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Marketing in Emerging Markets Part 1

Welcome to Global Marketing Management and
now we will talk about marketing in emerging markets which is spread over in module 37
and 38. So let us start with module 37 and we will be talking about how to market in
emerging markets, what is marketing like in emerging markets. So we will be talking about what are Emerging
Markets and what to do in order to compete with the new Champions targeting positioning
strategies in the in the Emerging markets ,whether we should talk about below or bottom
of the pyramid, or not no bottom of pyramid, and we will also talk about the Entry strategies
for emerging markets. So enter entry strategies may differ in emerging markets in developed
countries and in developing countries. So as developed countries are getting a saturated,
saturated means that most of the population, they have purchased lots of products, and
now they are not buying those products anymore.

What to do? Multinational have increasingly
set their sights on the fast growing emerging markets in Asia, Latin America and Africa.
Now you see that their, their home markets are saturated, and then they are looking for
newer markets, and they are finding potential in emerging market that are largely in Asia,
Latin America and Africa. Given their growing middle class, because,
the middle class is going in this, in these emerging markets and the incomes are rising.
This call for emerging market is this call for emerging market is hard to resist. Although
there are lots of problems in emerging market but because of the rising middle class and
rise in income they are a potential market, attractive lucrative markets, for multinationals. Several large western multinationals now derive
the bulk part of their revenues from such markets. That is, most of their revenues and
profits are coming from emerging markets and not from developed markets. The global
economic downturn has spurred companies, even more to explore prospects in that part of
the globe.

And because of the economic downturn, which is more, which was more, and which is
more prominent and developed countries. So, now that has forced this multinationals
that has further forced the multinationals to look for markets in emerging countries. What is an emerging market? It refers to the
economies that are in the process of rapid growth and industrialization. So we are talking
of Economy, Economies that are in the process, was the process completed they successfully,
then they become developed market, if the process is a failure then they remain under
developed markets. So this emerging market moniker was first introduced in 1981 by Antoine
van Agtmael. Today it is not entirely clear which countries
qualified as emerging markets. So based on this process of rapid growth and industrialization,
it is difficult to categorize countries whether they are emerging or not. But loosely speaking,
it include, countries that can be neither classified as developing nor as developed,
so they are somewhere in between.

But this strict categorization is difficult. Among the emerging markets, for many global
marketers, the most promising and exciting ones are the four that constitutes the BRIC
namely, Brazil, Russia, India and China. Another term that is gaining some importance is, transition
economies. So one is emerging economies, which has and which largely includes the BRIC that
is, Brazil, Russia, India and China. Another term item is coming up that is called as transition
economies. So countries that are changing from centrally planned economy to a free market
economy. So where in those countries where that were centrally planned and now they are
process of liberalization is happening. So these countries are termed as transition economies.
Transition from centrally planned to free market. Let us see what are the characteristics of
a emerging market. So we have defined that emerging market is this process they are going
through a process of rapid growth and industrialization but what are the characteristics of these
kinds of markets? The first is low per capita income but rapid pace of economic development.
So, per capita income are still lower in most emerging markets, than they are in developed

Low income poses an upper limit on their purchase, because their disposable income
is less. But the income in most of these countries
are increasing, leading to a strong and growing middle class population, but because, the
incomes are increasing that is why disposable income will increase and therefore they are
now becoming more lucrative because now you have issues middle class have in increasing
disposable income so that is that because lucrative for multinationals, who have already
faced stagnation and saturation in their home markets. The second characters characteristic is High
income inequality. So there is income inequality, huge income inequality. In most emerging countries
they exhibit higher income inequality as indicated by the Gini index that is statistics often
used to measure the degree of income inequality in a country. So degree of income inequality
is higher in emerging markets and it is being measured by Gini index. Emerging market countries
they register much higher values for the Gini index then develop nations. So when this Gini
index is higher so the income inequalities higher, if it is lower than the income inequalities,
lower. The third characteristic is high rate of immigration
to the developed world.

Lots of people are moving from the developing the emerging markets
to developed countries. So that is another characteristic. Many lower per capita emerging
markets also export people export their people. So they may be, there that so they are exporting
their people, maybe they are going to fall to develop country, then earning money and
sending it back home. For example, Mexico and other Latin American countries export
agriculture workers to the United States. So people who do agriculture in the United
States they come from, who works in the fields in US they work from Mexico and other Latin
American countries.

