Don Sull's blog

Some emerging market companies excel at understanding and fulfilling local customers’ needs and aspirations, while working within their budgetary constraints. Companies like Brazil’s Natura or Mexico’s CEMEX think local when studying customers, but act global as they scour the globe for ways to meet local needs. This is more than plain-vanilla benchmarking. These managers do not copy products or business models that work in other markets, but instead identify practices or technology from around the world, and recombine them in novel ways to solve the unique problems facing their local customers.

Consider the challenge of delivering ready-made concrete to builders–a very different market from selling bags of dry cement to consumers. Contractors frequently change their orders at the last minute and CEMEX found that, on average, it took three hours between the receipt of a change-order and when they could deliver the concrete to the building site. These delays were costly to contractors, who had to delay other activities while they waited for the concrete. CEMEX executives realized they could increase their market share and charge a premium to time-conscious contractors if they could reduce delivery time on change orders. They could also reduce their costs by reducing the amount of unused concrete that goes to waste.

After identifying the benefits of just-in-time delivery, the team studying the opportunity brainstormed who else faced similar challenges, and identified police, firefighters and paramedics faced a similar problem of reacting quickly to urgent requests from unpredictable locations. To learn more, they visited call centers in the United States and studied how they consistently dispatched paramedics within ten minutes despite unpredictable traffic patterns and varied destinations. Based on their research, CEMEX equipped most of its concrete-mixing trucks in Mexico with global  positioning satellite (GPS) locators and implemented processes which allowed dispatchers to cut average response time for change orders from 3 hours to 20 minutes.

Another example of spotting a local opportunity, but scouring the globe for ways to address it comes from Natura, a leading Brazilian cosmetics company. Approximately 40 per cent of the company’s revenues are derived from products introduced within the last two years. Natura achieved this result with an R&D staff of approximately 150 and a budget totaling 3 per cent of net income. Compare this with L’Oreal, the producers of Lancôme and Maybelline, which spends approximately one-third of net income on R&D and employs nearly 3,000 researchers worldwide.

Natura follows a customer-pull innovation strategy. The company focuses on serving the distinctive needs of Brazilian women, an ethnically diverse population with different skin types who live in a sunny and humid climate. The combination of diverse skin types and extreme climactic conditions means that cosmetics developed for homogeneous populations in temperate climates rarely met the demands of Brazilian women.
Identifying its customers needs is one thing, but mobilizing the technology needed to solve them is another.

Rather than developing all technology in-house, Natura has established close links with research centers and universities in France and the US to license technology necessary to meet customer needs. The company also tracks patenting activity globally to identify ingredients that might fill a local need. When they identify a promising ingredient, they license for use in their own products.

One example of Natura’s innovation was its Mother/Baby product line, launched in 1993. At that time, Johnson & Johnson dominated the baby-product market in Brazil, with a 90 per cent share of the market for shampoos, soaps and creams for babies. Natura executives identified an opportunity to link their products to the Shantala method of massage, whereby a mother gently massages her baby while bathing it and applying lotions. The massage was popular in Brazil to forging stronger bonds between mothers and their infants Natura launched its Mother/Baby line, which outlined the benefits of practicing the Shantala method and provided detailed instructions massaging infants. The products drew on existing ingredients, some of which Natura licensed from abroad. The unique Shantala positioning allowed Natura to quickly capture significant market share despite Johnson & Johnson’s existing market dominance and strong brand name.

Natura holds a monthly meeting between the company’s top executives, marketing director, and the R&D director as a forum to swap information on new product ideas and recent technological advances. Natura uses its network of over 200,000 direct sales consultants (similar to the sales representatives who sell Mary Kay or Avon cosmetics) to solicit suggestions from users, discuss potential new products, and gain immediate feedback on trials. Consultants call clients shortly after they buy a trial product to determine whether they liked the new item and to ask for their suggestions on how the product could be improved. This real-time feedback allows Natura to modify products before a full launch, or drop an item that receives negative feedback.