Re-inventing the Business Model:

Those of us who have experience developing business in emerging markets, such as India, Thailand, Indonesia etc.. will be aware of the opportunities (India has more than 650 million people under the age of 25) and the challenges of exporting our business products and services to lower income markets. In this article, I suggest, companies seeking expansion into these markets need to consider reinventing their business models in order to compete and achieve growth globally.

Emerging markets present a unique set of challenges and opportunities for businesses looking to expand their reach and increase profitability. These markets, often characterized by rapid economic growth and industrialization, also come with their own set of complexities such as pricing, regulatory hurdles, and diverse consumer bases. Traditional business models that work well in developed markets may not necessarily translate to success in these regions. To thrive, companies must re-evaluate and reinvent their business models to align with the specific needs and constraints of emerging markets.

Challenges of Doing Business in Emerging Markets

There are of course, many significant  challenges in doing business in emerging markets. Here area  a few of the most significant:

1. Pricing and Affordability Pricing is one of the most significant challenges in emerging markets. The average income levels are lower compared to developed countries, and consumers are highly price-sensitive. Companies often struggle to balance affordability with maintaining profit margins.
2. Regulatory and Financial Barriers Navigating the regulatory environment in emerging markets can be daunting. Restrictions on repatriating profits, complex tax systems, and bureaucratic hurdles can impede business operations. For example, in some African and Latin American countries, getting money out of the country can be a lengthy and complicated process.
3. Targeting High-Income Earners Many companies make the mistake of only targeting the affluent segment of the population, assuming that the low-income majority cannot afford their products. This approach limits market potential and fails to capitalize on the growing middle class in many emerging economies.
4. Conventional Perceptions Traditional wisdom suggests that emerging markets are synonymous with low profits and high risks. Companies often believe they must significantly reduce prices and compromise on quality to compete, leading to reduced profitability and potential brand dilution.

Challenging Conventional Perceptions

We suggest however, that companies seeking to expand into emerging markets may need to challenge some exiting assumptions before venturing into new emerging markets for their services or products. These include at least:

1. Re-Evaluating Pricing Strategies While it’s true that consumers in emerging markets are price-sensitive, they are also value-conscious. Offering products at lower prices doesn’t necessarily mean sacrificing quality. For example, Unilever’s “Shakti” initiative in India focuses on selling affordable personal care products in small, rural markets through local women entrepreneurs. This not only addresses affordability but also creates local employment opportunities.
2. Adapting Production and Delivery Models Traditional production models, often designed for scale in developed markets, may not be suitable for emerging economies. Companies need to explore localized production to reduce costs and increase efficiency. For instance, Coca-Cola’s “Ekocool” solar-powered coolers are designed to keep drinks cold in areas without reliable electricity, tailored specifically for markets in Africa and Asia.
3. Removing High-End Cost Features High-end features that appeal to consumers in developed markets may not be necessary or valued in emerging markets. Stripping down products to their essential features can help reduce costs and appeal to a broader customer base. Renault’s low-cost car model, Dacia, is a prime example of this approach. By eliminating non-essential features, Renault was able to offer a reliable and affordable car to consumers in Eastern Europe and beyond.

Targeting Unmet Needs in New Markets

Another essential step in growing market presence in emerging markets will be to target unmet needs:

1. Understanding Local Consumer Behavior Success in emerging markets requires a deep understanding of local consumer behavior and preferences. Companies must invest in market research to identify unmet needs and tailor their products accordingly. For example, Nestlé’s success in India can be attributed to its adaptation of products to suit local tastes, such as introducing Maggi noodles with flavors popular in Indian cuisine.
2. Leveraging Technology and Innovation Technology can play a crucial role in reaching and serving consumers in emerging markets. Mobile banking, for example, has revolutionized financial services in Africa, providing access to banking for millions of unbanked individuals. M-Pesa, a mobile money service launched by Vodafone in Kenya, is a standout example of leveraging technology to meet a critical need.
3. Building Local Partnerships Collaborating with local partners can provide valuable insights and facilitate market entry. Partnerships with local businesses, NGOs, and government agencies can help navigate regulatory challenges and build trust with consumers. For example, Procter & Gamble’s partnership with local health organizations in Nigeria to distribute its “Pampers” brand has been instrumental in expanding its market presence.

Adapting Production and Resourcing

While emerging markets will likely offer lower production and resourcing costs, you may need to adapt your production and delivery models to suit new market demands:

1. Localizing Supply Chains Developing local supply chains can significantly reduce production and distribution costs. It also ensures quicker turnaround times and greater flexibility in responding to market changes. For instance, in India, IKEA sources a significant portion of its raw materials locally, reducing costs and supporting the local economy.
2. Investing in Local Talent Investing in local talent not only creates employment opportunities but also ensures that the business is attuned to local market nuances. Training and development programs can help build a skilled workforce that understands the unique challenges and opportunities of the local market.
3. Implementing Lean Production Techniques Lean production techniques, which focus on minimizing waste and optimizing processes, can help reduce costs and improve efficiency. Companies like Toyota have successfully implemented lean manufacturing practices in their operations in emerging markets, resulting in cost savings and enhanced productivity.

