Leadership Development in Emerging Market Economies
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For instance, a local Brazilian yogurt producer distributes 80 percent of its volume to more than 10, small shops around the capital of Sao Paulo. With these small shops, the producer can command a relatively higher price, and so the company is quite profitable. As a consequence, the producer can negotiate very aggressively with the major chains in the area such as Carrefour, because the producer knows it has this profitable volume base. In contrast, major yogurt producers such as Groupe Danone France are much more dependent on the major chains for their volume and must be much more accommodating in their negotiations.
Failing to build quickly a broad distribution base also allows competitors to more readily combat new entrants. When Quilmes Industrial S. Consequently, C. As a result, Quilmes today struggles with its market share and profitability in Chile. Finding cost-effective ways to build broad and deep sales and distribution coverage in the emerging markets is one of the most critical challenges facing consumer products companies.
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This can rarely be done on the cheap. Alliances with local producers that agree to provide distribution rarely work. There are creative alternatives. For example, several consumer products companies have patiently developed a network of exclusive distributors to service small accounts in selected emerging countries. These exclusive distributors can operate at as little as half the cost of broader-line wholesalers, with significantly greater effectiveness.
Even when companies serve smaller shops directly, there may be creative ways to do so less expensively. In several countries, Coca- Cola, which usually visits its smallest retailers once or twice weekly, has proposed that they receive three to four weeks of consigned inventory in return for exclusivity.
This edited volume provides an overview of the current state and indigenous practices of leadership development (LD) in a select group of emerging market. A concurrent development is the rapid global expansion of multinational corporations (MNCs) based in the emerging market economies. Thus.
When Coca- Cola returns at the end of the period, the retailers pay only for the product sold during that time. For cash-strapped small shop owners, this is extremely attractive. Coca-Cola wins increased sales at the expense of displaced competition and a much lower cost-to-serve, with delivery visits cut by a factor of three or more. Alternative channels can also be effective in emerging markets.
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For example, in Brazil, up to 15 percent of all apparel is sold through "sack ladies" who sell door-to-door in poorer neighborhoods. The majority of cosmetics as well as other products are typically sold through direct sales forces of hundreds of thousands of working women who pitch products to their fellow workers. As a result, multinationals such as Revlon Inc. Create desirability: Build strong brands Interestingly, despite the limited financial means of the emerging market consumer, branding could well be more important in these markets than it is in markets such as the United States or Western Europe.
In part, this is due to the aspirational attraction that strong brands have for lower-income consumers, particularly in "badge" categories. For most categories, however, the importance of branding is related to the quality guarantee that it provides. As a consequence, many producers have built brands that command price premiums in categories that to Western eyes would appear to be commodity categories.
For example, the Italian multinational Parmalat S. As a result, Parmalat has been able to command a 10 percent price premium in the Brazilian milk category while building a leading market-share position, in a category previously dominated by regional milk cooperatives more concerned with volume than profit. A fact of life in almost all emerging markets is that multinationals will face competition from local entrepreneurs whose informal operating practices, such as tax evasion or selective attention to labor laws, secures them a large cost advantage.
Brand equity becomes an essential weapon in defending market position in the face of this type of competition. For instance, Frito-Lay Inc. Frito-Lay has invested large sums in local farmers who plant higher quality potato varieties, in the best production technologies and in a distribution system that maintains product freshness, in order to insure a quality advantage.
Simultaneously, Frito-Lay has dominated advertising spending. As a consequence, it has grown its market share despite facing a host of local competitors whose pricing can be half of Frito-Lay's. Multinationals must remember that few emerging market consumers are global citizens, and therefore global brands may have little cachet in these markets.
So overall ad spending in many of these emerging markets has exploded, and the cost of advertising has become increasingly expensive. The cost per viewer in countries such as Brazil, Argentina and Turkey equals or surpasses that of the United States. Even where the absolute cost is low e. Because the investment required to build and support a brand in these markets is high compared with the small size of many categories, companies should carefully weigh using umbrella brands in emerging markets as a means to create scale, particularly when exploring new categories.
This strategy has been followed for years by local players such as Sadia and Arisco in Brazil. It is also a strategy that is increasingly utilized by experienced multinationals.
Parmalat, as an example, has leveraged the success of its brand in the milk category into such diverse categories as cookies and crackers, cereals and juices. Often the best strategy is to invest behind local brands that already have some degree of consumer loyalty, especially when targeting middle-income consumers.
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For example, the Whirlpool Corporation has chosen to use the Brastemp brand name in Brazil as its leading brand in that country given its preexisting equity. Danone has built a significant business in China largely through strong local brands such as Haomen Amoy. Similarly, Coca-Cola has now reversed course in India, and is investing behind the local Thums Up brand. The parties chose to import Kraft's products in order to quickly place them on supermarket shelves.
Initially, products such as Philadelphia Cream Cheese were big consumer hits.
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Local competitors, however, soon followed with similar products at much lower prices. In addition, Bunge, operating on a slim, volume-based fee, did not have the financial incentive to invest behind the Kraft products at point-of-sale. Kraft products quickly lost share and the alliance was soon dissolved. Multinationals must play to win in the emerging markets.
Too many companies fool around in the high end of these markets and remain timid about investment. Rather than shielding these companies from losses, this flag-planting strategy only exacerbates them. Emerging markets are no different in this respect from the United States or Western Europe. Consumer goods multinationals must build leading or strong No. Further, getting to critical mass is vital, given the sizable minimum investments necessary in brand-building and sales, distribution and production infrastructure. Scale and the demonstration of long-term commitment also create an environment that is attractive to scarce local management talent.
Dabblers in these markets should either get serious or get out. This may have been Pepsico Inc.
However, the market was already dominated by Coca-Cola and two strong, local producers, Brahma and Antarctica. Pepsi soon found itself in a war that it could not win.
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Pepsi was unable to match its competitors'market coverage and reach a million points-of-sale. On one hand, Pepsi found itself being attacked aggressively in the supermarket channel on price by competitors that had a much larger customer base. On the other hand, in the small, neighborhood bars and restaurants that make up the large majority of the total market, all three of the existing market participants were also selling beer through their distribution systems. This provided them up to 10 times the scale of Pepsi in these smaller accounts, creating both the customer leverage to lock Pepsi out and the ability to serve these accounts at substantially lower cost.
Pepsi, without the local market familiarity of the established players, also quickly accumulated huge amounts of uncollectible credit extended to thousands of these small customers. Two years after Pepsi's major investment, The Wall Street Journal succinctly reported that "Pepsico's greatest expectations for growth of its soft drinks business outside the United States market have centered on Latin America. Until now. Equal weight should be given to choosing categories that are attractive opportunities in a given market. For example, consumers'food consumption normally follows fairly predictable patterns.
However, consumers steadily trade up in the types of foods they eat, moving from grains that provide basic sustenance to increasingly more value-added products. Consequently, it is often possible to identify potential category-consumption levels as an economy develops, and therefore find categories with the greatest potential for rapid growth.