by Michael Czinkota and Ilkka Ronkainen
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 un- 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.
Businesses need to understand the needs, aspirations, and habits of target populations. For most emerging-market consumers, price is not the determining factor, but 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.
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.
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.
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.
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.
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% 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.
Ilkka A. Ronkainen Georgetown School of Business faculty.
In this recent interview between Forbes’ Ekaterina Walter and Progressive’s Neil Lenane, they discuss the concept of workplace diversity as a cultural shift, rather than just a strategic initiative.
“We view diversity not as a program but a cultural movement,” says Lenane. “While gains can be slow moving and measurement less clear than other business metrics, we find the key is keeping the momentum going every single day. Ultimately it ends up as not something we check off a list but a cultural attribute we use to help us achieve our operational goals.” Top-tier companies have shown tangible innovation benefits to developing an ‘all-inclusive’ approach to fleshing out their workforce, which allows them to deal with cultural challenges and language barriers more effectively than businesses that don’t actively drive diversity. Additionally, the myriad backgrounds and perspectives that shape how employees ideate and innovate is extremely valuable, providing expanded insight for global interactions and strategies, as well as internal challenges.
Lenane suggests the following advice for decision-makers: “Due to the constant pace of change, increase your desire and ability to be agile. This will help in not only weathering change but proactively adapting to it. And, obviously, look at diversity as a business success imperative.” According to HBR, employees at companies with greater diversity are “45% likelier to report that their firm’s market share grew over the previous year and 70% likelier to report that the firm captured a new market.” As companies compete on a global scale, it’s imperative to acknowledge that a variety of voices not only encourages collaboration, innovation, and change, but that diversification promotes competitive differentiation.
Although initiating culture changes in your organization is key to driving innovation through greater diversity, it still must be treated like any business goal. From EY: “Leaders must first cultivate the insight to recognize and understand differences and their power to bring about profound cultural shifts in organizations. This mental transformation is critical to developing transformational leadership capabilities. It is the single most important step toward becoming a successful player in the global arena.”
Strengthening the employee pipeline and retaining top talent typically rests squarely on the shoulders of company leaders, as does catalyzing innovation for overall success. A lot of this probably sounds pretty obvious, but that doesn’t mean it’s easy. According to a recent white paper from Forbes Insights, ”Organizations still face external and internal challenges in implementing these policies and procedures. Internally, companies are still struggling with negative attitudes about diversity among their rank-and-file, while externally, a rocky economic recovery has impeded many companies’ hiring efforts.”
While that may be true, the evidence supporting a global need for diversity in the workplace — and its positive influence on innovation — is overwhelming. Studies show that diverse teams often out-perform teams with less diversity and higher-level skill sets. Research from Donald Fan shows that, when dealing with a problem, “we encode our perspectives and then apply our particular heuristics to explore new and better resolutions. Diverse teams often outperform teams composed of the very best individuals, because this diversity of perspective and problem-solving approach trumps individual ability.” And, EBIT margins at highly diverse companies are generally about 14 percent higher than those of the least diverse. Furthermore, HBR notes that without diverse leadership, “women are 20% less likely than straight white men to win endorsement for their ideas; people of color are 24% less likely; and LGBTs are 21% less likely.”
This data should be a powerful motivator for businesses; research has solidly established the incredible role that diversity plays in innovation and all-around market relevance, differentiation, and advantage. Check out this infographic for more information.
Samsung unveiled its new watch-phone, the Galaxy Gear, today headlining the innovation of “wearable” devices. For the most part, Samsung used to be seen as lurking in the shadows of Apple, constantly following their innovation instead of creating its own. Today, the tables have turned as Samsung beats Apple in launching its smartwatch.
The Galaxy Gear is expected to be in stores as of September 25th at the price of $299. However, Samsung is not the first to launch such a product. Pebble began selling its smartwatch online back in January 2013 and from stores this past July. Apple is expected to release a similar product as well as Sony. These devices function in conjunction with specific smartphones or even an iPod touch in order to allow for more convenient uses.
What is your opinion on the new Galaxy Gear? Is Apple really falling behind? Post your views in the comment section below!
The New Transatlantic Trade and Investment Partnership (TTIP).
Andreas Pinkwart, former minister of science, technology, research and innovation, and now president of Handelshochschule Leipzig in Germany, said that if innovation and free trade are maintained, they will stimulate open borders. He sees negotiations on agriculture as a key impediment to progress in a transatlantic partnership but expects its success.
The TTIP, a newly inaugurated trade negotiation between the United States and the European Union may lead to further open export markets, expand the U.S. and E.U.’s investment partnership, address non-tariff barriers, and increase cooperation on issues including combatting discriminatory localization trade barriers and promoting SMEs’ global competitiveness.
The three key challenges that the partnership must address are climate problems, terrorism and economic imbalances. Also, the TTIP collaboration will serve well as a political and economic counterweight to China, even though the European Union and the U.S. combined are likely to soon have a lower GDP than China.
Speaking on behalf of the German government, Peter Fischer, head of economic affairs at the embassy of the Federal Republic of Germany, suggested strong encouragement of a TTIP. Since the E.U. and the U.S. are the largest economies in the world, their collaboration could only strengthen world trade, in particular with a convergence of regulatory approaches. Results would be achieved within 18 to 24 months, he said.
Howard Fogt, a partner at Washington, D.C.-based law firm Foley & Lardner LLP who specializes in international trade regulation, took issue with such a time frame. He believes that the implementation of an agreement would be long, slow and expensive. Politically, he sees the leadership for a TTIP as emerging from the bottom, if major movements are to be achieved. He also stated repeatedly that culture matters and economics cannot be negotiated by itself, particularly when fundamental issues such as food are to be discussed. (For example, the acceptance or rejection of hormone-injected beef demonstrates national differences.)
This article is a part of a series written by Michael Czinkota and Charles Skuba who report on the March 2013 meeting on trade policy and international marketing, a collaboration between the American Marketing Association, Georgetown University and the U.S. International Trade Administration. View part 4 here. Guest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.