International

Marketing
Management
Marketing
Strategies for
Emerging
Markets
 Topics:
O Emerging markets
O Competing with new champions
O Targeting/positioning strategies in emerging markets
O Entry strategies for emerging markets
O Product policy
O Pricing strategy
O The distribution challenge
O Communication strategies for emerging markets
 Introduction
O Developed countries: Market saturated
O MNC’s set sights on the fast growing emerging
markets (EMs)
O Asia, Latin America, east bloc countries and Africa
O McDonalds restaurant in Russia, busiest in the world
O Mars sells more cat food in Russia than any part of
the world
O Zara, Spanish brand, announced that half of the
new brand to be opened will be in Asia
 Introduction
O Emerging markets hard to resist:
O Growing middle classes and
O Rising income
O Western MNC’s: bulk part of their revenue from
emerging markets
O Global economic downturn
O Huge obstacle for MNC when doing business in
these countries
O Emergence of strong local companies
 Emerging markets
O Emerging markets (EMs) refer to economies
O that are in the process of rapid growth and industrialization
O First introduced in 1981 by Antoine van Agtmael, director at world
bank
O thought that the term would resonate more with prospective
investors in Thailand than the ‘‘Third World’’ label.
O Among the emerging markets, for many global marketers the most
promising and exciting ones are the four that constitute the BRIC,
namely:
O Brazil, Russia, India, and China
O Accounted for 15% of global GDP
O Their combined economies larger than the G7 industrialized nations
Characteristics of emerging markets
1. Low per capita incomes but rapid pace of
economic development
2. High income inequalities (Gini index)
3. High rates of migration to the developed world
4. Populations are youthful and growing
5. Weak and highly variable infrastructure
6. Technology is underdeveloped
7. Weak distribution channels and media
infrastructure
Lower per capita income but rapid economic
development
O People with annual income ranging from $6,000 to
$30,000 is growing 70 million per year
O The bank foresees that another 2 billion will join
by 2030
 High rates of migration
O Many low per-capita income EMs also export their people
O Mexico and other Latin American countries export agriculture
workers to the United States
O Philippines exports nurses and teachers to North America and
Western Europe
O Asian countries export construction workers to the Middle East.
O Remittances is an important part of their home countries’
economies
O Globally, the World Bank estimated that money sent home by
these immigrants was $305 billion in 2008
Populations are youthful and growing
O Populations in most emerging markets are
younger and growing much more rapidly.
O Most of these countries have
O population growth rates of 1 percent or more,
O with a median population age between 20 and 30
years.
O The exceptions are the former Communist
East Bloc countries
Weak and highly variable infrastructure
O The infrastructure in many of the emerging countries is
underdeveloped.
O Transportation networks such as roads, airports, and railroads
are low in coverage and fragile.
O water supply and electricity are in short supply.
O Telecommunications networks and internet access often lag
far behind the grids of mature markets in terms of coverage
and technology.
O Multinationals doing business in these areas need to come
up with creative solutions to cope with these kinds of
infrastructure weaknesses
 Technology is underdeveloped
O Technology lag behind both on the
O supply side (infrastructure, innovation) and
O R&D spending and innovation are still centered in developed countries.
O Especially true in high-tech industries such as information technology,
biotech, and telecommunications.
O the demand side (adoption of new technologies)
O Consumers in emerging markets tend to be less eager to adopt new
products than their counterparts in developed countries.
O Developed countries have relative low time to take off for new
products
O Japan 5.7 years compared to 12.4 years for India, 12.6 years for the
Philippines, 13.9 years for Vietnam and China
 Weak distribution channels and media
infrastructure
O Largely underdeveloped
O Companies often have to set up their own
distribution.
O However, the distribution environment is changing
dramatically
O Nine out of the ten largest shopping malls in the
world are located in emerging markets:
O Four in China, one in Malaysia, one in Turkey (the
biggest mall in Europe), and three in the Philippines
 Competing with champions
O Conventional knowledge
O Trade barriers crumble and emerging economies take off,
multinationals can grab opportunities in these countries and prosper.
O In reality local players have been able to keep
multinationals at bay
O Growing number of companies that are rooted in that part of the
world showing up in the Fortune Global 500 ranking.
