A recent article in the Economist pointed out that, in addition to facing operational difficulties, emerging market companies face marketing difficulties when tackling developed markets (see Brand New).
There has been a lot written lately about the emerging country champions – such as Haier, Lenovo, and Tata Motors – expanding abroad. I’ve even documented how difficult it can be for emerging market multinationals to expand into developed markets.
What’s interesting about this article, however, is that it highlights a particular challenge –building a global brand.
…non-branded companies typically earn gross margins of 3-8% and are constantly at risk of being undercut by cheaper rivals. Branded firms enjoy fatter margins (15% or more) and more loyal customers. Yet becoming a global brand is exceedingly hard. Emerging-market firms…struggle with limited budgets and unlimited prejudice.
The article describes a recent book by Amitava Chattopadhyay, of INSEAD, and Rajeev Batra, of the University of Michigan’s Ross School of Business, that addresses these challenges. The book argues that emerging market companies can overcome branding challenges by:
1. Exploiting their two basic advantages—economies of scale and local knowledge—to expand into new markets;
2. Defining a market segment in which they have a chance of becoming world-class;
3. Innovating; and
4. “Old fashioned” brand-building
As I pointed out in Innovation in China, Part Trois, manufacturing low-margin goods isn’t sustainable for emerging market multinationals in the long run. And unfortunately, moving up the value chain from a low margin manufacturer to a globally-recognized company takes an inordinate amount of time.
In addition to the typical motivations for foreign expansion including market access and/or access to basic resources, firms from emerging markets often expand in an effort to tap into, and assimilate, state of the art technologies available in developed markets…[But] effectively integrating advanced technological knowledge is challenging. Closing the skills gap with advanced countries is no easy task.
Moreover, companies trying to establish their brand in a developed market oftentimes must combat the developed country consumers’ preconceived notions about the quality of goods. According to the Economist article:
Emerging-market firms must struggle with limited budgets and unlimited prejudice. GfK, a consumer-research company, found that only one-third of Americans were willing even to consider buying an Indian or Chinese car.
So although I think the book authors provide some good tips and isolate the kinds of things that emerging market multinationals need to do to overcome the challenges associated with global expansion, more often than not, these things are easier said than done.