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Published: February 28, 2007

 
 

The Flatbread Factor

Unilever is another multinational corporation with experience operating dual platforms in emerging markets. Thanks to its long history in India, Unilever has a wealth of expertise in developing products and business systems for low-income consumers. It has also developed a dual platform in Brazil, based in part on its 2000 acquisition of the Bestfoods corporation (a producer, active in North and South America, of such staples as mayonnaise and corn oil). Whereas most multinationals focus on the wealthier populations of Rio de Janeiro, Sao Paulo, and the southern states, Bestfoods developed and acquired products and brands (Maizena and Arisco) targeted at lower-income consumers in the poorer but larger states of northeast Brazil.

Unilever’s lower-income platform has allowed the company to develop a formidable presence in both India and Brazil, which positions it to capture the growth in these economies. In turn, by understanding the patterns of development in these countries, Unilever can recognize which strategies, products, and business models it should apply to China and other developing markets.

Emerging Global Entrepreneurs
Meanwhile, the number of global competitors from emerging markets is growing rapidly. These include companies of Latin American origin, like Gruma and Bunge; companies from India, such as automaker Mahindra and Mahindra; and more and more Chinese companies following the examples of Lenovo, Haier, and CNOOC. Companies from emerging markets can leverage a number of competitive advantages. They have privileged access to the resources of their home country (which might include natural resources in Russia or Brazil, a state monopoly in China, or information technology advantages in India). They also have access to low-cost financing from the International Finance Corporation (the private-sector division of the World Bank), as well as Islamic banks and development banks. In addition, they have populations living abroad that are already familiar with their products, and cultural and language ties to many parts of the non-English-speaking world.

But their greatest asset is their expertise, honed through years of production and marketing in home regions. Their products and services are already adapted to the lifestyles of their local customers; their executives are already experts at capturing markets there. The challenge for these companies is learning to adapt their platform externally. They must recognize when their product or business model will fit the stage of the other emerging markets they hope to enter.

Generally speaking, companies from transitioning markets — those accustomed to operating in a free market economy — are in a stronger position to exploit these life cycles than companies recently yoked to socialism. That’s why there are more companies on the global stage from Latin America than from the former Soviet republics. Brazil’s Gerdau, for example, is adapting business models developed over three decades of acquisition and consolidation in Latin America to its enterprise around the world, on a much more accelerated time line. Gerdau is also building its business in the U.S., leveraging its role as the largest producer of nonflat steel in Latin America. Another industrial company, the Argentina-based Techint Group, has leveraged its Latin American experience and sure hand in acquisitions and alliances to sell steel and engineering services in North America, Eastern Europe, and East Asia. (Together, Gerdau and Techint account for almost half of the past five years’ merger and acquisition transaction value in Latin America.)

In Eastern Europe, Bunge has adapted swiftly to the quick commoditization of its core food oil business. Bunge’s Eastern European group, originally a grain trading outfit that moved into oils for the solid profit margins, was forced down the value chain as those oil margins diminished. Leveraging group knowledge from developing markets such as Brazil, as well as local knowledge from acquired companies, Bunge began providing a more sophisticated line of food ingredients, such as dairy fat replacements for use in chocolate and ice cream.

 
 
 
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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.