TNS GEMS April 2013
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TNS GEMS April 2013

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One of the most exciting things about living and working in the ‘emerging markets’ is the rapid pace of change and the wealth of new opportunities. This is perhaps best exemplified by Myanmar, ...

One of the most exciting things about living and working in the ‘emerging markets’ is the rapid pace of change and the wealth of new opportunities. This is perhaps best exemplified by Myanmar, which really is the newest emerging market.

Since sanctions lifted last year, we have been working with clients to help them to understand the values, attitudes and aspirations of people in Myanmar. We were delighted to receive our formal licence to operate in March and have opened a full service office in Yangon. You can learn more about the opportunity in Myanmar and across the new Mekong sub-region - which includes Cambodia, Laos and Vietnam – in this edition.

We kicked off the year with our Chinese New Year study – building an understanding of how people in China, Hong Kong, Singapore, Taiwan and Malaysia celebrate new year. The holidays are far behind us, but some of the insights into attitudes are of interest beyond this.

The impact of mobile in sub-Saharan Africa has been massive, however people are not actively engaging with brands via mobile, particularly in South Africa. We examine some of the barriers and potential solutions that companies can consider to increase their effectiveness in this area.

Finally, we share a perspective on reverse innovation – and the lessons that ‘mature markets’ can learn from emerging economies.

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TNS GEMS April 2013 TNS GEMS April 2013 Presentation Transcript

  • GemsInsights from emerging markets April 2013
  • Contents1Introduction 32Joining the future for the Mekong 43China and the Chinese - going beyond Kung Fu and noodles 234Making the small screen part of the big picture 315Is the reverse flow of innovation coming full circle? 39 Share this Gems 2
  • Introduction One of the most exciting things about living The impact of mobile in sub-Saharan Africa has been massive, however people are not actively engaging with brands via and working in the ‘emerging markets’ is mobile, particularly in South Africa. We examine some of the the rapid pace of change and the wealth barriers and potential solutions that companies can consider to of new opportunities. This is perhaps best increase their effectiveness in this area. exemplified by Myanmar, which really is the Finally, we share a perspective on reverse innovation – and newest emerging market. the lessons that ‘mature markets’ can learn from emerging economies. Since sanctions lifted last year, we have been working withChris Riquier clients to help them to understand the values, attitudes and We’ve been at ESOMAR in Ho Chi Minh this month, talkingCEO, Asia Pacific aspirations of people in Myanmar. We were delighted to receive about some of the opportunities in Myanmar and also discussing our formal licence to operate in March and have opened a the importance of cultural precision when building a marketing full service office in Yangon. You can learn more about the strategy. If you’d like to see a copy of our papers, or discuss any opportunity in Myanmar and across the new Mekong sub- of the issues in this edition, please do get in touch. region - which includes Cambodia, Laos and Vietnam – in this edition. Kind regards, We kicked off the year with our Chinese New Year study – building an understanding of how people in China, Hong Kong, Singapore, Taiwan and Malaysia celebrate new year. Chris Riquier, The holidays are far behind us, but some of the insights into CEO, Asia Pacific attitudes are of interest beyond this. Share this Gems 3
  • Finding LeaderOpinionfaster growth: New marketsJoining the future for the Mekong - Ralf Matthaes Share this Gems 4
  • Joining the future for the MekongThe Mekong sub-region represents oneof the world’s great emerging marketopportunities; and one where distinctnational characteristics, complex historiesand varied stages of development mustguide the strategies of brands. Share this Gems 5
  • Joining the future for the MekongAt a time when brands are seeking to decouple theirfortunes from recession-stricken developed markets andfind new engines of growth, the countries of the LowerMekong Basin offer a compelling case for attention.From the South China Sea in the East to the AndamanSea in the West, via Vietnam, Laos, Cambodia, Thailandand Myanmar, the Mekong sub-region incorporatesrich natural resources, genuine emerging markets andrapidly developing urban cultures. It also representsa study in human diversity, with a rich canvas oflanguages, ethnic identities and religious traditions, anddistinct national histories that exercise huge influenceover the nature of markets today.Of all the markets in the region, Thailand has the mostfamiliar dimensions for developed-world brands, witha large, well-established middle class, a zest for livingan experiential life, a strong sense of fashion and anappetite for