As economies around the world scramble to regain their momentum and establish a stronger footing for growth, economic power and activity is gravitating towards the powerhouse economies of the East. Irrespective of when and how mature markets regain momentum, the global map of demand is being redrawn. Accenture’s study “Fast forward to growth” published in January this year estimates that household incomes in emerging markets will increase by more than US$8.5 trillion between 2010 and 2020 — nearly 60% of the global increase over this period.
For multinational companies, however, emerging markets present an environment of exceptional complexity, as a result of multifaceted diversity and evolving income patterns across multiple target markets. The remarkably fast pace of change that is occurring, and the sheer scale of change that is lifting hundreds of millions of people out of poverty and into the new middle class, has made understanding these markets even more difficult. In addition to this, multinationals must adapt to the institutional voids that exist in high-growth markets. Support systems such as reliable distribution channels, infrastructure and intermediaries, that are so often taken for granted in the West may well be missing.
Such complexity means that companies who wish to innovate successfully in emerging markets must be able to adapt to the constantly evolving nature of the context within which they are operating. This is in stark contrast to what these companies may have become accustomed to in developed markets, where the context is usually far more static and predictable from one day to the next. In this article, we put forward a framework that multinationals can use to manage their innovation efforts. We also provide some examples of companies that have carefully managed their innovation efforts to be in sync with the evolving context of their intended markets.
Understanding the evolving context for innovation
To achieve the desired outcomes in emerging markets, businesses need to understand the dynamic context for innovation. Many multinationals have made the mistake of rushing in too quickly. One such example is of a major global producer of cereal and convenience foods that struggled to understand the complexities of the Indian market. The major reason for their failure was the fact that the products did not suit the Indian taste and cultural breakfast habits. The convenience of breakfast cereal did not resonate with the mass market as Indian consumers prefer to have an elaborate and wholesome breakfast every morning. In addition, the product pricing was not attainable for the average Indian consumer.
This particular company did eventually realise its strategic misalignment and embarked on an extensive research study of consumer patterns in India. This exercise led to the successful ‘Indianisation’ of its products and reduction in the cost of production. The company introduced packs of different sizes to suit Indian consumption patterns and purchasing power. These efforts helped the company to successfully increase its market share to 65% in India.
As such, we suggest companies should consider the following two steps. Firstly, businesses need to confirm that the opportunity the company wishes to pursue appropriately addresses the current needs of the market as it stands. Secondly, businesses need to take a broader view of the market by considering the evolving contextual factors that may have an impact on the nature of the market in the future. These include socio-economic, political and societal factors, such as the role of national or local government policies, technological advances, changing attitudes toward western products, and rising levels of healthcare and education enjoyed by the general population.
With both the present and future market state in mind, a company’s innovation framework needs to be flexible enough to allow constant monitoring and interplay between the innovation vision setting process and contextual factors, as opposed to being a linear or static model that may have been adopted in the case of developed markets.
To expand upon this in more detail, we have identified some examples that demonstrate how an understanding of dynamic socio-economic and societal factors is key to successful innovation in emerging markets.
Embracing cultural preferences in Nigeria
Product ideas can only flourish and deliver value in emerging markets when they are implemented in the right cultural context. For example, in Nigeria, unique cultural variables, such as taste preferences and the symbolisation of aspiration, strongly influence the buying decisions of consumers. This requires businesses to continuously innovate by merging cultural sensitivities and inspirations into their products.
One notable example is how Diageo gained success with Guinness in Nigeria at the turn of the millennium. They achieved it by recognising the right growth opportunity and reinterpreting the brand positioning in a manner appropriate to the culture of the nation. Thus, the company launched the product with a locally made and inspired campaign on radio and television. This involved the invention of a heroic African character that featured in a series of mini-adventures. He symbolised the local people’s desire to discover their inner strength and live lives that maximised their potential. In addition, the company ensured all ingredients were produced locally, with the beer being brewed with sorghum as opposed to barley in order to fit local tastes and meet the preference for local ingredients.
As a result of the campaign, Guinness led the African beer market by 50% in 2000. Brand recognition reached a reported 95%, and volume growth rose by up to 50% in some markets. Guinness sales doubled by 2003; two years ahead of schedule.
Addressing socio-economic needs in rural China
In China, innovation practices are aligned towards developing indigenous solutions to solve the nations’ environmental, infrastructure and social problems. This makes it critical for businesses to address the country’s socio-economic needs by co-creating solutions with consumers, and building strong relationships with the government to serve this market effectively.
In China, IT company Tsinghua Tongfang saw that millions of farmers were slow to benefit from technological advances that have boosted agricultural output elsewhere via timely and accurate information on weather patterns and crop prices. The company saw this situation as an opportunity to seize a large untapped rural market and partnered with the Beijing local government to promote its digital development goals. Tsinghua Tongfang developed the Changfeng computer product, with a low-cost operating system, customised software and hardware based on thorough research into rural users’ needs. One of the key success stories of this project was how Tsinghua Tongfang convinced the national government of the many socio-economic benefits that supplying affordable computers to the rural Chinese population would bring, not just for agriculture, but also for their children’s education.
Bridging the healthcare divide in India
The reach in healthcare services is still low in India and companies can address this gap by providing quality and affordable healthcare to the masses.
Aravind Eye Care System is one such successful model in India that embraced the market need for affordable eye care to the poor, which the existing health policies did not necessarily cater to. The company identified a clear vision for innovation and the market opportunity, which was to eliminate needless blindness by providing affordable and world-class eye care to the poor. The company used innovative ways to streamline services, and introduced new technologies and tiered pricing models to offer affordable and high-quality eye care for all. One of the key outcomes is that 70% of patients are treated for free or at a low cost. By means of partnering with India’s government, Aravind Eye Care System aims to expand coverage throughout the country and internationally.
Recommendation
Companies wishing to successfully innovate in emerging markets must set a very clear vision for their innovation; one that not only assesses the potential market opportunity and thus addresses the specific needs of target customers, but which also fits into the wider evolving context of the market as a whole.
Given the dynamic landscape of consumers and competitors, the first step companies should take is to improve their ability to seize the market opportunity and prioritise within which markets to invest. That demands the use of sophisticated statistical tools in order to understand consumption forecasts. For example, analysis of projected demand for specific products and services in multiple target locations can help determine which groupings to target and when. Companies will also have to invest in analytics skills and solutions to maximise the value of existing proprietary customer data where market data is scarce. The emergence of powerful mobile and social media tools will help them in this task, improving the collection of reliable local data and insights direct from consumers.
In-depth research into the evolving nature of socio-economic, political and societal factors that could influence the innovation success in these markets is paramount. So too is investment in building the right relationships with key influencers of the ecosystem, including consumers, NGOs, entrepreneurs, venture capital firms, industry associations, universities and government research institutes.
This article was first published in HQ Asia (Print) Issue 03 (2012)