Be local: Foster emerging-market entrepreneurs. The term "frontier market" is used for developing countries with smaller, riskier, or more illiquid capital markets than "emerging". Pepsi's Brazilian bottler was in bankruptcy, its market share remained stuck below 10 percent and the corporation was forced to announce a write-down of nearly $600 million in its international beverage operations. Pepsi, without the local market familiarity of the established players, also quickly accumulated huge amounts of uncollectible credit extended to thousands of these small customers. When we discuss the consumer base in emerging markets, however, we need to recognize that it is still significantly poorer than the consumer base of the Group of Seven industrial nations. My friend’s father buried $50K in the backyard for his grandchildren. For example, in the past dozen years, Brazilian governments have announced seven major economic packages (as well as several minor packages), or more than one new package every two years. Wayne Peacock, CEO of the insurer for military members and their families, is building on a century of tradition while deploying new technology to reinvent the business. Unilever, for instance, controls nearly half of the Indian detergent market; Nestlé, 80 percent of the Chinese coffee market, and Colgate-Palmolive, 75 percent of the Brazilian toothpaste market. The Federal Reserve’s window to tinker with its bond-buying program may be narrowing, meaning there’s a risk that Treasury yields will climb faster than many predict. Similarly, Coca-Cola has now reversed course in India, and is investing behind the local Thums Up brand. Caloric intake flattens at around $5,000 of gross domestic product per capita. (Source: Nielsen Consumer, 2013) Women control more than 60% of all personal wealth in the U.S. (Source: Federal Reserve, MassMutual Financial Group, BusinessWeek, Gallup) Borrowing. Click here to access your saved items, or click the “X” to go back to the article. However, the consumer in these markets is much more sharply balancing the price/performance equation than the Western consumer is, and so affordability becomes a key driver of marketplace development and success. However, productivity gains are occurring quite rapidly in these economies, and this is showing up in the form of more accessible pricing. When Coca-Cola went back into the market in 1993, it invested heavily behind the Coke brand, using its typical global positioning, and watched its market leadership slip to Pepsi. For example, consumers'food consumption normally follows fairly predictable patterns. Rather than shielding these companies from losses, this flag-planting strategy only exacerbates them. Economic rule stating that if two items satisfy the same need and the price of one rises, people will buy the other. The big, emerging markets will drive the lion's share of growth in the world's consumption of consumer goods in the next 10 to 15 years. The challenges to managers in emerging markets, however, are not limited to the macroeconomic roller coaster. Companies such as Unilever, Coca- Cola, Gillette, Nestlé and Colgate- Palmolive all now capture one-third or more of their revenue from these markets, with profitability equal to, or higher than, what they achieve in developed economies. It is also a strategy that is increasingly utilized by experienced multinationals. The "Big Five" emerging markets - China, India, Brazil, Mexico and Indonesia - are among the 12 largest economies in the world, with a combined purchasing power already half that of the Group of Seven nations. For almost as long as there's been emerging markets exchange-traded funds, investors have been regaled with tales of consumer spending growth in developing economies. Emerging Markets. Nevertheless, for consumer businesses that aspire to grow, these markets represent an opportunity that cannot be ignored. Colgate-Palmolive, for one, recently grouped its geographies under two executives: one responsible for mature, developed economies and the other for high-growth, emerging markets. The rapid adoption of smartphones and subsequent access to the internet has allowed emerging market consumers to be a major global force across a range of online activities including online retail, gaming and eSports.Internet access among Emerging Consumer Survey respondents is now around 80 percent or more in all countries except Indonesia and South Africa. Frito-Lay has invested large sums in local farmers who plant higher quality potato varieties, in the best production technologies and in a distribution system that maintains product freshness, in order to insure a quality advantage. For emerging market managers, raging inflation, currency swings, new taxes, continually changing business regulations and interest-rate instability are all part of the normal macroeconomic environment. For example, several consumer products companies have patiently developed a network of exclusive distributors to service small accounts in selected emerging countries. And if robots can learn to do this sort of talking, the applications could be far-reaching. China, Brazil and India are among the five largest markets for televisions and refrigerators when measured in units. Rising incomes. In many of these economies, the increased availability of credit will give a further boost to consumption. One company recently found, for example, that a 20 percent reduction in average pricing in a frozen food category roughly doubled the category's size. Initially, products such as Philadelphia Cream Cheese were big consumer hits. However, the market was already dominated by Coca-Cola and two strong, local producers, Brahma and Antarctica. It … Improvements in product affordability often lead to large jumps in consumption, particularly for higher value-added goods. The largest group of multinationals has followed a flag-planting strategy: transplanting existing "first-world" products with minimal investment into a wide variety of new markets, without achieving significant market share in any of them. It can also be expensive for their parent companies. Similarly, a reduction of tariff barriers has led to rapid price declines and quality improvements in durable sectors such as white and brown goods and automobiles. With these small shops, the producer can command a relatively higher price, and so the company is quite profitable. What will be produced; 2. First, those who are economically active increase absolute consumption while often trading up into higher-value goods. In contrast, consumer goods companies that attempt to sell only their "first world" products are relegated to being simply "market skimmers" and suffer from retarded category development. The parties chose to import Kraft's products in order to quickly place them on supermarket shelves. As a result, while consumption grew dramatically in packaged goods, durables such as household appliances, consumer electronics and automobiles exploded. Entertainment and media companies are building business models that are resilient to the enduring changes in consumer behavior ushered in by COVID-19. These pioneers have been committed to the emerging world for several generations, establishing leadership positions and brands in nearly every important emerging market. Competition promotes efficiency; Laws protect private property & ownership, Factors of production needed by businesses in order to produce goods & services, Goods and services created and sold by firms/businesses, The flow of money to individuals from the resource market in exchange for resources, The flow of money to businesses from the resource market; the result of consumer spending, The flow of money used by individuals to purchase products from businesses in the product market, The flow of money used by businesses to purchase resources from individuals in the resource market. Nevertheless, per capita consumption in China remains only about 2 percent of that in the United States, pointing to one of the reasons that Wall Street has pushed Coca-Cola's stock price to 45 times its earnings. 