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As emerging markets grow in importance, companies must develop distinct strategies targeted at maximizing the benefits of tapping into these vast reservoirs of talent and, increasingly, new customers.
Accenture explores the evolutionary steps that companies typically undergo as they develop products specifically tailored for these markets and identifies the four essential traits of companies that successfully expand into emerging markets on their paths to high performance.
Emerging markets have now become key to near and medium-term growth for many companies. Most companies, however, have tended simply either to extend existing brands, or to strip features from those brands in order to attract highly cost-conscious customers.
Given the growing importance of these markets, and their increasing sophistication, it is becoming vital for companies to develop distinct strategies to remain competitive. Companies have begun to target the specific needs of the emerging consumer. Not only does this new approach give companies an edge in emerging markets, but the resulting innovations can turn out to have applications in the developed world.
Traditional product development should be adapted to achieve profitable results in and from emerging markets. From our research and experience, we can identify three major evolutionary steps in a typical developed world company’s efforts to innovate and develop products in emerging markets. However, it is important to highlight that the innovation flow can also be triggered from emerging markets directly to developed markets.
These three steps are:
Adapting existing products to local markets. The normal entry phase for developed-market companies. At this stage, the basic produce remains the same as it was in established markets; it simply has fewer features. This strategy is useful for testing a product or new market, but will not help a company establish dominance.
Developing new platforms for local markets. At a later stage, companies start to focus on products that are fundamentally redesigned. This alternative product development cycle is a natural evolutionary step for most companies trying to thrive in emerging markets.
Innovation and new product development in emerging markets. Increasingly, innovations that were created for consumers in emerging markets are finding their way into developed markets.
The attractions of emerging markets as production sites are obvious. They are also home to a rapidly growing middle class—a source of present and future customers, and of educated, motivated talent. Yet emerging markets are different from developed markets in terms of culture, customer requirements, labor practices and regulatory regimes.
To develop effective products and innovations in emerging markets, and then perhaps to use those innovations as a basis of competitiveness in the developed world, a company needs to implement a specific business approach that will tackle the main challenges of differentiation and competitiveness. The four essential traits of effective product development should be balanced for the emerging environment and for each business situation.
Defendable niche: Have an integrated corporate strategy. It is important to understand a market’s local economic and socio-cultural reality to create a defendable niche. In addition, companies must have a clear and distinct emerging-market strategy and operating model, linked to long-term corporate strategy and tailored for the different success drivers and unique characteristics of the market.
Talent pool: How to take advantage of a rich source of expertise. Emerging markets produce many more engineers than developed countries do, creating a talent differential and making emerging markets good locations for R&D/ product-design facilities.
Cost advantage: Scale capability. For multinational corporations, emerging markets can produce a cost advantage, achieved through scale and/ or efficiency, creating the ability to price competitively and a buffer against periods of intense global price competition.
Differentiated Products: Design and innovate product that understands core voice of customers. While meeting basic requirements at a competitive price is likely to be key, remember that emerging markets are anything but homogenous.
Ana Mundim is a senior principal in Accenture’s Innovation and Product Development team, based between London and São Paulo, Brazil. Her focus is on product development, either within multinationals or within companies within emerging markets that are looking to expand.
Mitali Sharma is a senior executive in Accenture’s Innovation and Product Development team. Her expertise lies in working with executive management to quantify, design and deploy innovative and strategic changes that deliver sustained results and help shift the base of competitiveness. She lives in Atlanta, Georgia.
Praveen Arora leads the Innovation and Product Development team at Accenture’s Management Consulting Center of Excellence in India. He has worked across emerging and established markets in this area.
Ryan McManus is a senior manager in Accenture’s Global Strategy Offering Development team and the Accenture Global Strategy Operations Lead and a regular author on the topics of international market expansion, emerging markets and mergers and acquisitions.
May 14, 2012
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