The Right Entry Point for Emerging Markets

Monday, March 12, 2012

I recently participated in a spirited panel discussion with Bruce Brown, Procter & Gamble’s Chief Technology Officer, and Erich Joachimsthaler, Vivaldi Partners’ managing director and CEO. The topic — part of a series on innovation sponsored by Singapore’s Economic Development Board and coordinated by Harvard Business Review — was “What’s the Right Entry Point for Emerging Markets: Target Customers at the Bottom or the Middle of the Pyramid?”

I kicked off the discussion by arguing that many companies ought to start in the middle. After all, the World Bank estimates that the number of middle class consumers in emerging markets will jump from 420 million today to more than 1.2 billion by 2030. In Asia alone, spending in that market tier will surge during that time period from $5 trillion to $30 trillion.

Reaching this vast middle won’t be easy, I said. First, it will take more than introducing compelling products and services to mastering intricate business models. Success can require experimenting with new ways to market, distribute, offer post-sales support, and more. You also need to re-think how you organize. Global giants have to increasingly ask emerging markets branches to go from acting as local distributors to serving as local developers. This shift is easier said than done. It requires rethinking reporting relationships, talent management, rotational assignments, compensation, and more.

Joachimsthaler’s perspective was that while the numbers sounded enticing, the middle class is no monolith. Companies need to understand those markets at a granular level, and recognize that winning in those markets will be harder than they think. He described Tata’s seeminglystalled efforts to create a low-cost “people’s car” in India. Joachimsthaler’s opinion is that the aspirational nature of an automobile means people don’t want to buy something known as being “the cheapest.”

Brown said P&G’s size and stated strategy to expand its market to encompass 5 billion consumers worldwide means it has to look at all tiers of the market. He described how P&G’s strategy is to win through branded products that offer consistent “delight” to consumers. He noted that consumers in emerging markets can sometimes be more demanding than consumers in more established markets, and that P&G carefully considers whether it should “go it alone” or partner with or buy local companies to build necessary capabilities. He described P&G’s Gillette Guard product as a success story — a low-cost razor that is driving growth in India and related markets.

Source: Bloomberg (link opens in a new window)

Base of the Pyramid