How Companies Conquer In Emerging Markets

These days almost every big company with any kind of international presence has at least part of its business in emerging markets. They don’t all go about it the same way though, and in the video below, Boston Consulting GroupCEO Richard Lesser shares his take on what companies do right, what they do wrong, and how they can get the most out of emerging markets:

“It’s not enough to just go for the revenue, it has to be differentiated.”

So says Richard Lesser, chief executive officer at Boston Consulting Group. He believes the first thing companies expanding into new markets need to consider is whether what they are planning will ultimately generate shareholder return.

That philosophy informs the discussions BCG’s consultants have with companies all over the world, and part of the discussion, Lesser says, is taking a long look  at "which markets you can win.”

Back in May, Clorox CLX +0.49% CEO Don Knauss told Forbes that the consumer products company doesn’t just move into markets because they are big or growing rapidly, they focus on areas where the mid-cap company can be a top-tier player.

“While Procter & Gamble PG +0% and Unilever are beating each other up in Brazil, we’re over in Peru building a nice business,” he said. It may be a smaller economy, but Clorox decided it was better off being in a market where it could establish a more commanding presence.

It’s a philosophy Lesser fundamentally shares.

“It’s really important to understand what the opportunities are specific to individual markets, and not take a broad-brush view to all of the emerging markets,” he says. Key to that is an understanding of local dynamics, from spending and income growth to consumer behavior and the regulatory landscape.

Another opportunity stems from the more recent struggles of emerging markets. Lesser acknowledges that many companies got overextended in infrastructure and commodity plays during China’s buildup – take CaterpillarCAT +0.71% for instance, which has faced serious headwinds from China’s slowdown – but thinks the long-term case in emerging markets remains intact.

BCG has estimated the consumer opportunity in just India and China is worth $10 trillion by 2020, and companies likeCoca-Cola KO -0.84%, PepsiCo PEP -0.23% and a host of others – Whirlpool WHR -0.43% announced the acquisition of a Chinese appliance maker last month – will be fighting for their share of the pie.

There are three typical mistakes companies make in emerging markets, Lesser says: not being amibitous enough; not being fast enough to recognize the different requirements of a given region or market; and failing to properly leverage talent and leadership from both the developed world and developing economies.

Many companies are working to avoid those mistakes though. Lesser highlights a program launched by Samsung in 2011 that aims to train 10,000 electronics engineers in Africa by 2015 and notes that many companies are tapping emerging markets for leadership, not just less expensive labor.

While the BRICs – Brazil, Russia, India and China – have traditionally been the short list of emerging economies, the ranks have swelled over the years and the fastest-growing regions of the future may be new ones.

Africa is frequently touted as one of those, and Lesser cites a study BCG prepared alongside the World Economic Forum that found a major gap in the continent’s infrastructure spending – essentially tens of billions of dollars that will ultimately need to be financed via public-private partnerships.

The good news there is that many multinationals are willing to step into that breach. One example: General ElectricGE +0.62%, which is building a new manufacturing and training facility in Nigeria as part of a plan to spend $1 billion in that country over the next five years, and committing $165 million in subsea technology for a $1 billion Chevron CVX +0.24%-led oil and gas project off the African coast.

Source: Forbes