premium products. Thailand has longbeen the island of relatively stable prosperity in themidst of the Mekong region – and a very attractive one more recently emerging markets for the strongest change over the past 25 years has played a key rolefor global brands. However, with the rate of growth growth opportunities. in determining the course of economic development.slowing and the Thai economy feeling the effects of the And the strongest opportunity of all appears to lie withglobal recession through its impact on the tourist trade, In doing so, they will find that the strongest potential the country where those changes are most recent, andthose brands must increasingly look to the region’s for growth lies in those countries where political perhaps most fragile. Share this Gems 6
  • Joining the future for the MekongPotential unleashed in Myanmar as an ideal trading hub; and despite decades of under-Myanmar’s movement towards democracy during the investment and intentional disruption of education bypast three years has resulted in the easing of sanctions the government, Myanmar has a literate, well-educatedpreviously imposed on its ruling military junta and theunleashing of a likely flood in Foreign Direct Investment(FDI). This is predicted to catapult from just under $1billion to $20 billion, dwarfing the figure for its larger population; 18 per cent of the urban population have some grasp of English as a second language. Yet despite its natural resources and growth potential, 18% of the urban population speak some English;and wealthier near-neighbour Vietnam and setting Myanmar currently has the lowest income per capitaMyanmar apart from Cambodia and Laos, its fellow of its region, with huge disparities between rich andmembers of the CaLM group of countries, which are poor; 32 per cent of its population live on or below 32%often grouped together as Mekong territories in the the poverty line, grappling with significant gaps inearliest stages of economic emergence. infrastructure whilst attempting to secure a better future for themselves and their children. With moreWithin this group, Myanmar enjoys some significant than half of the population under the age of 30, of people live on or below the poverty line;advantages that help to explain its attractiveness for Myanmar is likely to experience exploding demand forinvestors, and which the instability of recent years consumer goods in the medium-term future; but forhas not been able to undermine. With oil, gas and now, very few of those young men and women enjoygemstones it is hugely rich in immediately exploitablenatural resources; a border shared with India and Chinaputs it adjacent to one third of the world’s population disposable incomes, and many are potentially harder for brands to engage than equivalent young consumers in other emerging markets. 1/2 half of the population are under the age of 30. Share this Gems 7
  • Joining the future for the MekongThe mobile phone that has extended online access two per cent have an internet connection, despite 25and unleashed entrepreneurial energies across per cent saying they would like to access more newsmany countries has not been able to wield such and information this way and 15 per cent saying theyinfluence in Myanmar, due to controlled access andthe previous regime’s policy of setting restrictivelyhigh prices. Up to 12 months ago, SIM cards werepriced out of the reach of all but the very wealthiest would like to own a laptop. TV dominates the media experience, even when the incomplete and frequently interrupted electricity supply means families may have to resort to generators (or rigging electricity supply 68% Burmese people – or Bamar – only compromiseconsumers, however prices have dropped to 200,000 from the family motorbike) to power their set. 68% of the population;MMK (approx. U$ 235) for a GSM SIM card and thegovernment continues to move towards opening up The typical family is Burmese (the ethnic group that 84%the market with invitations to foreign operators to dominates Myanmar, representing 68 per cent of theparticipate expected to dramatically increase access. In population and 84 percent in the major metropolitanthe medium-term, it is likely that many of Myanmar’s areas) with a very traditional adherence to the tenetsyoung consumers will adopt web-enabled smartphones of Buddhism. Community and family are hugely of people in the main metropolitan citiesas their first handsets, but for now mobiles still remain important, with duty to others keenly felt and at least are Burmese;out of the financial reach of many. two generations typically existing under a single roof. For those who have travelled widely in South East Asia,The bulk of the country’s young population have little Myanmar stands out for the way in which the influenceto mitigate shortcomings in infrastructure that greatlyaffect their experience of the world and the channelswhich brands have available to engage them. Only of Buddhism extends to all areas of life; and this has a significant role in shaping consumer instincts and attitudes to brands. 135 Myanmar government officially recognises 135 distinct ethnic groups. Share this Gems 8
