How Big Companies Beat Local Competition in Emerging Markets
by Vijay Govindarajan and Gunjan Bagla
You might think that emerging country companies are more ready to address the needs of and win customers in other emerging markets. Indeed, India's Godrej Consumer Products Ltd. is expanding rapidly via acquisitions of Issue Group and Cosmetica Nacional in Latin America, while China's Huawei has a large direct presence in India's telecom market. But we believe that multinationals from rich countries who are already developing products for one emerging market possess unique advantages that can help them win in other emerging markets too.
For example, In August 2011, consumers in Mexico's fifth largest urban area, Toluca, were offered a new product, PureIt, a home water purifier that enabled them to not have to lug 40-pound garrafones (bottles) of drinking water to their homes from the grocery store. Consumers in many developing countries don't trust the quality of the municipal water supply; some boil their own water, others buy bottled water and yet others purify the water in their own homes. Mexican consumers traditionally did not install home water purifiers, so Unilever was building a new category. PureIt, sold by Anglo-Dutch giant Unilever was not designed in Mexico or in Europe however. A Unilever R&D team in India first developed and introduced the countertop product, which includes innovative four-stage germ kill technology, in Chennai, India in early 2005. PureIt became a grand market success in India, winning a Golden Peacock Innovative Product/Service Award and acclaim in UNESCO's Water Digest. Unilever now sells the PureIt family of products in Brazil, Indonesia and Nigeria in addition to India.
Similarly, California-based Cisco Systems launched an entire new global business unit called Smart+Connected Communities from its Bangalore, India location, dubbed Cisco East. The smart building router was the first product developed by the team in Bangalore first for the Indian market but is now available globally. Wim Elfrink who led Cisco East for five years was quoted in the Economic Times of India "The ideas and concepts are coming from our Bangalore center. So it's not that we do things in India for India, we are doing for the Asia Pacific, for the US. This is not something I had anticipated three years ago."
Panasonic of Japan is designing air-conditioners in India that address the unique requirements of tropical climates and customers accustomed to an air blast from swamp coolers. Indian engineers working for Panasonic and its outsourced partners are now designing products for other tropical emerging countries. Yamaha, another Japanese company has found a huge market for its headquarters-designed motorcycles in India where they are used for primary commuting, not just for recreation. This year, it decided to develop a $500 motorcycle in India and will use the design to address emerging markets, according to Yamaha India CEO Hiroyuki Suzuki. Conglomerate Siemens of Germany is designing innovative medical scanners using a distributed team of engineering in Europe and in Goa, India. Peter Löscher, Siemens chief executive, says: "A good idea or product from, for instance, India can be plugged into a global system of sales and manufacturing."
The takeaway from Unilever, Cisco, Panasonic, Yamaha and Siemens is that innovative thinking from low-cost countries combined with rapid action can benefit rich country companies disproportionately.
Four factors make it possible for American, European and Japanese multinationals to use globally distributed product development and engineering capabilities to leapfrog local firms from emerging markets:
Techniques such as Design for Six Sigma (DFSS) have enabled leading companies to become more disciplined about the engineering and R&D process. This enables large initiatives to be parsed and subdivided across time zones and cultural boundaries more readily than in the past.
Low cost three-dimensional printers enable near-simultaneous creation of physical prototypes on multiple continents. So a new design file from Beijing can be transmitted in minutes to the test center in Mumbai, to the corporate lab in Chicago and to the potential market in Cape Town and teams can have physical prototypes ready in a day without having to wait for shipping, customs and other delays.
The extremely low cost for video conferencing using services such as Skype or GoToMeeting enables participants separated by 11 or 12 hours of time zones to collaborate in real time.
Companies from rich countries often already own a reservoir of intellectual property that can be combined with the innovative ideas from the low-cost country innovators to produce a winning combination.
Seizing this missed opportunity for reverse innovation should be on the agenda of every multinational already succeeding in one emerging market.
Released: October 4, 2012, 10:07 am