if global markets are now a part of your strategy."
DAVID A. AAKER, Vice Chairman, Prophet, and bestselling author of Brand Relevance
"This book gives a clear idea of the success formula of emerging-market multinationals by showing practical insights based on a deep understanding of EMNCs. This will help readers from any type of company structure their own growth strategies."
WONHONG CHO, Executive Vice President and Chief Marketing Officer, Hyundai Motor Company
"An excellent collection of ideas and examples that should inspire companies in emerging markets looking to build brands and markets anywhere."
About the Book:
LG. HTC. Tata. Haier. Lenovo. Arcelik. Natura.
From smartphones and computers to blue jeans and beer, companies from China, India, Taiwan, Mexico, Turkey, and other emerging markets are now winning leading market shares with their own-branded, high-quality productsrather than with poorly produced products sold under others' brand names. These emerging-market multinational companies (EMNCs) are giving the incumbent market leaders of North America, Western Europe, and Japan a run for their money in the areas of innovation, branding, and marketing.
How have these small, under-resourced businesses come so far so quickly? And what can you learn from their strategies and tactics?
Renowned experts in global branding and marketing, the authors of The New Emerging-Market Multinationals conducted an in-depth study of 39 EMNCs to reveal the innovative compete-from-below strategies and tactics fueling these companies' meteoric rise. The authors identify four strategies driving this growth:
- COST LEADERS leverage existing low-cost structures and large-scale volumes to extend their reach into developed markets.
- KNOWLEDGE LEVERAGERS tap their existing resources and knowledge of home consumers and the market to build branded businesses in other emerging markets.
- NICHE CUSTOMIZERS combine their cost advantages in manufacturing with newly developed low-cost R&D capabilities to develop customized niche-segment branded offerings in other emerging markets.
- GLOBAL BRAND BUILDERS use their low-cost manufacturing and R&D capabilities to build branded businesses in developed markets but limit their focus to specific products and segments through a process of focused innovation.
Whether you run an EMNC or a developedmarket company, deep knowledge of the strategies outlined here is an absolute necessity for competing effectively now and in the future. Don't get caught off guard by the "new kids on the block"because today's EMNCs are determined to be tomorrow's market leaders.
|Publisher:||McGraw-Hill Professional Publishing|
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About the Author
AMITAVA CHATTOPADHYAY is the L’Oréal Chaired Professor of Marketing-Innovation and Creativity at INSEAD. He has served as a branding consultant for firms in the Americas, Asia, Africa, and Europe.
RAJEEV BATRA is the S.S. Kresge Professor of Marketing at the Ross School of Business at the University of Michigan. He has researched, taught, and consulted on global branding, emerging markets, and marketing topics for 30 years.
AYSEGUL OZSOMER is an associate professor of marketing at Koç University, Istanbul, Turkey. Her research focuses on standardization-adaptation issues and performance implications, market orientation, and global brand management.
Read an Excerpt
THE NEW EMERGING MARKET MULTINATIONALS
FOUR STRATEGIES FOR DISRUPTING MARKETS AND BUILDING BRANDS
By AMITAVA CHATTOPADHYAY, RAJEEV BATRA, AYSEGUL OZSOMER
The McGraw-Hill Companies, Inc.Copyright © 2012Amitava Chattopadhyay, Rajeev Batra, and Aysegul Ozsomer
All rights reserved.
Choosing Consumer Segments and Expanding Internationally
As the Introduction points out, which consumers to serve—in which countries—is the most fundamental strategic decision that an expanding EMNC needs to make, as all other business decisions are contingent on this. Here in Chapter 1 we examine EMNCs' decisions regarding which consumer segments to serve and in which countries, decisions that can broadly be construed (as shown in Figure I-1 and elaborated in Figure 1-1) as a choice between serving consumers from other emerging markets who are similar to those served at home, or expanding to more affluent markets, where market conditions and consumers are relatively dissimilar. This chapter also documents how this choice—of which consumers to serve and in which geographies—evolves, as EMNCs gain an understanding of how to win in international markets. We end the chapter by documenting the evolution of Mahindra & Mahindra's automotive business in international markets. This case shows not only how Mahindra & Mahindra's choice of consumer segments and country markets evolved over time, but also how the organization's strategy changed from those of a Knowledge Leverager to those of a Global Brand Builder—the strategy that is the most complex and difficult to execute, but also the most profitable and sustainable one. The road map to the target-segment and country-market decisions is presented in Figure 1-1.