  • Joining the future for the MekongWithin the close-knit family environment, it is womenwho control most decisions regarding finance andspending. And an instinctive cultural rejection of ‘bling’or the pursuit of status through belongings lends apractical edge to that spending. The most desireditems in Myanmar are essential durables, with washingmachines and refrigerators topping consumers’ wishlists. Outside of groceries, the dominant item ofexpenditure is education, the embodiment of hope anda legacy of an adult population who have themselvespassed through a structured education system. Theproportion of household budgets invested in educationhighlights the priority that all attach to improvingthe prospects of their children in a fast-developingfuture. The speed with which that future is arriving,and the obvious gains that can be rapidly delivered byforthcoming investment, are what make the immediateeconomic future of the country particularly exciting. Share this Gems 9
  • Myanmar: U Than Kyaw’s storyDinner is U Than Kyaw’s favourite time of day. His family gather their neighbours can afford, whilst selling enough stock to befor it at 7.30 in the evening, in the home that he shares with his confident of making money. They stockpile a months-worth ofwife, young daughter, two nephews and three nieces, above the goods in their back room to guard against price fluctuations andtraditional convenience store that the family runs. U Than Kyaw avoid being forced to raise prices. All the same, supporting a familyadores his wife’s cooking, of course. But that is not the only reason from the convenience store alone would be a challenge. U Thanthat he enjoys the meal so much. It is a symbol of their shared Kyaw used the management skills that he learned in constructionendeavour: the ingredients bought by him in the traditional wet to set up a taxi business that he can run from the shop, bringing inmarket in the morning; then cooked by her in the evening as he much needed extra income.monitors the vehicles of the taxi business that he runs from theirstore. Mealtime is also the occasion when the family room is filled He would have found balancing the two enterprises a lot morewith energetic discussion of Dhamma doctrine, the central tenets difficult just a year ago. It was then that he was able to buy aof Buddhism that, he loves to hear, mean as much to his younger second-hand mobile phone from a friend who still works in therelatives as they do to him. Yangon construction industry. When they worked together, the idea of owning a mobile was laughable; the cost of a handsetThe Buddhist religion has directed U Than Kyaw’s life ever since his was several times their annual salary. In the last year, with thechildhood in the provincial upper Myanmar city of Paung during the government altering its policies on the mobile market, the price has1970’s, when the country was still undergoing the ruling military plummeted to only six months’ earnings. It is still a lot of money,junta’s experiment with centrally directed socialism. One of the but being able to stay in touch with his vehicles as they movemost profound impacts of military rule was a narrowing of access around the city has helped U Than Kyaw to bring in a great dealto education; so much so that U Than Kyaw was the only one more.of his six siblings to graduate from University, at the then-capitalcity Yangon, where he still lives today. He has been determined to It was the extra money and the changing political situation thatmake the most of his opportunity ever since, and sees caring for finally persuaded he and his wife that they could afford to bringhis extended family as a deep personal responsibility. When he fell up a child of their own. And after nine years of marriage, theirin love with his wife and gave up his career in the construction daughter was born. Waiting so long means that they do notindustry to help her start a business, he naturally employed his expect to have any more children; so he and his wife lavish all ofyounger relatives to work in the shop. their efforts on their little girl. U Than Kyaw is determined that she should become a graduate; giving her the same opportunitiesThe traditional store has been the focus of he and his wife’s life that he had – and of course, the same responsibilities to help and Share thistogether since they married ten years ago. He has helped her to support her family as best she can. Gemsfocus on the FMCG products for which they can charge a price 10