Case Studies

Here are some examples from businesses who have faced these challenges.

INDIA

• Unilever’s Project Shakti: This initiative empowers rural women to become direct-to-home distributors of Unilever products. By tapping into the underutilized potential of rural women, Unilever has expanded its reach to previously inaccessible markets while promoting economic empowerment.
• Tata Motors’ Nano: Although not commercially successful in the long run, the Tata Nano was an ambitious attempt to offer an affordable car to the masses in India. It showcased the potential for innovation in creating cost-effective products tailored to local market needs.
• PepsiCo in India: Quaker Oats for Indian Palate: PepsiCo adapted its Quaker Oats brand to the Indian market by introducing flavors and recipes that appeal to local tastes, such as masala oats. This customization helped increase the product’s acceptance and popularity in a market where traditional breakfast options are preferred.
• Procter & Gamble (P&G): P&G’s Tide Naturals in India: P&G launched Tide Naturals, a lower-cost detergent specifically designed for the Indian market. By using locally sourced ingredients and optimizing the formulation for Indian washing habits, P&G was able to offer a competitively priced product that met local needs without compromising on quality.
• General Electric (GE): GE Healthcare in India: GE adapted its healthcare equipment for the Indian market by developing lower-cost medical devices tailored to local needs. The company introduced portable ultrasound machines that were significantly cheaper and more accessible than traditional models. This approach not only made healthcare more affordable but also allowed GE to capture a larger market share in India.

CHINA

• Alibaba’s Rural Taobao: Alibaba’s initiative to bring e-commerce to rural China has transformed the retail landscape. By setting up service centers in villages and training local agents, Alibaba has enabled rural consumers to access a wide range of products online, bridging the urban-rural divide.
• Xiaomi’s Lean Startup Approach: Xiaomi’s strategy of offering high-quality smartphones at competitive prices by keeping margins low and relying on online sales has been highly successful in China. This approach has allowed Xiaomi to capture significant market share in a highly competitive industry.
• Starbucks Localization Strategy: Starbucks has successfully adapted to the Chinese market by incorporating local flavors and preferences into its product offerings. The company introduced teas and beverages that cater to Chinese tastes, such as green tea-flavored drinks. Starbucks also redesigned its stores to provide a more spacious and comfortable environment, aligning with the Chinese cultural preference for social gatherings in public places. Digital Integration: Starbucks partnered with Alibaba to enhance its digital presence in China. The collaboration includes delivery services, online ordering, and leveraging Alibaba’s ecosystem for digital payments and customer engagement.
• McDonald’s : Menu Customization: McDonald’s tailored its menu to suit Chinese preferences by offering items such as rice dishes, spicy chicken wings, and localized breakfast options. This approach helped McDonald’s resonate with local consumers while maintaining its global brand identity. McDonald’s Expansion Strategy: McDonald’s adopted an aggressive expansion strategy by partnering with local franchisees. This enabled the company to rapidly increase its footprint across China, ensuring better market penetration and brand visibility.

• Apple’s Premium Branding and Ecosystem Integration: Apple has maintained its premium brand positioning in China, targeting affluent consumers who value high-quality products and brand prestige. Apple’s ecosystem, including the App Store and other services, has also been localized to meet regulatory requirements and consumer preferences. Apple’s Retail Experience: Apple invested heavily in creating flagship stores in major Chinese cities, offering a unique and premium retail experience. These stores not only serve as sales points but also as brand ambassadors, enhancing Apple’s image in China.

• Nike: Focus on Health and Fitness Trends: Nike capitalized on the growing health and fitness trend in China by promoting its products through local sports events, endorsements from Chinese athletes, and digital engagement strategies. Nike’s mobile apps and online platforms have been tailored to engage with Chinese consumers, offering personalized experiences and connecting with local fitness communities. Nike’s Localized Marketing Campaigns: Nike’s marketing campaigns in China often feature local celebrities and cultural themes that resonate with Chinese consumers. This localization has helped Nike build a strong emotional connection with its target audience.

AFRICA

• Nestlé in Africa: Nestlé’s Iron-Fortified Products: Recognizing the widespread issue of iron deficiency in Africa, Nestlé developed a range of iron-fortified products tailored to local tastes and dietary habits. By addressing a critical health need, Nestlé not only improved public health outcomes but also strengthened its brand presence in the region.
• Vodafone in Kenya: M-Pesa: Vodafone’s M-Pesa mobile money service revolutionized financial services in Kenya by providing a simple and affordable way for people to transfer money, pay bills, and access financial services without needing a traditional bank account. This innovation addressed a critical gap in the market and has since been replicated in other emerging economies.

