Ever since Goldman Sachs coined “BRIC”, and China/India/Brazil etc. continued to grow during the worldwide economic crisis, many Multinational Corporations (MNCs) have asked themselves the same question: “are we doing enough to ride the emerging market curve?” The usual approach is to set up a “white space” team, hire a few local managers and hope for a strong investment proposal that they can put their capital behind. For the purpose of focus, these 5 insights, suggestions and watchouts have been tailored to help MNCs enter a previously untapped emerging market.

1. Nothing succeeds like success:

It is important to pick your battles, focus on one country/category combination and win market share while emerging into profitability within a maximum of 2 years post entry. This helps provide confidence to the global organization (including support functions), to the local employees (enabling the recruitment and retention of top talent), and to local stakeholders and partners (e.g. distributors). People forget about the 15 year business plan for China that was submitted in 2003.

What matters is cash, growth rate, market share and a positive/energizing feeling of success among employees. Of course, one must have a “leverage momentum” plan of expansion but the project Net Present Value (NPV) and investments should not depend on it (common mistake). It is important to keep investing in the same category and business since hard-won market share may decline if the MNC does not sustain a good rhythm of product and conceptual innovation over time.

2. Think through the entry & have plans B & C:

Competitive reaction in emerging markets can hit you from “left field” - even regulations can sometimes change to suit the local players’ needs. I once faced a doubling of import duty for my newly launched product soon after launch!  In addition, local players reacting out of ego or for prestige reasons (so as to not lose “face”), may begin doing irrational things in the market for an extended period of time (discounts, margins, negative public relations campaigns). Finally, local players will surprise you with the quality of their product upgrades, service levels and concept/marketing quality. This reinforces the need to focus on establishing and nurturing one business to start with, one share point at a time. Managers must spend several days or weeks in “war rooms” evaluating multiple entry strategy options, competitive defence reactions, financial options etc., all the while keeping the strategy very confidential - retaining corporate secrets and intellectual property in emerging markets is a very serious issue and worthy of a separate paper!

3. Distribution is more critical than marketing/branding:

Many launches fail if managers take the distribution channel for granted - contractors or outsourced service teams in the case of B2B businesses. It is critical to partner with people who have the same value system as your organisation, have an established foothold and relationships in the market, and have reasonable scale to avoid falling into the trap of temporary price reductions that competitors may offer. The P&L spending priority must ensure distribution receives “what’s needed” before moving to awareness or trial building plans. One can develop cheaper or high ROI marketing plans (e.g. social media, a strong celebrity or PR outreach) but it’s very difficult to take your product or service to where the end user wants you to be.

4. Leverage your strengths:

One often hears advice about pricing low in emerging markets, giving distributors very high margins and making losses for many years or contract-manufacturing locally from day 1. This is generic advice and not suitable for all companies. What is important to recognize is that an MNC (or their local partner) has certain strengths such as product technology, processes, branding competence and global partnerships, that local competitors cannot match overnight. It is important to try and leverage these to “change the game” instead of trying to jump into the existing play – add a new premium tier to a market (e.g. retained vs. contingency search entry strategy), get credibility and trial using a global partner (e.g. health related products and a global partnership with Unicef/WHO), add a new distribution model (e.g. mall counter sales in beauty care), or change the nature of innovation (e.g. increase the frequency of marketing initiatives). It sounds like something from a theoretical business-school paper and is definitely harder work to predict and prepare for the future. But it works!

5. Make your employees feel part of something special:

People are truly the foundation of success in emerging markets. It is important to create a core team of local executives (do not outsource), train them (maybe for 6-12 months in another operation abroad), then empower and inspire them to chart their own destiny for their home country. It is a very powerful concept and helps drive productivity, employee retention, and passion to succeed - positive effects that will spread to the entire extended team. There are people who like to fight for the underdog and be part of a “start up” culture – hire executives with the right qualities and values that fit your company culture, steer them in the right direction and let go! This requires the need to pick a country manager who has both hard & soft skills.

Although there are many more important factors to consider when entering global emerging markets, such as customizing products to cultural sensitivities (R&D) or modeling for fluctuating exchange rates (finance), follow the above key points and the venture into unknown territory will go from daunting to exciting.

BlueSteps Member Guest Writer
Rahul Malhotra is Regional General Manager (Americas, Asia-Pacific, Middle East, Southern Africa) and a member of the global executive team for one of Shell’s global downstream businesses. He is directly responsible for a P&L of about $1.5b, about 1500 direct / indirect employees and serves as chairman/director on multiple boards in his business, including JVs with the government and listed companies. Prior to this, Rahul worked for many years with Procter & Gamble in the marketing function, on diverse businesses and markets (Japan, India, China, South-East Asia, South America, Australia/NZ, North Africa, Eastern Europe etc.). Rahul and his family live in Singapore. Contact Rahul at Rahulmalhotra1@gmail.com.

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