Multinationals need to consider how they will address the unique challenges of managing in emerging markets in their organization structures and career development. Dabblers in these markets should either get serious or get out. The cost per viewer in countries such as Brazil, Argentina and Turkey equals or surpasses that of the United States. How the nation's total income is distributed among its population, A situation in which the market price has reached the level at which quantity supplied equals quantity demanded. There is an even larger mass of the population below this income level that is also prepared to spend, albeit selectively. Be local: Foster emerging-market entrepreneurs. In many cases, the size of the consumer markets in these countries rivals that of the developed markets. 2. For example, consumers'food consumption normally follows fairly predictable patterns. It’s in the interest of business leaders to help. The rapid adoption of smartphones and subsequent access to the internet has allowed emerging market consumers to be a major global force across a range of online activities including online retail, gaming and eSports.Internet access among Emerging Consumer Survey respondents is now around 80 percent or more in all countries except Indonesia and South Africa. Related Expertise: Emerging Markets, ... in the year leading up to the survey, 58% of people buying gadgets such as tablets and laptop computers, and 53% of consumers buying four-wheel vehicles, purchased their products just to stay up to date with the latest in the market. This strategy has been followed for years by local players such as Sadia and Arisco in Brazil. The strategy also puts them in an extremely vulnerable negotiating position with the major retailers. Emerging Markets. Reach the masses: Manage affordability. (See Exhibit I.). As a result, Quilmes today struggles with its market share and profitability in Chile. The most important finding resulting from the present research is What sort of business model is needed for emerging markets, and how does it differ from the model to which multinationals are accustomed? Improving Productivity: Surprisingly, many consumer goods are more expensive in emerging markets than in home markets. Articles published in strategy+business do not necessarily represent the views of the member firms of the PwC network. In part, this is due to the aspirational attraction that strong brands have for lower-income consumers, particularly in "badge" categories. For instance, one department store saw its sales fall 40 percent in the early 1990's as Brazil entered a recession, only to bounce back during a currency stabilization program in 1994. Africans are generally highly brand-loyal consumers. Even when companies serve smaller shops directly, there may be creative ways to do so less expensively. Its chairman asks rhetorically, "Can a United States scientist in California really understand the problems and needs of the consumers in developing and emerging markets?" For example, in Brazil, up to 15 percent of all apparel is sold through "sack ladies" who sell door-to-door in poorer neighborhoods. The purchasing power of women in the U.S. ranges from $5 trillion to $15 trillion annually. A jam producer studying the Brazilian and Argentine markets recently noted that the Brazilian market seemed to hold significant potential because per capita jelly and jam consumption was one-tenth that of Argentina, clearly a difference not justified by the relative income levels of the two countries. There are several difficulties with this strategy, however. When Quilmes Industrial S.A., the Argentine beer leader, entered the Chilean market, it was more dependent than the local market leader, Compania Cervecerias Unidas S.A., on the supermarket channel. For emerging market managers, raging inflation, currency swings, new taxes, continually changing business regulations and interest-rate instability are all part of the normal macroeconomic environment. Parmalat, as an example, has leveraged the success of its brand in the milk category into such diverse categories as cookies and crackers, cereals and juices. It will not only require a greater emphasis on understanding what are the needs of the consumer, but a radically different way of approaching them.". Opportunities 17 6. Competition promotes efficiency; Laws protect private property & ownership, Factors of production needed by businesses in order to produce goods & services, Goods and services created and sold by firms/businesses, The flow of money to individuals from the resource market in exchange for resources, The flow of money to businesses from the resource market; the result of consumer spending, The flow of money used by individuals to purchase products from businesses in the product market, The flow of money used by businesses to purchase resources from individuals in the resource market. Because the investment required to build and support a brand in these markets is high compared with the small size of many categories, companies should carefully weigh using umbrella brands in emerging markets as a means to create scale, particularly when exploring new categories. We are, for instance, inventing surfactants that cost many times more than those used for the basic job in the developing world -inventing them for minimal gain in the almost functionally saturated West.... We must shift the focus of our research and development effort to the vast numbers of consumers who in 2025 will live in the emerging markets of today.". As one Coke executive commented last year in The Wall Street Journal, "Right now, if I was fixed on an annual event plan in Asia, I'd be dead in the water.". In Brazil and India, for example, only 9 percent of the population will be elderly; in Mexico and Indonesia only 8 percent, and in China 12 percent. Key drivers of consumer demand 10 4. Procter & Gamble opposed the purchase on antitrust grounds, but Colgate-Palmolive was able to convince government authorities that a fair solution was to withdraw the Kolynos brand name from the market for four years. When these economies bounce back, there may be an equally severe upturn. As a consequence, it has grown its market share despite facing a host of local competitors whose pricing