South Asian countries export construction
workers to the Middle East. So, lots of people go from Southeast Asia to Middle East for
working as construction workers. Now money sent home by these migrants. So they go overseas
to work and then they send the money back home which is called as remittances, is an
important part of their home countries' economy. Apart from their financial impact, these immigrants
also form global Diasporas, where, which companies can leverage so, Indians in Qatar so that
forms a market. The fourth characteristic is population as useful and growing populations
in most emerging markets are younger and growing much more rapidly than in the Triad region.
Most of these countries have population growth of 1% or more with the median population age
between 20 and 30 years.

The fifth characteristics is they have a Weak
and highly variable infrastructure. The infrastructure in many of the countries is underdeveloped.
Transportation networks such as roads, air airports, and railroads are low in coverage
and they are fragile. That is they are not able to handle much traffic. Telecommunication
networks and internet access often lag far behind the grids of mature markets in terms
of coverage and technology.

MNCs need to come up with creative solutions
to cope with these kinds of infrastructure weaknesses. So although we have a huge middle
class middle class income with increasing income disposable income the population is
also increasing but there are several infrastructure issues that the multinationals have to, have
to cope up with. Another characteristic is that Technology
is underdeveloped. So most of the countries they also lag behind mature market in the
area of technology. In the case, both on the supply side that is the infrastructure and
innovation and demand side that is adoption of new technology. So this is underdeveloped
for both on the supply side and the demand side. However, without the legacy of old technologies,
companies doing business in the countries can offer leapfrog old technologies. But the
silver lining or the good part is that, the company can easily shift from older technologies
to new technologies.

For instance, BRIC countries appears to lead in mobile technology, so because,
because in BRIC countries, the landline telephone conversation was already less, so it was easier
for them to shift mobile technology. Another characteristic is Weak distribution
channels and media infrastructure. So compared to developed countries, distribution and media
infrastructures in emerging markets are largely underdeveloped. However, the distribution
environment is changing drastically even in the poorer emerging markets.

So now you see
that in emerging markets the distribution system and the media infrastructure they are
weak, but they are developing. There they are weak but but the governments are making
efforts to develop them. For instance, the shopping mall phenomena that originated in
the United States is, for better or worse, is spreading to dozens of emerging markets. So now this is, this phenomena of shopping
mall that was developed in United States, is for good or bad, it is expanding. Whether
it is good or bad is not the issue but it is expanding. Nine out of ten largest shopping
malls in the world are located in emerging markets. So all those of the phenomena is
started in United States but the largest 9 out of 10 of the largest shopping malls, they
are located in emerging markets.

A more recent phenomena has been the steady
but undeniable emergence of strong local companies also. Several of the firm, several of these
firms have been able to prove their mettle in competing with the large multinationals
in their home country. So now these multinationals, they have come to emerging markets, but the
companies from multinational they are also becoming global and they are also given tough
competition to the multinationals from outside.  For example, Jollibee, a so called new champion,
is a company created in an emerging market that has been able to law, able to humble

Similarly Patanjali, so you will find that, it is the new champion, and
it is given tough competition to HUL and P&G. Now dozens of the new champions, have also
become, credible challengers outside their home markets. So they have also now expanded abroad and
they are given tough touch challenge to the multinationals in their home country also.
For example, Taiwan based HTC at one point in time and Acer. Then you have several brands
from Korea, giving challenges to to brands from Japan. So Samsung may be challenging
the success of Sony not only in Korea but also in Japan. Now what are the strategies that the new champion
employs to stave off multinational companies? So Bhattacharya and Michael have identified
the following strategy that makes emerging markets firms so successful. The first is
that, they create customized offerings. So, savvy local companies often have built up
an intimate knowledge of their customers, because they have been operating for a long
time so they have lots of knowledge about the customers. And on this, on based on this
knowledge, then they develop their offerings which are customized for the local markets,
by leveraging their customer information these firms have been able to develop customized
products or services that appeal to their clients.

