MARKETING IN EMERGING MARKETS

H O W C O U N T R Y D I V E R S I T Y I N F L U E N C E S G L O B A L B U S I N E S S S T R A T EG I E S A N D P R O C E S S E S .

BY

A N T HO N Y O E S W A D I

MKT 9766 – DECEMBER 6, 2010

FALL 2010
 CONTENTS

Introduction

Winning in Emerging Markets

What are emerging markets?

Structural understanding of environment

Analyzing Li & Fung case

Approaches

Classical and Contemporary approach

Glocal approach

Tailoring approaches for BOP Market

Disruptive innovations

Reverse innovations

Mobile Technology in Emerging Markets

Conclusion

References
INTRODUCTION

Looking at the current market and economic conditions, we can agree that most

companies need to expand beyond their current local boundaries. Competitions have become

much more intense because not only we have to consider local competitors but also foreign

competitors that could offer same services or products at a much lower price due to cheaper labor

or raw materials. Moreover, the expansion of information technology in the late 2000’s into 2010

has enabled many local small companies to market products around the world. Many companies

have virtual worldwide presents in multiple social networking such as Facebook, Tweeter,

mySpace, and Foursquare.

Has the world become flat after all in 2010? An article in New York Times of April 3,

2005 by Thomas L. Friedman brought up the topic of the world is flattening. Nowadays, the

playing field is undergoing a leveling process. These entire phenomena occurred due to easier

access of information communication technology across the world. Do all these expansions in

information technology have anything to do with how countries diversity influences our global

marketing strategies and processes? The answer is a resounding yes. The above factors have

everything to do how we can understand changes in culture and maybe even norms and

regulations.

As described by Friedman, we are in the process of connecting all of the world

knowledge with the flattening of the world.

“WHEN THE WORLD IS FLAT, YOU CAN INNOVATE WITHOUT HAVING TO

EMIGRATE.” –THOMAS L. FRIEDMAN. 1

1
http://www.nytimes.com/2005/04/03/magazine/03DOMINANCE.html
Pre-existing companies’ strategies will be challenged and revamped to maintain competitive

advantages. More risks and threats will arise from both internal and local competitors as well as

foreign competitors. As an example, I will explore a small clothing company that one of my

friends has founded in Hong Kong.

Aside from Japan, Hong Kong is considered one of the major fashion hubs in Asia.

Additionally, Hong Kong has one of the most diverse cultures. After graduating with a fashion

degree from one of New York top design schools, Ms. Tam worked as one of New York fashion

designer companies. After familiarizing herself with the culture and current fashion market

trends, she recognized that Asia offers a lot more growth potentials in her career. She moved to

Hong Kong in 2008 and worked with another fashion company in Hong Kong to have in depth

knowledge of the Hong Kong fashion market.

Together with her fiancé, Ms. Tam founded a clothing store along with her own clothing

line “Aalis” in September 2009. In addition to the physical store, Aalis has presents in multiple

social networking media. Aalis’ Facebook profile, Twitter, and BlogSpot page were launch

almost at the same time as the grand opening celebration event. Ms. Tam utilizes all of these

social media as marketing channels and brand building strategy. She has been receiving order

requests mainly from friends and colleagues worldwide. As an aspiring Indie clothing designer,

Ms. Tam has been in multiple Hong Kong magazine publications since inceptions. Her store

Aalis had just had its first anniversary in September 2010.

What is the significant of the short case above and why did I bring it up? The world has

changed, and it will continue to change as information technology evolves. Although Hong Kong

is not one of the emerging markets in general, one of the key factors from the short case above is

to maintain success by understanding and acknowledging target market cultures and behavior
patterns. These actions are crucial to maintaining competitive advantages. Additionally,

marketing channels have been made easier and much more affordable.

Many small shops have taken advantages the channels that social networking media

offered. It is possible to advertise and gain a global present through friends and colleagues. This

is one of the reasons that Facebook has become one of the world most popular networking and

marketing media. We are going to focus on emerging markets and what type of marketing

strategy or approach can be beneficial to gain market presence globally especially in the bottom

of the pyramid market.

WINNING IN EMERGING MARKETS

What are emerging markets? Searching the phrase emerging market via Google yielded

the several definitions.

“EMERGING MARKETS ARE COUNTRIES THAT ARE RESTRUCTURING THEIR

ECONOMIES ALONG MARKET-ORIENTED LINES AND OFFER A WEALTH OF
OPPORTUNITIES IN TRADE, TECHNOLOGY TRANSFERS, AND FOREIGN
DIRECT INVESTMENT” –CHUAN LI. 2

“EMERGING MARKETS ARE NATIONS WITH SOCIAL OR BUSINESS ACTIVITY

IN THE PROCESS OF RAPID GROWTH AND INDUSTRIALIZATION”—
WIKIPEDIA. 3

Essentially, emerging markets are developing places or markets in respect to economic

and political growth such as China, India, and Russia. Additionally, they are also markets with

untapped or under utilized resources such as labors and natural raw materials. Moreover,

emerging markets are considered emerging competitors. On this note, China has been known as

2
http://www.uiowa.edu/ifdebook/faq/faq_docs/emerging_markets.shtml
3
http://en.wikipedia.org/wiki/Emerging_markets
the awakening “Sleeping Dragon”—an international powerhouse that recently open its house to

international market.

