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How to Win in Emerging Markets

April 1, 2008 | Mr. Satish Shankar , Mr. Charles Ormiston , Mr. Nicolas Bloch , Mr. Robert Schaus , Mr. Vijay Vishwanath | Strategy

Emerging markets in Asia, Latin America and Eastern Europe are delivering some of the strongest revenue and profit growth for global makers of fast-moving consumer goods, despite concerns that lower prices might translate into lower profits. Emerging-market leaders like Coca-Cola, Unilever, Colgate-Palmolive, Groupe Danone and PepsiCo earn 5% to 15% of their total revenues from the three largest emerging markets in Asia — China, India and Indonesia. The story is similar in Russia and Eastern Europe, where these companies often dominate their target categories and routinely exceed internal corporate benchmarks for profitability. And the trend is likely to continue. The gross domestic product of emerging markets equaled the GDP of advanced nations for the first time in 2006, with much of the growth coming from the “BRICET” nations — Brazil, Russia, India, China, Eastern Europe and Turkey.

Until the past few years, emerging markets were a relatively low priority for the leading consumer products companies with few exceptions, even though these markets are home to about 85% of the world’s population. The obstacles are still real — in emerging markets, multinationals compete on unfamiliar terrain dominated by local players, sell at price points below those in their home countries and wrestle with deep-seated social and cultural customs. But with growth slowing in the mature markets of North America, Japan and Western Europe, some consumer goods companies have figured out how to tap into the purchasing power of a new and growing middle class in these emerging markets.

The authors provide case studies that show six keys to successfully navigating the uncertain economic environments in developing economies: Enter the mass market to achieve scale in distribution, brand building and operations; localize at every level; develop a “good enough” cost mentality; think globally but hire locally; make sure local acquisitions have a strong business fit; and organize for emerging markets.

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