Choose Segments First, Then Countries
As depicted in Figure 1-1, we believe that the choice of which segment to target should come before considering which markets to enter. Among TMNCs, this is the dominant logic and is used by companies as varied as IBM, Procter & Gamble (P&G), and Pernod-Ricard. Yet in many of the EMNCs we talked to, the internationalization decision began with a discussion of which country or countries to enter. For instance, Ravi Kant, CEO of Tata Motors, told us, "Before that [choosing customer segments], we need to choose our geographies very carefully."
We believe, however, that it is important to first begin with the choice of consumer segment(s) to serve. When using country characteristics as a proxy for segment attractiveness, countries that may appear unattractive (or attractive) may actually be very attractive (or unattractive) if one were to consider the attractiveness of the target segment directly. Consider Ranbaxy. Sanjeev Dani, senior vice president and regional director of Asia, Commonwealth of Independent States (CIS), and Africa, told us that emerging markets are generally more attractive for branded generic players as the use of branded generics is growing rapidly there. However, "although Japan is not an emerging market, branded generic penetration there is only 5–7 percent (compared to 25–30 percent in the United States), and Japanese consumers are turning big time to branded generics now." Ranbaxy expects the demand for branded generic pharmaceuticals in Japan to explode and achieve penetrations of 15 to 30 percent in the next 5 to 10 years, making it a very attractive market. Choosing countries first, as a proxy for segments, would have led Ranbaxy to miss the huge opportunity in Japan, an opportunity that Ranbaxy could ill afford to lose.
All the firms we talked to had clearly identified the target segments they served at home. Over the years, these firms have acquired dominant positions in these segments. For instance, Mahindra Tractors is the market leader in tractors in India, serving Indian farmers. It's sister concern in the group, Mahindra & Mahindra, dominates in utility vehicles (UVs) and SUVs, with over 50 percent market share, serving, till recently, the needs of rural Indians. Ulker dominates the Turkish market for biscuits and confectioneries, with a 60 percent market share; CEO Cafer Findikolu said, "All our products in Turkey are either number 1 or number 2. In the categories where we are number 1, there is a great difference between us and the follower." In Guatemala, the home of Pollo Campero, Roberto Denegiri (president of the organization's U.S. business) noted, "Everyone knows and loves Pollo Campero and we have a market share of more than 60%." Café Britt's CEO, Pablo Vargas, told us that in Costa Rica Café Britt is "the number one player by far. We have over 80% market share."
The dominant positions these firms hold come from their superior customer insights. For example, Mahindra & Mahindra, which started out some 60 years ago with a franchise from Willys USA to assemble Jeep-like vehicles, understands the needs of India's rural consumers from the lower socioeconomic strata. Given India's more than 500,000 villages, often not well served by the public transport system and connected by little more than dirt roads, Mahindra & Mahindra has developed a range of reliable, sturdy, economical, basic UVs and Jeep-like vehicles, such as the Mahindra Bolero and Mahindra Commander. These are typically acquired by small entrepreneurs and are used to offer point-to- point transport services for a relatively low price to impoverished villagers. To keep fares low, passengers are often crammed 10 or more to a vehicle designed for 5 to 8 passengers. Mahindra & Mahindra vehicles have a reputation for durability, reliability, and cost effectiveness among these consumers because it understands the needs of this segment and builds vehicles tough enough to withstand the difficult use conditions.
Mahindra & Mahindra has recently expanded successfully into the urban and middle and upper-middle segments with its stylish Scorpio, Xylo, and XUV SUVs; that move was preceded by an extensive exercise to generate customer insights into the more affluent urban Indian consumers' comfort, convenience, and power needs, as well as to understand the features required to build a sense of pride in ownership.
Given their deep understanding of the domestic consumer segments served and the resulting success in these segments, many of the firms we talked to attempted to leverage this understanding as they moved overseas, by looking for high concentrations of similar consumers in international markets. Targeting consumers overseas similar to those served at home helps develop a well-defined and cohesive consumer base that spans geographies, which is less expensive to cater to; builds economies of scale; is easier to manage; and creates synergies for leveraging their existing insights, capabilities, and product portfolio internationally. It also helps them to rapidly transfer new learning from international markets back home and vice versa, setting up a virtuous cycle of leveraging all the markets synergistically.
Not surprisingly, an obvious segment for these EMNCs to pursue first is their potentially large ethnic diaspora. A recent estimate put the number of Chinese and Indians living overseas at 60 million and 25 million, respectively. The advantage to following their ethnic diaspora is that the firm already has a product or service portfolio that is likely to fit with this segment's needs and wants, creating economies of scale and reducing the need for expensive and difficult new product development. EMNCs in our sample benefiting from this strategy include Thailand's Vara-foods, Guatemala's Pollo Campero; India's Asian Paints, Dabur, Godrej, Marico, and Titan; and Turkey's Evyap. Following the diaspora has the additional advantage of benefiting from the diaspora's existing awareness and knowledge of brands in the home market, lowering the cost of building the brand in this segment. This segment is also likely to be more receptive to messages from home-country brands, as their perceptions are not colored by negative country-of-origin imagery—indeed, they might be bolstered by nostalgia for the old home country and old brand relationships. Older EMNCs with a longer history, operating in product categories where tastes and aesthetic appeals matter, are more likely to benefit from such a strategy.
