The Future of Value Chain (II) - Emerging Markets

Did you know that:

• in 2009, the Emerging Markets achieved to be 50% of the Global Economy?
• by 2020 some 900 million people in Asia will enter the middle class (defined as US$5,000 per capita in purchasing parity (PPP) terms) - enough to have significant disposable income to activate a host of new non-life sustaining consumption?
• the number of companies of Emerging Markets in the Fortune Global 500 grew more that four times in 15 years?
• companies are experiencing declining growth in America and Europe (Developed Markets)?

Newly industrialized countries (Photo credit: Wikipedia)

In the future, the world will look more balanced mix of affluent consumers in emerging markets and developed markets. Companies are adapting their value chain footprint and features in order to seize the opportunities to increase market share. These two big types of markets will require differentiated strategies to conquer them. Some companies have failed miserably trying to use proven strategies in developed markets in the emerging markets.

 

A study from Accenture called "The Future of Consumer Goods: Moving from Analog to Digital" (http://goo.gl/EfGqde) explains that the business and operating model evolves in this world domined by globalization, as shown in the following figure:

Photocredit Accenture

 

The different business and operating models reflect the strategy of the companies to conquer the global market. Let´s describe briefly each one:

• Local: A loose federation of autonomous local operating companies. The customers are serviced by country, the supply chain is locally focused and local brands with a strong national appeal.
• Regional: Regional customers, hubs and brands. Consumers segments addressed regionally - gender, age, ethnicity, income, etc. -, manufacturing and supply chains assets consolidated regionally, logistic regionalized.
• Global: Growing global priority brands. Creation of global brands and global supply chain organizations with regional hubs.
• Super Global-Super Local: Enfranchising new consumers. Develop consumer archetypes to shape product development and engagement. Reconfiguration of supply chain assets and network to ensuring emerging market reach.
• Digital Disintermediation: Disintermediating the industry model and critical capabilities and implies the rise of new industry models and economics. Digital only retail channels, mega-segmentation, consumers begin to drive innovation and supply chain moves from a push to a pull model.

For example, Unilever can be considered in the Super Global-Super Local type of operating model. As described in its site (http://goo.gl/VUwwmi), Unilever has a very clear strategy in order to leverage the trends in emerging and developed markets:

• "We aim to be ‘first and fast’, not only in new markets, but also in new channels so 2013 saw a continued expansion into white spaces, with 32 of our global brands launched in new markets, including eight brands launched throughout Africa, where we continued to see growth opportunities even as other emerging markets showed some dampening effects from the global economic downturn."
• "Our ability to innovate, deliver quality products and roll out repeatable working models across countries more quickly is critical to our success in the market."
• "We have more than 100,000 suppliers and we deliver to more than 8 million stores. By working with these and other partners we can reach more consumers, develop new products, build new capacity, increase margins, and nurture sustainability."

The Unilever 2013 Annual Report states that "emerging markets now account for 57% of our business and have the potential to provide far greater growth in the future". Unilever has developed specific products to operationalize their value proposition for these markets:

• In Africa, margarines are fortified with several vitamins including Vitamin A. Africa contains 33% of the world´s Vitamin A-deficient children.
• Knorr´s Baking Bag has gained market share especially in Latin America.
• Cornetto saw strong top and bottom line growth in China in 2013, making China the biggest Cornetto market for the first time.
• Unilever makes its soaps and shampoos in China foamier that their Western equivalents because foamier is perceived as better.

As other examples, LG produces refrigerators and micro-waves tailored to the regional differences across India. In such a way, LG takes in account the prevailing local food culture. Also, Nike produces and all-enveloping athletic uniform to protect the modesty of Muslim women athletes.

The Future of the Value Chain (I) - Consumer Futures

The consumer is changing and will continue changing. In a study by "Forum of the Future" (http://www.forumforthefuture.org/project/consumer-futures-2020/overview) shows that we expect major changes in the consumer behavior by 2020. It implies that both producer and retailers have to adapt dramatically their value chains to fulfill their expectations.

The study shows four scenarios, based on different possible trends on the economy, demography, resources, etc.. The four scenarios as shown below:

 Let summarize each scenario:

"My Way" is a high tech world, with a prosperous and entrepreneurial economy dominated by community-based trade. Smart products promote patterns of consumption that use less energy and water and generate less CO2. Many fresh products come in smart packaging that keeps them refrigerated and changes color when they pass the use-by date. Some of the characteristics of this scenario are:

• Consumers buying patterns are unpredictable and volatile
• Their relationships with brands are short lived
• Supermarkets loyalty cards are thing of the past

"From my to you" is a world where communities, collaboration and innovative business models facilitate low-carbon lifestyles. The economy is subdued and uncertain and consumers feel business is falling to deliver on the challenges faced by society. Some of the characteristics of this scenario are: 

• Loyalty brand is low
• Popularity of processed flow has declined
• More people are asking for ingredients and components rather that the finished article
• Consumers seek to obtain their goods as locally as possible

"Sell it to me" is a personalized consumer world in a flourishing global economy which is dominated by brands. Innovative products provide personal health solutions, for example, clothes impregnated by vitamins, or shampoo lather that changes color to indicate mineral deficiencies. Some of the characteristics of this scenario are:

• Consumers are confident about trusted brands, and expect a lot with them.
• They are demanding, expecting the "very best" on every score
• Consumers expects highly personalized products, services and entertainment from the retail experience.

"I´m in your hands" is a tightly regulated world in which consumers trust brands to provide what´s best for them and for the environment. The economy is recovering from recession but growth is low and credit is tight. Consumers might be fitting their homes with entirely brand-sponsored bathrooms that provide with personalized supplies of branded toiletries on demand. Some of the characteristics of this scenario are:

• Consumers want to be looked after, they want to trust businesses and governments to provide what is best for them.
• Less interested in shopping as a leisure activity.
• They want the products they do buy to be effective and durable.

As you may perceive, such consumer scenarios are demanding and expect different and innovative things from producers and retailers. In my opinion, the near future will be more a combination of these different scenarios and they will appear depending on what part of the world, what city, or even what neighborhood are you referring to.

How the Process Model can help us to design an Operating Model?

Designing and building an Operating Model is not an easy endeavor. Even though the ideas behind the structure and relationships proposed can sound logical, is difficult to support the idea of changing the Operating Model if there is not a clear proposal of how it will work.

As we have described earlier in this blog, an Operating Model is  an abstract representation of how an organization operates across process, organization and technology domains in order to accomplish its function. The architecture of the Operating Model has to reflect the strategy and it should reflect how the value will be delivered to the client, and the strategic competitive advantages that it will bring to the company. As we mentioned, we proposed to design an Operating Model through the following steps (see this previous entry):

A first step in this sense is to correlate the Business Process Model with the entities created in the Operating Model. Let´s illustrate is with an example:

1) Let´s suppose that we design a Operating Model that has four entities: a Corporate function, Business Units, a Shared Services Center and a set of Centers of Excellence.

2) Our Process Model has a segment for example like this:

3) Our next step to create to correlate the to-be process architecture is to map every process into the defined entities, using criteria like: function seggregation, specialization, governance, client centricity, go-to-market, transaccionality, etc. We can do the mapping at the level we require, although to be feasible, I would recommend to get at least to level 4.

With these steps, it will be clear what is the role/responsibility of each Operating Model entity and how the end-to-end process is executed through the organization.