The Global X Emerging Markets Internet & E-commerce ETF seeks to offer targeted exposure to some of the most tech savvy companies in the world’s fastest-growing markets. Consumer confidence in Brazil was the lowest among 26 countries surveyed: only 8 percent of Brazilians were optimistic about the national economy (Exhibit 1). (See Exhibit I.). Over the past three decades, emerging markets have consistently shown growth rates well above those of more mature economies, albeit with greater levels of volatility. 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 emerging markets combined in the portfolio of flag-planters are typically limited to less than 10 percent of their worldwide sales. Emerging Demographics Are the New Emerging Markets ... has identified three key groups of urban consumers with the numbers and purchasing power to shape the consumer … He holds B.S., M.Eng. The Power of EM E-Commerce: Singles Day vs. Prime Day. No reproduction is permitted in whole or part without written permission of PwC. However, the market was already dominated by Coca-Cola and two strong, local producers, Brahma and Antarctica. 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. Consequently, C.C.U. Related Expertise: Emerging Markets, ... in the year leading up to the survey, 58% of people buying gadgets such as tablets and laptop computers, and 53% of consumers buying four-wheel vehicles, purchased their products just to stay up to date with the latest in the market. Multinational corporations have invested huge sums in emerging markets — more than $3 trillion since 1998, by one estimate.1 Returns from these investments, however, have sometimes been disappointing. Too many companies fool around in the high end of these markets and remain timid about investment. Mentions of Strategy& refer to the global team of practical strategists that is integrated within the PwC network of firms. 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. The impact of these swings tends to drive disproportionate reactions in consumer consumption because a large proportion of consumption is driven by marginal consumers. Overall consumer sentiment increased to 81.4 in early December, up from 76.9 in November, a 5.9 percent rise. For example, food prices in Brazil have been dropping more than 5 percent per year in real terms over the past four years, driven in part by the rapid improvements in productivity across the food supply chain. (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) There is an even larger mass of the population below this income level that is also prepared to spend, albeit selectively. 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. This ability to be more agile in the turbulent emerging-market environment is a significant competitive advantage. It’s in the interest of business leaders to help. Only after Unilever completely revised its product, price point, marketing strategy and distribution system was it able to come up with a viable low-cost competitor, called Wheel, priced at nearly one-quarter the price of premium brands. To access this feature, please SIGN IN or REGISTER. chose to be aggressive on pricing in this channel, while tying up the more fragmented distribution base of bars and restaurants with exclusivity agreements. And if robots can learn to do this sort of talking, the applications could be far-reaching. Multinationals must remember that few emerging market consumers are global citizens, and therefore global brands may have little cachet in these markets. China, Brazil and India are among the five largest markets for televisions and refrigerators when measured in units. Reviews and mentions of publications, products, or services do not constitute endorsement or recommendation for purchase. The extreme volatility and unconventional business methods in emerging markets require different management skills than are needed in mature, Western markets. Emerging Markets. A fact of life in almost all emerging markets is that multinationals will face competition from local entrepreneurs whose informal operating practices, such as tax evasion or selective attention to labor laws, secures them a large cost advantage. When consumption per capita of a particular category is mapped against gross domestic product per capita, the curve is normally concave, reflecting a diminishing growth rate in consumption as incomes rise. Multinationals must now consider as strategic a handful - perhaps 10 - emerging economies, given their size, population and prospects for growth. For example, the Whirlpool Corporation has chosen to use the Brastemp brand name in Brazil as its leading brand in that country given its preexisting equity. Key drivers of consumer demand 10 4. James A. Gingrich is a vice president of Booz-Allen & Hamilton based in New York City. Plus, lots of income is unreported, so this is really the lower boundary for true household income. 