For example, Philippines local fast food chain
Jollibee has, localized its burgers to taste like stronger flavored meatballs instead of
pure beef patties. Chain's menu include favourite Filipino items such as sweet spaghetti, palabok
and arroz caldo. The second is that they Develop business models
to overcome obstacles. So, local champions are adept in identifying key challenges and
then developing business models to surmount them. So they are because, they are, they
are more local in nature, so they are able to identify the challenges more easily, and
more thoroughly, and then they develop business models, business model, so so that they are
able to overcome those challenges.

For example, computer gaming industry in China
for companies such as Sony and Microsoft, product piracy is a key challenge in China.
Shanda and other Chinese players have developed a thriving business by developing multi multiplayer
online role-playing games where the issue of piracy is not important. Then they deploy latest technologies. So local
players in emerging market are not hampered by the legacy of old technologies and can
leapfrog to the latest technology, because they did not had they were not using technology,
now they have, they have the chance, to buy new technology and adopt them.

While the multinationals
they were already using a technology that has gone old, so they have to first, do away
with text with their technology and the process is related to those and then biotechnology
and develop used and adapt to that technology and develop process for using that technology. So this helps to keep the operating cost low
and provide good quality products and services Safaricom is Kenya's leading mobile phone
service provider developed a mobile banking services called M PESA, that is mobile pesa,
that allows clients to transfer money via SMS and handle their mobile phones as an electronic
wallet. The forces that we take advantage of cheap
labour and train their staff in house so labour cost in most emerging markets are still much
lower than they are in the developed countries. Many of these new champions have developed
business models that leverages the cheap labour cost advantage in their home country, so their
business models are more labour based and because the labour is cheaper so that, that
gives them the huge cost advantage.

They are more capable in dealing with bare
minimum fare of resources than their rivals from the developed countries, a skill that
Carlos Ghosn, the head of Renault Nissan describes as frugal engineering. So they can survive
on minimum resources and also come up with new products. Then they have the ability to scale up rapidly.
So many homegrown champions distinguish themselves by building up scale very quickly, through
a combination of organic growth and absorbing smaller rivals. So, that increases their scale
very rapidly because they are growing internally and also acquiring. The next is that they
investment talent to sustain growth. The new challenges also grow by the willingness
to invest in managerial talent, how to go about positioning for emerging market champions.
Now how this emerging market companies should position themselves.

A challenge that the
emerging market champions face is whether they should focus on their home markets or
expand into global markets. This is always a challenge for many companies, whether to
continue to focus on the home markets. And when if possible to expand in global,
global marketplace deciding which strategy to pursue hinges on the following two parameters,
so whether to focus on the home market or to expand into global market, that is depends
on two parameters, the first is the strength of the globalization pressures so if the strength
of globalization pressure if the Global globalization pressure is used and obviously they will have
to use the second step.

The degree to which company assets can be
transferred internationally, so if the, if the globalization pressures are huge, and
the company is able to transfer the assets internationally, then obviously they should
expand to the global market, otherwise they should still continue to focus on their home
markets. So combining these two parameters generates a set of four strategic options. Let us, let us see what are those four strategic

On the x-axis we have the competitive assets, whether they are, they can be transferred
abroad or not, so whether they are customised they are especially for the home market or
they can be transferred abroad. On the y-axis there are pressures to globalize in the industry.
So if the pressure is there, there can be two outcomes, one can be higher, so the pressure
to globalize in the industry is huge or it is low. And these are the four options, the
dodger, the contender, the extender and the defender. Let us talk about Contender. So when the competitive
efforts that can be transferred abroad and the pressure to globalize is high, then what
the term for this is square is the term that is coined for the combination is called is
Contender. And it focuses on upgrading capabilities and resources to match multinationals globally.
So now you your capabilities and resources to be upgraded are to be upgraded, so that,
so that they match the multinationals globally. Often by keeping to the niche markets so first
you keep on developing your asset, assets and then you can do that so that so, what
this contender do is, they focus on upgrading their capabilities and resources.

