The Next Emerging Markets After BRIC

As indicated in the recent Business Perspectives on Emerging Markets 2012 to 2017 Report conducted by the Global Intelligence Alliance or GIA, the countries China, India, Russia and Brazil which make up the famous acronym BRIC, will keep their leading spots in the list of the world’s developing markets for 2012 to 2017.

In the top 30 ranking of emerging markets in which international companies will have plans of targeting from the year 2012 to 2017, most emerging markets, aside those of the BRIC, are found in Latin America or Asia with Argentina, Turkey, Mexico, Vietnam, South Africa and Indonesia getting the highest spots among secondary developing markets. (more…)

Counterfeiting and Malinvestment in China

A consumer spending of 2.29 trillion for this decade, China is on top of the list of prospected markets for retail and manufacturing. The purchasing power of the Chinese market brought high hopes among international brands but this hope is still being held in hiatus due to the massive counterfeiting in the red nation. What is the real score of fakery in the country? This article is here to draw some of the fine lines on the status of the notorious markets of China and the case of malinvestment in the Chinese Economy. (more…)

A Better Market: Chinese Consumers Bids Farewell to Fake Products

Once dubbed as the hub for product counterfeiting, China’s market is now turning away from fakery as consumers prefer original products. With the strong campaign against fake products, most of the consumers have now raised the likeness to the real branded ones. Try walking into metropolitan China with a fake Gucci bag and you will surely have people looking at you. Indeed, this transformation has brought high hopes to international manufacturers given the fact that China is seen as the largest market with a potential additional consumer spending of 2.29 trillion or 19% of the forecasted world additional spending of 12 trillion for this decade. (more…)

Multinationals in India: New Paradigms Business Applies

Up until recently, an international brand would enter an emerging market like India, by taking an existing product and create a stripped down low-cost version for the new market. But not any longer. Traditional business models no longer apply in India. Increasingly, you will see new products developed from the ground up with new business models. The March 2012 McKinsey Quarterly article, “How Multinationals Can Win in India,” predicts that in the next 10 years, 20% of global revenue growth will come from India. For multinationals in India to succeed, they must adopt new business paradigms immediately.

So far, multinationals have made gains in particular niches. However, none had achieved market leadership on a large scale in India. The report cited examples of companies that failed by clinging to old global business paradigms. When they shifted tracks, they experienced a turnaround.

In the article in The Economist, ‘Less is more‘, (Nov 17th, 2011) supports the contention that old global business models are no longer effective in today’s market. In the past, developing countries were perceived to be sources of lower labor costs. Today these countries are creative and are building low-cost technology and machinery that are being sold in developed markets.

One of the cited examples is the Fetal Heart Monitor, developed by Siemens. The idea for it came from India. In the past, ultrasounds were used to monitor the heart of the fetus. But these machines are expensive, complicated and one must be trained on how to use it. In India they simply used off-the-shelf microphones. German engineers improved the product without changing its simplicity. Anyone can operate a Fetal Heart Monitor without any training. It is also much cheaper than an ultrasound.

New business paradigms needed in India

A new global business paradigm must utilize the capacity of large corporations to grasp the expertise of developed countries and combine it with innovative creations from developing countries like India. To do this successfully will mean letting go of old global business market mindsets and paradigms that didn’t succeed in India. These include:

– The concept that one model fits all: This is not true in India. The country’s market is largely fragmented. In essence, there are many “Indias” within India. There is a plethora of cultures, geography, different languages, literacy levels and financial levels per culture group. There is a need to understand each of these cultures’ ways, needs and circumstances, so that products can be adjusted to meet each cultural market’s requirements to enhance sales

– Hierarchy, bureaucratic roadblocks: A foreign multinational head who holds all decision making power poses a disadvantage, especially if he is based outside the country. He is unfamiliar with India’s unique business culture. Plus, India regularly experiences changing market conditions. The multinational head fails to respond to these changes adequately

Some multinationals recognized the flaws of centralized autonomy. They responded by delegating a high degree of autonomy to Indian operations. In one case, a company that did this experienced a 30% revenue growth yearly from 2001 – 2005, the McKinsey report said.

Delegate autonomy to India

Transferring autonomy to Indian operations is the crux of needed change by multinationals. It implies that only India’s top talent is tapped to handle the delegated autonomy competently. The Indian leader has knowledge of, and experience with the Indian market. He decides on capital expenditure, head-counts, product development, product customization and pricing. He also oversees empowerment of lower management levels to enhance innovation and free enterprise.