Emerging markets are viewed as places ridiculed with high corruptions, insecure

intellectual property rights, and infrastructure inadequacies. Many companies are simply

discounting emerging markets due to overwhelming risks outweigh the potential benefits.

Effectively, operating in emerging markets is completely different from operating in developed

markets. The lack of institutional infrastructures and inefficient logistics are not only among the

few shortcomings of emerging markets but also among their unique factors that shape business

opportunities. The growth in information technology, especially the Internet, has accelerated the

integration of emerging market into the global economic markets. Dealing with emerging

markets is not a race to the bottom. On the contrary, emerging markets are catching up to be the

source of future business endeavors.

STRUCTURAL UNDERSTANDING OF MARKET ENVIRONMENT

Understanding local structures or segments in emerging markets helps companies to

tailor products and services suitable for specific target segments effectively. Market segments in

emerging markets are differentiated by income, needs, taste, and psychographic characteristics.

Some small percentage of customers in emerging market might prefer high-end products while

majority of people—bottom of the pyramid market segment can only afford the least-expensive

products. Understanding these segments will help global companies tailor their business models

and marketing strategies.

Li & Fung is an excellent example that demonstrates structural understanding of

globalization and emerging markets. Li & Fung faced with pressure of the fast growing Internet
business community. These new Internet startup companies were able to compete by buying

many offline companies or acquiring offline companies’ core management teams due to the

constant availability of capital injections from investors. Li & Fung was able to address the lack

of online division by performing semi bubble-in approach of acquiring Castling. Li & Fung

targeted SME (small and medium-sized enterprise) market for its Internet model. Li & Fung

essentially restructured supply chains and intermediation to minimize cost and maximize

efficiency and quality across suppliers globally.

As a global export trading company, Li & Fung’s daily operation was very successful due

to direct sales and client managements. However, the growing trend of dot-com companies posed

a serious potential threat to the continuous success of Li & Fung operation. With the availability

of investors to provide constant flow of capital resources, dot-com companies could easily

acquire core management teams from other top companies by offering higher benefits or simply

by buying offline companies. Lifung.com was Li & Fung’s answer to the growing online

business environment. To remain competitive in the online business, Li & Fung took a semi-

bubble-in approach that proved to be effective.

APPROACHES

Marketing approaches evolves along with consumer markets. As markets continuously

move rapidly towards globalizations, new approaches are needed to comply with current

markets’ preferences. In the early stages of marketing strategy, product oriented approaches were

sufficient. Companies concentrated on producing products, quality of the products, and selling of

the products. However, in global economy, customer relation focus is as important as the product
quality. This approach is part of the contemporary marketing approach. This approach has been

one of the most popular approaches along with social marketing and brand marketing.

In emerging markets, customer focus marketing, social marketing, and brand marketing

play significant roles in the success of a company. As I mentioned earlier, emerging markets lack

many institutions. The existence of structural voids has created complications, and it requires

additional efforts for many companies to accomplish the same goal in emerging markets as

compared to developed markets. Any inadequacy can spread and cultivate mistrusts. Therefore,

customer marketing and brand marketing become extremely crucial to gain success in effective

marketing approaches for emerging markets.

Recently, glocalization—globalization with local focus approach has been the buzzword

of many multinational companies. Many companies understood the concept of glocalization as

degrading a full-featured product and marketing it in developing markets. Glocalization approach

is essentially providing the full-featured quality product tailored to the needs of emerging

markets’ demands. Some customers in emerging markets might look for products with global

quality but with local features and prices. Another group of customers might be happy with local

quality products with local features and prices.

TAILORING APPROACHES FOR THE BOTTOM-OF-THE-PYRAMID MARKET

Tailoring approaches and strategies for the BOP (Bottom-of-the-Pyramid) Market

segment are usually done by disruptive innovations and reverse innovations. Disruptive

innovations focus on product specializations—reinvent a new product with a single function

from a multifunction product. An example of disruptive innovation is GE’s portable EKG

machine for doctors in rural India. An EKG machines such as the ones commonly found in most
U.S. hospitals are very expensive and impractical for rural emerging markets population. GE’s

portable EKG machine has the same accuracy, quality, and reliable technology found in its larger

cousins. The small and lightweight EKG machine is easily configurable to meet patients’

allowing for confident cardiac care and clinical decisions.

“UNLIKE GE’S LARGER EKG MACHINES, THE MAC400 IS TARGETED TO

COMPLETELY DIFFERENT SET OF BUYERS, WHICH HAS CAUSED THE
COMPANY TO RETHINK ITS GLOBAL PRODUCT MARKETING STRATEGY FOR
THE PRODUCT” –EKG MACHINE NEWS. 4

Relatively similar to disruptive innovations, reverse innovations signify producing a

completely new product from the beginning in emerging markets and for emerging markets.

