As you can see in this chart, most families in emerging market countries, have far less disposable income than households in developed markets. They spend the bulk of their money on necessities. This makes it difficult for CPG companies since they are less likely to buy a new item even when it is better than what they use today.
So what is involved in entering emerging markets?
1. Companies need to define an emerging market business model. Don’t try to apply your US business model to emerging markets. In most cases, this won’t work. Consider the market and the obstacles you face as well as your prospective customers.
2. Choose the right product. Obviously, not all products will be attractive in every market. Each market has different needs. Consider those needs, choose the right product to meet those needs, then rethink your product. Why rethink it? Just because the modern market likes your product and can afford it doesn’t mean developing markets will. They might like it, but they may not be able to afford it. You need to adjust to their needs and capabilities.
3. Revisit raw material costs. Selling in emerging markets is expensive due to shipping, currency conversions and other obstacles. Many companies use different sources for their raw materials to create a less expensive product that will help with margins.
4. Be willing to accept smaller margins. Recognize a niche you can fill, while making a slim margin. Getting your foot in the door initially will pay off in the long run as you create a trustworthy brand.
5. Consider distribution methods. You may decide to manufacture in developing markets. If so, you might also plan to have a distribution center there. If not, consider using another distribution center that has a presence in emerging markets.
6. You may decide to leverage international selling sites like eBay or Alibaba.
7. Identify international, third party shipping companies like Bongo or MyAmericanShipper. These companies let you ship to one location in the US. From there, they ship to the destination and they handle customs, taxes, duty’s and other regulations for you. Some ship with other products to reduce shipping costs.
8. Determine how emerging markets will fit into your e-commerce strategy. If you accept international orders, you should include a currency converter as part of the purchase process. The omni-channel is real and includes more than just the modern markets.
9. Identify proper packaging and account for durability, weight, storage needs, etc. The packaging design and should also be part of this process.
10. Come up with a good marketing message. Incorporate that into your packaging. Make sure your message fits the local market you are targeting.
11. Retain a good accountant, familiar with international taxes. You should also retain a good attorney, familiar with international law.
12. Research and comply with international market rules. Consult with The US Commerce Department. They can help you meet regulation requirements, address labeling requirements and determine safety certifications.
The World Bank has a chart that ranks countries and their ease of doing business. Brazil is 129th on the list. India is 133rd on the list. China is 89th on the list. In many cases, if you are not already doing business in emerging markets, it might make sense to consider using a distributor or other third party who will handle taxes, regulations and so forth. For those companies who have already tackled these obstacles, the key is creating the right business model, product and marketing message that will sell product and create brand awareness.
One of my favorite examples of a company creating brand awareness in these markets is Colgate.
Many years ago Colgate decided they wanted a footprint in emerging markets. They realized expendable income was very low. But they decided to learn more about the market. They discovered that Indian villagers were using things like charcoal, brick dust, and other abrasive substances to clean their teeth. So Colgate introduced tooth powder to replace and improve what they were using at a low cost. Many years later, they still market tooth powder in India, but they also market tooth paste and other products. Because of their longevity, they are a recognized and trusted name.
Colgate Palmolive’s net sales for the first nine months of 2012 stood at $2.3 billion, up more than 2% over the previous year. This growth was a 6.5% increase in organic sales. According to Forbes, emerging markets in Latin America and Asia-Pacific consisted of a large portion of that organic growth. On the flip side, these sales are also exposing Colgate to higher selling costs. Net sales fell slightly due partly to exchange rates.
My next blog on emerging markets will discuss emerging market data issues and how it adds to big data. Visit our Resources page to download relevant whitepapers.
We also invite you to be Relational Solutions guests at the CGT Consumer Goods Emerging Markets Forum #cgem14! on September 17-19th at the Ritz Carlton in Fort Lauderdale. Click below for more information and enter promo code EMRSVIP.