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. Entertainment and media companies are building business models that are resilient to the enduring changes in consumer behavior ushered in by COVID-19. gross domestic product (GDP) the total value of all final goods and services produced in a country during one year. The elements of the New Health Economy have been building toward a more interconnected health ecosystem. In the emerging nations, though, the situation will be quite different. First, those who are economically active increase absolute consumption while often trading up into higher-value goods. The fact that these retail chains often have familiar names such as Carrefour (of France), Wal-Mart (of the United States), Sonae (of Portugal), and Ahold (of the Netherlands) adds to their sense of comfort. For the majority of mid-to-higher value-added categories, the "power portion" of the consumption curve - the point at which consumption is rising most quickly - lies between $3,000 and $10,000 of gross domestic product per capita, after which consumption growth flattens. Roberto Goizetta, the late chief executive officer of Coca-Cola, set the objective that Coke be the same price as tea in China. A new Vanguard study quantifies the future of remote work, and looks at the number of potential hybrid jobs. For cash-strapped small shop owners, this is extremely attractive. Consumer goods multinationals must build leading or strong No. In 2010, it is expected to increase by a real annual growth rate of 6.9% (in fixed US$ constant terms) to reach US$8.0 trillion; Idea that government should play as small a role as possible in economic affairs. 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. 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. For a long time, the Procter & Gamble Company ran an anemic disposable diaper business in Brazil because it tried to sell only its top-end Fases diaper based on "first-world" technology. Dabblers in these markets should either get serious or get out. In many cases, the size of the consumer markets in these countries rivals that of the developed markets. Today, in countries such as Thailand, Argentina and Indonesia, these players are identified more often as local enterprises than as foreign multinationals by their consumers. Low income is the first important criterion because this provides an incentive for the second characteristic, which is rapid growth. Reaching the masses frequently means that consumer goods companies need to rethink their product lines with a sharp eye on the price/performance equation. Nevertheless, families in the emerging markets become active consumers at surprisingly low income levels. What sort of business model is needed for emerging markets, and how does it differ from the model to which multinationals are accustomed? Now, with economic liberalization, freer trade and higher incomes, these consumers are hungry for high-quality products and are prepared to spend. In Western Europe, 46 per cent of consumers agree with the same statement, while in developed Asia -- that is, Japan and South Korea -- the level slips to 42 per cent. Improvements in product affordability often lead to large jumps in consumption, particularly for higher value-added goods. 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. What will be produced; 2. Finding cost-effective ways to build broad and deep sales and distribution coverage in the emerging markets is one of the most critical challenges facing consumer products companies. For instance, Frito-Lay Inc. has been able to sustain a dominant market position in Brazil by building its leading brands, such as Ruffles. 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. strategy+business is published by certain member firms of the PwC network. The power of consumers is becoming the last best hope for emerging market investors as global recession risks rise. Managers in these countries know that their success frequently rests on their ability to compete effectively with unconventional competition such as product counterfeiters, product diverters (either within or across country borders) and informal competitors who ignore local labor and tax laws. For whom will it be produced? It … Click here to access your saved items, or click the “X” to go back to the article. The success enjoyed by these pioneers, however, is not the norm. Buy now, pay later. Brazilians simply do not have as much use for jam! As emerging markets’ growth has slowed, many consumer companies have started to look back to developed economies for growth. In addition, Bunge, operating on a slim, volume-based fee, did not have the financial incentive to invest behind the Kraft products at point-of-sale. But even that’s starting to crack. Western Europe, Japan and the United States have been the engines powering the world's economy since World War II. Second, rising incomes bring whole new waves of consumers into the market who were previously not economically active, typically at a trigger point of about $2,000 to $3,000 in annual income when expressed in equivalent purchasing power. For instance, Mexico and Brazil are the second- and third-largest soft-drink markets in the world, each consuming more than Germany, France and Italy combined. 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. Often the best strategy is to invest behind local brands that already have some degree of consumer loyalty, especially when targeting middle-income consumers. Emerging and developing economies, on a purchasing parity basis, now total 44 percent of the world's economy, and in the last decade, emerging nations were responsible for two-thirds of the world's economic growth. Manufacturers are looking for new consumers with a resilient purchasing power, which is likely to grow, in emergent markets. Current research and development footprints of many consumer-product multinationals, which tend to be centralized near world headquarters, will certainly have to expand. var today = new Date() The combination of data analytics and artificial intelligence can give organizations a competitive advantage and mitigate risk along the value chain. Further, getting to critical mass is vital, given the sizable minimum investments necessary in brand-building and sales, distribution and production infrastructure. Kraft products quickly lost share and the alliance was soon dissolved. The most obvious is that these manufacturers are walking away from what is typically 50 percent to 90 percent of the market. Failing to build quickly a broad distribution base also allows competitors to more readily combat new entrants. 