Understanding the differences between domestic and emerging markets is important when developing business strategy, for example, emerging markets accounted for 35% of GDP in 2016, however, market locations accounted for 80% of total population. Learn more in this video.
- Emerging markets differ greatly from their developed peers along a number of dimensions. Understanding these differences is crucial for designing effective strategies for these markets. Let's look at six of the most important differences. First, per capita income. While China's DTP is 60% that of the US, the average Chinese is only 15% as rich as the average American.
The gap between India and the US is even starker. India's DTP is 11% that of the US. Yet, the average Indian is only 4% as rich as the average American. Income differences matter because they lead to differences in buying power. The average American car sells for over $30,000. There is a market for such cars in China, India, Indonesia, and other emerging markets, but it's small.
It's cars in the $10,000 to $15,000 price range that command bulk of the market demand. Similarly, the pricey Apple iPhones command almost half of the market for smartphones in the US. However, in every emerging market, including China, they command less than 10% share. Second, infrastructure. Other than in China, infrastructure in almost every emerging market is much weaker than in the US, Europe, or Japan.
These countries still need to build much of the highway network, railroads, airports, power plants and sewage systems that their societies need. Thus, companies need to find a workaround to the challenge of getting their products and services to the end consumers. Third, demographics. With some exceptions, emerging market populations are much younger than those in developed markets.
In the US, 35% of the population is over 50 years old. In Latin America, 21%. In India, 18%. And in Africa, only 11%. Thus, in emerging economies, elderly people account for much smaller share of the total market and younger folks a much larger share than in developed markets. A younger population also means that most people in emerging markets have yet to buy their first car or first refrigerator and thus have not built strong, if any, brand loyalties.
Fourth, speed of change. Because of their faster growth and rapid technology adoption, emerging markets are changing at a much faster pace than developed markets. In fact, two to three times as fast. Thus, your knowledge of any particular emerging market becomes obsolete far more rapidly than that of say the US or Germany. You need to keep your ears to the ground and update yourself much more often.
Fifth, bureaucracy. Much of people in developed markets may bemoan their own bureaucracies. They are in heaven relative to their peers in emerging markets. Most emerging markets are still in the early stages of a transformation from rule by the state to rule by the market. Thus, there's often lack of transparency and bureaucracies loom large. As a result, foreign companies need to rely on easier local partners or their own well-staffed public affairs offices.
Last but not least, a high degree of corruption. While nobody would call the US or Europe entirely clean societies, corruption is much more pervasive in almost all emerging markets. Given rapid economic growth, these markets have created a large and growing pool of millionaires and billionaires. Since politicians and bureaucrats still command enormous power, they're only too eager to get a piece of the new riches.
The result is a constant challenge for both domestic and foreign companies. Given these differences, it would be unwise for the leaders of any multinational company to assume that all they need to do is tweak their developed market strategy to succeed in emerging markets. You need to become deeply knowledgeable about each emerging market that you are targeting and figure out where to adapt, how much to adapt, and how to adapt.
Which emerging markets should you enter? How do you enter the targeted market? Do you partner with another company, or go it alone? How should you deal with the regulatory constraints that you might face? Anil and Haiyan address these questions, and more. They also outline some of the issues that arise once you have entered an emerging market, such as how to win out over local competitors, market to the bottom of the pyramid, and deal with the speed of fast-changing market dynamics.
- How emerging markets differ from developed markets
- Designing entry strategies
- Identifying the right beachhead
- Competing and succeeding within the market
- Cultivating and leveraging the local ecosystem
- Dealing with rapid changes in market dynamics
- Leveraging China and India as global platforms
- Building the leadership for emerging markets