can be half of Frito-Lay's. The Internet has put the power of information in the hands of the global consumer. In contrast, the populations of emerging countries are comparatively young. The largest group of multinationals has followed a flag-planting strategy: transplanting existing "first-world" products with minimal investment into a wide variety of new markets, without achieving significant market share in any of them. In India, Unilever was ambushed by a local detergent maker, Nirma, that captured a substantial portion of the market with a low-cost alternative to Unilever's premium brands. Consequently, it is often possible to identify potential category-consumption levels as an economy develops, and therefore find categories with the greatest potential for rapid growth. Future rate reductions should drive consumption beyond the normal "income" effect. For example, the Whirlpool Corporation has chosen to use the Brastemp brand name in Brazil as its leading brand in that country given its preexisting equity. With much fanfare, Pepsi announced in 1994 a $500 million investment to build a modern bottling and distribution network from scratch, as well as to support significant brand support activities. Only a small fraction of the population of countries such as Turkey or India are well-to-do, middle class by American standards. While supermarket and hypermarket retailers are increasingly present in major capital cities, consumers living on the peripheries of these cities and in the countryside continue to purchase the large majority of goods through local shops. How Unilever Reaches Rural Consumers in Emerging Markets ... in its focus on addressing rural market opportunities. Consumer confidence in Brazil was the lowest among 26 countries surveyed: only 8 percent of Brazilians were optimistic about the national economy (Exhibit 1). What comes next will depend on how well they face up to them. The pandemic has highlighted a series of paradoxes inherent to the work of leaders. Even where the absolute cost is low (e.g., China, Indonesia, India), the effective cost is much higher after these costs are factored in by the percentage of the viewing public that is economically active. Get. Similarly, a reduction of tariff barriers has led to rapid price declines and quality improvements in durable sectors such as white and brown goods and automobiles. It is now forecast that by the year 2030, there will be only two workers to support the average Social Security recipient in the United States. var today = new Date() A situation in which quantity demanded is greater than quantity supplied, A situation in which quantity supplied is greater than quantity demanded. Favorable Consumer Demographics: With a combined 2.6 billion people, the five largest developing nations have a population that is four times that of the Group of Seven. From a year ago, the index is … However, Argentines consume jam at "tea time," a custom that does not exist in Brazil. A new Vanguard study quantifies the future of remote work, and looks at the number of potential hybrid jobs. Brand equity becomes an essential weapon in defending market position in the face of this type of competition. That problem out of the way, Colgate-Palmolive introduced a new toothpaste brand using the same formulation and graphics as the old Kolynos brand. The reasons for this are many - not the least of which include poor infrastructure, arcane distribution systems, lower levels of education and histories of being closed and sheltered economies. PwC. Care still needs to be given to developing products that are appropriate to local markets. In the emerging nations, though, the situation will be quite different. For most categories, however, the importance of branding is related to the quality guarantee that it provides. 2 positions in their target categories to be profitable over the long haul. This sector will also cater to the majority, low-income tier of buyers and middle-class households, which will collectively have disposable incomes of … Coca-Cola, for example, is growing at 30 percent per year in China, and its business there is fast approaching 10 percent of its total United States volume. Even the most experienced are not immune from making this mistake, as Coca-Cola recently found in India. China, Brazil and India are among the five largest markets for televisions and refrigerators when measured in units. Second, rising incomes bring whole new waves of consumers into the market who were previously not economically active, typically at a trigger point of about $2,000 to $3,000 in annual income when expressed in equivalent purchasing power. Over the next 10 to 15 years, most of the total world growth in consumption of consumer goods will likely be concentrated in the largest of the developing economies. This ability to be more agile in the turbulent emerging-market environment is a significant competitive advantage. Quantity of a good or service that consumers are willing and able to buy. No reproduction is permitted in whole or part without written permission of PwC. In large measure, this can be traced to the fact that the productivity of developing countries significantly lags behind that of the developed world. Business should not be so mesmerized by the current economic difficulties in these markets that companies ignore the enormous long-term economic potential. This includes markets that may become developed markets in the future or were in the past. Reviews and mentions of publications, products, or services do not constitute endorsement or recommendation for purchase. As recent events have demonstrated, what happens in these economies affects us all. Finding cost-effective ways to build broad and deep sales and distribution coverage in the emerging markets is one of the most critical challenges facing consumer products companies. Consumers understood, and Colgate-Palmolive has lost little market share. An emerging market (or an emerging country or an emerging economy) is a market that has some characteristics of a developed market, but does not fully meet its standards. Emerging market populations are expected to continue to grow significantly faster than those in the Group of Seven nations, many of which now have birth rates below that required