Business Innovations From Emerging Market Countries Into Developed Countries
Nowadays, emerging markets are growing very rapidly. They increase by 8% to 12 % compared to 2% to 3% for developed countries. Thus, Western multinational companies typically based in North America and Western entered these markets. More than 95% of Western multinational companies served emerging markets using standardized strategy. That means developing standardized products marketed worldwide with a standardized marketing mix, and making minimal changes to meet local mandatory product requirements and consumer taste differences where necessary. The main advantages of this strategy are cost saving and maximizing profits. So they charged a premium price for these products and services. Their main customers were affluent buyers who can afford to buy them. These people are classified as global or glocal. However, they have neglected serving the fast-growing but much larger less affluent markets in emerging market countries such as local and bottom of pyramid. As a result, these companies are experiencing intense competition from a new group which is called emerging giants. Emerging giants understand the market structure and the consumer psychology of these markets. These companies learned to offer quality products and services at affordable prices just to stay in business. Being close to the market provided them ample opportunity to better understand the consumer and offer products and services at affordable price to those customers in the middle-class market. In addition to facing competition in emerging market, Western multinationals are now facing a problem on their home turf. Emerging giants has started their business in developed countries as well. The survival of Western multinationals will depend on innovation, finding creative ways to offer quality products and services at affordable prices to serve emerging market countries, while also finding ways to introduce some of these products and services in developed countries to safeguard their own turf. Leaning how to do more with less in both developed and emerging-market countries will be their challenge.
Consumer psychology and behavior in developed countries has changed since 2008. Most consumers in developed countries have become more conscious of their spending due to recession. The affluent in the U.S. claim that value, price, overall quality, good design, and functionality are important attributes in their purchase decisions today. It suggests that future innovation in developed countries will have to rely on value for money products and services that focus on affordability.
It is difficult for most Western multinationals to sell products and services at prices that customers in emerging markets would have perceived as a great value for their money. But some companies have learned how to operate successfully in these markets. Small but fast-growing local companies in emerging countries like India and China focus on doing three things well: (1) innovating products and services for customers who look for quality with low prices in mind, (2) willingness to live with lower profit margins per customer, and (3) building volume to compensate for these lower profit margins. Haier which is a manufacture of electronics is emerging giant that has learned how to do more with less. They have become leader in this industry by developing products that Chinese customers need and developing channels to make them available to customers in China and similar need. This company tells us that demand does not exist but is created. Therefore, growth of Western multinationals will depend not only on their ability to serve the customer segments willing to pay any price for what they want to purchase but also those who are willing to pay only for what they want.
One of the biggest obstacles to serving emerging and developed markets at the same time will be the centralized product-focused organization structure of Western multinationals. Business strategies followed by companies are influenced by the organizational structure. For success, a company with a centralized organizational structure will have to learn to cooperate and work with local business units in emerging-market countries with separate profit and loss responsibilities. Second, Western multinationals should expand their definition of value creation to include the consumer and the shareholder by broadening those issues that will determine their long-term success. Third, companies have developed products that are affordable but better meet the customer needs, wants, and preferences of the markets they serve.