US and European manufacturers of fast moving consumer products (FMCG) are looking to emerging markets in Asia, Africa, and different parts of Latin America due to the slow growth at home. Many of said companies spent over $10 billion just to widen their reach over these markets, and they occupy more than 40 percent of global sales of grocery products and clothing. However, many of these companies eventually realized that expensive branding and administrative protocols actually limited their capability get to the portion of the market with lesser spending power.
Studies on international brand makers that operate in areas where consumerism is getting stronger reveal that companies tend to have more supporters in areas where the lower class resides when they adopt local organizational and branding strategies, which is usually different from the practices in first world countries.
Most companies that managed to enter emerging markets did so by first acquiring an already established local competitor, which meant that they were buying their way into sellers and production companies stationed locally.
They then proceed with growing the brand and distributing the products to more economically stable countries, who have their own set of evolved manufacturing and sales procedures. Additionally, many of these multinational corporations tried to go back to the old practice of unifying all management and procedural processes into their parent company. However, the cost of production is distributed to the regional offices. More often than not, these extra expenses force the companies to raise prices.
The approach works in developed countries; because, the consumers are affluent and will have to spend for products that are carrying the names of companies that are more established and known. But in emerging markets, where the majority of the consumers have limited budgets, the approach tends to price products straight out of the general segment, giving local competitors a huge advantage in terms of cost. In these cases, it’s not surprising that multinational companies lose hold of a huge portion of their consumers.
Two Distinct Approaches for Building Brands in Emerging Markets
In order for global manufacturers to successfully compete and build brand equity in an emerging market, they must realize and accept that the portion of the market with more purchasing power and the low price market need to be approached differently. The high income segment will respond products and brands that were able to establish their relationship with the consumers and build their image. The lower class will respond better if the global manufacturers try to localize their image or make it relatable to the local culture, through the following ways:
1. Retain the employees that live in the area where they are distributing their products – these managers do not favor changing of products, promotion, and packaging extensively. And studies have shown that they are right in doing so, as the companies that opted not to make changes eventually recovered and started earning revenue. Those that went for drastic changes failed to show any growth, sometimes even wrote in losses.
2. Work on lessening production cost and making processes more efficient – product reformulations and marketing efforts are not very effective on people who are looking for the cheapest working option and do not want to take risks. Companies that rely on managers who are singularly focused on branding and marketing tend to waste resources on areas of operation that wouldn’t affect general profitability.
3. Last but not the least – keep the operations of the local manufacturers separate. Share a few key beneficial roles such acquisitions of locally-sourced products and logistics, but do not try to force the local manufacturer to adapt to an alien environment, especially since what they have at the moment is already optimized for their market. Parent companies should act as venture capital firms.