Companies racing to capture their share of emerging markets’ booming growth find something unexpected: Along with unprecedented expansion, these markets are undergoing rapid changes that make the opportunities trickier to pursue.
From China to India to Brazil to Turkey to Vietnam, emerging markets will contribute around 60 percent of all global GDP growth by 2015, based on IMF projections, and more than 60 percent of retail growth, according to Euromonitor.
Gaining ground in such fast-evolving markets will depend on players’ ability to negotiate four critical developments.
Development 1: Category consolidation is raising the barriers to entry and leadership Companies considering the move into emerging markets face a daunting fact: Consolidation is well underway, especially in well-penetrated categories, with the top three to five players in most markets controlling a large and growing share. There are two major reasons for the consolidation.
First, leading multinationals are aggressively investing for leadership across large and frontier emerging markets as sales flatten in their traditional Western strongholds.
Second, selected local players are growing stronger, typically by playing one of three competitive cards. They pick “insulated” market niches and build defensible positions.
Or they exploit their local knowledge to gain an edge – that’s how India’s Godrej Consumer Products was able to expand globally into similar markets for its hair dye in Africa and Latin America.
Or they make the most of their low-cost model and “good enough” quality. Petra’s use of less-expensive compound chocolate ingredients has helped make it the leader in Indonesia.
Given such rapid consolidation, acquisitions—either of local players or other multinationals– may be the only option for building scale in categories and countries.
Multinational players need to ask some hard questions: If already present, how can they secure their path to leadership?If not present, how to enter or grow—or is it already too late?
Development 2: Segment and category creation is emerging as an alternative route to success As a middle class emerged in China, multinationals shifted their focus from selling luxury goods to a tiny fraction of consumers to the growing mainstream.
Now, with incomes rising, companies are expanding the market by selling more value-added and new market offerings. For example, both Diageo and rival Pernod Ricard have made good headway in many of the nontraditional scotch markets like China and India.
But rising incomes also lift categories at the value end of the market as more consumers move from unbranded products to branded.
The shift reflects brand awareness and deeper distribution networks. Vietnam’s Masan Consumer, at the bottom end, grew its share of table sauces from just 2% in 2005 to 36% in 2009, according to Euromonitor, largely by branding more of its Nam Ngu sauces and upgrading consumers from unbranded sauces in open markets.
To boost their odds of success, companies need to develop deep consumer insights that help accelerate brand growth.
Development 3: Modern trade (and Internet) is growing fast, but traditional trade will remain relevant for the foreseeable future Modern trade is taking off in emerging markets as consumers evolve, regulatory barriers come down and multinational retailers seek new, high-growth markets.
But the pattern of growth varies. Modern trade represents more than half the total retail share in some of Brazil, Russia and China’s more developed cities; the share is smaller but growing rapidly in Indonesia and Vietnam and lags behind in India due to regulatory hurdles.
At the same time, online sales in emerging markets are growing rapidly. For example, online penetration of categories like infant formula in China is believed to have crossed the double-digit threshold.
forbes.com
From China to India to Brazil to Turkey to Vietnam, emerging markets will contribute around 60 percent of all global GDP growth by 2015, based on IMF projections, and more than 60 percent of retail growth, according to Euromonitor.
Gaining ground in such fast-evolving markets will depend on players’ ability to negotiate four critical developments.
Development 1: Category consolidation is raising the barriers to entry and leadership Companies considering the move into emerging markets face a daunting fact: Consolidation is well underway, especially in well-penetrated categories, with the top three to five players in most markets controlling a large and growing share. There are two major reasons for the consolidation.
First, leading multinationals are aggressively investing for leadership across large and frontier emerging markets as sales flatten in their traditional Western strongholds.
Second, selected local players are growing stronger, typically by playing one of three competitive cards. They pick “insulated” market niches and build defensible positions.
Or they exploit their local knowledge to gain an edge – that’s how India’s Godrej Consumer Products was able to expand globally into similar markets for its hair dye in Africa and Latin America.
Or they make the most of their low-cost model and “good enough” quality. Petra’s use of less-expensive compound chocolate ingredients has helped make it the leader in Indonesia.
Given such rapid consolidation, acquisitions—either of local players or other multinationals– may be the only option for building scale in categories and countries.
Multinational players need to ask some hard questions: If already present, how can they secure their path to leadership?If not present, how to enter or grow—or is it already too late?
Development 2: Segment and category creation is emerging as an alternative route to success As a middle class emerged in China, multinationals shifted their focus from selling luxury goods to a tiny fraction of consumers to the growing mainstream.
Now, with incomes rising, companies are expanding the market by selling more value-added and new market offerings. For example, both Diageo and rival Pernod Ricard have made good headway in many of the nontraditional scotch markets like China and India.
But rising incomes also lift categories at the value end of the market as more consumers move from unbranded products to branded.
The shift reflects brand awareness and deeper distribution networks. Vietnam’s Masan Consumer, at the bottom end, grew its share of table sauces from just 2% in 2005 to 36% in 2009, according to Euromonitor, largely by branding more of its Nam Ngu sauces and upgrading consumers from unbranded sauces in open markets.
To boost their odds of success, companies need to develop deep consumer insights that help accelerate brand growth.
Development 3: Modern trade (and Internet) is growing fast, but traditional trade will remain relevant for the foreseeable future Modern trade is taking off in emerging markets as consumers evolve, regulatory barriers come down and multinational retailers seek new, high-growth markets.
But the pattern of growth varies. Modern trade represents more than half the total retail share in some of Brazil, Russia and China’s more developed cities; the share is smaller but growing rapidly in Indonesia and Vietnam and lags behind in India due to regulatory hurdles.
At the same time, online sales in emerging markets are growing rapidly. For example, online penetration of categories like infant formula in China is believed to have crossed the double-digit threshold.
forbes.com
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