How but
given toniche markets, so that they can match their multinationals globally. Now if the
assets are, let us talk of a defender, if the competitive assets are customized to the
home market, but the pressures to global, globalizing the industries are low, then this
kind of company is this kind of combination is called as defender. And here there is a need to focus on leveraging
the local assets which are customized for the home markets, in market segments where
multinationals are weak. So, keep in mind when where these defenders have to have to
keep on focusing on the competitive assets but at the same time they will also have to
look into segments where multinationals are weak. So multinationals can choose from the following
strategies to fend off threats from the emerging giants in their industry. The first is go
beyond low cost sourcing in emerging markets.

So multinationals should view developing countries
as more than cheap manufacturing bases. So they should examine the entire value chain
from R&D to the customer service, support and see which stages, stages would warrant
relocation to emerging markets. So now they have to look at they have to look
at the supply agent from R&D to customer support service. And then look at which of these activities
can be done in the, in the emerging markets, which of these activities is more cost incentive,
which of these activities about labour in intensive, intensive and then these activities
may be carried out in emerging markets. For example, Nokia Siemens Network setup an innovation
centre in China. The second is to develop market, products
in emerging markets and bring them home. So these multinationals, they develop products
in emerging markets and then they take it home. So companies should launch in their
developed markets, new products that were developed by the subsidiaries, in the emerging

So now, the products the flow of the products, is reversed. They are developed
in the emerging markets and then taken back to the home market. So Hindustan lever's Pureit, a cheap home
water purification system. The third thing, that they can do, is to copy branding tactics
used in emerging markets. So there, there we are talking about adopting the best practices.
Emerging Giants often use cost effective tactics to build up their brand image, because I do
not have lots of money for brand building. MNC, MNCs should learn from such promotion
strategies and emulate such tactics. So they should learn from these strategies, they should
learn from the best practices and try to replicate emulate those such tactics. Fourth is to team up with New Emerging Giants.
Traditionally, multinationals would form a joint venture with the local firm to penetrate
the host market.

So instead of one directly with this multinational should form joint
ventures with the local companies so that make their data much more easier and it because
it becomes a marriage of convenience. So the local company will get all the resources of
the multinationals, so the multinationals will get all the knowledge that this local
company has about the local market. So that becomes a win- win combination. The
multinational should form a joint venture with the local firm to penetrate the host
market or more radical approach is to tie up with new emerging giant and harness is
capability in delivering value for money innovations IBM partnership with Ariel in the Indian mobile
phone market. The fifth is to invest in growing mass markets
in developing countries. Most Western multinationals focus on high end segments of the market when
competing in developing countries and leave the mass markets to their local competitors.
Now the problem is that when these multinational come, they focus on the high end customers,
and obviously the high end customers are different size and they leave out the rest of the market
for the for the for the competitors from the developing countries.

So they are living out
of, living out on the large mass market for the local competitors. However such strategies enables local players
to build up a scale and experience. So now what happens because they are leaving out
on the mass market, the local companies they utilise the capital that that mark that mass
market and they build up scale and experience. Based on that and then they also start competing
with the multinational not only in the domestic country later on they will go in the multinational
home country to compete, so therefore to preempt them multinational must broaden their scope
and also go for mass market. So now what is the suggested is that not that they should
not only look for the highest segments but also for the mass segments.

So, as to stave
off competition from local companies becoming, becoming bigger, powerful, and global in nature. Now let us look at whether to target opposition
what kind of targeting and positioning should be used in emerging markets whether we should
use Bottom of Pyramid or no Bottom of Pyramid. C.K. Prahalad, who was the management guru
and professor at the University of Michigan, he popularized the concept of bottom of Pyramid
in his 2004 book, for that is, that is Fortune at the Bottom of Pyramid. So this book is
written by professor C.K.

Prahalad, he was, he was at the University of Michigan,he is
no more now. The Bottom of Pyramid paradigm can be summarised
as follows, so what is this bottom of pyramid paradigm, what is this bottom of Pyramid all
about? First, there is a lot of untapped money at the bottom of pyramid. So the first thing,
first assumption is that, there is lot of money with at the bottom of pyramid, the poor
represent a substantial reservoir of pent up demand. This, they have, assumption is that, there
is lot of money at the at the bottom of this pyramid with the poor and there is a substantial
reservoir of pent up demand and there's also a lot of demand at the bottom of pyramid.
So they have the money and they have the demand.