O In the 2008 ranking, 29 companies hailed from China, 7 from India, 5
from Brazil, 5 from Mexico, and 5 from Russia.
O In 1999, 11 of the 20 largest banks in the world were US based
O In 2009, 5 of the largest bank from China and only 3 from US
O Top spot belong to ICBC, China.
 The New Champions
O A company created in an emerging market that has been
able to humble multinationals
O In Philippines, more crowd on Jollibee rather than McDonalds or a
Burger king
O Became popular by creating the image of warm, friendly, family
warming
O Now stores across Asia, and even in US
 The new champions
O Looking at China, the fastest growing EM,
O Local champions throw their weight in dozens of industries.
O In the IT industry alone, some of the highfliers that
are leaders in their respective fields in China include
O Baidu for online search,
O Taobao (owned by Alibaba) for online auctions,
O youku.com for online video-sharing,
O Shanda for online gaming, and
O QQzone (owned by Tencent) for social networking.
 The New champions
O Dozens of the new champions have also become
credible challengers outside their home
market
 The New Champions
O Some of these have become credible by buying
up global brands
 The New Champion
O Some of them have made strides in global
arena through ad campaigns or multi million
dollar sponsorships deal
O 2004, emirates air signed £100 million deal to
name new stadium of Arsenal
O India’s TATA consultancy services sponsoring
Ferrari team for 2009
 What makes emerging markets firms so
successful?
1. Create customized offerings. For e.g. Jollibee
2. Develop business models to overcome obstacles.
O For e.g. computer gaming industry in China
3. Deploy latest technologies
4. Take advantage of cheap labour and train staff in-house
O For e.g. Huawei and ZTE able to undercut the likes of
Alcatel and Lucent in international markets
5. Scale up rapidly
6. Invest in talent to sustain growth
 Deploy latest technologies
O Young companies not hampered by legacy of old technologies
O Can easily leapfrog to the latest technologies
O Some of these companies has also become very innovative
O For e.g. safaricom, Kenya's leading mobile phone service
provider
O Developed mobile banking service called M-PESA
O Allows client to transfer money via SMS
O This became so successful that Vodafone, British mobile carrier
that holds a stake in Safaricom, rolled it out to other countries
 Scale up rapidly
O Many home grown champions distinguish themselves by building up scale
very quickly.
O Typically, this happens through
O combination of organic growth and absorbing smaller rivals.
O Several new champions go a step further and
O take their innovative business models to other emerging markets or sometimes
even the Western world.
O A case in point is Pearl River Piano, China’s leading piano manufacturer.
O The company grew over the last 30 years by out-investing local rivals.
O Currently, the company has the world’s largest piano factory with a capacity of
100,000 pianos per year.
O In 2000, the firm bought up Rittmuller, a German piano maker, to boost its
reputation and to broaden its price points
O The firm is now the leader at the low end of the U.S. upright piano market.
 Emerging market champions, whether they
should focus on their home market or expand
into the global market place?
Strategic options for Emerging Market Companies
Competing against the new comers
O MNC from developed world can fight off the
challenge posed by emerging market newcomers
O Innovative thinking
O Focusing on high end segment markets
O Try to beat new champion at their own game by
pursuing value for market strategies
O For e.g. IBM business services bought Daksh, a similar
rival of Tata consulting services, Infosys and Wipro to
compete on cost and quality with its Indian rivals
 Competing against new comers
O MNCs can choose from five value-for-money strategies:
1. Go beyond low-cost sourcing in emerging markets:
O for e.g. Nokia Siemens Network, set up an innovation center in China
to develop software technologies in telecom industry
2. Develop products in emerging markets and bring them
home.
O For e.g. Hindustan Lever cheap home water purification system
3. Copy branding tactics used in emerging markets
4. Team up with the new emerging giants:
O IBM partnership with Airtel in indian phone market
5. Invest in growing mass markets in developing countries
 Targeting/positioning strategies
O Bottom of the Pyramid (BOP) or No BOP?
