How Local Companies Keep Multinationals at Bay
The Idea in Brief
If you're setting out to compete in rapidly developing economies, beware: Smart domestic enterprises are staving off the challenge from global market leaders. And they're seizing new opportunities before multinationals can.
Consider: In China, search engine Baidu is used seven times more than Google China every day. In India, Bharti Airtel has trumped Vodafone as the market leader in cellular telephony. And in Mexico, Grupo Elektra has beaten Wal-Mart as the country's top retailer.
Domestic dynamos like these dominate foreign rivals by applying six strategies. For example, they use their deep understanding of consumers in their countries to create highly customized offerings. They leverage cutting-edge technology to keep operating costs down. And they tap into pools of cheap local labor instead of relying on expensive automation.
To prevail over local winners on their turf, set aside your tried-and-true strategies, advise Bhattacharya and Michael. Instead, understand--and emulate--domestic players' tactics.
The Idea in Practice
Bhattacharya and Michael identify a blend of six strategies domestic winners use to succeed in emerging markets.
Create Customized Offerings
Simple customization techniques, based on intimate knowledge of local consumers, have sparked major success for homegrown champions.
India's CavinKare packages shampoo in single-use sachets, making the product affordable for Indians who can't afford big bottles and regard shampoo as a luxury. CavinKare is the largest local player in India's $500 million shampoo industry.
Develop Business Models to Overcome Obstacles
Smart local companies identify key challenges posed by domestic markets, then design business models to overcome them.
Shanda has avoided the software piracy problem plaguing global video-game leaders in China by developing highly popular multiplayer online role-playing games. These are impossible to pirate, because they're live experiences created by many players over the Internet.
Deploy Cutting-Edge Technologies
Local winners use new technology to control operating costs and deliver quality offerings.
Brazil's Gol Linhas Aereas Inteligentes (Gol), South America's first low-cost airline, uses the latest model Boeing 737 in its single-model fleet. The young fleet requires less maintenance, so Gol manages quick turnarounds, which lowers cost per available seat. Gol's use of e-tickets and unmanned check-in kiosks has further driven down costs.
Tap Low-Cost Labor
Local champions leverage cheap labor pools rather than relying on automation.
China's largest outdoor advertising firm, Focus Media, has installed LCD screens in 130,000 locations in 90 cities. Instead of linking the screens electronically through expensive technology, it uses employees who go from building to building on bicycles to replace advertisement DVDs. This decreases operating costs, enabling the company to offer advertisers immense flexibility cheaply.
Build Scale Quickly
Successful local companies fend off multinationals and other regional players by rapidly expanding their reach.
Focus Media initially faced many rivals across China. To gain nationwide reach, it pursued an aggressive acquisition-led strategy. Its national coverage attracted advertisers, diminished regional rivals' competitiveness, and vaulted it past two global leaders involved in China's outdoor advertising industry.
Use Management Talent to Sustain Growth
To avoid the problems that can come with high growth, domestic dynamos put the right management talent in place.
Russia's Wimm-Bill-Dann Foods, founded by five entrepreneurs with borrowed funds, changed its management structure when multinationals began encroaching on its local dairy and fruit-juice markets. The founders hired a new CEO with extensive industry experience and gave him free rein. They also brought in seasoned managers from multinational companies. WBD now has 34% of the Russian market for packaged dairy products.
Copyright 2008 Harvard Business School Publishing Corporation. All rights reserved.
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Harvard Business Review
by Niraj Dawar and Tony Frost
The authors further illuminate strategies that help local companies succeed in emerging markets. For example, some fortify their existing competitive assets to cater to local needs and tastes. Consider Bajaj Auto, which makes motor scooters in India. Bajaj knew that Indians wanted low-cost, durable machines and easy access to maintenance facilities in the countryside. It beefed up its distribution and invested more in R&D to sell its cheap, rugged scooters and offer a network of roadside mechanic's stalls. Honda, which offered sleek models sold mostly through outlets in major cities, ended up pulling out of a scooter-manufacturing equity joint venture in India.
Harvard Business Review
by Orit Gadiesh, Philip Leung, and Till Vestring
This article describes another strategy that local companies in one particular emerging market--China--are using to trump multinationals. In this vast country, many successful local firms are targeting the ballooning cohort of midlevel consumers with reliable, low-cost products that are displacing MNCs' premium offerings. To defend their China position, MNCs must consider entering China's "good-enough" space. For example, they can attack the competition from above by lowering their costs and distributing simplified, reasonable-quality offerings. If they can't reduce their costs quickly, they should consider using acquisitions to gain a toehold in this space. But note: To ensure that acquisitions deliver the maximum possible value, select target companies that offer cost and distribution synergies with your firm and whose products won't cannibalize your premium brands.
© 2008 CBS Interactive Inc.. All Rights Reserved.