Mauro F. Guillén & Esteban García-
Canal:
Emerging Markets Rule
–
Growth Strategies of the New Global
Giants
University of Applied Sciences Utrecht
Summary by: Viktória Dévényi (2020)
, Table of Contents
INTRODUCTION .................................................................................................................... 4
CHAPTER 1: Execute, Strategize, then Execute Again ............................................... 5
1.1. You Can Be a Global Baker if You Have the Patience ..................................................... 5
1.2. Excelling at Execution can Turn you Into a Global Aircraft Maker ........................... 6
1.3. Succeeding in the Brave New World of IT Services........................................................ 7
1.4. Execute, Strategize, Execute ................................................................................................. 7
CHAPTER 2: Cater to the Niches ....................................................................................... 8
2.1. The World’s Leading Household Appliance Brand ........................................................ 8
2.2. Creating a Global Niche in the Beer Industry.................................................................. 9
2.3. Finding a Niche in Personal Care Products ..................................................................... 9
2.4. Following the Path of Least Resistance to Global Success ........................................ 10
CHAPTER 3: Scale to Win ................................................................................................. 11
3.1. Betting on Scale in Consumer Electronics ...................................................................... 11
3.2. Scaling to Win in Traditional Industries ........................................................................ 11
3.3. The Answer is Blowin’ in the Wind… ............................................................................... 12
3.4. Winning by Growing Big, Fast ........................................................................................... 13
CHAPTER 4: Embrace Chaos ........................................................................................... 14
4.1. The Dragon Takes Over the Personal Computer Industry ......................................... 14
4.2. The Egyptian Challenger in Telecommunications ....................................................... 15
4.3. Forging a Way to Global Leadership ................................................................................ 16
4.4. Chaos as Strategy ................................................................................................................... 17
CHAPTER 5: Acquire Smart ............................................................................................. 18
5.1. Winning Big in Oil Country Tubular Goods (OCTG) .................................................... 18
5.2. Cementing Global Leadership Through Acquisitions ................................................. 18
5.3. Wiring the World Through Acquisitions ........................................................................ 19
5.4. Acquiring Your Way to the top .......................................................................................... 20
CHAPTER 6: Expand with Abandon .............................................................................. 21
6.1. Who will be the World’s Largest Automaker? ............................................................... 21
6.2. Shaping the Digital Future, One Cell Phone at a Time................................................ 22
6.3. Pioneering the Offshore Lab .............................................................................................. 22
6.4. Global Expansion is a Sprint, not a Marathon .............................................................. 23
CHAPTER 7: No Sacred Cows! ......................................................................................... 24
7.1. Finding New Ways of Competing ....................................................................................... 24
7.2. Seeing the Opportunity in the Hidden Corners of the Market ................................. 24
Viktória Dévényi – IBMS HU 2020 2
, 7.3. Preempting the Competition .............................................................................................. 25
7.4. Thriving on Chaos .................................................................................................................. 25
7.5. Switching Course through Acquisitions .......................................................................... 25
7.6. Be Cautious at Your Own Risk ........................................................................................... 26
7.7. Nothing is Sacrosanct ........................................................................................................... 26
7.8. Finding the Hidden Treasure ............................................................................................. 26
SUMMARY ............................................................................................................................. 27
I. Executing Before Strategizing ................................................................................................ 27
II. Catering to the Niches ............................................................................................................. 28
III. Scaling to Win .......................................................................................................................... 28
IV. Embracing Chaos .................................................................................................................... 29
V. Acquiring Smart ........................................................................................................................ 30
VI. Expanding with Abandon ..................................................................................................... 30
VII. Taking on Sacred Cows ........................................................................................................ 31
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, INTRODUCTION
Emerging markets: markets that are growing economically but not necessarily demographically –
e.g. China, Russia – but do not have fully developed institutions such as stock markets, labor markets,
intellectual property protections, and legal systems.
Emerging market multinational (EMM):
- Firm from an emerging market.
- Has assets and employees located outside of its home country.
- Not industry specific.
- Common characteristics:
o Are often closer than old-line firms to their foundational figures and stories.
o Are less tied than traditional multinationals to the often-crippling effects of having to
produce shot-term results to satisfy impatient financial markets.
o Are unencumbered by knowledge and experience. EMMs don’t realize there is only one
right way to reach their goals.
o Look at the globe truly globally. Where mainline firms often see nothing but headaches,
EMMs see opportunity.
o Frequently have a home-field advantage going for them.
The EMM phenomenon
1. Physical infrastructure: globalization is a two-way street: improvements in
transportation, communication, and other enabling technologies coupled with the enormous
economic growth of emerging economies has transformed the way and the location where
goods and services are produced and sold.
