Arguably, the three biggest lies in the world are...

  1. I'm from the government and I'm here to help you.
  2. The check is in the mail.
  3. There is a lot of quick money to be made in developing and emerging (D&E) markets.

While the first two lies are rather easily established (apply for a government concession or call up someone who owes you money), the third one continues to bamboozle large corporations across the globe. In this paper, we seek to focus on the third lie and try to fathom whether there is a grain of truth in it!

The Emerging Opportunity...

After the consolidation wave, consumer packaged goods (CPG) companies are sitting on piles of cash with little opportunity or hope of growth in their traditional product markets. Investment in innovation and new products is increasingly being perceived as high-risk, with a very low success ratio. Faced with an experimental shopper and an aggressive retailer, a number of consumer goods manufacturers are now seeking new pastures to drive growth.

At the Same Time, Technology Has Enabled the Globalization of Supply Chains in Most Products and Services Leading to a Transfer of Wealth and Flow of resources to Geographies with Lower Cost Structures and Abundant Labor pools. A Wave of Economic Revival Is Sweeping Across These Geographies, creating Potentially Lucrative Market Opportunities for Cpg Companies.

...And the Market Reality

Emerging economies of the world are home to 84% of the global population and account for almost half the world's production (PPP) with a going growth rate of 6% as against 2.4% in the developed economies. These regions are home to relatively inexperienced (and apparently, therefore, impressionable) populations and potentially high (though hitherto partially redeemed) purchasing power.

Clearly, this represents a real opportunity if there ever was one.

However, some factors make the proverbial low hanging fruits hard to harvest. The figure below seeks to outline these factors.

Figure 1: The 4S Model of D&E Challenge

Entry Strategies

With the caveat of market reality playing at the back of their minds, CPG companies nevertheless seek to reap the benefits of presence in such vast and growing market. Four separate styles of entry into D&E markets are typically discernible. For ease of expression, we have chosen to personify each.

Figure 2: Entry Strategy for D&E Markets

Each of these strategies comes with its own payoffs. It is critical to understand the possibility of aligning each of these to the corporate objectives and weighing the payoffs versus the implied costs.

Born Again

The challenges faced by CPG companies when they are trying to create a foothold in D&E markets are best taken head on by a willingness to reengineer the operating model of the enterprise on some of the following lines:

  • The Cost of Revenue
  • Knowledge Harnessing and Dissemination
  • Distribution and Operations

The Cost of Revenue

Most CPG companies worship at the altar of the simple equation that expresses itself as Cost + Margin = Price. The validity of this equation is put in question by its viability in D&E markets. Organizations that have successfully created a space for themselves in these markets were smart enough to realize this and switched to a more rewarding Affordable Unit Price - Margin = Target Cost.

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ABOUT THE AUTHOR

Gunjan Anurag is a consultant in the Retail & CPG Practice in Infosys Technologies Ltd (www.infosys.com). Gunjan has over 6 years experience in brand and customer management with Britannia Industries Limited and Godrej Soaps Ltd.
Kiran Murthi is a consultant in the Retail & CPG Practice in Infosys Technologies Ltd (www.infosys.com). Kiran has over 8 years experience in brand and customer management with Cadbury Schweppes and Johnson & Johnson.