Corporate Strategy: Betting on Emerging Markets

by Knowledge@SMU, 07 February 2012

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topics:
Management

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BRIC countries business strategy domestic consumption emerging markets

The term BRIC was coined by Goldman Sachs economist Jim O’Neill in 2001 to shorthand the four key emerging economies to watch. BRIC, of course stands for Brazil, Russia, India, China – countries that have, over the past decade, produced a third of global GDP, and hosted a quarter of the world’s population.

In 2010, the size of the BRIC middle classes – defined as those with incomes between US$6,000 and US$30,000 – overtook that of the G7 group of industrialised countries. It has been estimated that the BRIC middle class population will double by 2020, profoundly changing demand trends in favour of value-added products such as cars, office equipment and technology.

“We would better name the BRICs the ‘new developed countries,’” suggests Sudhi Seshadri, an associate professor of marketing at the Centre for Emerging Markets, a research centre of Singapore Management University and the Moscow School of Management SKOLKOVO.

Unique characteristics

The change in BRIC economies has enriched local populations, diverting consumption patterns upwards on the scale and away from mass-produced low cost products. The growing middle class wants cars and modern home conveniences. Offices want cell phones, laptops and efficient telecom operators.

But while the BRIC economies have many similarities, each one has unique characteristics, even among city and regional markets within the countries, which are geographically vast and have very large populations.

“Consumers have become pickier in Russia, especially the youth. They have access to more information so they get more and more demanding on price and quality,” says Tan Joon Hong, COO of Singapore food and beverage company Food Empire, which has a presence in Russia. “In China, consumers have become more aware of their options, more mature and discerning too.

“Consumer confidence motivates the pursuit of different experiences.” adds Dennis Mark, vice president and general manager at the Hewlett-Packard Personal Systems Group for South Asia and Taiwan.

As a part of this evolution, BRIC countries have pursued diversification in their business strategies. The previous global approach is no longer applicable. For instance, Russia is a huge territory with ten time zones. Saint Petersburg and Moscow remain the main cities, but business approaches vary greatly outside them.

In China, authorities have pushed businesses to ‘Go West’ into the country’s interior, with each segment now large enough to be sub-segmented. “While the top three cities on the East coast are still the largest economic powerhouses, inland growth, such as in Chongqing, has been a critical force for domestic growth,” says Mark.

“To economic and accessibility issues, India has added the complexity of languages, religions, and social structures,” warns Harpreet Kaintel, chief strategy officer at ZenithOptimedia, Asia Pacific.

To handle diversity, many brands have a product-line approach. “Diversity is handled by the up-market and down-market stretch of the initial product. The line can then be filled in as you develop your presence in a new country,” Seshadri suggests.

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