2. Intellectual infrastructure: managerial talent was never the exclusive province of today’s
most advanced economies. Emerging market managers attend the best business schools
around the world, learning not only accounting and people management but also about market
opportunities.
3. Imaginative infrastructure: the most gifted among us can see possibilities with no path to
achieve them, but most of us need something tangible to anchor our dreams on. That’s what
the cumulative success of EMMs is achieving.
Circumstances that are enabling EMMs to take over the world:
- Economic changes: emerging economies are growing much faster on average than
developed ones.
- Demographic changes: new and growing middle class of consumers and workers is shaping
up in key countries such as Brazil, India, Egypt, and South Africa. Demographic growth poses
challenges, including the potential for political stability, but is also a sign of vitality and
dynamism.
- Political changes: more countries than ever have adopted democratic forms of government,
but many of the political regimes in the fastest-growing economies are fragile and complex.
EMMs are used to coping with governments and institutional environments in which the rules
of the game are flexible at best.
- Hidden strengths: e.g. infrastructure deficits in emerging economies have created huge
domestic growth opportunities.
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, CHAPTER 1: Execute, Strategize, then Execute Again
Formulating a strategic statement has become a corporate ritual, a way to keep bad spirits at bay.
Strategy making can and does become an obsession. Top managers agonize over how to formulate the
perfect strategy, and when they hit up on one that captures their imagination, they get obsessed with
it. Why do executives spend so much time worrying about strategy?
1. Strategizing is a good method for escaping from the nitty-gritty aspects of reality.
2. Execution is simply not the kind of task that the top brass finds attractive or worthy of its time.
Strategy determines where a business wants to go, but execution is the art of getting there. Execution
means being prepared to put in practice a value proposition aimed at doing well what is good for
customers – delivering products and/or services efficiently and on time. Clearly the winning approach
involves executing before strategizing.
Everyday execution has become much more important than strategizing in the fast-changing global
economy of the 21st century. Strategizing can also lead to bling alleys. When companies define a
market or a product as strategic, what they frequently thinking is “We are going to lose money, but
we really want to keep on trying.”. Thus, grand strategies often lock companies into a path toward
competitive decline. The very rigidity of such plans chokes creativity and limits growth in new areas.
There is a place for strategy in the corporation, but it should not come at the expense of execution.
1. Top management needs to pay attention to both, without delegating the latter.
2. Many of the best strategies are emergent: rooted in practice instead of imposed form above.
Corporations learn by doing, formulating and adapting their strategies as they go.
3. In this unstable and uncertain global economy, execute first, then strategize based on what
you learn along the way.
1.1. You Can Be a Global Baker if You Have the Patience
Bread is one of the world’s most important staple foods, providing billions of people with a large
proportion of the energy and nutrients they need.
While the Europeans are the biggest bread eaters, American firms brought modern mass production,
distribution, and marketing to the industry, and nobody did it bigger than the Sara Lee Corporation.
Sara Lee was invincible. By the late 1990s, the giant was showing feet of dough. What went wrong?
The company was not motivated to execute. Sara Lee ended up selling its core business – bread – to
Bimbo, a Mexican firm.
Bimbo had an entirely different approach. While Sara Lee had lost its sense of direction and purpose
by expanding into too many businesses, Bimbo new that focusing on what you can do well and
excelling at execution is crucial.
Bimbo’s most significant competitive advantage, the one that sets it apart from other large bakeries is
its time-tested methodology for managing a complex distribution network involving tens of thousands
of points of sale in each national market. Bimbo is a company that does not waste too much time
strategizing. Instead, executives spend most of their time actually running and improving operations.
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,Bimbo also shows that execution goes beyond efficiency and standardization. The company has
learned to differentiate its product offerings by segment and geography.
Goals of Bimbo in China:
- Short term:
o Expansion
o To deeply understand our clients, out consumers, out competitors
o To develop a local talent pool
- Medium term: to continue growing and expand as a national brand
Bimbo got the basic sequence right:
1. Get down to business
2. See what works and what doesn’t
3. Improve execution
4. Learn as you go
5. Strategize by building your company’s future on the proven basis of the experience gained
1.2. Excelling at Execution can Turn you Into a Global Aircraft
Maker
Aircraft and airline industry = stiff competition.
In aircraft manufacturing execution is also key to success. The industry is divided into two main
segments: Boeing and Airbus for aircrafts with 110 or more seats.
Bombardier was the first manufacturer to respond to the airlines’ desire for reginal jet to replace the
cramped, noisy, and uncomfortable turboprops used on short commuter routes with high flight
frequency. Embraer followed with two new jets specifically for the segment.