  • Joining the future for the MekongCultural divides in Cambodia and urban populations. Cambodia’s urbanites enjoyCambodia’s emergence from civil war in 1997 has given significantly greater personal income and expenditure,it longer to progress down the path of development as well as significantly increased access to infrastructure.that Myanmar is now embarking upon. The changes Understandably, those working in agriculture, fishingof the last 15 years can be seen in greater income and forestry, the country’s dominant current industries,per person, more established infrastructure (especially express a strong desire to move to more urban-where mobile is concerned) and more recognisable oriented careers around retail and wholesale. Despiteconsumer attitudes than those of its neighbour. this, the dominant share of the economy representedHowever, the differences between Cambodia and by Cambodia’s rural population means that brandsMyanmar are not simply a case of countries at different looking to drive growth must embrace the challengesstages of development. They result from clear religious of distributing products and building awareness in theseand cultural differences, geographic location and the communities.more damaging impact of recent history upon potential. As in Myanmar, TV remains the dominant mediaThe regime of Pol Pot was unfortunately far more channel through which they can seek to do so;effective at disrupting and suppressing educational however, mobile phones have the potential to play ainstitutions than those holding power in Myanmar. As stronger role in Cambodia in the immediate future,a result, the population of Cambodia is significantly overcoming patchy electricity supply and opening upless literate and has very limited command of foreign new channels of engagement for brands in rural areas.languages. The growth of the last decade and a half Almost half of the population (48 per cent) expect tohas made some wealthy but great inequality persists, increase their spend on mobile in the next year andwith a third of the country remaining in poverty. And 61 per cent of web users already access the internetthat inequality is most keenly felt between the rural through mobile devices. Share this Gems 11
  • Joining the future for the MekongIn terms of declared religion, Buddhism appears as comes to the education of children, something to whichinfluential in Cambodia as it is in Myanmar. That Cambodians, like their neighbours in Myanmar, devoteinfluence though is felt in a very different form when a large proportion of household spending. Ambitiousit comes to self-expression and emerging consumerhabits. Status is hugely important in Cambodia, closelylinked to self-esteem, and providing a different formof opportunity for brands to establish their appeal: mums, willing to pay a premium to get the best for their children, represent a hugely significant segment in Cambodia. A better future, with children who can support them in their ageing years, is seen as the return 73% of Cambodians say that position and status in73 per cent of Cambodians say that position and status on this investment. society is the most important aspect of their life, andin society is the most important aspect of their life,and 69 per cent say they like to use brands that show The challenges of Cambodia appear to have had 69%their success. a substantial impact on the amount of foreign investment channelled towards the country thus far,Cambodian society also differs significantly from with total FDI dwarfed not only by Vietnam but alsoMyanmar when it comes to the role of women, with by the amounts promised to Myanmar. Yet although say they like to use brands that show their success.a traditional role in the home more firmly entrenched, Cambodia does not have quite the resource riches ofboth in the attitudes of women themselves and Myanmar, its oil reserves alone will continue to drawtheir husbands. Cambodian women are significantly money to the country. Economic growth is proceedingless likely to have received an education than their regardless of the lower level of foreign support. And abrothers, husbands and sons (a product both of lack of engagement with the country by internationaltraditional expectations and Cambodia’s educational brands provides those that can craft compelling localshortcomings), but this does not prevent them from propositions with strong potential opportunity inasserting strong influence over domestic budgets and relatively uncluttered markets.purchase decisions. This is particularly true when it Share this Gems 12
  • Cambodia: SaingHy’s storySaingHy rises every morning at six to do chores, dress for work and After dropping her son off at school at 8am, SaingHy makes timeprepare to get her eldest, 11 year-old son ready for school. She to buy food for the day at the traditional ‘wet’ market. The familymakes the most of the space whilst the rest of the household is still has no refrigerator so food must be bought fresh every morning.asleep. The flat where she lives is also home to her husband and SaingHy loves to cook – and her meals are famous. Her husband,two sons, her younger sister with her husband and child, plus three who works as a security supervisor in Grand Phnom Penh, comesemployees who work in the tailors shop that she runs from their home for the main meal of the day at 12 o’clock. He won’t miss hisfront room. wife’s cooking.Getting her son to school on time means a great deal to SaingHy. After lunch, SaingHy takes a short nap with her baby son, for oneThe fees at the “Western International School” are the family’s hour. She believes that napping is essential for health. And shesingle biggest expense outside of food, but SaingHy firmly believes needs it – for this is the only hour between 9am and 7pm when shethat education and English are the key to a successful