Strategy in Emerging Markets

Enter Low and Middle End Segments of the Market

It has been found that many multinationals find their sweet spot in emerging markets when they cater to the lower and the middle end of the market segments. In other words contrary to popular perception, multinationals find that selling to these segments is much better than focusing on the top segment alone.

The experience of Japanese companies which focused on the top segment in many emerging markets and which found that they were not succeeding is a case in point. This led to the Japanese auto majors to target the lower and middle end of the market segments in many Asian countries including India where the Japanese carmakers have targeted these segments with good results.

Take the Merger and Acquisition Route

Western multinationals are put off by the rigid bureaucracy and political interference in many emerging markets, which makes them reluctant to expand their operations. In this case, they can tie up with the local companies and enter into mergers or acquire local businesses. This makes sense because the senior management from the local companies would be conversant with the local bureaucracy and hence, their familiarity and knowledge can be tapped to deal with policy paralysis and the logjam that many emerging markets are going through in recent years.

Another advantage of this strategy is that the multinationals can grow inorganically when organic growth is no longer possible or feasible.

Display Commitment and Send Senior Talent

Often it is the case that many multinationals do not take the emerging markets as seriously as they would take the developed countries. This means that they do not send high performers and senior executives to head their operations in these countries.

The net result is that they face a lack of talent to steer their operations in these countries. Of course, the fact that working and living in emerging markets like India, Brazil, and Russia is difficult for many expatriates from the West. However, this should not deter them from displaying commitment.

Talking about commitment, many multinationals lose interest in emerging markets within a couple of years especially when the returns are not up to their expectations. With political risk and societal barriers impeding their growth, many western multinationals pull out or sell their stakes.

The key aspect here is that since the western multinationals have deep pockets, it makes sense to the stay the course for at least five years and hence the commitment apart from sending top-notch talent has to be actualized.

Closing Thoughts

Multinationals do not have a choice but to expand into emerging markets since growth in the developed world has crawled to around 2% whereas even the most underperforming emerging markets are reporting 5% growth.

Hence, the strategies to be followed by multinationals include the combination of the strategies discussed above along with more focus on the next “Breakout Nations” like Vietnam, Algeria, and Mexico. It remains to be seen as to how well the western multinationals adapt to the local conditions in these countries.