Competitive Strategy for Expanding into Emerging Markets with New Competitors
Your company has decided to expand into emerging markets. Consider these scenarios for analysis:
- You have already expanded into an emerging market (and have experiences to share)
- You are considering expansion into an emerging market (and have made some assumptions)
Select one of the above two scenarios and analyze your current or previous market expansion experience using the 5Ps Framework.
Target Market Selection
- What country or emerging market region did you select for expansion?
- Why? What were some of the selection criteria you used? (For example, low-hanging fruit, minimal regulations, market opportunity, similarity to existing markets, cultural affinity, etc.)
- _______________________________________________________
- _______________________________________________________
- _______________________________________________________
Competition
Identify a primary emerging competitor or a group of competitors.
___________________________________________________________
Product => Solution and Innovation
Did you:
- Transplant/sell the same product created for developed markets?
- Modify existing product (e.g., fewer features) to accommodate local EM needs & price point?
- Innovate a localized, customized product for the selected EM?
- Other ___________________________________________________
What did your primary competitor offer?
- A similar product
- An average, good-enough product but with more extras like support
- They built a customized product per the customer's specific request
- Other ___________________________________________________
How did the competitor's offer compare to yours? Was it better, comparable, less substantial, or more of a complete business solution?
___________________________________________________________
Price => Value-Add
How did you price your product for this EM? ______________________
- Maintained premium price (same as price for developed markets).
- Modified, lower premium price for same product, based on local propensity to pay.
- Discounted heavily to match local competitor price.
- Other ___________________________________________________
What is your emerging competitor's pricing strategy: loss leader, heavy discounts, free, special financing and payment options, or other?
___________________________________________________________
Place => Partnerships
Proportion sold direct _________ versus a local partner _________
What is the preference of your customer? And how is trust built?
For example, would the customer prefer the vendor to be more local, to work through a local partner, or some combination?
___________________________________________________________
Did your emerging competitor set up a local presence? Establish partnerships with local companies? Create partnerships with customers? Have a local cultural advantage?
___________________________________________________________
Promotion => Customer Relationships and Culture
Did you adapt your approach with customers and partners based on their cultural differences or preferences? Or did you proceed with your usual approach? And did it affect your outcome?
For example, did you find that there was more schmoozing required than you were used to? Did it take longer to get things done or to make progress on closing the deal? Did you have to talk to different people at different levels of hierarchy in order to get final approval? Did you do research on your customer?
___________________________________________________________
What was your emerging competitor's approach to customer relationships? Was he taking a longer-term view? Did he appear to be more connected at more levels? Did he use a high-touch model? Did he seem to have a cultural (EM) advantage?
___________________________________________________________
Politics
Did you encounter obstacles to doing business that were government-based? Are regulations challenging your market entry? Did you succeed by engaging your own or other government officials?
___________________________________________________________
Is your emerging competitor winning business based on political influence versus the merit of the product or offer? Are purchasing decisions often being made by politicians as part of larger trade agreements?
Do you feel your emerging competitor has an unfair advantage?
___________________________________________________________
Best Practices
___________________________________________________________
In order to give you an idea of considerations for each of these sections in the framework, the following is a compilation of results from over 30 companies that completed the survey.
|
Summary Compilation |
| Target Market Selection |
|
What geography? |
BRIC (Brazil, Russia, India, China), China, Latin America, Asia |
| Why? Selection criteria |
- Minimal regulation
- Government support
- Low-cost sources in market
- Strong workforce
- Market opportunity
- Growth in population
- Segment growth
- CAGR increasing
- Cultural affinity
- Low-hanging fruit
- Market size/demand
- Existing relationship
- Flex/leverage into adjacent markets
- China
- Growth opportunity, economy, downstream demands
- Regulatory influence
- Culture
|
Competitor Identification
Identify a primary emerging competitor or group of competitors. |
- Local companies
- Multinationals
- Fragmented group of competitors, different dynamic
- Current supplier, companies in the industry and end users
|
Product
(Solution and Innovation)
What approach did you take? |
- Localize; innovate locally using local materials; local bundling
- Increase quality; dual brand strategy
- Innovate
- Modify existing offer
- Transplant
- Retirement of existing product
- Same quality/regulatory and specification
- Offer premium product at lower price in order to capture 80 percent of the rest of the market (mass market). Product is rebranded for lower price.
|
Price
(Value-add)
How did you price your product for this EM? |
- Had to discount to undercut
- Maintained premium, leveraging other differentiators
- Adapted to local cost structure
- High, quantifiable value proposition
- Similar to local competition
- Higher than local competition
- Discount due to gov't restriction
- Attempted to cut costs but unable to due to regulations and export laws
- Premium-price war not winnable
|
Place
(Partnerships)
Selling direct versus partners? Preference of your customers? |
- Working with local partners => often forced to not be majority owners
- Alliance partners, channel partners, direct
- Depends on the market
- Could be regulatory barriers, so lack of free choice
- Need to use partners
- Build trust
- Sold thru local partnerships and JV
- 70 percent direct, 30 percent thru local distributor
- Partner with local face
- Drive-by vendor—establish you are long term (credible) (all relationship overseen)
- Production delivery requirement
|
Promotion
(Customer Relationships/Culture)
Did you adapt your approach? |
- Leverage local partners to understand local customers; hire local teams
- Trade shows/events
- Relationships: longer to get things done
- Influence gov't to make regulatory changes and educate consumers
- Engineering specifications written in western countries. Sales and support through local inventory and sales teams
- Direct 90% versus a partnership
- Existing relationships are critical
- Show value for quality in long run
- Differentiate on service
|
Politics
Did you encounter obstacles? Are regulations challenging your entry? |
- Hire local teams to engage with local regulators
- Brazil (local sourcing)—too many taxes for foreign manufacturers
- They know you are stuck and will still make money, so preferential pricing for local vendors
- Gov't limiting involvement => China.
- Latin America => change the regulatory system to privatize retirement savings
- When we attempted to establish local manufacturing, many times gov't required JV relationship
- 3-year process, implementing right regulation, 160 check points to become a certified partner
- Concern regarding pay to play (many companies turn down business in those countries)
- How to protect IP (intellectual property) in EM countries like China. Difficult but getting better
|
| Other |
- Develop/create value perception—quantifiable
- Build channel and alliance network
- Dual brand
- Sourcing/local manufacturing (decrease cost, tax implications)
- Logistics
- Local manufacturers charge more to foreigners
|