future. She will not be working in the tailors in the front room. At busy times,wants her children to have the opportunity to decide their own she and her staff work through until 10pm to ensure that all of thepath in life. clients’ shirts are freshly pressed for the morning. Her employees are willing workers, but it frustrates SaingHy that they are not as skilledSuch decisions were never really available to SaingHy herself. She as she was at their age.was the second of five children born on the family farm in theKandal province of Cambodia. Both of her parents worked all Weekends are hugely important to SaingHy. She and her husbandday on the farm – and money was scarce. She loved school but will take their children to the Dreamland Theme Park in the city,was forced to leave at the age of 13 to start learning her craft as walk along the riverside, and stop to eat at the Pizza Company,a tailor – and helping the family to make ends meet. Despite the where there is a playground for the kids. She sees their weekly mealfact that her financial support has helped both of her brothers to out as a luxury – a well-earned treat for herself and those closest togo to university, she has never been able to learn English herself her. They would be happier if they had more money to spend on– something she longs to do. It’s hard to use her mobile phone days like this – and if her work wasn’t quite so tiring. But perhapswithout a grasp of the language and she longs to travel and learn an easier life will have to wait until she finally has the time to learnmore about world events. As it stands, she stays on top of world English.news using a YouTube channelthis native Khmer language, Share in her Gemswhich she can watch on her phone when she goes to bed at night. 13
  • Joining the future for the MekongIndividualism in Laos concern. However, individual ambition and assertiveness neighbours. Consumers in Laos are not accustomedIndependent since 1953 and a single-party socialist are far more strongly expressed than in Myanmar, to product choice and competition – or to the role ofrepublic since 1975, the consumer attitudes of Laos in particular: work, career, freedom, earning money brands in helping to guide their decisions. High-valuehave been shaped by its communist heritage and and educating oneself for future opportunities are all exceptions to this rule, such as mobile phones and cars,conservative strand of Theravada Buddhism, but also ranked highly as priorities, which very much resembles show the potential of brands to play an increased role,by its proximity to Thailand and the ease with which the consumer sentiments holding sway in Vietnam a but as with other CaLM territories, propositions mustThai influence flows across border points such as the decade ago. Educating one’s children, in contrast to first prove their practical, everyday value to consumersFriendship Bridge. The population of Laos is extremely Myanmar and Cambodia, comes further down the list. with very limited budgets.young (with an average age under 20) and increasingly Although choices for entertainment are limited, leisureurban, with major centres such as the capital Vientiane time appears a more familiar concept than in the other 1953concentrating the Thai influence and resulting in CaLM countries, with sport a particularly strong area ofincreased interest in fashion brands and premium interest for urban populations.products with practical value. Laos’s emerging consumer attitudes, extensive TV Laos has been independant since 1953 andThe mobile phone is one example of such a product, coverage and growing penetration for the internet andwith mobile phone penetration far exceeding that of mobile phones, offer significant potential for brandsMyanmar, and mobiles increasingly taken for granted as seeking growth opportunities. However, this potential 1975an everyday life tool. Phones are also one of a small but remains restricted by income levels and a lack ofgrowing group of product areas where brands are seen familiarity with brands and competitive markets. A thirdas an important factor in purchase decisions. of Laos’s population remain below the poverty line and despite substantial natural resources particularly when it a republic since 1975.In common with other CaLM countries, consumers comes to tin, copper and hydroelectric power, economicin Laos rank family harmony as their most important growth is highly dependent on trade with immediate Share this Gems 14