Therefore, these products are more in-tuned with their local consumers and more conformed to

the local surroundings. Additionally, marketing approaches for both disruptive and reverse

innovations focus primarily on specific societal benefits and added benefits offers to consumers.

In addition to employing product and brand innovations, companies need to act local and

create lasting brand values in terms of marketing practices to be successful in emerging markets.

Hence, increased stresses on the importance of companies engaging markets at the local level via

thorough understanding of local and regional culture, buying power, and needs. As a goal,

companies will be able to create strong product and brand positioning as clear and attractive as

possible. It is crucial to create a strong link between brand and product value. It is not surprising

that local companies can dominate local segment because of their superior local knowledge and

well-established brand recognition among the local customers.

MOBILE TECHNOLOGY IN EMERGING MARKETS

4
http://ekgmachinenews.com/the-new-mac400-portable-ecgekg-machine-from-general-electric/318/
 The rise of mobile technology in emerging markets has become prevalent in the recent

years. Mobile technology has become one of the most successful and dominant value solutions

for reaching rural areas in India and China. The demand of global service level of quality has

reshaped how multinational companies operate to capture the vast consumer potentials especially

in countries with fast growing markets such as Russia, India, and China.

Due to the vast majority of population of emerging markets is classified as growing

middle class, mobile communications is a substitute for Internet and even television. Many

articles have mentioned that rural farmers in China and India have made mobile phone as part of

their daily necessity for the main source of local news, weather, and other relevant information.

A set of mobile advertising and marketing is an essential element to the long-term growth

in emerging markets. Text-based mobile SMS marketing and community centric approaches

have proved extremely advantageous and successful for companies such as ITC e-Choupal in

India and Bharti Mobile. Moreover, mobile marketing can be considered as a form of reverse

innovations due to its high chance of success in the market of growing middle class customers.

In the advent of the 4G wireless communication bandwidth, the distinction between

mobile and the Internet will continue to fade away as customers continue to access media and

information through mobile devices. The implication of the disruptive growth of mobile

marketing technology can be leveraged towards mobile marketing in developed markets.

CONCLUSION

The search for new market is an enduring challenge. The dynamic of global environment

has forced multinational companies (MNC) to innovate both in product and in marketing

positioning. Some MNCs may have underestimated the power and the degree of customer loyalty
of the BOP market. Additionally, the current practices and principle of MNCs might not fit for

emerging markets with respect to advertising, pricing, and distribution strategies or approaches.

These companies will have to be adaptive and have glocalization mentalities—providing high

level of global values with local focus product marketing using all tools available such as reverse

and disruptive innovations.

However, there are cases where multinational companies from developed market

operating in emerging markets can also be judged as exploiting the growing bottom-of-the-

pyramid population. Essentially, operating in emerging markets has high risks and rewards. If

done well, the advantage of tapping into the $5 Trillion BOP market segment5 will bring

enormous revenues. Additionally, limited number of competitors and increasing trend of product

consumptions have provided many opportunities for both local and multinational companies.

“THE MOST SUCCESSFUL COMPANIES ARE THOSE THAT RECOGNIZE THAT

THEIR BRANDS ARE ASSETS TO BE CAREFULLY CRAFTED, NURTURED, AND
DEVELOPED.” —NIGEL HOLLIS 6

Therefore, creating strong global brands and lasting product values are extremely essential to the

companies’ financial health. Without a thorough understanding of local people’s needs, desires,

cultures, any marketing approach will have very little chance of success in emerging markets.

5
BOP Market - $5 Trillion: Total by Income Segment. http://www.wri.org/chart/bop-market-5-trillion-
total-income-segment
6
Hollis, Nigel. The Global Brand. 2008
REFERENCES

1. Bala, Venkatesh. Going Global Means Going Mobile in Emerging Markets.

http://blog.nielsen.com/nielsenwire/global/going-global-means-going-mobile-in-emerging-

markets/

2. Beshouri, Christopher P. A Grassroots Approach to Emerging-market Consumers.

https://www.mckinseyquarterly.com/A_grassroots_approach_to_emerging-

market_consumers_1866

3. BOP Market - $5 Trillion: Total by Income Segment. http://www.wri.org/chart/bop-market-

5-trillion-total-income-segment

4. Friedman, Thomas L. It's a Flat World, After All.

http://www.nytimes.com/2005/04/03/magazine/03DOMINANCE.html

5. Glocalization. http://en.wikipedia.org/wiki/Glocalisation

6. Hollis, Nigel. The Global Brand. 2008

7. Li, Chuan. What Are Emerging Markets?

8. Emerging Markets. http://www.uiowa.edu/ifdebook/faq/faq_docs/emerging_markets.shtml

9. Li and Fung – Internet Issues (A). HBS 9-301-009

10. Marketing. http://en.wikipedia.org/wiki/Marketing

11. Waking the Dragon. http://abcnews.go.com/print?id=1142148