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.