Emerging markets: how to succeed?

Our success keys to conquer an emerging country

Emerging country: a country that stands out among other developing countries due to strong macroeconomic results (industrial production, employment) and a high economic growth rate. (Larousse French Encyclopaedia)

Today, the dilemma that industrial companies are facing is no longer whether or not to expand commercially into emerging markets, but rather how to develop an effective action plan to maximize chances of success.

The fact is that the dynamics at play in emerging markets are very different from those of more mature economies: client profiles, industrial ecosystems, demand variability, labour market, workforce education, etc.

The opportunities they present are immense; the perspective of new business (vs renewals), pioneer advantage, and strong economic and demographic growth rates are pushing industrial companies of all sectors to take an interest.

But the challenge is just as immense as the reward.
First, let us have a look at a strategy that does not work: duplicating an offering that was successful in Europe without adapting it to the specificities of the target market. This is not just about pricing.
The entire range of the offering may need to be re-examined: products, services, value chain.
So how can you break into an emerging market with minimal risks and costs? How do you develop a fresh and tailored strategy without losing touch with your history, your experiences and those trusted, time-tried solutions?

The expertise that IAC has developed while collaborating with industrial companies that have managed to gain a foothold on emerging markets has brought to light three conditions for success.

  • The first condition is to have precise insight into your prospective customers’ product needs and value chain.
  • Equally important is the technical agility to adapt rapidly to diverse and fluctuating demand.
  • The third key to success is having an effective rollout plan that addresses issues related to supply chain strategy and time-to-market optimization.

As explained above, companies wishing to penetrate emerging markets will need to do more than simply transpose their offering and the marketing strategy they are successfully conducting in developed countries into these new territories.

Emerging markets are a diverse reality; each country has its own unique set of circumstances and specific needs.

To develop a tailored strategy, industrial companies first need to get acquainted with some general data, even before they delve into the thick of things and start poring through market analyses.

A macroeconomic approach yields a comprehensive overview of the market: level of advancement and education, volume of prospective business, demographic segmentation.

In this instance, we learn that despite the fact  that some figures — annual urban population  growth, proportion of industrial production in the  GNP — are similar for North African and South-  Eastern Asian countries, there still remain some  dramatic differences:

•the GDP per capita is twice higher in North  Africa than that of South-Eastern Asia;

•access to secondary education in North Africa  is similar to that of France, much higher than  in Vietnam and Cambodia;

•the economic growth rate is twice higher in  Vietnam and Cambodia.

Depending on the sector, it might be pertinent  to consider other indicators: mean age, life  expectancy, annual cement production for the  vitality of the construction industry, etc.

Another fundamental parameter to explore is  regulatory environments, in order to anticipate  hidden costs (border taxes, local standards) that  could impact your penetration strategy But only a market analysis, with a very practical  field approach, can help industrial companies  clearly identify the needs of their prospective  customers.

Let us illustrate this with the case of one of  IAC’s clients: a manufacturer of turnkey solutions  for brick-making equipment had reached its  maximum potential on Western markets, so  they started considering turning to high-growth  markets. An in-depth market analysis of the brick  industry in Iran and North African countries was  conducted through face-to-face interviews with  local business owners. It found that:

  • local quality standards were not the same as in  Western countries;
  • the extent of automation expected by local prospective customers was much lower than what European manufacturers were accustomed to;
  • product ranges were usually much less diversified (one or two products, as opposed to over 30 on more mature markets) ;
  • structural works were performed by local artisans.

•a particular feature can be altered to meet  local expectations. For instance, LG developed  higher-quality sound systems for their  televisions when they became aware that Indian  consumers often used theirs to listen to music;

A competitor analysis — provided  there  are competitors already established on the  market — is another crucial element to help  determine goals in terms of pricing and product  performance. In this particular instance, the  competition consisted of Southern European  and local companies, usually family-owned or  small-scale operations. Lastly, once the customer’s product expectations  have been determined and prioritized, a value  analysis approach provides the means to adjust  the product’s specifications and design to match  actual needs:

•new features can be added to an existing  product to differentiate it from competing  offerings. For instance, Samsung launched on  the Indian market a washing machine with a  ‘sari’ cycle, specifically developed to prevent  the clothes from getting tangled;

•some features can be removed in order to  match actual needs and take into account the  variability of resources available. For instance:  automation on brick-making equipment.So does a distinct offering always translate to a  distinct technical solution? Not necessarily. In  some cases, a modular range approach can be an  appropriate strategy to minimize costs and risks  associated with expanding into new markets.

Use modular design to cover the performance of a whole range.

In the case of this company, what they wanted  was ideally to develop a basic low-cost and little-  automated solution, delivered unassembled, with  no turnkey installation services associated,  specifically targeted to Iran and Algeria.

However, this solution also had to accommodate  the possibility to meet renewal demand on more  mature markets by delivering machines with  greater automation, better control of baking  temperatures and turnkey installation services.

And of course without spending twice the  amount in development costs.

Modular design is a cost-effective solution to  develop a diverse product range. The concept is  quite simply to design a module — i.e. functional  unit — for each operation, which can be  combined to develop an offering just as diverse  as a regular range.

That is how IAC helped its client develop a  modular brick-manufacturing line consisting of:

•a basic baking unit…

•…with the possibility to attach several units  together to increase baking time, depending  on outside temperature,

The same principle was applied to each single  technical unit of the production line, regardless  of its intended market:

  • Iranian market: outside temperature around  22°C, low-skilled workers and cheap labour;
  • German market: outside temperature around  15°C, rare and highly-skilled workers.

However, transitioning to a modular range alone  is not usually enough to deliver a competitive  offering. Additional steps must be taken in order  to reduce the cost of each individual module. At this stage, a design-to-cost approach can  yield significant cost savings — reduced by 20-  25% compared to a non-optimized equivalent.

This approach focuses on four parameters in  addition to those addressed above:

  • technical solutions: reducing complexity,  choosing the  right materials, the right  technologies;
  • procurement, depending on activities: Global  or local suppliers?
  • Co-designed or standard components?
  • Manufacturing process: these choices will impact  labour costs down the line and companies need  to assess their supply chain and decide whether  to make or buy ahead of time, all the while  keeping the local context in mind.

Once the offering and the product have been  defined, all that is left is implementing the  proposed action plan and successfully rolling out.

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