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. 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. But the pandemic has increased the speed of the transformation. How Unilever Reaches Rural Consumers in Emerging Markets ... in its focus on addressing rural market opportunities. determine elite consumers’ buying behavior in the emerging market of Pakistan are investigated. In his 16 years with the firm, he has specialized in assisting consumer-goods and retailing clients on issues of business building and growth, organization and operations effectiveness. As a consequence, it has grown its market share despite facing a host of local competitors whose pricing can be half of Frito-Lay's. 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. Multinationals should also be cautious about relying too heavily on broad-line wholesalers/distributors in many of these countries; these wholesalers tend to carry only the fastest moving products, do not provide merchandising support and frequently generate their profits from speculative buying or tax evasion. PwC. Leaders of emerging markets are willing to undertake the rapid change to a more industrialized economy to remain in power and to help their people. In contrast, major yogurt producers such as Groupe Danone (France) are much more dependent on the major chains for their volume and must be much more accommodating in their negotiations. //--> Reach the masses: Manage affordability. 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. 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. These pioneers have been committed to the emerging world for several generations, establishing leadership positions and brands in nearly every important emerging market. Fast-moving consumer goods—low-cost products with a short shelf life that are constantly in high demand—present the opportunity for existing brands to strengthen their consumer base with unique advertising and expansion of distribution. As a result, Quilmes today struggles with its market share and profitability in Chile. Even where the absolute cost is low (e.g., China, Indonesia, India), the effective cost is much higher after these costs are factored in by the percentage of the viewing public that is economically active. 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. 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. (See Exhibit II.). The strategy also puts them in an extremely vulnerable negotiating position with the major retailers. The combined size of these economies is nearly two-thirds of the combined gross domestic product of the Group of Seven industrial nations (the United States, Japan, Britain, France, Germany, Canada and Italy) in purchasing power parity terms. That problem out of the way, Colgate-Palmolive introduced a new toothpaste brand using the same formulation and graphics as the old Kolynos brand. Favorable Consumer Demographics: With a combined 2.6 billion people, the five largest developing nations have a population that is four times that of the Group of Seven. Experienced managers also learn that what to outsiders appears to be opaque or corrupt power networks can be used to advantage once understood and properly managed. The pandemic has highlighted a series of paradoxes inherent to the work of leaders. Middle class in the big, emerging countries is typically a family earning $3,000 to $10,000 a year when measured in equivalent purchasing power. 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. Parmalat, as an example, has leveraged the success of its brand in the milk category into such diverse categories as cookies and crackers, cereals and juices. As one Coke executive commented last year in The Wall Street Journal, "Right now, if I was fixed on an annual event plan in Asia, I'd be dead in the water.". For managers who are unaccustomed to such an environment, the ride can be pretty wild. While multinationals are quick to cite the extent of their worldwide footprint, the global portfolio of most multinationals remains dominated by United States and Western European economies. Tap women to power sales ... for lower-income consumers … PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. As a result, while consumption grew dramatically in packaged goods, durables such as household appliances, consumer electronics and automobiles exploded. This is why the most experienced emerging market multinationals generally have strong country managers who generate significant value through their entrepreneurial spirit and intimate understanding of the local environment. Caloric intake flattens at around $5,000 of gross domestic product per capita. © Consumers understood, and Colgate-Palmolive has lost little market share. With fewer workers generating output, and with more of the population dependent on those who do, income growth, savings levels and economic growth will all be lower. That is no longer the case. and M.B.A. degrees from Cornell University. Nevertheless, even in economies such as Argentina's, credit remains expensive. The Internet has put the power of information in the hands of the global consumer. One of the world’s greatest emerging markets is closer than you think. … The parties chose to import Kraft's products in order to quickly place them on supermarket shelves. Get. 