The New Gold Rush: Digging for Billions in Emerging Markets

One of the most important events in our modern, economic history, even surpassing the Industrial Revolution in significance, is the rise of emerging markets. Nations that used to be written off as mere consumers of international products if not bilateral foreign aid, are fast maturing, getting empowered and are starting to exercise influence over international trade.

The advent of the consumers in emerging countries and the industrial revolution in the 1700s are interestingly worth comparing, as the latter required almost two hundred years to reach maturity and double the country’s economic output, while the former only took a couple of decades at the most, exhibiting roughly ten times the speed and a hundred times the scale of economic acceleration.

Many CEOs of global firms are already aware that emerging markets have become the key focus in their long-term strategy, but only a few of said CEOs actually understand the complexity of the undertaking needed to seize the opportunity. In fact, many of them are puzzled by the fact that their greater size, larger capital bases, superior technologies, and more sophisticated marketing still fail them when competing against local upstarts from the emerging markets.

It has highly divided commerce and trade such that the biggest companies are now getting just a little bit less than 20 percent of their profit from emerging markets. It is important to consider that these countries contribute 36 percent of the international GDP. It is also projected that their GDP contribution will balloon to 70 percent or more by 2025.

Factors to Consider in These Growing Nations

In order to win a decathlon, an athlete needs to master 10 separate events. When it comes to winning in emerging markets, a company similarly needs to master ten separate capabilities, such as:

  1. Look into cities or towns that don’t get attention – countries with emerging markets usually have smaller cities, but they offer big opportunities, as Wal-Mart proved 50 years ago when it opened its first store in Rogers, Arkansas
  2. Know when to sell expensive products – when it comes to emerging markets, knowing when and where to sell is crucial to success. Demand for products usually exhibit an S-curve instead of a linear one, so don’t try to push expensive products – especially non-commodities – when the S curve is at the lower points. Push it hard when the market is exhibiting explosive growth
  3. Localizing Products According to Local Relevance and Global Scale – Multinationals must learn how to custom tailor their products and services so that they will appeal to local tastes both in price and features
  4. Learn how to redeploy resources rapidly but consistently – developed markets need to be willing to embrace huge changes fast, as local competitors will overtake those who are too slow to adapt to local trends
  5. Uncompromised Quality on different Price Points – one key thing about emerging markets is that the consumers aren’t as affluent as the ones in developing countries, so multinational companies need to be creative and build their best products with twists that will make them applicable and affordable in emerging markets
  6. Establish a credible brand name – emerging market consumers are novice buyers, so the opportunity is rife for building brand loyalty and trust
  7. Know how your product will reach the consumers – in emerging markets, it is important to learn how to manage the way in which consumers encounter products at the point of sale
  8. Organize in Advance – emerging markets have more volatile trends, and local competitors are usually small enough that the organization doesn’t have much complexity. Multinational companies, on the other hand, are not able to adapt to rapid changes on the queue, so they need to be prepared in advance
  9. Focus on Farming Talent – unskilled workers are abundant in emerging markets, but multinationals may need to exert more effort just to find skilled managers
  10. Lock in Support of Key Stakeholders – this part is true for any business regardless of where they wish to do business. They need to lock in the support of key stakeholders in civil society, government, and local media if they want to succeed

Source: McKinsey Quarterly

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