Posts Tagged ‘brands’

As global firms (MNC) pull back from emerging markets, what does this mean for Africa?

tumblr_nwsbz0ytDw1qghc1jo1_500Last week’s issue of The Economist drilled down deeper to cover the retreat of globalization – at least in the most visible form, that of the multinational brands dotting cityscapes around the world. The retreat of the global company, they trumpet, the end of Theodore Levitt’s vision.

Credit Suisse takes a concise yet comprehensive look at these weak signals in their well-written report that frames the situation as a transitional tug of war between globalization and multipolarity – an inflection point, rather than a retreat. They make it sound like missing the turn at an intersection and having to come back to the traffic lights to figure out which way to go.

Duncan Green of Oxfam captured the essence well:

But the deeper explanation is that both the advantages of scale and those of arbitrage have worn away. Global firms have big overheads; complex supply chains tie up inventory; sprawling organisations are hard to run. Some arbitrage opportunities have been exhausted; wages have risen in China; and most firms have massaged their tax bills as low as they can go. The free flow of information means that competitors can catch up with leads in technology and know-how more easily than they used to. As a result firms with a domestic focus are winning market share.

In the “headquarters countries”, the mood changed after the financial crisis. Multinational firms started to be seen as agents of inequality. They created jobs abroad, but not at home. The profits from their hoards of intellectual property were pocketed by a wealthy shareholder elite. Political willingness to help multinationals duly lapsed.

Of all those involved in the spread of global businesses, the “host countries” that receive investment by multinationals remain the most enthusiastic.

The first thing to note is that the global MNCs being considered by The Economist are primarily the legacy ones  – fast food chains like McDonalds and KFC (Yum Brands) – whose shiny logos used to represent the liberalization of the closed markets of India and China.

Even at powerhouses such as Unilever, General Electric (GE), PepsiCo and Procter & Gamble, foreign profits are down by a quarter or more from their peak.

or the few examples of emerging market brands that have gone global such as China’s Lenovo which purchased IBM’s Thinkpad and India’s Airtel which bought into the African market.

What’s being touted as their competition are regional brands, who aren’t as stretch out globally in terms of their supply chains, and less vulnerable to currency volatility. Further, the majority of these global brands are heavily dependent on their B2C marketing and sales – the question of whether they ever managed to understand their new markets is a topic for another post.

And so, we ask, what will this mean for the emerging economies of Africa, who are only now seeing the first fruits of FDI? Who will come and develop their consumer markets?

India and China apparently. And strategically – through unbranded affordable commodities and the acquisition of successful regional consumer brands – rather than the legacy MNC approach influenced by Levitt. Even Japan recognizes this, as they seek to piggyback on the Indian experience.The economics of scale that propelled the first rounds of growth for the manufacturers of washing machines and the automobiles never did make sense infrastructurally for the majority of the African consumer markets.

Instead, the patterns pointed out by The Economist and Credit Suisse imply that opportunities will lie among regional stars – Equity Bank of Kenya, for instance, whose regional footprint is surely but steadily creeping outwards across the East African Community and trading partners – or, the telcom brands such as Tigo (Millicom) who innovate for each of their local markets.

The jobs and exports that can be attributed to multinationals are already a diminishing part of the story. In 2000 every billion dollars of the stock of worldwide foreign investment represented 7,000 jobs and $600m of annual exports. Today $1bn supports 3,000 jobs and $300m of exports.

Godrej, for instance would be considered a regional Indian giant rather than a multinational in the conventional sense of a Unilever or P&G.

Where [MNCs] get constrained is, they are driven by lot of processes that are global. For a smaller organisation like us, we are completely empowered; decision-making is quick and we can initiate changes very fast. We are more agile and have an advantage over them.

Yet their expansion outside India shows a “pick and choose” strategy of markets they’re comfortable entering.

The group’s acquisition strategy hinges on identifying unlisted companies built by entrepreneurs looking for capital, picking up stakes and working with them to scale up their businesses.

At least two homegrown Kenyan FMCG brands – skincare by a global giant and cosmetics by private equity – have been acquired. As have snack foods, spices, dairy products, and other products that cater to local tastes. The best known being Fan Milk of West Africa. Private equity such as Abraaj make no bones about going after consumer driven opportunities.