BRAZIL

• Embraer’s Regional Jets: Embraer, a Brazilian aerospace company, focused on producing regional jets tailored to the needs of smaller airlines and routes in emerging markets. This niche strategy allowed Embraer to become a global leader in the regional jet market.
• Magazine Luiza’s Digital Transformation: This Brazilian retail giant successfully transitioned from a traditional brick-and-mortar model to a digital-first approach. By investing in e-commerce and digital payment solutions, Magazine Luiza has expanded its reach and improved customer experience.

Practical Steps to Reinvent the Business Model

Here are some practical steps to take when make the decision to venture into emerging markets.

1.CONDUCT MARKET RESEARCH

Deep Dive into Local Dynamics: Invest in comprehensive market research to understand the local socio-economic environment, consumer behavior, and preferences. Use a combination of qualitative and quantitative methods, such as focus groups, surveys, and field visits, to gather actionable insights. This will help identify unmet needs and opportunities for innovation.

Hire Local Expertise: Engage local market experts and analysts who have a deep understanding of the region. Their insights can be invaluable in navigating cultural nuances and consumer preferences.

See our course on International Marketing

2. ADAPT PRICING STRATEGIES

Tiered Pricing Models: Develop a range of products at different price points to cater to various consumer segments. For instance, offer basic, mid-range, and premium versions of a product to appeal to a broader customer base.

Subscription and Micro-Payment Options: Consider flexible payment models such as subscriptions, micro-payments, or pay-as-you-go schemes, which can make products more affordable for low-income consumers.

3. LOCALIZE PRODUCTION AND SUPPLY CHAINS

Establish Local Manufacturing Units: Set up production facilities close to your target markets to reduce logistics costs and lead times. This can also help in complying with local regulations and improving supply chain resilience.

Develop Local Supplier Networks: Build relationships with local suppliers to source raw materials and components. This not only reduces costs but also supports the local economy and fosters goodwill.

See our course on Developing International Business

4. INVEST IN TECHNOLOGY AND INNOVATION

Digital Transformation: Leverage digital technologies to streamline operations and improve customer engagement. Implement e-commerce platforms, mobile apps, and digital payment solutions to enhance accessibility and convenience for consumers.

Innovative Product Development: Invest in R&D to develop products that address the unique needs of emerging markets. For example, create energy-efficient appliances for regions with unreliable power supply.

5. BUILD LOCAL PARTNERSHIPS

Collaborate with Local Businesses: Partner with local businesses to gain insights, share resources, and co-create products that resonate with local consumers. This can also help in overcoming entry barriers and building brand credibility.

Engage with NGOs and Government Agencies: Work with non-governmental organizations and government bodies to align your business practices with local development goals and regulatory requirements. These partnerships can also facilitate market access and community acceptance.

6. FOCUS ON LOCAL TALENT DEVELOPMENT

Local Talent Recruitment: Hire local employees who understand the cultural and economic landscape. This can improve customer relations and operational effectiveness.

Training and Development Programs: Implement training programs to upskill local talent and foster a culture of continuous improvement. For example, offer technical training, leadership development, and soft skills workshops.

See our course on Talent Management:

7. IMPLEMENT LEAN AND AGILE PRACTICES

Lean Manufacturing: Adopt lean production techniques to minimize waste, reduce costs, and improve efficiency. Focus on continuous improvement, just-in-time inventory management, and quality control.

See our courses on LEAN: Certificate in LEAN 6 SIGMA

Agile Business Practices: Embrace agility in your business processes to respond quickly to market changes and consumer demands. Use iterative development, cross-functional teams, and adaptive planning to stay flexible and customer-centric.

See our courses on Agile: Certificate in Agile Project Management

8. MONITOR AND ADAPT

Continuous Market Monitoring: Regularly track market trends, consumer feedback, and competitor activities. Use data analytics and business intelligence tools to gain real-time insights and make informed decisions.

Flexibility and Adaptability: Be prepared to pivot your business model as needed. Stay open to experimenting with new approaches and learning from failures to continuously refine your strategy.

Conclusion

Reinventing your business model for emerging markets requires a deep understanding of local dynamics, a willingness to challenge conventional wisdom, and a commitment to innovation. By adapting pricing strategies, localizing production, leveraging technology, and building local partnerships, companies can unlock significant growth opportunities in these rapidly developing regions. The examples from India, China, Brazil, and other emerging markets demonstrate that with the right approach, businesses can not only succeed but thrive in these challenging yet promising markets.

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