Are You Following The New Rules Of Success In Emerging Markets? (Part 1 Of 3) 

The rules for entering emerging markets are changing. In the past, the advantage belonged to whoever got to a market first. However, as competition has stiffened, success requires a strategic approach to market entry. For companies looking to expand overseas, determining this approach can be difficult enough to identify, much less execute. Difficulties and setbacks are to be expected, but three simple rules can help you achieve success and reach the lucrative market of new customers that will propel your business to the next level.

Rule #1: Don't export your domestic model.

When companies enter emerging markets, many have a tendency to hold on to a fixed model of their business. Their assumption is that what worked at home will, with some slight adjustments, work abroad. However, emerging markets don't have the same customer demands, operating conditions, pricing points, distribution channels or other criteria. Underlying data supporting their domestic model simply doesn't hold up on the global scale.

Savvy organizations understand this. However, even if they go in with an openness to change, many still try to preserve too much of their domestic model and just try to tweak it until it fits. For example, one U.S. heavy manufacturer set up shop in India, drawn by its sizable population. Plan A was to locally manufacturing and sell its existing product. However, their market research showed that the current price-point of $175,000 was too high. Plan B was to reduce the cost by 50 percent. After more than six months of re-engineering in the domestic market, they were able to test a less expensive product. However, it was over-designed and did not have the right features for the local application, and thus was not what the market demanded.

Tired of draining time and money spinning their wheels, the company decided to pursue a new strategy. They handed the project to a local team, challenging them to develop a product that could sell for less than $10,000 while still delivering the same level of profitability as their domestic products. The team spent considerable time studying the needs of local customers and discovered which features added real value to the product. They then designed a product that achieved incredibly strong sales in India and was easily marketed to other emerging markets sharing the same requirements. To the manufacturer's surprise, the new product found healthy demand in multiple markets. The factory in India was quickly outgrown, and the manufacturer added a new facility for further expansion.

Through firsthand experience, this company learned that plodding through a series of design and pricing modifications of a product that had succeeded domestically would not achieve the results they wanted with the efficiency they required. They learned that instead, success in the emerging market could be achieved by withholding existing assumptions and responding to the on-the-ground reality, using a fresh perspective and practical localization.

Stay tuned for future posts discussing rules 2 and 3. Visit our site for more information on how to grow your business in emerging markets.

- Harsh Koppula, Managing Partner