O 4 billion people living on less than $2 per day
O Fortune at the bottom of the pyramid, C.K.Prahalad
O BOP paradigm
O Lot of untapped money at BOP
BOP offers new growth opportunity for value creation
and innovation
O BOP markets must become an integral part of firm’s
core business
 Targeting/positioning strategies
O Nokia’s experience in china illustrates how can
MNC thrive in a BOP market
O Views china’s less developed regions as a major
driving force for future growth
O Mobile phone subscription in big cities in China
slowing
O Country’s smaller cities and rural areas still offer
tremendous market opportunities
O Developed wide range of ultra cheap handsets while
still maintaining dominance in the upper end
Entry strategies for emerging markets
O Timing of entry
O Mode of entry
 Timing of entry
O EMs: Huge population and less direct competitors
O Early entry can hurt performances
O Kelloggs in India in 1994 with a investment of $65
million investment
O Initial sales were encouraging
O Too expensive for most households
O India not yet ready for western style cereals
 Timing of entry
O First movers in emerging markets can fail
1. Not aware of the pitfalls of newly opened emerging
markets
2. Return on investment low
O Infrastructure not yet fully developed
O Build own distribution networks
O Such huge investment hard to recover in short or medium term

3. Later entrants have a flatter learning curve

O They can learn from mistakes made by early entrants
 Timing of entry
O Arguments for being early entrants
1. Better government relations
2. Huge initial sales because of previously
unavailable western brands
3. Access to key resources such as media access,
brand endorsers, distributors or suppliers
 Mode of entry
O Can choose from several mode of entry
O Exporting, licensing/franchise, joint venture, wholly owned subsidiary
O Trade off between
O Risk
O Financial (currency volatility, getting paid)
O Marketing (e.g. sales volume)
O Control
O Protects resources from leakages (patent theft)
O Control over resources such as distribution or supply
O Stronger the institutional framework (legal framework and it
enforcement, property rights protection, regulatory regimes),
O the more likely the MNC would prefer an acquisition or greenfield entry
mode over joint ventures
 Mode of entry
O Given the large risks and the firm’s lack of
knowledge:
1. First enter with low risk entry mode (e.g. licensing,
minority joint venture)
2. Little adaptation
3. Over time sales takes off
4. MNC increases its commitments
5. Slowly shifts towards higher-control entry mode
 Mode of entry
O Drivers of success for market entry: (study
conducted into China and India)
O Major factor is the firms performance in host country
O Success is greater for China than for entry into India
O Success is for smaller firms than for bigger
ones
O The greater the control of entry mode, the larger the
success
O Success is greater in the emerging markets which
are economically similar to home country
Once entry mode is decided
O Develop marketing strategy to penetrate EM
O Simple replicating the successful strategies
from developed countries could be recipe for
disaster
O Offering the right product mix
 Product policy
1. Product design
2. Branding
3. Packaging
 Product design
O Reluctant to adapt its product offering to the host market
O Costs money and time
O Sell narrow range of existing products
O Position them as premium products targeted to affluent EM
customers
O Could pursue backward innovation
O Offer a stripped down version of the products that is sold in
developed markets
O Increases product life cycle
O Could go badly wrong in todays information age:
O people familiar with the latest trends in the market
 Product design
O Mass market products in EM need to overcome two barriers:
O Low incomes
O Affordable, functional and durable products
O Consistency in quality
O China’s melamine milk scandal, Chinese mothers switched to foreign milk
powder
O Poor infrastructure (unreliable power supply, poor roads)
O Durable and long lasting
O Product designed to handle a dysfunctional infrastructure
O whirlpool in India: restart from the point where it stopped because of
power cut
O HUL, surf excel, improved formulation to save the scarce water in India
 Branding
O Wrong to assume that consumers in EMs, even the affluent one, will pay
premium for global brands
O Study by McKinsey prescribed a two branding strategy for MNC
O Wealthy segment: foster a global identity
O Bottom of Pyramid:
O emulate their local competitors
O May be acquiring local brand
O Keeping the best local managers, cost reduction, operational efficiencies and simplicity
O Unilever branding strategy in India
O Dominates Indian shampoo market with 46.3% market share in 2008
O HUL sells global brand (Dove, Sunsilk)
O Indian women often oil before washing hair
O Need shampoo that remove oil, therefore reformulated its shampoos for India
O For surf launched inexpensive brand called Wheel
 Packaging
O Cash strapped customers
O Smaller packages
O For e.g. Colgate MaxFresh toothpaste available in 40 gm, 80 gm and
150 gm tubes in India while 170gm and 227 gm in US
O Sealed packages favoured by local customer because of their
freshness and safety
O For e.g. branded medicine are worth paying premium
O Sustainability regarding packaging
O Packaging material scarce and costly
O Waste treatment facilities inadequate
O Therefore, should ideally rely on local materials and be recyclable
and biodegradable
 Pricing strategy
O Thin margins to attract big volume tend to succeed
in EM
O To capture sustainable sales volume:
O MNC should try to saturate all price points
O Not just simply focusing on the upper end of market
O If not, at some time in future, local competitors who caters to
mass market could achieve economies of scale could attack
MNC
O For e.g.
