Market leaders in their sector in the developed world often set out to repeat their success in emerging markets, and seemingly put a lot of resources into achieving their aim. We will try to look at the reasons why so many fail- and what can be done to make sure they do not. Growth is a corporate obsession. For many companies, one of the best ways to achieve steady organic growth is through steady geographical expansion. But time and time again firms that are market leaders in the developed world fail toreplicate that success in emerging markets. Why? And what can companies do about it?
The problem typically starts at the top of the corporate hierarchy. A typical scenario goes like this. A CEOsends a manager that he knows and trusts to start "conquering" a group of countries in the developing world. This manager ends up operating from a regional hub. He visits the countries he is interested in, establishes contacts and collects relevant information. He spends months evaluating potential distributors and partners. He decides who he wants to work with and signs the contracts. Sales begin. He hires a few people in the hub to co-ordinate the effort. Sales pick up. He is excited. Business is going well. "We are in. The sky is the limit", or so he thinks.
A year later he is holding a report on market shares. "How can this small player be ahead? Why am I still so far behind?" His CEOcalls and says: "I'm looking at the report. It is not bad. But I would like to see us becoming much more dominant next year."Another year on, the position is much the same. Business is slightly up but not relative to the competition. This time the CEOis less relaxed: "You said you were going to increase our market share. What's wrong?"This is when the regional manager usually says: "I think I'll need more resources to build the business. People don't seem to know our brands here."The CEO'sresponse is: "Prove to me there is more business there and you'll get more resources." To which the inevitable riposte is: "How canI increase sales if you don't allow me to invest more?"
Getting out of this vicious circle is never easy. You can avoid getting into it and improve chances of being successful in an emerging market by ensureing if there is genuine commitment from the very top.
Senior management must be absolutely committed to an emerging market business. It must commit sufficient resources to getting it established and then to sustaining and growing it. Building business in emerging markets is never a short-term affair; the CEOand the board must be prepared to lose money for a number of years. In companies that prove successful in emerging markets, it is common that once astrategic commitment has been made, the CEOappoints a trusted senior manager who is powerful enough to override internal obstacles and to make investment decisions according to market needs. He champions and drives the emerging-market business. CEOsof companies that are successful in emerging markets have often made a point of convincinga nalysts and shareholders about the benefits of the long-term growth that emerging markets can help provide. Companies that focus on short term profit maximisation are typically less successful in emerging markets,even if their products dominate the developed world.