Innovation in Developing Economies (with Ilkka A. Ronkainen)
Daily Egypt News, November 2014
Innovation in developing economies is evolving rapidly, but still can improve in terms of marketing. Businesses in emerging economies can make profits and can positively affect the livelihoods of people. In the next generation, multinational corporations can expand to vast unserved and underserved consumer groups in developing countries. Executives need to redefine their roles and relationships across companies and radically depart from traditional business models through new partnerships and structures.
Research
Businesses need to understand the aspirations and habits of target populations. For most emerging-market consumers, price is not the only determining factor, but rather the total purchase cost (including transportation cost, time, the burden of carrying purchases, and storage availability). Large U.S. chocolate companies established only a marginal presence in Latin America with their standard American large chocolate bars. In contrast, Arcor and Nacional de Chocolates have grown their businesses by selling more affordable bite-sized chocolates that are available in remote rural stores.
Digital Technology
Due to the economic and physical isolation of poor communities, businesses that provide access to digital technology have the potential to thrive. Cisco partners with a range of global and local partners to sell, lease, or donate $300 million worth of computer products and services to markets worldwide. In Bangladesh, where the average annual income is $200, GrameenPhone Ltd. leases access to wireless phones to villagers. Every phone is used by an average of 100 people and generates $90 in revenue per month—two or three times the revenue generated by wealthier users who own a phone in urban areas. This program has been replicated in other countries, including Uganda and Rwanda.
Financial Services
Microfinance programs have allowed consumers to borrow sums averaging $100 to make purchases without using collateral. The mission of microfinance is to let the poor access financial services and improve their living standards. For example, Te Creemos developed a complete electronic payment solution in Mexico by partnering with MasterCard, which affords small- and medium-sized enterprises a micro-business card and a low-cost payment method.
Local Solutions
Many emerging consumers do not shop at supermarkets. Nestlé employs local residents with pushcarts who take small quantities of merchandise to kiosks. Unilever is rolling out similar strategies in Kenya, Indonesia, Vietnam, and other countries offering five-peso “starter packs” in the Philippines. Others reach out to beachcombers via bicycles. Innovations can start in developing countries first, and disseminate via a trickle-up approach. Pepsi snacks like Kurkure and Aliva from India have attracted attention from the United Kingdom and the United States.
Distribution
In the past, underdeveloped and monopolistic distributing networks of developing countries saw their primary jobs as distributing sales literature, cutting through red tape, and charging invariably high fees. Today, outside competition has forced distributors to add value to what they do. If local conditions do not measure up, companies are willing to use outside captive distribution systems or to appoint their own people in place. Eveready has an extensive network of associates and 15 distributors who support its business in East.
Multinational Commitments
Businesses, governments, and civil societies can join together in a common cause to help the aspiring poor to join the world economy. Lifting billions of people from poverty may help avert social decay, political chaos, terrorism, and environmental deterioration. For example, Procter & Gamble has a Safe Drinking Water program in Kenya through their water-purifying brand PUR that improves access to safe drinking water. Coca-Cola funds “Slingshot,” a water purification system for communities in need. Multinational companies can envision a world empowered by equal access to life’s basic needs.
Challenge to Existing Business
Marketers need to convert innovation opportunities in developing countries. Historically, what worked for a peasant in rural Kenya or Colombia had little interest for a sophisticated urban consumer in the West. Now, these opportunities may provide new platforms for growth even in post-industrialized markets. Africa’s prospects have proved alluring to Wal-Mart, which has agreed to pay roughly $2.4 billion to buy 51 percent of South Africa’s Massmart Holdings, with plans to use the discount retailer for continental expansion. Yum Brands recently said it wants to double its KFC outlets in emerging countries over the next few years to 1,200. Rising consumption will increase the demand for local products, and, given proper support, will trigger domestic growth and lift developing countries and their consumers up to greater economic opportunity and a better life.