  • Joining the future for the MekongVietnam: a snapshot of the future that they admire outside their family and those thatVietnam, with its GDP of $123 billion and substantially do are more likely to nominate historical figures suchincreased purchasing power parity, appears to offer a as Ho Chi Minh or successful businesspeople such assnapshot of the future experience for Cambodia, Laos Bill Gates.and Myanmar, especially as the country’s vital economicstatistics of 15 years ago showed striking similarities Women still dominate spending decisions in Vietnam,to those of Myanmar today. The desires expressed in but this influence is less linked to a life focused solelyMyanmar and Cambodia to live only with immediate on managing the household. “Your money is myfamily have been fulfilled in Vietnam, where the size of money, and my money is my money” is the humorouseach household has shrunk, fewer members of each catchphrase frequently used to express an assertivehome are children – and significantly more of them are attitude, combining traditional authority on shoppingactive wage earners. The Vietnamese still place great and spending with a role as wage earners.emphasis on family values, however the influence ofparents on the attitudes of emerging generations is As household income increases, so too donoticeably reduced when compared to Myanmar and opportunities to use that wealth for personalCambodia. satisfaction, entertainment and leisure. Whereas consumers in Cambodia and Myanmar spend mostThe influence of religion is also felt far less, with only of their spare time sleeping or resting, those in40 per cent of the country registered as Buddhists Vietnam are exploring a range of options for leisureand half classed as non-denominational, a legacy of activities. Shopping in Vietnam is seen as a socialthe country’s communist heritage. Vietnamese also activity not just a necessity, eating out and socialisingshow a greatly reduced tendency to idolise the living has overtaken education when it comes to householdwhen compared to Cambodia and Myanmar, where expenditure and the Vietnamese are far more likelycurrent politicians dominate lists of “most admired” than consumers in Cambodia and Myanmar to spendpeople. Many Vietnamese have no particular person their leisure time with non-family members. Share this Gems 15
  • Joining the future for the MekongIn this increasingly social environment, word-of-mouthis an important channel for sharing information andbuilding awareness – and the role of online channelsin promoting such word-of-mouth is increasinglyestablished. Although TV still dominates Vietnamesemedia consumption overall, online is booming,with 53 per cent of the urban population usingthe internet at least four times a week and socialnetworks particularly popular. Mobile phones, nowalmost ever-present amongst Vietnamese, have anincreasing role to play.Although it represents a smaller proportion ofhousehold expenditure, education remains a priorityin Vietnam, with intense competition for limitedplaces in universities and well-regarded internationalschools. Education remains the key to unlockingimproved prospects and greater earnings potential,and as Vietnam feels the impact of the globaldownturn and consumer confidence slackens,improving prospects is seen as more important thanever. Getting ahead remains a driving force even asthe country itself moves forward. Share this Gems 16
  • Vietnam: Nguyen’s storyHer name means “beautiful flower from the highlands”. And this ends meet. The degree that she graduated with from Da Latyear, Quynh Nguyen decided she should make sure she was living university helped to give her the skills she needed to become anup to it. accountant when she moved to the big city, once she took some additional courses in accountancy and computing. Her mum, aIt’s not that she worries about the affections of her husband Huy. primary school teacher all her life, approved: “It’s a stable job forHe is still the same devoted father that he has been since their son a woman,” she said. “And you will have time to take care of yourPiggy (named for the auspicious year of his birth) arrived two years husband and the kids.”ago. Huy feeds him, bathes him and takes him to bed. He also helpsNguyen with many of the household chores but draws the line at In fact, Nguyen’s time at home is quite limited. She works six dayscooking. Some things remain a woman’s work. a week, from Monday to Saturday, 8pm to 5pm with overtime at the end of the month to secure her salary of US$200. Like manyNguyen wants to make sure that she remains the priority in her couples, she and Huy need two incomes to pay the bills. Theyhusband’s life. She began by curling her hair, polishing her nails; waited until they were both 26 years old to get married, anxious toshe even bought some expensive Clinique make-up and filled her achieve some financial security first; even so, their wedding, withwardrobe with colourful, sexy dresses. She feels she is becoming a two parties in Da Lat and one in Ho Chi Minh City, cost 80 percentnew woman – and it certainly seems to make Huy happy. of their annual income.Such ideas never occurred to her when she was single, and living When Piggy was first born, Nguyen did not know how to takein her hometown of Da Lat, a small mountainous city in Vietnam’s care of him. For advice she turned to glossy magazines that tell hersouth central highlands. But then, when Nguyen was growing up how yoghurt is good for digestion and sun block is essential forshe had no access to magazines to tell her about the fashions she protecting his skin. She also relies on her mother and mother-in-law,wears today – and no leisure time to spend hanging out with friends who counsel her to bathe Piggy in beer for a beautiful complexionand showing off her new look. A lot has changed in Vietnam in the and hair, fit a silver ankle bracelet