The second, assumption is that the bottom
of pyramid offers a new growth opportunity for value creation and a forum for innovation,
so because now you see that they have lots of money, it is so big, and if even if a person
has very small amount of money also, because the size is so big, it becomes lots of money,
and they also because each individual has a small amount of money, they have the demand. Because each individual does not have enough
money to buy buy bigger products but each individual has a small amount of money at
his disposal therefore there is a need to create there is a there is an opportunity
for creation of value and a forum for innovation. It means that now the companies have the , companies
can innovate or customize or redesign their products. So that they can then be sold to this bottom
of pyramid people the third is the bottom of pyramid market must become an integral
part of the firms' core businesses. They will be, they will be critical for the long term
growth and vitality of the multinationals. Now third is, third thing is that this balance
or bottom of pyramid market, should become the integral part of the firms' core businesses,
it should not be that, it should not be periphery it should be at the heart of the company,
because, why, because long term growth can be had from this bottom of pyramid and not
short term goal growth.

So and the company will invest in this kind
of innovations and value creation only when this is taken as the firms' core business,
and only then this will lead to long term growth, short term growth may not be there,,
in the in this kind of market. What are the benefits of catering to the Bottom
of Pyramid Markets in Emerging Markets? So obviously as everything has two, two, two
sides this also has two sides, so let us, start with, with understanding what are the
benefits. Let us start with understanding what are the benefits. The first is, some
Bottom of Pyramid markets are large and attractive as stand-alone entities.

So at some places
or in some categories this Bottom of Pyramid market they are large, and they are so large,
that, they are also attractive as stand-alone entities. Many local innovations can be leveraged across
other bottom of pyramid markets, there by creating a global opportunities for such innovations.
So now local innovations can be, can be used for this bottom of pyramid markets and then
these innovations can also be taken by the headquarters by this, multinationals back
home. Some renovations that originate in BOP market can also be launched in the MNCs developed
markets. The learning experience from the bottom of pyramid markets can also benefit
from the multinationals, so it is about money and experience both. Now let us look at what are the various Entry
Strategies for Emerging markets. So we have seen various kind of entry strategies, now
we will talk about which strategy is more appropriate in emerging market, because that,
because that entry strategy decision is very important, that because, because then it will
affect the long-term success of this multinational.

So that two key decisions related to entry
strategies for emerging markets are, first is the timing and the mode of entry. So, we in the, in order to understand this
entry strategy we have to know, we have to understand these two things, timing and the
mode of study, mode of entry. Despite the appeal of emerging markets, especially the
huge, Brazil, Russia, India, and China, these countries early entry can hurt performance
even for mighty brands. So for example, Kellogg's pre-mature entry in Indian market. Now this
means that, the timing of entry should be appropriate and that timing will also determine
the mode of entry. The example is that of Kellogg's made a premature
entry in India, and India was not, not ripe , India was not developed enough or India,
Indians did not considered it important to eat cornflakes in breakfast, because of that
thing, it is said that Kellogg's made premature entry in India.

Till recent times they are
suffering because of this pre mature entry. So when cereal industry of Western countries
matured in 1990s, Kellogg's then decided, because the western countries the market has
matured, so Kellogg's decided that it should now go to India. Kellogg's ventured into India
with US dollar 65m investments as India was a big market with 1 billion people and with
very few direct competitors. So there were no direct competitors, Maybe Mohan Meakins
was the only competitor. Unfortunately hmm Indian consumers find the
whole concept of eating breakfast, breakfast cereal odd.

Indians did not consider eating
cereals in breakfast. Although initial sales was encouraging, but sales never took off.
Most likely, India was not yet ready for the western style cereals and Kellogg's entry
may have been too hasty and aggressive. So they were very aggressive as they invested
lots of money but the problem is that Indian did not considered, did not wanted to eat
breakfast, cereal breakfast cereals. So all of this investment went waste. Now let us look at, what are the decisions
related to the Timing. The first let us look at the reasons why first movers in emerging
market failed. So when the companies they move fast in emerging markets, why do they
fail? The first is, the first reason for the failure is early entrants may not be aware
of the pitfalls of newly opened emerging markets. So they may not be aware of, what are the
changes happening, and how they are the changes are going to affect the consumers? The second is the return on investments, can
be low when the infrastructure is not fully developed.

