Pearson on Excellence: Essential capabilities for emerging markets

In last month’s column, we presented some dramatic research insights about emerging markets. By 2020, 57 percent of the world’s economic growth could come from emerging markets. Emerging market household incomes are expected to increase by a total of $8.5 trillion between 2010 and 2020. And if emerging-market-to-emerging-market (E2E) exports continue to increase at their current rate, they will outpace developed-country-to-developed-country (D2D) volumes by 2013.

At the company level, our findings were no less striking. There are now 117 emerging market companies in the Fortune Global 500 (a six-fold increase since 2000). Twenty-two emerging-market multinationals replaced companies from more-developed markets in 2011 alone. And in 2011, 70 percent of the Fortune Global 500’s fastest-growing companies (by revenue) represented emerging markets.

But what can companies learn from the pioneering work that leading-practice “globalizers” have done? Here are six key capabilities that highly effective companies are leveraging to work and sell in emerging markets.

1. Engage with local stakeholders: Tight connections with communities, suppliers, distributors, and consumers can open doors and help keep them open. To help penetrate the fast-growing Brazilian market, L’Oréal counts on retail partnerships to help forge new consumer relationships through displays and personal beauty advisers. By connecting with retailers, L’Oréal is positioned to smoothly leverage shifts in Brazilians’ buying behaviors—from door-to-door sales to urban “high-street” settings.

2. Uncover latent demand: Identifying population segments that may previously have been overlooked has huge potential. First Energy uses fuel pellets made from agri-waste to run the smokeless “Oorja” stoves it sells across India. In China’s rural Sichuan province, Haier sells washing machines specifically designed and labeled to “wash clothes, sweet potatoes, and peanuts.” To reach large rural population segments, Brazil’s Banco Bradesco operates a floating bank branch on the Amazon River.

3. Seed future demand: “Enlightened self interest”—aligning business success with socioeconomic development—is a tried and true strategy. With this in mind, GSK developed its Access to Medicine program. One of the initiative’s cornerstones is dramatically reduced pricing, which has helped GSK build new markets and make it easier for people to obtain vital medicines.

4. Explore public/private partnerships: Global companies sometimes find that working hand in glove with government is easier in emerging economies than in developed ones. South Korea’s Information Infrastructure (KII) Plan was launched with the goal of connecting more than 80 percent of households to broadband services. Private-sector investments in the project totaled $14.5 billion USD, while the South Korean government added $1.76 billion in loans. Increased availability of Internet access has helped several South Korean companies become world leaders in market sectors such as online games.

5. Prepare leaders for tomorrow’s global realities: According to the aforementioned research, a key feature of “successful globalizers” is leadership teams that are widely committed to entering, expanding and personally participating in high-growth markets. To help ensure that future leaders have diverse international experience, Nestlé assigns many of its best and brightest to a 30-month stint in a foreign market. India’s Tata Communications has designed an entirely new operating model to incorporate local leadership expertise into the company’s global operations.

6. Create a change-friendly culture: Stronger emphasis on emerging markets requires corporate cultures that are comfortable with uncertainty, complexity and change. Samsung has been transforming how it thinks, feels, and works by drawing select Western business practices into its corporate culture. For example, it launched meritocratic promotion and pay into a system that traditionally embraced seniority and reverence for elders.

For every example given here, there are thousands more. In fact, when it comes to carving inroads in emerging markets, companies are generally limited only by their imaginations, vision, market-research skills, and the willingness to put their money where their markets are.