Given these choices, sustainable African businesses who understand their consumer markets have an opportunity to establish their brands and grow – with the financial help that’s strategically becoming available.While Chinese imports make the market highly competitive and price conscious, fish and tyres are substitutable goods in a way skincare and cosmetics are not.

African consumer companies – formal, informal, or semi-almost there-formal – need to hustle right now.

The retreat of the MNCs offers a chance to exhale, and expand, and grow, but the advent of the East implies waking up to the need for serious strategic thinking about domestic comparative and competitive advantage – one of which is incomparable knowledge of local consumers, culture, and needs, and critically, experience of their vast informal sectors and cash intensive economies.

Breaking bulk and profiting at the margins

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Photo Credit: Michael Kimani

Michael sent me this information from Nairobi last week. He’d spotted informal retail within the context of a mini-supermarket – known as traditional trade in the jargon of consumer product distribution and retail. He adds,

“So 500 ml of Rina cooking oil retails for 120KES, 1 litre for 195 KES. What the owner of this store found out is buying a 20 litre (which she retails for 2700 KES) and repackaging it into 1 litre  plastic bags in red basket), is more profitable according to attendant doing this – Each bag retails for 135 KES”

Quick math informs us that she’s not giving her customers an out – the retail price for the 20 litre jerry can works out to 135 KES per litre. On the other hand, purchasing an informally packaged plastic bag over the formal product packaging offers you savings of 60 KES and helps stretch the grocery budget a little more.

A search online shows me an e-tail website whose prices for Rina are even higher – 500 ml at 121 KES, 1 litre at 214 KES and the 20 litre at 3,300 KES.

This behaviour isn’t just seen in Kenya or the African continent – I’ve documented it in The Philippines, and in rural India.  Its the natural outcome of the purchasing patterns influenced by cash transactions and irregular incomes – of the retailer as well as their customers.

Without contextual knowledge of the operating environment of the vast majority of trade and services in the informal sector, implicit assumptions left unquestioned pose their own barriers to sustainable growth.

For Mama Biashara, it’s these margins that provide a little wriggle room for profit, while offering some added value to her customers.

Why Indian FMCGs eagerly enter African Consumer Markets

neilson4retailACM2015 This chart from that Neilson retail study on sales of Fast Moving Consumer Goods (FMCG)  shows how Kenya’s retail sector is  significantly more formalized than India’s.

Given their decades of experience with their vast, informal markets, is it any wonder that India’s consumer brands find the East African market an attractive proposition?  Their visibility in the marketplace was already being noted more than 7 years ago and this gives rise to some interesting questions even as the Western world is only now waking up to the opportunities.

In large part, Godrej’s success can be attributed to its measured, localized approach. While it imports synthetic fibers and henna leaf powder from India and Asia, the company uses those materials to mix its colorants and weave its extensions in Africa and markets its products under African brand names that cater to specifically to African consumers.

Similarities between the Indian and African business climates have helped as well. Godrej’s experiences in fragmented markets and with middle-income consumers have no doubt proved critical to the company’s impressive performance on the African continent.

Back when India’s markets first liberalized, I was a wee fish in the large domestic pond of advertising and marketing. Numerous global brands rushed in to this untapped market with its erstwhile burgeoning middle class, not dissimilar to what is currently going on across Africa.

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Darling products, Nakumatt LifeStyle, Nairobi Kenya Aug 2010 Photo Credit: Niti Bhan

Many were surprised out of their complacent imported market entry strategies by the entrenched domestic incumbents refusal to give way to global leaders in soaps and cornflakes. Price wars and sachet games ensued. Two decades later, we find new product categories and evolving consumer tastes but ye good olde brands still standing.

What will happen across the traditional trade segment in East Africa?

While you were outsourced: Last 10 years of mobile design, business and emerging markets

There’s a lot to be said here and I’ve been trying to sort it all out into some kind of logical flow. The global landscape of mobile phones is undergoing a huge shift, and like the iceberg that sank the Titanic, much of it is still under the radar. If I hadn’t gone down the rabbit hole of links after seeing peterme’s latest post which led me to Khoi Vinh’s note on the evolution of Apple’s iPhone design language, I might never have noticed the rest of it. When leading design bloggers start questioning design’s leaders, its a signal of greater problems than maybe apparent.

