Western companies, accustomed to their ways of marketing to consumers in their own developed markets, need to change. “The emergence of developing nations would revamp marketing in ways never thought possible,” said Professor Jagdish N. Sheth, who is the Charles H. Kellstadt Chair of Marketing, at Emory University’s Goizueta Business School. He was speaking at a recent seminar organised by Singapore Management University’s Lee Kong Chian School of Business.

 

Previously, companies in advanced economies would develop marketing strategies within their own home markets, for their home markets. Then, they will take the same ideas, and adapt them for their overseas markets. Sheth argues that it is now time to change this model; it is now time to innovate from within developing markets like China and India. “They must innovate in emerging markets, and then take it to the world, rather than the traditional model of where they innovate in the Western world and then bring it into emerging markets with some adaptation, localisation,” he said. Sheth is also author of the book, Chindia Rising: How China and India will benefit your business.

 

What gives emerging economies the competitive advantages in innovation? Innovation, by its nature, is no guarantee of success. However, emerging economies can better bear the costs of the failure of innovation. While downside risks are there, there is usually more upside. No one needs any reminder that China and India are huge markets, and so are the potential profits.

 

Furthermore, costs of research and development in emerging markets can be as much as 50 times cheaper compared to developed markets like say, America, said Sheth.

 

However, that does not mean that companies in advanced economies will lose out in every sense. These companies will still be responsible for developing cutting edge products that create new markets with new technologies, instead of fighting in existing ones on the basis of cost.

 

Take for example the mobile industry. According to network supplier Ericsson, the world signed up its fifth billionth mobile phone user in July -- less than two years after the number reach 4 billion. Not many industries can grow to such a scale, at such a pace. However, most of the new mobile users are from emerging markets. For developed markets, like America, growth numbers have slowed rapidly or even remain stagnant. Yet, the mobile industry in America is still growing: it grows by extracting more revenue from existing users and not from subscriber numbers alone. Apple, with its user-friendly iPhones – and now, iPads – are in a sense, creating new growth (and revenue) for the industry with the creation of an attractive ecosystem that sells all the music and applications that mobile users would otherwise have not spent their money on.

 

Thus, with the right ideas and products, companies in advanced economies are by no means staring at their looming demise. Rather, a pattern of sorts is forming: companies in advanced economies are exiting traditional industries and moving on into new industries, creating new markets, said Sheth. On the other hand, companies from emerging economies are moving in – very often, in a big way – into the space vacated.

 

In recent years, Chinese and Indian companies have developed big appetites for acquisitions. They did not limit their hunts only within their own domestic markets or other emerging economies. Rather, they have been setting their sights far and wide, snapping up companies in developed economies. There is a growing list of high-profile examples. In 2006, India’s Tata Steel bought its Anglo-Dutch rival, Corus, for US$7.6 billion. That was not the first major acquisition by the Tata Group conglomerate. Tata Tea, in 2000, took over UK’s Tetley Tea for £271m – marking, what was then, the largest takeover deal in Indian corporate history.

 

Yet, getting bought over is not necessarily a bad thing for advanced economies. The targets tend to be like those in manufacturing which advanced economies already wanted to leave behind anyway, so that the whole economy can give more attention to newer areas, especially those in the service industries such as healthcare and education. According to Sheth, these are areas where advanced economies command “enormous advantages” on a global basis, where emerging economies find it hard to match. In contrast, in manufacturing, differences in cost between the two sides can quickly put companies in advanced economies at a big disadvantage.