Yesterday the London Business School held its annual Global Leadership Summit, I moderated a panel on how multinationals can seize opportunities in emerging markets. My panelists were Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte. (The podcast of the full panel is here).
Emerging markets are important for each of these companies. Vodafone books 22% of its revenues in emerging markets including India, Egypt, and Turkey. Deutsche Bank earns about €3 billion in these markets. Currently emerging markets account for approximately 32% Nestlé total sales (and more than half the firm’s factories), but Nestlé intends to increase revenues from emerging markets to 45%. Deloitte has about 15% of headcount in the BRIC countries.
One of the questions we discussed was other than their own company, which multinationals do the panelists most admire for their performance in emerging markets. Their answers are interesting.
- Tesco. John noted that by the end of this year, Tesco will have more retail space in Asia than the UK. Tesco tarted in the slightly smaller Asian countries such as Korea, to experiment with their model on a smaller stage before moving into China. Tesco managers also recognized need to modify their business model. As Tesco moves into China, for instance, the company has had to shift into property development as opposed to building stores
- Luxury makers. Anshu said he envied (rather than admired) companies with very strong brands, such as Johnny Walker Black label in India or BMW in China, because they can sell an undifferentiated good in these countries. These companies just have to solve the questions of positioning, logistics, and distribution. Many companies as they enter emerging markets instead have to re-craft their entire offering, business model, and culture. Branded goods companies simply make available products that emerging market consumers have aspired to for decades, but only now have the cash to pay for. Banks, in contrast, have to slog it out, go through a web of regulations, then have to understand local needs, and produce locally, and do so at low cost.
- L’Oréal . Paul listed L’Oréal has organized its portfolio around both local brands for the bottom of the pyramid, but also positioned its super premium products for affluent consumers in China and other markets. In China, the super premium segment rivals the number of upper middle class in Europe.
- Emerging market multinationals. Paul also mentioned competitors from emerging markets who are now going global. They excel, in his assessment, at adapting to local conditions better than some multinationals coming from Western countries.
- Nestle, Unilever, BUPA, Standard Chartered. Vittorio listed companies from a few industries, which are linked by how well they do at partnering in emerging markets. These companies are good at understanding when they need to partner up, identifying the right local partners, and working with them in a flexible way. These partnerships allow the companies to secure effective distribution. Western companies often overemphasize the strength of their products, and underestimate the difficulty of getting them into customers’ hands. These companies also excel at mixing group expertise and local managers, which Vittorio characterized as almost an art. When Vodafone has struggled in an emerging market, Vittorio said, the challenge usually came down to either distribution or a problem blending group expertise and local managers.