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Me holding Matti’s Xiaomi, July 2014

What’s going on? A quick synopsis

There’s a new kid on the block and its name is Xiaomi. To be honest, its not a name that had been on my radar until earlier this summer when a friend working in Shanghai showed off his phone to me. As a Finn, his decision to purchase a low cost Chinese smartphone was unusual, and his explanation was that he saw it taking over the market in the future so why not get used to it from now.

Form follows function

There’s been the usual kerfuffle over who copied whom, yet again, and this time Apple’s been whining about Xiaomi not their old favourite, Samsung. I’d tweeted on this a few weeks back saying that the issue wasn’t one of copycats and imitation, and in fact there was no real problem. There’s been a shift in the form factor of handsets and no amount of patenting and protecting was going to change that fact. Look at this random image of “phones” taken from a quick image search.

phone_typesA large screen with a control thingamabob or two encased in an approximately rectangular form. This is what symbolizes a mobile phone these days. And it all goes back to 2006, when the conceptual design shown below won an IF award.

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Market share churn

The second shift that we’re seeing is one of increasingly shorter durations of leadership positions. Just a couple of years ago, I wrote about Samsung’s rise to the top and reflected on patterns seen with previous leaders such as Motorola and Nokia. I’d said that Samsung should keep an eye out by 2016, and am now surprised at the end of 2014 to discover that their hold on the number one position is already under attack by newcomers like Xiaomi.

Saturation and smartphones

Much of their troubles are in the formerly emerging markets of India and China, and this leads me to speculate on a third and more fundamental shift taking place. Earlier, the emerging markets of India and China were where big names made big gains in sales, allowing them to garner that market share required to catapult them into first position and/or hold on to their leadership, such as was the case for Nokia. This doesn’t hold true anymore. A fact to be noted is that for the first time smartphone sales have overtaken feature phones, globally.

Emerging Trends impacting the global, mobile landscape

What’s interesting here is that I don’t see Xiaomi, who just became the 3rd largest phone manufacturer by sales this past week, becoming the next leading brand either. Certainly not in the way a Motorola or a Nokia did, in terms of market creation, product innovation and global impact.

Instead, their emergence is more a signal of the larger shift that’s taken place. The locus of innovation in handset design, product planning and market strategy has moved it’s center away from the erstwhile first world to the former developing world i.e. India and China.

And along with this recentering, ideas on business models and profit margins have changed to reflect those prevalent and appropriate for these new operating environments.

Just look at this statement from Xiaomi’s Hugo Barra from an interview last week:

“Innovation is not a luxury item. Innovation is for everyone.”

The implications of this positioning are enormous, particularly given the conventional wisdom currently prevalent in the industry that the latest, greatest, cutting edge technology is a much sought after premium piece of hardware.

Looking beyond the cliches at Africa

Once we step back to take a look at this price point strategy, and add an overlooked element to the mix, we have dots that connect in ways they have never done so before. And that’s the emerging African consumer market.

Mobiles are the backbone of Africa’s emergence. [Refuses to insert a paragraph here on the critical importance of this device] And that technology is being democratized.

Tecno is another brand you’ve never heard of that has taken on the African market in the vacuum of innovation left behind by Nokia’s faltering in the race to the bottom a few years ago. They do business only in Africa, have set up manufacturing in Ethiopia and painted every wall in rural Kenya with their blue logo.

While they’re the biggest and the best known among the hundreds of Chinese brands on the market, they’re are neither your “cheap chinese fakes” nor OEM devices distributed by operators. These are the original brands who’ve scaled up the classic OEM–>ODM–>OBM–>OSM value addition ladder and there will be more of them.

So what does all this blather actually mean?

The handset is the next form factor in the evolution of personal computing which began with the desktop computer and progressed its way through ever more portable devices such as laptops, netbooks and tablets.

Its importance and position in the developing world relative to the lack of infrastructure and systems is greater than we are able to see from our own perspective.

This means that innovation in services and applications using this device will come from these new markets. Fintech in Africa is a great case in point.

The era of big brands and market dominance is coming to a close.