Bombardier got mired down with quality problems in landing gears and delivery delays. Meanwhile,
Embraer was focusing on operational excellence and pulling away from its chief competition. Within
a few years Embraer had become the darling of both aircraft connoisseurs and airline passengers.
Embraer has been winning the old-fashioned way: by attaining the best efficiency and delivery ratios
in the industry, beating out competitors in Europe and the US burdened by higher costs and lower
operating performance.
As with Bimbo, Embraer’s recipe for success is disarmingly simple: start by focusing on what you can
do best along the value chain, invest in training your human resources, then encourage them to make
improvements throughout the manufacturing process. One key outcome was to cut assembly times
by adopting Toyota’s famous supply-chain principles.
Like Bimbo, Embraer also lacked the kind of technological advantage that made Bombardier a
formidable competitor. As an EMMs it had to create the supplier base almost from scratch in a
location with few other advantages save for labor cost. The company started by making relatively
simple planes until they could catch up technologically.
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,To make sure the company stays on top, Embraer executives have also set up a network of assembly
and service operations in China, Europe, and the US. Embraer took a road into China that was not
carpeted with roses. Now that it is climbing out of its own adolescence, Embraer’s biggest challenge
is to anticipate the impact of the new entrants into the regional segment.
Stellar execution made Embraer the great company that it is today. It also is a forward-looking
company, being the first manufacturer to fly a jet powered by ethanol.
1.3. Succeeding in the Brave New World of IT Services
The global IT services business is worth some $300 billion and dominated by companies that took
advantage of their position as hardware manufacturers to become IT service providers. HP, and Xerox
managed that kind of transition while their traditional hardware business declined, but IBM has been
the one that really excelled int his transition.
As uncomplicated as it seems, putting the business model of IT outsourcing into practice is quite
demanding. It involves designing, operating, managing, and/or supporting the information and
communication systems of clients. These companies also run their clients’ business processes, such
as logistics, HR, and customer relationships. Simply put, IT is all about execution.
From its inception success in the IT sector depended more on labor productivity than on capital
requirements – people, not machines, were the crucial factor. And then at the time of the
telecommunications revolution emerging economies became relevant because of their lower costs and
the new possibilities offered by the new telecommunications technologies. This momentous change
forced existing players to start behaving as if they were companies from emerging economies – or else
go into extinction. This was the time when Tata Consultancy Systems and Infosys started to make a
name for themselves.
Infosys started to build a competitive advantage based not only on wage differentials but also on
quality. In order to win customers, Infosys had to make its programmers e available 24/7 – close
enough to them to understand their needs while still able to match the expertise and efficiency levels
of other providers around the world.
1.4. Execute, Strategize, Execute
The first business message from emerging markets is loud and clear: stellar execution pays off,
whether the industry is a traditional one or is all about high-tech gadgetry.
Good execution begins with focusing on what you can do well, putting the customer first, attaining
world-class efficiency in your operations, and delivering to the customer on a timely basis.
A great strategy is not enough and too much strategizing without attention to execution can wreck a
company. Oftentimes the best strategies emerge from execution.
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, CHAPTER 2: Cater to the Niches
Unfortunately, many executives today continue to believe that only the mainstream mass market is
attractive form the point of view of growth potential and profitability. But consider how much the
world has changed over the past 100 years:
- New technologies in the form of flexible production systems enable companies to produce
smaller batches and be profitable.
- Selling to a small market segment in just one country may be a losing proposition but doing
so across a large number of national markets can be enormously profitable.
- Niches can be thought of as stepping-stones into the mainstream mass market, especially
when entering a foreign country with large, entrenched local competitors.
Companies from emerging markets have perfected the use of market niches, homogeneous groups of
customers with unattended needs by the market leaders, as launching pads to global domination.
- Incumbent firms tend to look down on an emerging market firm entering a small, underserved
niche in their own backyard.
- Often established companies find niches – and the effort required to reach them – beneath
their dignity.
In many ways, established firms miss the relevance of niches because of deeply ingrained beliefs about
the nature of the world. They think globalization equals standardization of tastes, preferences, and
needs. But the truth is that customer preferences remain fragmented across countries and among
customer groups looking for product differentiation and multiple brand offerings. Globalization has
made. Niches more, not less, relevant.
2.1. The World’s Leading Household Appliance Brand
The global market for household appliances is big and difficult to crack. We’re just too atypical about
what we do within our homes. Preferences differ per country and even within national markets.