Beyond following their ethnic diaspora, we identified two other ways in which EMNCs attempted to target consumers similar to the emerging-market consumer segments served at home:
Targeting price-sensitive segments
Targeting segments that seek functional and reliable brands
Not all the firms we talked to looked to target similar segments as those served at home. Many had taken the leap to serve distinctly new consumer segments in developed markets, as our strategic framework (Figure I-1 in the Introduction) suggests. This second set of EMNCs needed to meet the challenge of dealing with consumers about whom they had relatively less knowledge in a manageable and affordable way. They did so in three ways:
Targeting niche segments
Targeting high-growth categories, with "disruptively new" products
Targeting consumers who are more accepting of new brands:
* Going after non-mainstream consumers
* Going after more knowledgeable consumers
* Going business to business (B2B) to grow business to consumers (B2C)
We turn next to a discussion of each of these segment-choice decisions.
Targeting Emerging-Market Consumers and Others Similar to Those Served at Home
As noted above, EMNCs that focused on target consumers similar to the emerging-market consumer segments served at home followed two strategies beyond following the diaspora: they targeted price-sensitive segments and/or segments that sought functional and reliable brands.
Targeting Price-Sensitive Segments
Price-sensitive segments similar to those in EMNCs' home markets exist in other emerging markets, in certain developed markets, and always in B2B contexts. Since a key strength of EMNCs is their lower cost structure (see Chapter 2), EMNCs wield a sustainable advantage when serving price-sensitive segments.
In Other Emerging Markets. Price-sensitive segments exist in abundance in most emerging markets, making them a natural target. Thus Evyap, the Turkish personal-care brand, built itself a formidable reputation and market share in Russia by offering good-quality soaps with a broad range of scents, at competitive prices, when that market opened following the collapse of the Iron Curtain in 1989. Tata Motors CEO Ravi Kant reported that it has won strong positions in Turkey and South Africa because of its ability to offer a quality product at a very competitive price. He told us, "We are operating in the lower [price] segment and are reasonably placed by offering a lower total lifetime package cost, which enables people to buy our products. As a result, we have a 10% share in diesel pickup trucks in Turkey and about 11% in South Africa."
Mahindra & Mahindra's COO Rajesh Jejurikar also told us that the ability to target price-conscious consumers with competitive prices was a key reason for Mahindra's overseas success. Mahindra & Mahindra entered South Africa with an assembly operation in 2004 and today holds a 5 to 6 percent market share in the sub-300,000 rand category with just a single product, the Scorpio. Many other EMNCs too are moving aggressively into Africa, where they see a large and growing number of under-served consumers seeking value-for-money products and services. These include India's Bharti Airtel, Godrej, and Apollo Tyres; China's Huawei, in its new mobile phone business; and Turkish Airlines. Godrej has recently acquired stakes in more brands in Africa, including Tura in Nigeria and the Darling and Amigos brands in 14 African countries.
In Developed Markets. Price-sensitive segments are not the monopoly of emerging markets; they are present everywhere, including in developed markets, and tend to be large enough to be attractive, particularly in the less-affluent developed-world markets, like parts of Southern Europe. These are even more attractive because they are often under-served by the local players.
Not surprisingly, having expanded first in South Asia, then in Africa, Mahindra & Mahindra's first foray in the developed world for its UV and SUV business was in southern Italy in 2005. Since 2005, Mahindra & Mahindra has expanded into other less affluent markets in Southern Europe, including Spain, Hungary, and Bulgaria, in effect encircling the southern edge of Europe. This global, price-sensitive consumer segment is important to Mahindra & Mahindra; to strengthen its portfolio of offerings and presence in this segment, the company recently acquired Ssangyong Motors of Korea, which is strong in this segment and offers a complementary range of products. Mahindra & Mahindra is now (2011) preparing to leap continents and launch its SUVs and pickup trucks in the United States. Chinese mobile handset companies Huawei and ZTE have now launched cheap and functional smartphones—selling for less than $100—in North America and Europe, sold through carriers such as Vodafone, Telus, and 3 Italia, as smart-phone penetration grows into lower-income segments in those developed markets.