 

 

Reflecting on the mobile internet in Kenya

Poster in shop, Kagumo, Kenya 18th October 2011

After the past three weeks of focusing on cyber cafes and internet access in urban and rural Kenya, we’ve been questioning the value of the “mobile internet” statistics provided by operators to the CCK. Muchiri pointed out that since most of our feedback seemed to revolve more around SIM operated routers installed by cybers, or mobile broadband modems sold either to regular home and business users or even, in the smaller towns, used to link networked computers in small cybers to the internet, what did the information actually communicate?

A thousand shillings cheaper than in Nairobi, seen in Kagumo, Kenya

At the shop we were in, Jacqueline (who is saving for her own laptop for Christmas) explained to us that it was cheaper to buy a data bundle or use the modem, than to browse on the phone using the Ksh 2/min offer directly.  Extremely knowledgeable about the most cost effective ways to browse using whichever device you may have, she uses her phone for social networking constantly and prefers it to the cyber which she only visits occasionally. However it was she who pointed out to us that she didn’t think that it was internet enabled phones alone that were affecting the cyber’s business but also the fact that affordable devices (desktops, laptops and modems) were increasingly popular and easily available.

If so, then the 98% of Kenya’s internet users who are on mobile internet may not be doing it through mobile phones alone as is so often assumed but via a variety of SIM based devices. A detailed breakdown of devices under the heading of ‘mobile internet using SIM’ as reported to the authorities might begin to offer a clearer perspective on user behaviour and modes of access.

Socially networked mystery shopfront

Just before Mtwapa, Kenya Oct 11 2011

We spotted this closed shopfront just before entering Mtwapa – a midsize town about 10km from Mombasa, when returning from a day trip north to Kilifi today. There was no signage to tell us whether it was a cyber cafe or internet center of some sort. But we’re sure they are extremely networked socially.

Communicating value across cultures

Reading about Cisco’s move to Bangalore in BW’s breathless prose, this interchange struck me forcibly.

“It will give them some exposure and it’s a glamorous job … but it could create an Ivy League-type clique of expats who are richer than the locals,” Kay said. “I doubt that most of them will stay long enough to learn a language beyond ordering food and beer. They’re not ‘going native’ and getting deep expertise in the Indian market.”

Leo Scrivner, Cisco vice president of human resources, disagrees.

The United States Department of State has extensive literature and information available for their foreign service personnel, their families and children on what to expect when moving to a new culture. Expat websites, newspaper sections and discussion groups abound, particularly as global nomads – children who spent a significant portion of their developmental years outside of their passport countries due to their parents profession – discover the power of the internet to maintain close friendships made from around the world. Expat managers run multinational offices around the world, and their children go to international schools catering to their needs. This, I believe, is an overlooked talent pool for US corporations seeking to truly link to the rest of the world.

Manuel Toscano – who moved every three years until his teens – and I coauthored an article last fall called “Lessons from Walmart: 5 common mistakes when brands cross borders“. These five points are not just for companies, brands or products, they very much apply to human beings as well. More so, since much of our discussion and debate  during the writing focused around our own life experiences in multiple cultures and countries, what we refer to as a highly mobile childhood. Let me summarize them again here,

  1. Interpret, don’t translate – Take a moment to understand the intent of the other person’s message, not just their choice of words or linguistic flexibility. Words are powerful. They carry semantic meaning that differs from culture to culture. To only take the meaning of their choice of words, particularly if English is not their or your mother tongue, may lose the true meaning of their attempt to communicate. If you think that the message is inappropriate to the situation at hand, take a moment to ask the other what their intent was, what meaning did they intend to convey?
  2. Value is contextual – Geert Hofstede and Edward T.Hall are the people to research and read when it comes to how different cultures place value on different things. So what may seem to you as as the other person’s lack of response or empathy might simply stem from the other not valuing [thus not understanding] what ever it was that was bothering you. For example, the concept of personal space is highly valued in the United States, but almost non existent in India. The British might never dream of asking someone if they were married or how many children they had at first meeting but in Singapore the shopkeeper will cheerfully ask you if you are married, all the while haggling over price.
  3. Playing follow the leader – What may have worked in one culture may not work in another. And even if people look the same or share the same ethnicity there is no guarantee that their cultural and social cues are going to be the same. Human cultures and societies evolve over time – an ethnic Chinese Singaporean friend working in Shanghai noticed the difference in San Francisco’s Chinatown. That while all three locales ostensibly shared the same cultural symbols, there were differences in nuance and attitude that were poles apart. Similarly, ethnic Indians in Malaysia and Singapore are very different from those in South Africa, yet in many ways the same. Similarly, the Australians and Canadians are uniquely different yet in some ways very similar to the British.
  4. Making assumptions. I am an engineer from Bangalore university. I carry an Indian passport. I live in the Bay Area. What is my area of specialization?
  5. Ineffectual leadership – Have you selected the right person for the relocation? From the article,