O in India, Unilever markets at least one brand in each price tier
O Nokia rolls out handsets at different price points in each price tier
 Pricing strategy
O To sustain profit margins:
O Focus on cost innovation to improve the products cost structure
O instead of continuous product innovation
O Lowering fixed and variable costs
O EM consumers are not always price sensitive
O For e.g. Unilever experience with Omo (laundry detergent brand)
in Vietnam
O Bitter price war against P&G’s Tide
O Market share started to slip in 2002
O Therefore moved from price-led to brand-led
O Demand pooling
 The distribution challenge
O Lack of sustainable distribution infrastructure
O Distribution varies between urban and rural areas
O Urban areas:
O Small retailers carry wide assortments of brands
O Modern distribution formats: supermarkets, discount stores
O Rural areas:
O Single brand for each category
O Therefore being first on shelf and building a close relationship can
create a competitive edge
O Local regulation or lack of local market knowledge
O Force the MNC to partner with local distributor
 The distribution challenge
O Creating distribution systems:
O Lack of distribution infrastructure, build it from scratch
O Need for innovative distribution system
O In Russia and Poland, P&G decided to build its own distribution operations known as
McVan model
O Identified promising distributor
O Provided them with vans, working capital and extensive training
O Granted territorial exclusivity
O Unilever in India
O Company challenge was to reach 500,000 villages in remote areas
O Project Shakti in 2001
O Women’s self-help group to become entrepreneurs by the money borrowed from self help
group
O Each distributor aimed to reach 500 customers
O By 2009 project had over 45,000 distributors covering over 135,000 villages across 15 states
 The distribution challenge
O Managing distributor relationship: Four areas of
distribution policy
1. Distributor partner selection criteria
1. Developed countries: Product market knowledge
2. For EMs, Competence in working with MNC’s
2. Direct selling
1. Relative low cost of labour make such format viable
2. Internet as channel
3. For e.g. China based Alibaba in now worlds largest online
global trading platform with 38.1 million registered users
 The distribution challenge
O Managing distributor relationship: Four areas of
distribution policy
3. Local autonomy:
O Delegate control over many marketing tasks to local
distributor
O But better to retain control over some critical marketing
decisions
4. Exclusivity:
O Local distributors often insists on territorial exclusivity
O However for rapid market development, having multiple
distributors is often much more preferable
Communications strategies for emerging
markets
O Marketing activities must accomplish several tasks:
O Educating the customers about the product use and benefit
O Raising brand awareness
O Creating brand image
O Challenge in EMs is to prioritize these tasks
O Who to target?
O Current existing users of the product or non users
O Most MNC concentrate on increasing demand for from
current users
O But huge payoff from converting non users into users
 Communication strategies
O Pull Vs Push Activities
O Consumer oriented promotion or trade directed promotions?
O In most EMs, emphasis on trade directed push type promotion
1. Trade has immense power, consumers interface directly with retailers
and often rely on their brand recommendations
2. People shop much more frequently, almost daily, as a result, the
opportunities to switch brands arise
O Pull promotion activities, mass media like TV and radio are often
ineffective especially in a country like India
O Diverse consumer groups
O Instead targeted media are more useful
O Billboards to reach the poor who don’t have TV and do not read newspaper
 Communication strategies
O Mass media Vs non traditional marketing approaches:
O Mass media less effective, especially in rural areas
O For e.g. 500 million Indians lack TV and radio
O Illiteracy and language diversity
O Non traditional approach can be much more rewarding
O People intensive communication: as labour being cheap
O Can spend more time on educating customer
O Can customize the message
O For e.g. Nokia,
O deploys a fleet of vans painted in brands signature blue across rural India
as advertisements on wheels
O Staff stops the van and then explain the basics of phone