Doing Big Business in Emerging Markets often Means Thinking Small

Stephen DeAngelis

November 12, 2014

“Farsighted companies have started to recognize that their next wave of growth [in emerging market countries] will come by fundamentally transforming their go-to-market activities,” write Samir Agrawal, Shiv Choudhury, Ghirish Pokardas, Vaishali Rastogi, and Ravi Srivastava. “Rather than dividing a country such as China or India into a few regions, they are slicing each one into thousands of customer or regional segments in order to unlock local opportunities that would otherwise go unnoticed. … By catering to much smaller segments, companies can discover hidden pockets of opportunity in these richly diverse markets.” [“Going to Market in Developing Economies: Winning Big by Targeting Small,” bcg.perspectives, 23 April 2014] Too often emerging market countries are discussed as though they form a single, homogeneous group. As the Boston Consulting Group analysts remind us, nothing could be further from the truth. Proper segmentation of emerging market countries can only be accomplished with the help of big data analytics.

 

Accenture’s latest technology vision, entitled “From Digitally Disrupted to Digital Disrupter,” goes one step further and asserts that cognitive computing will provide the ultimate answer to overcoming the complexity involved when trying to sort through all of the data that companies require to succeed in today’s varied economic landscape. “At its most advanced,” the study concludes, “cognitive computing will … [mask] complexity by harnessing the power of data to help business users ask and answer strategic questions in a data-driven way.” In emerging market countries like China or India, those strategic questions should include queries about neighborhoods rather than questions about cities or regions. “Emerging markets is used as a general term,” states Clive Geldard, group vice president for retail and supply chain at Solving Efeso, “but there are many different types of markets out there. When it comes to operating in these countries, it is very important to understand the specifics of the market you are talking about.” [“Supply Chain Challenges in Emerging Markets,” SupplyChainBrain, 14 August 2014] In other words, thinking small can provide big opportunities.

 

If dealing with the complexity of neighborhood demographics doesn’t provide enough complexity to the picture, Ian Buchanan and Edward Clayton add a few more complicating factors to think about. They note that many high-growth emerging markets (HGEM) “are characterized by opaque regulatory climates, weak institutions, and invisible influence networks that may expose companies to unacceptable legal and reputational risks.” [“Doing Business Where Governance Is Weak,” strategy + business, 8 August 2014] Complicating the picture even more is the fact that many of the niche opportunities mentioned above are going to be found among consumers living at the bottom of the economic pyramid. Their circumstances often mean that products and services manufactured for more affluent consumers aren’t a good fit for small street-front markets that have extremely limited shelf space and often sell products in sizes as small as single-use packages. Geldard notes, “The mass of people in many developing countries survive on less than $5 a day, which means that companies may have to re-engineer their products to make them affordable. Sometimes the temptation is to take to market products that are designed for Western or North American tastes without really understanding the local culture and local preferences regarding taste and such things as how people cook.”

 

Adding even more complexity is the fact that getting products to those small stores is difficult because they are often located on streets too small to accommodate many traditional delivery vehicles. Geldard adds, “In emerging markets, having products available in the cities is not enough. The rural areas and secondary towns are very significant markets, but often are difficult to reach.” Only a cognitive computing system can ingest all of the variables that a company must consider and provide actionable insights that will help turn complexity into opportunity. There is a caveat that requires mentioning. In order to apply big data analytics to challenges in emerging markets, there must be data. Since consumers living at the bottom of the pyramid often don’t have access to technology, nor do they have the education to use it. That can be a problem. However, the problem is not as acute as it used to be thanks to the significant penetration that smartphones have made into all levels of society. Having advanced technology in the hands of consumers is not the only IT challenge facing companies that desire to operate in emerging markets. According to an “Accenture survey of more than 1,000 companies looking to break into emerging markets,” the companies themselves have failed “to shore up their supply chains in those countries with up-to-date information technology.” [“Emerging Markets and Diverging I.T. Strategies,” by Robert J. Bowman, SupplyChainBrain, 20 October 2014] Bowman continues:

“In fact, says the Accenture report, 45 percent of companies across 10 industries make only ‘moderate’ use of technology in emerging markets. (Another 48 percent said they use it ‘extensively,’ but the remaining 7 percent or so described their approach to I.T. as ‘limited.’ So the nays have it.) For purposes of the Accenture survey, the term ’emerging markets’ refers to those areas where global businesses have seen the most growth over the past three years, and expect more in the next three. Sixty-two percent, for example, placed China among their top three recent growth engines, while 40 percent ranked India in that category. Others areas of promise included Southeast Asia, Eastern Europe and Brazil. It goes without saying that conditions in emerging economies are highly volatile and subject to enormous risk. So it stands to reason that a company would go to market with all of the best tools it can muster.”

The most important tools that a company can be armed with are data and the means to effectively analyze that data. Mark George, Accenture’s global practice leader for operations and process strategy, told Bowman that “many consumer-products manufacturers are lagging. They’re deficient in the areas of both supply chain planning and execution.” The study concludes:

“As any company that has considered expanding into emerging markets can attest, such regions offer at once significant opportunities for growth and major, often unforeseen, challenges. In most cases, a company’s ability to capitalize on the former while minimizing the latter is highly dependent on the strength of its supply chain. … The supply chain’s role in the success of the modern company is indisputable. As our research shows, nowhere is that more true than when a company’s growth depends on how well it can navigate through the uncertainty and volatility of promising emerging markets.”

On the consumer-facing side of the supply chain, the BCG analysts write, “Companies need to arm their local sales managers and representatives with new geoanalytical tools and the authority to create compelling offerings for customers in these small segments.” They continue:

“Sales managers effectively become CEOs of their territories, with the freedom and decision rights to execute strategies that will appeal to local customers. We call this approach street-smart sales. The payoff is considerable. Even in markets where growth is tapering, companies have consistently demonstrated revenue gains of 5 to 8 percent over business as usual by following this approach.”

For years consultants have been advising companies to go global but think local. Often that was easier said than done. With the advent of big data analytics, thinking local has become much easier. Using cognitive computing, local analysis can get as refined as understanding the makeup of different streets in the same neighborhood. That’s because cognitive computing systems can ingest a of different data sets and make inferences about the relationships it discovers from them. As the BCG report states, “Digital and mobile technologies allow access to and analysis of sales and marketing information at a more microscopic level than ever before. Companies can quickly gather data from the field without an army of IT specialists and data experts or massive expense.” Armed with the right data and analysis, companies can achieve what the BCG analysts call “street-smart sales.” I like the term because being street-smart implies that you have a good grasp of the local environment and that is essence of thinking small.