to protect him from cold weather,last decade, and not just for Nguyen. and keep a knife under the pillow to ward off evil spirits. Nguyen would like to have a girl baby next. She believes thatShe was born in the late 1970’s after almost two decades of daughters stay close to their mums, just as she has. But on onecontinuous war that had made Vietnam one of the poorest matter she is very different to her mother. She wants no more thancountries in the world. She grew up in an era of economic two kids. The prospect of having three children like her mother ordepression, walking several miles to school through the fields seven like her grandmother is something she can’t imagine. Sheof flowers that Da LatShare thishelping her mum with the is famous for, jokes about how much Clinique she would need to get her look Gemshousework and sewing to earn money and help the family make back then. 17
  • Joining the future for the MekongMapping brand opportunities goods or personal care products will be different in those selling laptops and PCs is very different in allAcross these very different territories, each at different Cambodia, where consumer choices in such areas are three countries as a result of varying levels of internetstages of market development, a broad arc of often used to express status, than in Myanmar, where access, and the increased penetration of mobile phonesopportunities exists for brands. Marketers can choose to product quality and reliability are key. The strategy for in Vietnam, Laos and Cambodia.target wealthier, freer-spending consumers in Vietnamusing both TV and well-established online and mobileplatforms; they can engage the youthful populationof Myanmar, meeting the challenges of limitedinfrastructure to build loyalty amongst families thatvalue the guarantee of quality that brands bring; theycan offer Cambodians a platform for expressing status,getting ahead and bridging the increasing wealth gapwithin the country for themselves and their children;and they can seek to link brand choices to consumers’yearning for individual advancement in Laos. However,to exploit any of these opportunities effectively,brands must carefully adapt their approach to the veryparticular characteristics of each country.A key element of such adaptation involvesunderstanding the relative development of differentsectors– and the preferences guiding consumer choicein those sectors. The strategy for high-end white-label Share this Gems 18
  • Joining the future for the MekongRoughly speaking the countries of the region occupy over more expensive purchases: Honda remains numberdifferent but closely overlapping positions in the 1 for motorcycles (and is seen as a local brand by many);consumer brand cycle, with the commodity view Sony battles it out with Dell amongst laptops and withdominant in Myanmar, brands used increasingly as a Samsung when it comes to LCT and plasma TVs; whilstreference in Laos and Cambodia, and brand choice Panasonic is growing rapidly to dominate the market forused to express personality in Cambodia and Vietnam. air conditioners.Marketers must be aware of consumers’ differentfeelings towards brands in general and foreign brands Each situation and sector therefore requires a differentin particular, which result in part from these different strategic approach: emphasising and demonstratingstages. In Myanmar, the role of brands is limited to the quality of brands in Myanmar; adopting the Khmerguaranteeing quality – and in categories such as language and local cultural references when targetingpersonal care or white goods, foreign brands are often rural Cambodia in particular; considering the adoptionperceived to offer greater quality than local equivalents. of local brands in Vietnam, or emphasising a brand’sIn Cambodia, the divide between rural and urban own deep links with the country. In each of these cases,environments expresses itself in markedly different views brand propositions must also be carefully tailored toof foreign brands, with rural consumers expressing a the very different levels of disposable income that exist.strong preference for buying local (potentially due to Product strategies can be laddered to appeal to differentthe language barriers that exist) and urban populations income levels; high-end brands should be carefully andfar more motivated to associate themselves with global efficiently targeted at those able to afford them but alsostatus symbols. In Vietnam, where increased product at those open to expressing status through consumerquality and reliability across the board is rendering goods; and ensuring affordability through smallerbrands’ hygiene role more redundant, a preference package sizes and other strategies is an essential forfor buying Vietnamese where possible appears to be those targeting the upper reaches of the BoP across thedeveloping. However, this preference shows little sign Mekong region.of eroding the dominance of established foreign brands Share this Gems 19