Whether it is selecting the right local partners or vendors to work with or the employee in charge of the project, the quality of the individuals can often make or break a new market entry strategy. Your brand manager may not have any exposure to the new market or its culture, or may be too inexperienced to question the agency’s decisions. Remember that a large agency may have an international presence but this does not guarantee that their local offices have influence in shaping the strategy of the brand in their market. Think first about who is working on your project and review their approach are they arrogant? are they culturally sensitive? All of these and more are highly relevant to finding the appropriate person or partner for a very different market.

And finally, don’t be in a hurry to see results. While market forces may require quarterly sales figures be constantly monitored, entering a new market, particularly one very different from your own, is a matter of respect, patience and perseverance. Witness Toyota’s successful application of these very qualities in the world today.

 

First published Sunday, 07 Jan 2007 on Perspective (some links may have moved)

Barriers to business with the ‘Bottom of the Pyramid’ : what can we learn from Mama Boi?

Jakarta, Indonesia March 2010

The Monitor Group has made available the complete HBR article “Is the Bottom of the Pyramid Really for you?” (PDF) where the authors frame the debate for multinationals questioning whether to consider entering this challenging though untapped segment of the global marketplace.  They list some of the common barriers faced by executives during their attempts to serve this demographic, the majority of whom live in the developing world:

  1. Uncertain cash flow.
  2. Gauging demand.
  3. Sales and distribution challenges.
  4. Disaggregated providers.
  5. Undeveloped Ecosystems.

Issues of demand and distribution as barriers are part of the undeveloped ecosystem – or rather, to reframe these barriers in the context of the local operating environment, all the points are elements of the informal markets that currently serve their customers needs.  They become barriers to entry for organizations accustomed to sophisticated information and delivery systems, that is, from their perspective, there is no pre-existing consumer market and one must then create entire value chains from scratch.

And yet, another way of looking at this would be to embrace rather than attempt to replace the elements of the informal ecosystems that exist. How can you leverage the characteristics of what makes them suit the needs of customers who live in conditions of uncertainty?  Flexibility, adaptability, improvization – all of these have been mentioned numerous times in as many reports and articles.  This PDF recommends in conclusion that the most successful companies have been those that have created new kinds of businesses:

The most encouraging business-model innovations at the bottom of the pyramid manage to surmount multiple barriers at the same time. They represent not incremental adaptations but new, groundbreaking, end-to-end strategies.

Leapfrogging conventional wisdom just the way technology has been leapfrogging the inadequate infrastructure in most these locales. But where can we seek the ways in which to inspire such innovation? Imho the challenge that also exists for all these multinationals and their esteemed consultants is that their frame of reference and understanding is so well grounded in the frameworks and structures of the formal economy in which they’ve trained and learnt to operate.

This slide presentation by Gerry van Dyck (source) offers some fascinating insights on informal markets from the perspective of global FMCG brands. Mr van Dyck’s key point being:

if the market woman can succeed in the fierce competitive environment in the unbranded produce sector to create loyal customers then it is possible to use them as a reliable ally in driving change among consumers

Why stop at simply using them as an ally – lets take the thought a step further and see if we can learn from this study on buyer behaviour in the informal sector. Here’s a snapshot of a slide from Mr van Dyck’s presentation:

In a crowded market with numerous shops all selling the same unlabeled, unbranded produce how does a customer differentiate and choose to purchase? Through relationships – personal interactions over time build a rapport between customer and shopkeeper and ultimately it is this bond that drives the purchasing decisions.  In other words, it is the people and the personalities that ultimately matter, not anonymous communications from faceless entities.

And that’s something I see very little mention of in all the fancy documents and presentations being made on how to address the undeniable opportunities available in this space – where are the people? And why aren’t they the starting point for innovation?