Pioneering new frontiers

Our Professor of Marketing and International Business, Kevin Ibeh , discusses the challenges businesses should consider when entering emerging markets.

Between 1848 and 1850 the population of California increased from 1,000 to more than 20,000 as hordes of people crossed the Rocky Mountains, in search of fortune.

This pioneering spirit can still be seen today in the entrepreneurial and internationally focused businesses, which are enjoying their own 21^st Century gold-rush as they compete to break into emerging markets in areas like South America and Asia. Despite the ongoing global economic crisis, growth in these fast-developing regions shows little sign of slowing.

Figures, from  the CBI, suggest growth in consumer spending in BRIC economies - Brazil, Russia, India and China – is expected to average 13.5% per year in the next decade. In recent years, the’ Next-11’ economies including Mexico, Indonesia, Turkey and a number of African countries have also started to emerge as frontiers of opportunity, offering prospects to a wide variety of businesses.

However there are a number of challenges businesses may face when entering emerging markets which need to be addressed from the start:

Understand your market

Understanding the characteristics of a market and the challenges it poses is essential.

Issues such as high transaction costs and institutional voids - problems like poor infrastructure and varying levels of legal protection - all pose unique challenges.

Businesses also need to consider how differences in Intellectual Property legislation and its enforcement might impact their operations. In some emerging markets, a lack of IP protection can seriously damage competitive advantage.

Talk to people on the ground

Existing contacts, suppliers and customers, already working in emerging markets, can provide valuable insight and sign-post challenges. They may also be able to provide opportunities, through partnerships and acquisitions, for faster entry and greater penetration in their chosen market.

Diplomatic  ‘channels’, including embassy officials and trade envoys, and domestic trade bodies such as UK Trade & Investment (UKTI) also have a large network of contacts and intermediaries, able to support businesses into emerging markets.

As some of the first entrants into these new markets, consultancy firms offer a wealth of first-hand experience. Recent reports by the McKinsey Global Institute and the CBI for example highlighted the potential of emerging markets, drawing attention to the next wave of fast-developing cities such as Morocco’s Casablanca, Nagpur in India and Sharjah which neighbours Dubai.

Look at the competition  

By analysing existing competition, both from indigenous firms and international companies, businesses can work out exactly what they can bring to the market and how their proposition offers a distinct advantage.

Having a solid understanding of this allows businesses to identify a niche, see opportunities and understand how to set themselves apart from competitors.

Learn to adapt

While businesses should always aim to build on their existing brands and exploit favourable perceptions of their home country, entering an emerging market also requires adaptation.

To succeed a business must make changes to its proposition and localise it to respect the political, economic, social and cultural characteristics of its chosen market.

Products, services and communication strategies often need to be changed to meet market demands while sales methods and the use of promotions may have to adapt to meet local regulation.

Coca-Cola, for example, had to find an alternative to its ‘The Greatest’ advertising campaign featuring Muhammad Ali in Islamic markets.

The need to adapt can pay dividends through a process known as ‘reverse innovation’. When Renault acquired Romanian car manufacturer Dacia, for example, it was faced with the challenge of developing vehicles for the emerging eastern-European market.

By shifting R&D to Romania, Renault was able to minimise production costs and reduce the sales price. As a result demand for these-low cost vehicles has now seen them sold throughout Europe and the US.

With a common-sense approach the potential for business growth in emerging markets is vast, as many UK businesses have already discovered.

For those businesses not yet trading in emerging markets the near double-digit GDP growth now enjoyed by countries such as China will surely add to the list of incentives to join the growing numbers which are.

If you’d like to learn more about the opportunities on offer in Emerging Markets, lectures from Kevin on the subject are available to watch now on Strathclyde Business School’s YouTube channel.

What are your thoughts on emerging markets? Do you have experience of doing business in these rapidly developing countries? We’d love to hear from you, so let us know in the comments below.

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About Kevin Ibeh

Kevin Ibeh, PhD, MSc (Strath), MBA (Nig), BSc (Hons) (Imo), MCIM, is Professor of Marketing and International Business and Head of Department of Marketing at the University of Strathclyde, Glasgow, UK.