3. This ability to be more agile in the turbulent emerging-market environment is a significant competitive advantage. There are several difficulties with this strategy, however. In part, this is due to the aspirational attraction that strong brands have for lower-income consumers, particularly in "badge" categories. For instance, a local Brazilian yogurt producer distributes 80 percent of its volume to more than 10,000 small shops around the capital of Sao Paulo. An economic system based on private ownership and on the investment of money in business ventures in order to make a profit. Emerging markets differ in their governmental policies, regulations and macroeconomic behaviors; in the structure of their consumer markets, distribution systems and competitive sets; in the needs and behaviors of their consumers. Today, Unilever has regained control of nearly half of the Indian market, and its sales of Wheel exceed the sales of its leading premium brand. document.write(year) An increase in gross domestic product (GDP) illustrated by an outward shift of the long run aggregate supply curve or the production possibilities curve. In the emerging nations, though, the situation will be quite different. The most important lessons for what it takes to build a large and profitable presence in emerging markets can be summarized in five rules: 1. Its chairman asks rhetorically, "Can a United States scientist in California really understand the problems and needs of the consumers in developing and emerging markets?" (See Exhibit I.). One researcher, Jeffrey A. Rosensweig, forecasts in his book "Winning the Global Game" (Free Press, 1998) that in little more than 10 years, three out of every eight middle-class consumers will live in the developing world. C & A's philosophy is that it will offer the best $10, $20 and $30 dresses on the market. Plus, lots of income is unreported, so this is really the lower boundary for true household income. In contrast, the populations of emerging countries are comparatively young. The reasons for this are many - not the least of which include poor infrastructure, arcane distribution systems, lower levels of education and histories of being closed and sheltered economies. 1. There are a handful of consumer goods companies that have already demonstrated the potential contained within the big, emerging markets. This includes markets that may become developed markets in the future or were in the past. Please see www.pwc.com/structure for further details. C & A, the apparel retailer owned by the Dutch Brennimkmeir family, has been able to build a successful business in Latin American countries because it offers reasonable quality goods in clean, well-lit, mall settings at price points that are accessible to all consumers. Buy now, pay later. In 2010, it is expected to increase by a real annual growth rate of 6.9% (in fixed US$ constant terms) to reach US$8.0 trillion; The emerging markets combined in the portfolio of flag-planters are typically limited to less than 10 percent of their worldwide sales. For example, the Italian multinational Parmalat S.p.A. has used a clever advertising campaign in Brazil to convey its concern for and love of babies, and in so doing, to imply a safety and quality guarantee for its products. Amazon (NASDAQ:AMZN) is a global pioneer in e-commerce, often the default shopping choice for US consumers … When these economies bounce back, there may be an equally severe upturn. Reaching the masses frequently means that consumer goods companies need to rethink their product lines with a sharp eye on the price/performance equation. An emerging market is, in short, a country in the process of rapid growth and development with lower per capita incomes and less mature capital markets than developed countries. In several countries, Coca- Cola, which usually visits its smallest retailers once or twice weekly, has proposed that they receive three to four weeks of consigned inventory in return for exclusivity. Similarly, Procter & Gamble was finally able to drive growth in the Brazilian disposable diaper category after it introduced a less sophisticated unisex diaper that it could profitably market at nearly half the price of its "first world" product. 2. Manufacturers are looking for new consumers with a resilient purchasing power, which is likely to grow, in emergent markets. Those who desire to be major emerging market players are well advised to carefully reflect on the uniqueness of these markets and how their Westernized strategies and business models need to be redesigned for the emerging world. Emerging market populations are expected to continue to grow significantly faster than those in the Group of Seven nations, many of which now have birth rates below that required to maintain today's population level. Brazilians simply do not have as much use for jam! Creating this level of agility may require that multinationals retool their traditional planning and budgeting systems. Total consumer expenditure in emerging market economies (EMEs) experienced a period growth of 66.0% in real terms between 2000 and 2009 reaching US$7.5 trillion. On one hand, Pepsi found itself being attacked aggressively in the supermarket channel on price by competitors that had a much larger customer base. In an economic downturn, these consumers either trade down in their consumption habits or drop out altogether. Consumer confidence in Brazil was the lowest among 26 countries surveyed: only 8 percent of Brazilians were optimistic about the national economy (Exhibit 1). No reproduction is permitted in whole or part without written permission of PwC. Rising Household Incomes and Easy Credit: The rapid economic growth in the developing world is fueling household income growth. determine elite consumers’ buying behavior in the emerging market of Pakistan are investigated. Tap women to power sales ... for lower-income consumers … (See Exhibit II.). How much of a good or service a producer is willing and able to produce at different prices. For instance, the number of lower-income consumers on the streets of Sao Paulo or Shanghai wearing $100 jeans, a price that represents a month's wages, is striking. 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