In the last ten to fifteen years, a new paradigm of global business has emerged. Although the early phases of globalization clearly laid the foundation for what was to follow, the rapid explosion of global business in the last decade has beat every possible prediction. One of the most important drivers of this phenomenon has been the increasing importance and dominance of emerging markets.
The opening up of the economies of Brazil, Russia, India and China in addition to other South American and Eastern European countries facilitated the gradual integration of these economies in the global economy. The easing of trade barriers enabled a much freer flow of human, financial and intellectual capital across boundaries. But the biggest change it ushered in was the addition of more than two billion customers in the global demand pool.
As the global brands, mostly from the well developed Western countries, seek to continue their growth and expansion, the traditional markets of North American and Western Europe have begun to appear less attractive. For long the global bastions of thriving markets, these economies are highly saturated or rapidly becoming saturated. The contracting population, the unending debt and financial crises, hyper competition that has equally affected all brands, and empowered customers that are very discerning have together forced companies to question their hitherto singular focus on these markets as the primary source of their growth and expansion.
On the contrary, the emerging economies seem to offer new hope and opportunities to these global brands. With an enormous, untapped market characterized by an increasing middle class with considerable levels of disposable income, emerging economy markets are ripe for growth. Global brands have indeed flocked to these markets to expand their reach and entice the customers with their brand offerings. Additionally, emerging markets also offer global brands an excellent basis for establishing their manufacturing and sourcing operations at considerably lower cost. Thus, they not only can expand their brand growth and profitability, they can also leverage the cost advantages of emerging economy markets to achieve operating efficiency thereby attaining scope and scale economies.
By creating huge markets, enticing cost structures, and favorable trading conditions, emerging economies have in a matter of a decade decidedly changed the course of the global business landscape. From being a closed economic system that was largely closed to the global business, emerging economies have brought about transformational changes to the way business formulate and implement their strategies, and in so doing, decidedly changed the course of business for both global and regional brands.
Indeed, a recent report by the Boston Consulting Group (BCG) forecasted that in the global pharmaceutical industry, more than 70% of future business would originate from developing countries. Jeffrey Immelt, the CEO of General Electric, the global conglomerate admitted that the company expects more than 60% of its growth revenue to emanate from emerging economies in the coming decade. Not just GE, but more than half of the S&P500 firms reported that nearly 47% of their sales and profits approximating to US$ 2 trillion came from markets outside of the US market.
While these enormous, untapped markets create immense opportunities for global brands, they usher in a hitherto nonexistent challenge. Most global brands have traditionally focused on the developed Western markets even while dabbling in the emerging markets. As such, their expertise and their honing of strategies are steeped in the context of the sophisticated markets of the developed world. They are still learning the strategic ropes of successfully navigating the many unique challenges of emerging markets and thereby successful operate in such contexts. However, with global business, now more than ever, they are under immense pressure to strategically manage these dual worlds simultaneously.
On the one hand global brands will have to defend their traditional turf of operating in mature, developed markets characterized by well developed institutional intermediaries, empowered customers and entrenched competitors. It is those markets that afford them their market leadership, contribute to their bottom line and bring in the core set of resources needed to compete on the global landscape. On the other, they are forced to explore the emerging markets characterized by institutional voids, fragmented competition, bottom of the pyramid segments and unstable environments in order to continually grow, and exploit the unsaturated market segments.
Inherently, this creates a strategic duality for global brands as these two sets of challenges many not necessarily align themselves, and at times, even be conflicting. Given these new realities, it becomes imperative for global brands that they not only continue carrying out their tested strategies to leverage the underlying expertise, but also explore strategic ways in which they can effectively manage these new challenges.
In this regard, it is important for global brands to follow three main steps to successfully navigate their strategic duality in order to emerge as market leaders in the changed global business order.
Develop a consistently flexible strategy: The essence of a successful strategy is to consistently devise and execute plans that enable the companies to generate more returns than competitors over long periods of time. Additionally, at the core of any successful branding strategy is the ability of the brand to consistently portray a single brand identity that is tied to an aggressive market positioning, which together conveys the underlying brand value to the customers and other stakeholders.
As competition intensifies, it is the distinctive brand identity and positioning that defines the brand and protects it from the competition. As such, global brands are very well versed with ensuring consistency of the brand elements and as a result also reluctant to make any changes even in response to external pressures. However, while strategic consistency is crucial when brands are operating in one kind of markets, the strategic duality of the current global brandscape mandates that global brands develop the ability to be flexible depending on whether they are operating in developed or emerging markets.
Thus, brands will have to create strategic processes where in the CEO and brand managers can effectively differentiate between the core elements of the brand from other peripheral elements. Such a distinction would then enable them to maintain consistency of the core elements while being more responsive to changes needed to the peripheral elements. Given these, one of the key strategic success factors is to simultaneously develop the ability to respond flexibly to market demands while ensuring consistency is inherent in the strategies.
Strategically juxtapose long- and short-term gains: Developed and emerging markets offer fundamentally differing competitive dynamics. Developed economies are characterized by saturated markets, highly institutionalized practices, well established institutional intermediaries, empowered customers, hyper competition and well tested strategies. On the other hand, emerging economies are known for their uncertainty, volatility, steep learning curve, and gradually increasing competition. Given such varying competitive profiles of these two types of markets, global brands should carefully strategize their time horizons for growth and profitability accordingly.
As such, global brands should strategically balance both their long and short term gains depending on the context of the market in which they operate. While developed markets focus more on building long term relationships with customers by investing heavily in brand experiences, companies in such markets should focus their strategies on reaping long term gains. Emerging economies on the other hand demand high quality products at low prices and brands struggle to gain initial customer buy in. As such, an ideal strategy may be focus on short term gains in such markets.
Effectively combine the two generic strategies: Before the integration of the emerging economies into the global business landscape, it was much clearer for global brands to navigate the developed markets. Customers could be classified as those that preferred a low cost product or those that preferred well differentiated ones. However, with the new middle class of emerging markets, this distinction is being blurred. Customers are demanding well differentiated, high quality products as a low price.
As such, the final key factor is for global brands to effectively combine the two basic strategies of offering the lowest possible price via a cost leadership strategy and differentiate their products from others via a differentiation strategy. For example, Singapore Airlines (SIA) has mastered this approach to strategically embrace both the basic strategies. On the one hand, SIA aggressively differentiates every possible customer experience with the brand, while on the other, it strives to achieve cost efficiencies in its back office operations ranging from hedging against fuel price fluctuations to the software systems. With such a careful execution of dual strategies, global brands would not only be able to appeal to the new emerging landscape but also leverage its core competencies.
Emerging markets have slowly and surely changed the face of global business. With their enormous market potential, they are increasingly becoming the power center of global business. In order to leverage such markets, global brands should learn to balance the inherent differences between the developed and emerging markets. The three main strategic steps outlined here can prove very helpful as global brands design their strategies.