The Idea in Brief
Don’t look now, but rivals from developing countries are about to give you a run for your money. Consider Mahindra & Mahindra. This Indian automaker’s SUV Scorpio has raked in prestigious Car of the Year awards—beating global best seller Toyota Camry. Muscling onto the global automobile stage, M&M now markets the Scorpio in South Africa and Spain.
How to compete with such emerging giants? Don’t assume your multinational strength—big-name brands, sophisticated technologies, state-of-the-art innovation systems—will keep upstarts at bay. Instead, understand how emerging giants work around the lack of local business-enabling institutions (regulatory systems, contract-enforcing mechanisms)—a lack that scares global players away. And analyze the steps they take to dominate their own markets, expand into other developing nations, and finally take on advanced economies.
According to Khanna and Palepu, emerging giants use potent strategies to transform themselves into global contenders. For example, they exploit their knowledge of local consumers. Consider Guatemala’s Pollo Campero, which provides cooked chicken that suits local palates. Pollo Campero has begun selling to Latino communities in Central and South America and parts of the United States—profitably battling McDonald’s and KFC.
Understand how emerging giants compete, and you can counterattack when they start eyeing your markets—as well as go head-to-head with them on their own turf.
The Idea in Practice
A closer look at emerging giants’ competitive strategies:
Exploit Knowledge of Local Consumers
Emerging-market companies use their knowledge of local customers’ idiosyncratic needs and tastes to build businesses founded on distinctive national characteristics. Example:
After Chinese appliance maker Haier learned that rural Chinese used its washing machines to clean vegetables, it modified the product to accommodate this need. Haier also made tiny machines that enable Chinese living in humid cities to wash one outfit at a time and thereby change clothes frequently. After cementing its leadership at home, Haier ventured abroad. Ultimately, it established partnerships with American retailers, set up design and manufacturing operations in several U.S. cities—and grabbed a 26% share of the U.S. market for compact refrigerators.
Leverage Familiarity with Labor and Capital Markets
Emerging-market players use their knowledge of local talent and capital markets to cost-effectively serve customers at home and abroad. Example:
Multinationals operating in India have difficulty sorting talent, because people’s skills and the quality of educational institutions vary widely. But Indian information technology companies (Infosys, Wipro) are familiar with local institutions and know where the talent resides. They also hire engineers and technical graduates at salaries much lower then those earned by engineers in developed markets. And as talent becomes scarcer in some urban centers, local firms will maintain their advantage because they know how to secure the best talent from India’s second-tier cities.
Treat Lack of Institutions as Business Opportunities
Many developing countries lack institutions that facilitate commerce—such as product-rating companies that advise buyers, insurance firms that offer investment vehicles to locals, and banks that evaluate the credit of small and medium-size enterprises. Local companies that take on these roles can build successful businesses. Example:
South African insurer Old Mutual realized that South Africa lacked mutual funds and other long-term investment products. It responded by creating insurance policies for poor people that had features of savings accounts. By marketing the policies to millions of South Africans, Old Mutual became a large financial services firm. When the South African economy integrated itself with the world market in the early 1990s, Old Mutual moved into other African countries and listed itself on the Johannesburg and London stock exchanges.
In 2003, just months after Mahindra & Mahindra launched a smartly designed sport-utility vehicle called the Scorpio, CNBC India, BBC World’s Wheels program, and others were heaping Car of the Year awards on the SUV. That was no mean achievement: The made-in-India automobile won top honors ahead of global best sellers such as the Mercedes-Benz E-Class and Toyota Camry sedans. To M&M, which manufactures tractors in several countries as well as vehicles targeted at India’s semi-urban and rural markets, the awards signaled that it could finally take the world’s automakers head-on. Even as the Scorpio successfully battles multipurpose vehicles like Toyota’s Innova and GM’s Chevy Tavera at home, M&M has started marketing the SUV in South Africa and Spain. Clearly, the $1.73 billion Indian company is on the road to becoming a player in the global automobile industry.