By Jonathan Ewert
For those companies expanding out to new markets to grow their businesses, McKinsey has a news flash: It’s easier to grow where the growth is.
The large scale growth going on in emerging markets is on our minds for good reason. The developed economies might be big, but over the next 15 years, the majority (74%) of worldwide GDP growth will come from Emerging Markets. 74% GDP growth rates in Emerging Markets means that by 2025, over half of the $30 trillion worldwide GDP will be there. Not here. China will be $8 trillion of that $30 trillion all by itself. Importantly, half of that GDP will come from BRIC countries.
Compared to the growth rates of developed countries, the speed with which this growth will occur is blinding. For example, India will double its per-capita GDP in 16 years. It took the UK ten times that long, and with a small fraction of the population base.
Sounds exciting, but any large company CEO can tell you that figuring out the right growth strategy to enter and win in these Emerging Markets isn’t easy. Large, successful companies have made billion dollar mistakes by failing to understand the subtleties and the market dynamics of far away places. Luckily, McKinsey has a roadmap for navigating Emerging Markets.
Backed by 50,000 interviews over the last six years in China, Malaysia, Africa, and Latam America, here are McKinsey’s Top Ten List of capabilities that brands need to succeed in Emerging Markets:
Think global act local. A well-worn path but wise nonetheless; stay on it.
- Innovate to deliver value. Not simply features and price, but focus on the value as the (local) market defines it.
- Control the route to market. The modern trade market (big box retail) is quite different than the traditional trade markets (marketplace stand).
- Redeploy resources dynamically. Make sure you are nimble as these markets are quite dynamic and you will need to shift resources thoughtfully.
- Organize today for the markets of tomorrow. Hiring ahead of the demand curve might be the most inexpensive way to capture the early part of the growth curve before saturation occurs.
- Develop talent, leaderships, and capabilities. Emerging market executives will need skills in a variety of areas, not just their area of specialization.
- Secure support from key stakeholders. Emerging Markets have significant regulatory dynamics so make sure you understand the direction that laws are going and understand that regulations can change very quickly.
- Anticipate moments of explosive growth. Watch out for the discontinuities in demographics, income, cultural and religious needs, regulations on trading rules and ownership rules, and especially the impacts of mobile technologies.
- Target urban growth clusters. The highest growth rates are occurring in cities, and these cities can be clustered together (McKinsey has 22) based on demographics and income levels.
- Build brands that inspire trust. Emerging Market consumers are very influenced by recommendations. In China, in-store advice drives 45% of purchase decisions. Stakeholders matter.
Finally, McKinsey offers some ways that researchers can help top managers develop their Emerging Markets strategies. First, researchers can understand the competitive set, which in Emerging Markets might be surprising. For example, companies selling washing machines might in fact be competing with laundry services. Or, consumers might decide to buy a cell phone instead of a washing machine. Second, researchers can help managers interpret market swings. Paying attention to the events in local markets that can drive consumer behavior can help managers understand the barriers to adoption. Finally, researchers can help top managers understand that “a China Strategy” goes beyond Beijing and Shanghai.