The model of emerging market innovation that most people have in mind is a multinational corporation pioneers a novel product or service in their sophisticated home market, drops some features and cuts the price, and then exports the stripped-down innovation into emerging markets.
Increasingly, however, innovation flows the other way. Companies develop a product that appeals to emerging market consumers who combine discerning tastes with low disposable income, then managers quickly recognize that these products would appeal to some segments within mature markets as well.
At a recent London Business School panel on multinationals in emerging markets, I had the chance to discuss this reverse innovation with 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.
- Distinguish between emerging consumers and emerging markets. Paul noted that Nestlé distinguishes
Last week, I moderated a panel on multinationals in emerging markets for the London Business School’s Global Leadership Summit. Four prominent business leaders–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 shared their insights on several topics, including which multinationals (other than their own) they most admired for their success in emerging markets.
People often use the term “emerging markets” as a catch all phrase implying that all countries within this category are broadly similar to one another. In reality, of course, the differences between India and China or Brazil and Russia dwarf their similarities. The heterogeneity of emerging markets raises questions for companies seeking to invest in these countries: How should we prioritize investments across emerging markets? How do we differentiate a more attractive market from a less attractive one? What criteria should we use in evaluating and comparing different markets?
Below I summarize some of the insights on how four different executives from four very different industries evaluate emerging markets.
- Nestlé. GDP growth is important for a food company, of course. In Africa, for instance, GDP has grown at about 5% per year over the past decade. Second, a country or region needs to meet a threshold level of
The final stage in globalizing is less a step and more a long march. After adopting a global mindset and giving their commitment teeth, executives must make a series of organizational changes–large and small–required to execute on their global strategy. To succeed on the global stage, a company must align its organizational realities with its lofty ambition.
Improving the organizational attributes required to compete globally often takes the best part of a decade, particularly for large complex enterprises. Samsung’s Chairman Lee was forced to realign most aspects of the group’s business model to deliver on his commitment to global leadership. When transforming their company to compete globally, owners and executives should focus on five key aspects of the organization: Strategic frames, Along with the Samsung case described in an earlier post, CEMEX (a leading global cement producer), provides another example of transforming an organization for global competition
Strategic frames refer to what managers see when they look at the world, and include definition of market, focal
Making the leap from local player to a global firm often takes the better part of a decade. Owners and executives take the first step by committing to a global mindset. Many executives still view the world from the vantage point of their corporate headquarters. This mindset resembles the route maps found the in-flight magazine of local airlines, that places Chicago, Taipei, or Helsinki in the center of the globe with routes emanating outward in all directions. Only a small fraction of the planet’s population, however, sees the world in the same way. While your company may be doing very well against local rivals, the performance gap relative to global leaders may be enormous.
Entry into the global economy and WTO accession in particular are forcing managers in many emerging markets to develop a new mental map of the world. There are a few concrete steps they can take to accelerate this process. First, they can simply take a field trip to more developed markets to understand how they are viewed outside their home country. In February 1993, Samsung’s Chairman Lee convened a meeting of 23 senior executives of Samsung Electronics in Los Angeles. Before the meeting began,
The rise of emerging market champions is good news, in contrast, for the entrepreneurs and executives who lead firms in developing countries, who draw inspiration from the success of firms like Mittal or AmBev. Inspiration alone is not enough. Executives and owners of emerging market firms must also understand how they can take their firm from a good local player to a globally-competitive firm. My next few posts will introduce a framework, based on this research, describing the steps that firms such as Mittal, CEMEX, Infosys, and others followed in their rise to global leadership. I will use the case of Samsung to illustrate the framework.
From metal hut to global powerhouse
South Korea in the mid-1980s was a developing country with a per-capita gross domestic product one-sixth that of the United States. The Samsung Group, while large by Korean standards, was small in global terms. Nor was Samsung a significant player in the global electronics industry. Only a few years earlier, Samsung had entered the consumer electronics industry when it produced its first microwave oven in a corrugated metal hut. When switched on, the first prototype microwave melted, and required extensive rework before Samsung could secure a small order as a sub-contractor to a Panamanian customer.
Today, Samsung is a global leader in more than fifty electronic product categories, was number two in terms of US patents granted in 2008, with a brand among the twenty most valuable in the world (ahead of Apple, Pepsi,
In October 31, 1989 Mitsubishi Estate bought a controlling stake in the Rockefeller Group, owner of iconic buildings including Rockefeller Center and Radio Center Music Hall. The acquisition, for many, underscored the inevitable rise of Japan Inc. In the preceding decade, best-selling books like Clyde Prestowitz’ Trading Places: How we are Giving Our Future to Japan and How to Reclaim It and Ezra Vogel’s Japan as Number One confidently predicted that Japan Inc. would dominate wide swaths of the global economy by the 1990s. Instead, Japan lost a decade, and Japan Inc lost its luster.
In the past few years, firms from emerging markets have acquired high-profile firms. Mittal Steel bought Arcelor, while the Brazilian-Belgian brewer InBev acquired Anheuser Busch. Many North American and European managers reassure themselves that the rise of emerging market firms will repeat the Japan Inc story–initial success, followed by massive hype that ends in a fizzle. The analogy to Japan Inc is reassuring, but deeply flawed. This comparison ignores the underlying sources of advantage enjoyed by the best emerging