to maintain today's population level. Emerging markets have lower-than-average per capita income. According to the 2013 edition of Roper Reports, 79 per cent of consumers in developing Asian markets and 61 per cent of Latin American consumers "only buy products and services from a trusted brand." The item has been saved. For instance, Mexico and Brazil are the second- and third-largest soft-drink markets in the world, each consuming more than Germany, France and Italy combined. Reaching the masses frequently means that consumer goods companies need to rethink their product lines with a sharp eye on the price/performance equation. Emerging markets differ in their governmental policies, regulations and macroeconomic behaviors; in the structure of their consumer markets, distribution systems and competitive sets; in the needs and behaviors of their consumers. This provided them up to 10 times the scale of Pepsi in these smaller accounts, creating both the customer leverage to lock Pepsi out and the ability to serve these accounts at substantially lower cost. Pepsi was unable to match its competitors'market coverage and reach a million points-of-sale. The challenges to managers in emerging markets, however, are not limited to the macroeconomic roller coaster. The power of consumers is becoming the last best hope for emerging market investors as global recession risks rise. FitzGerald, chairman of Unilever P.L.C., summarized the challenge facing Western consumer businesses when he said, "The real action is increasingly going to be in the developing and emerging markets. chose to be aggressive on pricing in this channel, while tying up the more fragmented distribution base of bars and restaurants with exclusivity agreements. Rising Household Incomes and Easy Credit: The rapid economic growth in the developing world is fueling household income growth. Consumers in big, emerging markets such as Brazil, India, Poland and China have suffered for many years under closed economies and a limited selection of shoddy goods produced by inefficient, domestic manufacturers. Consumers across emerging markets are enjoying rising disposable incomes, which leads to middle class expansion, rising consumer expectations and greater gains in consumer expenditure. Pepsi soon found itself in a war that it could not win. Plus, lots of income is unreported, so this is really the lower boundary for true household income. My friend’s father buried $50K in the backyard for his grandchildren. The combination of data analytics and artificial intelligence can give organizations a competitive advantage and mitigate risk along the value chain. Most European nations will average nearly 25 percent. For example, in the past dozen years, Brazilian governments have announced seven major economic packages (as well as several minor packages), or more than one new package every two years. The consumer base in these economies already measures in the hundreds of millions, is young and is growing three times as rapidly as in the developed world. To measure this upward mobility, we segmented Bangladeshi consumers into five basic income brackets: bottom of the pyramid, which refers to five-member households subsisting on incomes of less than $150 a month; aspirant, $151 to $250; emerging middle, $251 to $400; established, $401 to $650; and affluent, more than $650. The impact of these swings tends to drive disproportionate reactions in consumer consumption because a large proportion of consumption is driven by marginal consumers. As a result, its sales span all income ranges. Mr. FitzGerald of Unilever made just this point when he said, "Consider how much of our industry's innovation is still geared to the developed world, as opposed to the great many people living in the developing and emerging markets. How much of a good or service a producer is willing and able to produce at different prices. Television penetration in China's coastal cities is nearly 100 percent. First, those who are economically active increase absolute consumption while often trading up into higher-value goods. 2. The most important lessons for what it takes to build a large and profitable presence in emerging markets can be summarized in five rules: 1. Create desirability: Build strong brands. Multinational corporations have invested huge sums in emerging markets — more than $3 trillion since 1998, by one estimate.1 Returns from these investments, however, have sometimes been disappointing. With these small shops, the producer can command a relatively higher price, and so the company is quite profitable. In many cases, the rapid growth in the economies of the emerging nations has outpaced the required improvements in their financial and government institutions. Companies such as Unilever, Coca- Cola, Gillette, Nestlé and Colgate- Palmolive all now capture one-third or more of their revenue from these markets, with profitability equal to, or higher than, what they achieve in developed economies. The "Big Five" emerging markets - China, India, Brazil, Mexico and Indonesia - are among the 12 largest economies in the world, with a combined purchasing power already half that of the Group of Seven nations. Late last year, Niall W.A. For example, refrigerator penetration in Mexico is roughly 90 percent. Brazilians simply do not have as much use for jam! Interestingly, despite the limited financial means of the emerging market consumer, branding could well be more important in these markets than it is in markets such as the United States or Western Europe. One of the world’s greatest emerging markets is closer than you think. For example, the Coca-Cola Company now derives 37 percent of its revenue from Latin America, Africa and Asia, and these markets contribute a stunning 49 percent of its operating profits. Challenges and risks 23 7. Looking forward, three structural socio-demographic and -economic factors will insure that consumption growth in the big emerging markets continues to significantly outpace that of the developed world well into the next century: 1. Low income is the first important criterion because this provides an incentive for the second characteristic, which is rapid growth. Emerging markets are no different in this respect from the United States or Western Europe.