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Published: February 28, 2007

 
 

The Flatbread Factor

To understand the life cycle of an emerging market, learn to decode its consumer products.

Illustrations by Michael Klein
Gruma SA, a company headquartered near Monterrey, Mexico, is the sort of enterprise that you might expect to operate solely within its country’s borders. Its main line of business in Mexico is the production of corn flour and related products, highly sought-after commodities in a land where corn is plentiful and tortillas are a staple. But Gruma is also a US$2.5 billion international powerhouse with manufacturing plants in the United States, Venezuela, Costa Rica, the United Kingdom, and China.

Gruma’s Shanghai facility is enormous. At the time of its opening in October 2006, it employed 180 people; represented a $100 million investment; and could annually produce 15,000 tons of wheat tortillas, 7,000 tons of corn tortillas, and 6,000 tons of snacks. It found ready customers among Asian distributors in Japan, Korea, Singapore, Hong Kong, Thailand, the Philippines, and Taiwan. And Gruma immediately began sizing up new markets just over the horizon. “In the first stage, we will supply the continental China market, gradually increasing our range to the European and Asian borders of the Middle East. To us, this is a long-term investment that will lead to strategic new business opportunities,” says Roberto Gonzalez Barrera, chairman of Gruma.

Why is a Mexican company with a niche food product like corn flour doing so well in Asia, with plans to expand into the Middle East? The answer lies in a simple yet powerful insight: Markets in emerging countries tend to follow the same path of development. These emerging markets exhibit a natural life cycle — a predictable pattern of consumer demand that is evident in steel, wheat, consumer products, and every other major economic sector. Business leaders who understand this pattern can leverage the similarities from market to market and grow a company accordingly.

By observing the life cycle of emerging markets around the world and recognizing the true advantages of its business model on the global stage, Gruma expertly timed its entry into many countries. Ultimately, its most versatile and marketable product has proven to be not a food, but a process — more specifically, the ability to roll any kind of flour, from corn to wheat to rice, into salable flatbread. Most people from India do not eat corn tortillas, but they do eat a flatbread called naan, made from wheat, which Gruma sells in the United Kingdom and plans to sell in India. The Chinese don’t have much taste for corn tortillas either, but they buy wraps made by Gruma for Peking duck.

Déjà Vu in Global Markets
The companies that use their awareness of the emerging markets life cycle to succeed can be categorized into two types. The first is a growing number of multinational corporations from industrialized nations. They have been spotting opportunities around the globe and planning tactical and strategic decisions accordingly. The second type is like Gruma: formerly local companies from emerging countries with a primarily local or regional market base. These companies are becoming global players in their own right. They accomplish this ascent by applying their instinctive knowledge of emerging markets to extend their reach into other developing countries.

In one week in 2006 in Shanghai, the authors of this article crossed paths with several executives from multinational corporations, each of whom had a Brazilian connection. Some were long-standing multinational executives; their careers at General Electric and Unilever had brought them first to Brazil and now to China. Others were from Bunge and Gerdau, companies with long histories in Brazil that have become multinational enterprises. (Gerdau, for example, is the majority shareholder in the Florida-based company Gerdau Ameristeel, and Bunge is a leading agribusiness and food conglomerate serving worldwide markets.) Although these executives came from different industries, they all saw China the same way. It was producing the same kind of growth they had seen in Brazil after the so-called Brazilian miracle, but at a bigger scale and higher speed. They (and their companies) recognized that the products, business models, and management experience they had developed in Brazil could be valuable in China, too.

 
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Resources

  1. “Carmaking in India: A Different Route,” Economist, December 13, 2006: Tata Motors plots a $3,000 car. Click here
  2. Stewart Brand, “City Planet,” s+b, Spring 2006: Describes the demographic shifts driving many of these market life cycles, and former Unilever executive R. Gopalakrishnan recounts the RIN story. Click here
  3. Guillermo D’Andrea, Leticia Costa, and Fernando Fernandes, “Successful Retail Innovation in Emerging Markets: Latin American Companies Translate Smart Ideas into Profitable Businesses,” Booz Allen Hamilton white paper, January 2007: A study for the Coca-Cola Retailing Research Council shows how breakthrough retailing makes a difference in Latin America’s maturing consumer market. PDF download
  4. Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2000): Explains how to undo the bureaucratic factors that constrain market life cycles.
  5. Jean Kinsey and Min Xue, “Supermarket Development in China,” paper presented at the China Workshop of the Worcester Polytechnic Institute, June 16–17, 2005: Fascinating preliminary study from two researchers at the Food Industry Center, University of Minnesota, of grocery evolution in China over the last two decades. PDF download
  6. “Looking Forward, Acting Now,” 2005 Annual Report, Gruma SA de CV: An unusually comprehensive annual report lays out the company’s global approach to markets and customers. Click here
  7. Alonso Martinez, Ivan De Souza, and Francis Liu, “Multinationals vs. Multilatinas: Latin America’s Great Race,” s+b, Fall 2003: Explicates the nature of corporate competition in emerging markets. Click here
  8. Norihiko Shirouzu and Stephen Power, Unthrilling but Inexpensive, the Logan Boosts Renault in Emerging Markets,” Wall Street Journal, October 4, 2006: Chronicle of a $10,000 car for developing markets.
  9. Michael Sisk and Andrew Sambrook, editors, The Whole Deal: Fulfilling the Promise of Acquisitions and Mergers (strategy+business Books, 2006): Shows how a more effective acquisition process makes all the difference in implementing a successful two-platform strategy, particularly when a company is entering emerging markets.