Strong middle management is critical to successfully implementing business growth strategy. Ironically, India lacks good local middle management talent. The McKinsey report cited three ways that some multinationals have responded to the situation. First, through the institution of a fair and transparent reward system based on performance. This included incentives including career advancement to encourage self starters with high performance levels. Secondly, through the creation of prestigious job positions. These jobs included membership on executive committees and global visibility. Other incentives were higher salaries and more authority. The position was usually granted to those with strengths on entrepreneurship.

The final way is through the provision of certified leadership development courses. This became an incentive to recruit new talent and was a way to retain good performers. Leadership programs were also introduced that provided mobility and structured global rotation for top performers.

Commitment raises bottom line

It is necessary that multinational companies shift their vision when they do business in India. It is not efficient nor profitable to always focus on the bottom line. A shift in vision will call for more commitment on the part of the multinational in many ways. One means of doing this would be to expand commitment cycles. Ideally, top leadership should aim for five-year target cycles in India, and aim high. Commitment would also require global CEOs and senior executives to visit the country an average of four times yearly. This will give them the opportunity to dialogue with local clients, and get a keener understanding of shifting business cycles so that they would have an eye on which local investments deserve continued support amid business cycles.

It goes without saying that when a multinational delegates authority to its Indian CEO, there is sufficient funding to back him up. This implies, too, that the multinational has aimed high and hired only the best man for the job. At the same time, understanding the capability of your Indian CEO, it is mutually beneficial that he also has a place in global executive committees.

Quality products, lower cost

Success in India requires understanding the spending power and the demands of the Indian market. Indians like good quality products, but these should be available at prices they can afford. To make these products affordable without sacrificing quality, one can remove frills that can cut production cost from 50-70%. Sometimes, there is a side benefit to the above. An example that McKinsey cited involved a low cost, no-frills tractor that a multinational firm created for Indian farmers. The product also, surprisingly, became marketable in the US, where a number of farmers wanted a sophisticated yet affordable tractor. What yinned, in essence, also yanged.

However, producing a good product is not enough, especially in India. It is necessary to have a distribution network and chain supply that works efficiently among the various “Indias within India.” This means that the multinationals must retain strong relationships with their leading stakeholders, such as external agencies, the government and regulators.

When making a five-cycle business plan, part of the plan should be to aim high. This would mean regularly seeking new business development options. A specific team must be formed for the purpose of developing local partnerships that enhance revenue. McKinsey cited the example of a large beverage firm that was hindered, among other things, by labor laws that made distribution expensive. The firm solved its problem and circumvented these laws by contracting local distribution entrepreneurs. In the end, market penetration was enhanced, at significantly lower costs.

Finally, it is time for multinationals to outsource Indian products and talent globally. India’s products are cheaper, and the country has a vast talent pool to produce these products on a much larger scale. This can be done with an R & D team from India that is tasked to discover new innovations in the country that are relevant to markets overseas.

Sources:
https://www.mckinseyquarterly.com/Strategy/Globalization/How_multinationals_can_win_in_India_2938#
http://www.economist.com/node/21537984

Bric Acronym Turns 10

The Bric acronym celebrates it’s 10th anniversary. The world as we know it today is quite different from what it was a decade ago. To sustain growth, the world’s poor must be included in the development, as S.D. Shibulal, CEO of Infosys puts it:

[…] the biggest challenge that faces the Bric countries is quite unique in that they are countries of contradiction. Countries like India and China in particular, despite leading the Bric growth story, are no different. Take a look at India. It has had average growth of 8 to 8.5 per cent in recent years – but over 300m people still live below the poverty line. It produces over 3m graduates every year from its pool of 480 universities and 22,000 colleges. Despite this, 35 per cent of the world’s illiterate people are in India. Furthermore, over 8m children are still out of school and 240m children are not a part of the schooling system. There are 100m internet users in a country where only 12.5m have broadband. There are also over 600m mobile phone subscribers in India. Despite this level of technology penetration, India ranks 50th in financial inclusion globally.

The Brazilian Dream: Thiago for Visual Ethnography

Thiago Vinicius is part of the group that created the Community Bank Sampaio Union, at Jardim Maria Sampaio neighborhood, São Paulo, which provides micro-credit and prints its own currency, the “sampaio”. The Brazilian Dream‘ (O Sonho Brasileiro) is a qualitative study of the young generation Brazilians, with focus on their dreams and desires.

The Brazilian Dream: Tahis for Visual Ethnography

‘The Brazilian Dream’ (O Sonho Brasileiro) is a qualitative study of the young generation Brazilians, with focus on their dreams and desires. This is a photograph of The Brazilian Dream: Tahis for Visual Ethnography from Rio de Janeiro, Brazil for BOX1824 by photographer Jacob Langvad Nilsson.

'O Sonho Brasileiro' (The Brazilian Dream) - Visual ethnography by Jacob Langvad for BOX1824