So they may have decided to have
a different kind of return investment but when they enter, they will find, because of
infrastructure is not developed even they will find that the return on investment is
low. The third is later entrance have a flatter learning curve as they can learn from mistakes
made by the earlier entrants. So the later entrants obviously will have, will have learnt
from the early entrants mistake so therefore, therefore chances of success are more. But there are certain arguments that supports
early entry also, the first argument is that the government relations are usually far more
influential in emerging markets than in developed countries. So in developed countries, government
relation may not affect, because everything is in place, but in emerging market government
relations are important.

Nurturing of these relationships could lead to favourable treatment
and some tangible benefits also, for example, that, holidays, licenses. The second argument to support early entry
is that the huge pent up demand for previously unavailable Western demands can lead to high
initial sales as have been as in the case of Kellogg's. The third argument is early
entrance can lock of access to key resources such as media access, brand endorsers, distributors
and suppliers. Such resources are often much scarcer in emerging markets than in developed
countries. Now you see that early entrants he entered
and he is able to buy these resources which are scarce even more scarce in emerging markets,
so they, they are able to buy these resources.

Now what happens is that, these resources
become more costly and more scarce for the second mover or the late movers. Early entrants can enjoy higher productivity
of their marketing dollars. So now because of this, they can enjoy higher productivity
of their marketing money. In early stages of economic development, advertising rates
and competitive market spending are relatively low. Therefore marketing dollars can deliver
much more bang for the buck, in the form of high awareness, share of mind, and brand preference,
compared to later stages. Now what is happening because there are no
competitors competition and there's no platter so therefore and also because the resources
which scarce they have bought and cheaper is case and cheaper earlier and they have
brought them, so now the first mover they can make much more noise, they can have higher
awareness, share of mind, etc.

Etc. But when the when the late entrants come,
they will find that, is resources, good resources, more effective resources have already been
taken up by the by the first mover at a lesser cost and they have to buy the remaining resources
at a higher cost. And therefore their marketing their productivity of marketing dollars will
be less as compared to that of an early entrant.  Now let us look at the, Decisions relating
to the Entry Modes. While entering a new emerging market, multinational can choose from several
modes of entry, that we have discussed in module 18 and 19, and that include indirect
exporting, and direct exporting licensing, franchising, joint ventures and wholly owned
subsidiary. The key tradeoff among these choices is that between risk and control over the
marketing resources.  So all through this the trade-off is between
risk and control.

The key tradeoff among these choices is that between risk and control over
the marketing resources. And they are inversely proportional as the control increases, the
risk decreases, and as the control decreases risk increases. So that is what is important. Given the large risks and the firm's lack
of knowledge, multinationals usually first enter with a low risk entry mode, because
they do not know what will happen so they use a no risk entry mode, that is licensing
or minority joint venture to minimize the risk. The focus is on sales rather than marketing,
so they want to just keep on selling the product and not marketing them, because of the higher

When developing an entry strategy the ultimate yardstick, is the firm’s performance
in the host country.  To conclude, in this module we have covered
the key characteristics, what are emerging markets, what are the characteristics of emerging
markets, and then we have discuss the recent phenomena that is the rise of so-called new
champions. For example Patanjali Yogpeeth is considered as a new champion. Companies
rooted in emerging markets that have outperformed large multinationals in their home tufts.
We have also discussed how multinational companies can thrive in emerging markets. So, on the one hand we have talked about companies
from emerging markets bit who are becoming new Champions and then we have also talked
about what multinational company should do in order to thrive in emerging markets and
how companies can successfully tap into the so-called bottom of pyramid markets, what
it needs to take, what should be done in order to tap in this huge or so called big bottom
of pyramid market. And finally we have also discussed the key
decisions of entering timing and entry modes, while entry, entering into the emerging markets,
so entry timing is important and it will determine the entry mode.

And in we have talked about
what should what happens in the first mover, what kind of entry mode should be used, and
what should be used by late movers. So first mover may go in for exporting, late movers
may go in for joint ventures or minor, minority joint venture partnerships. And we have used these 3 books to develop
the module. Thank you..

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