Emerging Markets: Hype Vs. Reality
Many consumer goods companies now claim that their largest growth opportunities will be in emerging markets (BRICS, et al). From a growth standpoint, this is easy to understand since traditional markets are growing at a slower pace. The interesting fact is, that in the short term, they also need incremental growth in traditional markets since that’s where the actual revenue is generated.
We asked John Rossi, general manager for Consumer Goods Consulting at Wipro and CGT Executive Council member, to provide key considerations that a consumer goods manufacturer must figure out — from specific selling models and distribution networks to technology infrastructure — before calling an emerging market home.
What is the largest impediment that consumer goods companies face in emerging markets?
Rossi: The largest impediment for the consumer goods company lies in understanding how to sell into those markets. It’s not one size fits all. Each major BRIC market has its own shopper behavior, and regional sub-behaviors. In Mumbai, which is more like selling in NYC, you can be more direct with the shopper and retailing partner. In Bangalore, another major Indian city, the selling approach is more subtle via mom-and-pop stores and a haggling model. China, Brazil, Nigeria — very different styles within each country and region. You must be able to isolate the type of shopper you want to target in these regions and then craft your product messaging for that particular shopper segment.
What about the distribution challenges?
Rossi: The second largest impediment is the retailing model, including the need for distribution. Even the largest consumer goods companies cannot afford to build-out distribution until they have a reasonable direction on their revenues. Deciding to use distributors or go-direct to retailer is an initial question everyone asks. Many initially want to be direct, but quickly realize that transportation networks, communication and technology needs, not to mention understanding the local requirements, will quickly guide you to more heavily consider building relationships with existing distributors. Even then, there is usually a need for multiple distributors in a single market — one for the large, traditional retail channels and another to reach the modern channels. More work for the consumer goods company, but a proven method to get proper distribution.
What role does technology play in emerging markets?
Rossi: Technology becomes a larger question very quickly. Do I extend my SAP ERP platform into an emerging market? If I do, is it too heavy and cumbersome for our start-up needs and will the local general managers in my organization accept this cost? What about communications? In many developing markets, it’s hard to get the proper telecommunications speed, making cloud-based applications off limits, and mobile for anything mission critical is very difficult.
Where technology is to your advantage in that shoppers and consumers are completely mobile. They not only prefer to work that way, it’s the only way. Most don’t have laptop or desktop computers, and they rely on smartphones and tablets. The emerging market shoppers are more willing to share information at most ages than their western counterparts. Mobile devices, using social networking and e-commerce capabilities (yes, e-commerce for consumer goods companies) are key to success in emerging markets.
We asked John Rossi, general manager for Consumer Goods Consulting at Wipro and CGT Executive Council member, to provide key considerations that a consumer goods manufacturer must figure out — from specific selling models and distribution networks to technology infrastructure — before calling an emerging market home.
What is the largest impediment that consumer goods companies face in emerging markets?
Rossi: The largest impediment for the consumer goods company lies in understanding how to sell into those markets. It’s not one size fits all. Each major BRIC market has its own shopper behavior, and regional sub-behaviors. In Mumbai, which is more like selling in NYC, you can be more direct with the shopper and retailing partner. In Bangalore, another major Indian city, the selling approach is more subtle via mom-and-pop stores and a haggling model. China, Brazil, Nigeria — very different styles within each country and region. You must be able to isolate the type of shopper you want to target in these regions and then craft your product messaging for that particular shopper segment.
What about the distribution challenges?
Rossi: The second largest impediment is the retailing model, including the need for distribution. Even the largest consumer goods companies cannot afford to build-out distribution until they have a reasonable direction on their revenues. Deciding to use distributors or go-direct to retailer is an initial question everyone asks. Many initially want to be direct, but quickly realize that transportation networks, communication and technology needs, not to mention understanding the local requirements, will quickly guide you to more heavily consider building relationships with existing distributors. Even then, there is usually a need for multiple distributors in a single market — one for the large, traditional retail channels and another to reach the modern channels. More work for the consumer goods company, but a proven method to get proper distribution.
What role does technology play in emerging markets?
Rossi: Technology becomes a larger question very quickly. Do I extend my SAP ERP platform into an emerging market? If I do, is it too heavy and cumbersome for our start-up needs and will the local general managers in my organization accept this cost? What about communications? In many developing markets, it’s hard to get the proper telecommunications speed, making cloud-based applications off limits, and mobile for anything mission critical is very difficult.
Where technology is to your advantage in that shoppers and consumers are completely mobile. They not only prefer to work that way, it’s the only way. Most don’t have laptop or desktop computers, and they rely on smartphones and tablets. The emerging market shoppers are more willing to share information at most ages than their western counterparts. Mobile devices, using social networking and e-commerce capabilities (yes, e-commerce for consumer goods companies) are key to success in emerging markets.