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. For example, refrigerator penetration in Mexico is roughly 90 percent. This sector will also cater to the majority, low-income tier of buyers and middle-class households, which will collectively have disposable incomes of … Looking forward, three structural socio-demographic and -economic factors will insure that consumption growth in the big emerging markets continues to significantly outpace that of the developed world well into the next century: 1. The item has been saved. The term "frontier market" is used for developing countries with smaller, riskier, or more illiquid capital markets than "emerging". The working-age population in these markets - which will be the portion of the population driving economic and consumption growth - will grow at rates three to four times that of the developed world. For example, in Brazil, up to 15 percent of all apparel is sold through "sack ladies" who sell door-to-door in poorer neighborhoods. 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. Future rate reductions should drive consumption beyond the normal "income" effect. Borrowing. What comes next will depend on how well they face up to them. The annual report calculates the consumer buying power—or total income after taxes—for minority markets in the U.S.: African-Americans, Asian-Americans, Hispanics and Native Americans. The majority of cosmetics as well as other products are typically sold through direct sales forces of hundreds of thousands of working women who pitch products to their fellow workers. Emerging markets have lower-than-average per capita income. Over the next 10 to 15 years, most of the total world growth in consumption of consumer goods will likely be concentrated in the largest of the developing economies. To measure this upward mobility, we segmented Bangladeshi consumers into five basic income brackets: bottom of the pyramid, which refers to five-member households subsisting on incomes of less than $150 a month; aspirant, $151 to $250; emerging middle, $251 to $400; established, $401 to $650; and affluent, more than $650. For example, several consumer products companies have patiently developed a network of exclusive distributors to service small accounts in selected emerging countries. For the purposes of this study, we regard the last two income … There are several difficulties with this strategy, however. In Brazil and India, for example, only 9 percent of the population will be elderly; in Mexico and Indonesia only 8 percent, and in China 12 percent. When Quilmes Industrial S.A., the Argentine beer leader, entered the Chilean market, it was more dependent than the local market leader, Compania Cervecerias Unidas S.A., on the supermarket channel. Consequently, it is often possible to identify potential category-consumption levels as an economy develops, and therefore find categories with the greatest potential for rapid growth. Consumer goods multinationals can build big businesses in emerging markets only if they manage affordability in a way that makes their products accessible to the masses. For instance, one department store saw its sales fall 40 percent in the early 1990's as Brazil entered a recession, only to bounce back during a currency stabilization program in 1994. 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?" This strategy has been followed for years by local players such as Sadia and Arisco in Brazil. Importance of the consumer market sector 8 3. As recent events have demonstrated, what happens in these economies affects us all. Nevertheless, for consumer businesses that aspire to grow, these markets represent an opportunity that cannot be ignored. It appears that the country’s most recent economic woes have significantly shaken Brazilians’ confidence. As a consequence, many producers have built brands that command price premiums in categories that to Western eyes would appear to be commodity categories. The challenges to managers in emerging markets, however, are not limited to the macroeconomic roller coaster. It will not only require a greater emphasis on understanding what are the needs of the consumer, but a radically different way of approaching them.". 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. There will undoubtedly be more bumps in the road, as the most recent economic troubles in Brazil, as well as rumblings in China, suggest. How will it be produced; 3. 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. This provided them up to 10 times the scale of Pepsi in these smaller accounts, creating both the customer leverage to lock Pepsi out and the ability to serve these accounts at substantially lower cost. 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. Furthermore, people in the developed world are living progressively longer and leaving the work force earlier. 1. Developing economies—especially the BRIC nations of Brazil, Russia, India, and China—are frequently grouped together, but Chinese consumers dwarf all the others in terms of household income (Exhibit 1). (See Exhibit III.). 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