Haier, the world’s leading household appliances brand was founded in 1955. The company was lacking
capacity but signed an agreement with Liebherr in 1985 to license the low-temperature refrigerator
technology commonly referred to as four-star. Haier became the only Chinese company offering this
product in the local market (other Chinese manufacturers made two-star refrigerators). Haier also
started to develop its own technological base and capabilities. Haier also committed to 24h deliver
within 150km of a point of sale.
From 1991 the company took over 18 other companies soon after the acquisition the CEO turned them
round in the same way he had reset the original refrigerator factory – by securing new technology
through alliances and active learning.
Once Haier had become the dominant brand in China the company went global, first making
appliances for American retailers to sell then launching its own branded products. Why? If the
company could make it in a competitive market like the US, it could make it anywhere. But it was not
a full-on attack, Haier attacked one product niche at a time. First compact refrigerators for college
students, then wine coolers, then a learning TV set for kids.
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,Haier thought of small market segments as stepping-stones in the process of conquering the
mainstream of the market by gradually introducing new product lines aimed at covering a wide
spectrum of needs.
Haier followed the same core philosophy to break into other markets around the world.
2.2. Creating a Global Niche in the Beer Industry
The beer industry is both very global and extremely local, with thousands of regional and local brewers
catering to some of the smallest market niches you will find in any consumer product category.
Brewing is also an industry in which 5 of the top 10 players are EMMs.
Founded in the 1930s, Modelo has only 3% of global volume sales, but it has the most successful global
exotic niche brand of all: Corona Extra. After consolidating its position in the Mexican market, Modelo
was forced to go international to keep growing. The US was the obvious choice because of proximity
but presented daunting challenges, including entrenched competitors and sophisticated consumers.
Modelo signed contracts with two separate importers:
- One focused on college students, some of whom had tasted Corona in Mexico during spring
break
- The other targeted Mexican immigrants by appealing to their nostalgia for the homeland
Pricing was also a key ingredient to success: higher than domestic beers but lower than Heineken.
Above everything else, Modelo got it right when its marketers decided to position Corona Extra as a
premium import beer highlighting a specific lifestyle. Serving the beer with a wedge of lime at bars
and restaurants also reinforced its exotic origin and enhanced its taste.
Modelo’s global niche strategy has succeeded beyond anyone’s imagination.
2.3. Finding a Niche in Personal Care Products
Cosmetics, fragrances, and toiletries generate nearly $400 billion in sales annually. It’s a huge market,
one that will never go away. Moreover, many products are aspirational. But personal care is also a
difficult business. The industry is dominated by giants such as L’Oréal. However, fragmentation of
tastes and heterogeneity of needs due to climate, biology, and culture, has led to the proliferation of
brands and product variations.
Natura Cosméticos is perhaps the most promising challenger in personal-care products form an
emerging economy. The company’s recipe for success is all about niche thinking. It targets customers
concerned with sustainability and reaches them through direct sales. Direct sales happens to be a very
important distribution channel in emerging and developing economies – precisely where the growth
is.
The world leader in direct sales of personal care products is Avon, a company founded in 1886. Nature
was founded in 1969 as a cosmetics laboratory with a single store in Sao Paulo. The company is
number one in Brazil today.
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, Natura’s business model rests on three pillars:
- An appeal to ecology, sustainability, and social responsibility.
- An emphasis on rapid innovation.
- A big bet on direct sales.
Natura’s strong knowledge and market bases in Brazil represent solid advantages when it comes to
future international growth. It’s not just the exotic ingredients. Brazil’s racial diversity means that the
company has had to develop products for each type of skin hair, and body shape. Natura had to
replicate its entire value proposition, niche orientation, and preferred distribution channel in each
foreign market it conquered, mere exporting didn’t do the trick.
Niche-focused global expansion won’t work on autopilot, however. You need to think carefully about
national variations.
2.4. Following the Path of Least Resistance to Global Success
When managed well, niches can become retinues of fanatic followers whose raw enthusiasm can level
the playing field when it comes to taking on established firms with greater technological and
marketing capabilities.
In today’s hypercompetitive global economy, established multinationals need to pay attention to
marginal niches for both offensive and defensive reasons.
- Shifting consumer demographics also turn niches into large markets.
- Underserved niches provide new opportunities for making profits, but they also represent
weak points in the company’s defensive perimeter against the attacks of new multinational
firms, especially those form emerging markets.
Niche companies do not always pursue the same niche across markets. There are two types of niche
strategies:
- The discriminator focuses on a different niche in each country without integrating
operations across markets. Haier started its long march to global supremacy in this way.
- Global niche players target the same niche of the market across countries. Nature and
Modelo followed this path to success.
Later in the process of expansion, both strategists – sooner or later – move into the mainstream of
the market.
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