In B2B Markets. B2B segments are typically price sensitive, as purchase managers are rewarded for achieving the lowest possible prices. Thus, there is a genuine opportunity for EMNCs to build a strong B2B brand by providing superior offerings at lower price points, as well as lower lifetime value, compared with what their TMNC competitors provide. Temsa, the Turkish truck and bus maker, competes successfully in Western European markets against home-grown giants like MAN, Mercedes, and Volvo by targeting the particularly cost-conscious segment of small-fleet operators. According to Temsa CEO Buldurgan, Temsa's business model enables it to achieve significantly lower component costs, compared with those of its competitors. Add to this Temsa's lower-cost but highly skilled labor force, and it is able to offer trucks that are of a quality comparable to that of MAN, Mercedes, or Volvo, its main European competitors, but at a 15 percent lower price and a lower lifetime cost. Chinese telecom network-gear maker Huawei and auto-parts manufacturer Wanxiang are among many of the Chinese EMNCs that have very successfully gone after B2B customers in both developed and emerging markets, because success there needs functional quality and value.
Targeting Consumers Who Seek Functional and Reliable Brands
Our research suggests that lower costs are no longer the only or even the predominant capability that is being leveraged by EMNCs. Like the established TMNCs, they are competing on the basis of other world-class capabilities as well.
One such world-class capability that EMNCs possess stems from the demands at home that they face for functional and reliable products. EMNCs are leveraging this capability, in addition to their traditional cost advantage, to enter global segments that are looking for functional and reliable products. In doing so, they are becoming formidable competitors in the backyards of the developed-market multinationals.
A good example is Mahindra Tractors. Based on the needs of consumers served in India, the company has developed a full line of small, reliable, rugged, and fuel-efficient tractors. When it considered international expansion, it realized that the second largest concentration of consumers looking for such tractors was not in another developing country but, rather, in the United States, where hobby farmers and small landscaping firms make up two significant segments. Hobby farmers are weekend farmers who own farms that are typically five acres or less, and landscaping firms offer homeowners with large gardens initial landscaping as well as subsequent maintenance services. Both these segments want a tractor that is small, durable, easy to maintain, reliable, and economical, the same benefits sought by the Indian farmers whom Mahindra Tractors serves at home.
Mahindra Tractors entered the U.S. market in pursuit of the hobby farmer and landscaping firm segments in 1994, opening its first assembly plant in the United States in the process. Over the past decade and a half, it has built up the Mahindra brand as a durable, reliable, hassle-free, yet reasonably priced, brand in the minds of American hobby farmers. According to tractor division CEO Gautam Nagwekar, customer feedback suggests that American consumers today perceive Mahindra tractors to be "like a horse, very tough and robust, and one that definitely meets their requirements." In 2003, Mahindra opened a second assembly plant in the United States, followed by a third one in 2005.
Aside from the fact that certain segments desire durability and reliability, there are certain categories that are defined by these benefits. In these categories, EMNCs have the additional advantage of enhanced credibility. Thus, Mahindra & Mahindra's UVs and SUVs have been well received because "they are authentic and honest," according to Pravin Shah, CEO of international operations. The vehicles are truer to the heritage of these categories than many of the more luxurious vehicles marketed today in these categories by TMNCs.
Targeting Consumers from Developed Markets and Dissimilar to Those Served at Home
Not all the EMNCs we studied targeted consumers from other emerging markets who were similar to those served at home. As pointed out in the Introduction (Figure I-1), many EMNCs targeted dissimilar consumer segments using three approaches: targeting niche segments, spotting and targeting high-growth product categories, and targeting segments more predisposed to accept brands from unknown players. These three approaches enabled EMNCs to learn about new consumers and learn to manage in international environments without becoming overwhelmed by the costs, lack of knowledge of new consumers, competitive pressures, and managerial challenges of internationalization.
Excerpted from THE NEW EMERGING MARKET MULTINATIONALS by AMITAVA CHATTOPADHYAY. Copyright © 2012 by Amitava Chattopadhyay, Rajeev Batra, and Aysegul Ozsomer. Excerpted by permission of The McGraw-Hill Companies, Inc..
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Table of Contents
Introduction and Overview....................
1 Choosing Consumer Segments and Expanding Internationally.........
2 Strategic Competency Building....................
3 International Expansion Through Acquisitions....................
4 Brand-Building Strategies and Road Map....................
5 Building Brand Awareness on Limited Budgets....................
6 Building Perceptions of High Quality, Leadership, and Trust......
7 Global Brand Associations and Architecture....................
8 Managing a Global or Regional Brand....................
9 Key Takeaways....................
Appendix: Company Descriptions....................