Due to diversification in product and development of information technology, producers have been able to make products at a significantly low price. This has brought in the concern of lowering the price but unfortunately ended up lowering the profit margin of companies. The remaining opportunity for growing producers is to gain access and win the emerging markets of Asia, Eastern Europe, Africa and the Latin America.
Emerging markets have improved the profitability of the market leaders such as Coca Cola, Colgate, PepsiCo and Unilever by 15% of their total revenue coming from the emerging markets. The trend appears to have a continuous trend in that these companies continue to exceed their internal profitability benchmarks. Organisations that have an objective of future growth must prioritise on leading consumer markets with no exceptions.
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However, in their efforts to capture the emerging markets multinational organisations encounter some challenges. These obstacles consist of unfamiliar terrains that are dominated by local market players, foreign exchange fluctuations and deep rooted socio-cultural customs that make it hard to penetrate the products in the markets. Successful businesses have to take risks and it has been established that the most rewarding businesses are those that bears the largest number of risks.
All that a successful company requires is flexible thinking. A producer must have the needs and preferences of the consumer in mind before making the product. The product has to be reconfigured to suit those needs I both price and taste. The most effective entry strategy in the emerging market is the Pull Strategy rather than Push strategy. By this we mean that the company has to tailor their products parallel to the needs of the consumer in such a way that the consumer will be attracted towards the product. This is contrary to the push technique where producers push products to consumers after setting their own standards.
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Historically, large businesses targeted premium markets that delivered high profit margin and these companies would not reduce their price low enough to sell to less affluent in the market. On the contrary, local players made their best in low costs, proper distribution and improved sophistication, begun launching brands in middle class that enabled them to grow. As they moved to premium market segments, multinational organisations discovered that the mass market opportunity was too important to ignore. Mass market participation allows the multinationals to drive their costs of production down to make their products accessible to everyone.
Strategies for successful entry in the emerging market
Localising at all levels
Local competitions have some incumbent advantages such as low cost production consumer understanding and government favour. However, multinationals can gain a competitive advantage by learning the local market complexities. They just require fundamental changes in product offering such as packing in significantly smaller packet size, use of conventional distribution channels and developing products in the best of the local flavours.
Local flavouring is the strategy P & G employed to reach the crest of the industrial market. Coca cola growth accelerated acquired the second largest Russian fruit juice, thus positioning itself to local preference in fruit juice in the Eastern Europe market segment. Innovative distribution was used by Unilever to tap consumer market in the local India market. The company used the local Indian women to serve as distributors, thus deeply penetrating into Indian villages.
Developing a “good enough” cost mentality
Feeding the market good enough requires aggressive cost management. Labour intensive techniques are among the best strategies the enable the taking advantage of the used capital employed. Cost disciplines also means localising management and reducing overheads. Successful organisations focus on shifting the competitive dynamics to their favour.
Thinking globally but hiring locally
Multinational organisations count on experts to guide their entry into emerging markets, but this approach often backfires. Expatriates drive up costs and often fail to deliver the instilled local market understanding that can be offered by local managers. Market leaders empower local teams by giving them global opportunities to exercise their skills.
Acquisition with a strong business fit
Strategic acquisition accelerates business entry to emerging markets by adding popular brands to its product line. This broadens its reach to stronger distribution network, lowering operation cost and providing a pool of local talent.
Organising for emerging markets
Market leaders maximise on their investment through building dedicated emerging market capabilities. This approach enables them to approach emerging markets with crafted strategies to make a distinguishable though it’s unique characteristics.
In conclusion, with the Asian consumer market growing in a double digit rate, it has served as a motivating factor to multinationals making them move faster to build their brands. It is quite essential for a multinational to concentrate on succeeding in the emerging market in order to raise its global market share.
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