  • Joining the future for the MekongWithin the FMCG category that dominates of their products to a target audience. They mustconsumer spending and the personal care sector do so within a distribution environment thatthat represents a potential growing slice of it, global remains dominated by traditional markets. Shoppersbrands must prove their quality to consumers’ in Myanmar and Cambodia visit such marketssatisfaction before leveraging a brand to guarantee frequently, buying products in small, affordableit. Price promotions and mass-reach TV advertising package sizes and topping up supplies as requiredoffer the most effective strategies for driving product rather than conducting large-scale weekly shops.trial, but this must be supported by products that The market is a social setting not merely a shoppinghave been developed to appeal to well-defined exercise. It represents a valued opportunity tolocal preferences. The dominant share of Myanmar converse and catch up and this ensures that it retainshousehold spending that is commanded by MSG its influence as a distribution channel when personalflavouring, dried noodles and rice soups is evidence or national wealth increases. The highest earnersof strongly established tastes that cannot easily be in Myanmar are more likely to send an employeeshifted; as is the popularity of traditional beauty to the market than they are to visit a supermarketcare products like Thanaka, and coconut-oil based themselves; in Vietnam, shoppers still congregatepersonal care remedies. in traditional retail spaces – and across all countries, western-style malls often appear to be used moreTraditional rules on distribution as a social gathering space than as a shoppingCarefully engineered, affordable propositions are of environment. The market rules – and brands ignorelimited value if brands cannot ensure the accessibility this regional truth at their peril. Share this Gems 20
  • Joining the future for the MekongMass-reach and targeted media that future is here already – and online and mobile strategies, potentially leveraging the popularity ofMedia strategies looking to drive large-scale can start to form important elements of marketing social media in the country.awareness cannot ignore the dominant role playedby TV, with sets permanently switched on at home,in shops and in markets. However, gaps in electricitysupply mean that near-universal TV ownership doesnot always translate into universal TV coverage,particularly in rural areas. Outdoor media have anobvious role to play in filling such gaps, and as aresult posters fight for room and attention whereverany form of outdoor advertising space is available.In Myanmar and Cambodia, limitations ofinfrastructure and reduced mobile penetrationrestrict the potential of online as a tool for drivinglarge-scale awareness. However, the availabilityof smartphones, tablets and laptops amongstincreasing numbers of urbanites in Cambodia(and likely rapid growth in mobile penetration inMyanmar), offers the possibility of targeting luxurybrand messaging at these audiences. At the sametime, substantial interest in owning laptops andsmartphones points to an increasing role for onlinechannels in the near future. In Vietnam of course, Share this Gems 21
  • Joining the future for the MekongJudging tone companies that can offer educational support in theThe tone of a brand’s approach in each market can form of free or discounted resources will find a readybe equally as important as the fundamentals of what audience for such schemes; as will those that canit offers. In Myanmar, the strength of traditional promise increased powers of concentration amongstBuddhism and rejection of conspicuous consumption students. The growth achieved by energy drink brandsmean that brand campaigns emphasising individual across the region may owe much to the promise ofassertiveness are likely to prove counter-productive; in increasing educational performance in this way.Cambodia by contrast, they have far greater likelihoodof success. Price promotions are likely to be the most Aligning brands with the futureeffective strategy for driving trial in any market; Great opportunity exists in the Lower Mekong Basinhowever discounting strategies should vary with local wherever brands can align their business mechanicscultural nuances: from simple affordability in Myanmar and proposition with local hopes. The aspirationsto affording the best in Cambodia, to furthering one’s they align themselves with may be simple ones:ambitions in Laos; and exercising prudent, practical supporting a family, ensuring a better future for one’sfrugality in Vietnam. children, helping to earn the all-important respect of a community. However, they are no less powerful for that.The theme that resonates most powerfully across the With the vast majority of the 77 million plus populationregion is education. No matter what their current under the age of 30, brands that can leverage theeconomic situation, Burmese, Vietnamese, Laotians media and distribution channels available to buildand Cambodians accept that learning is the key to loyalty are likely to be rewarded by strong growth inimproving or securing it, whether that education is the region’s rapidly approaching future.focused on themselves or their children. Brands and Share this Gems 22
  • Finding LeaderOpinionfaster growth: New marketsChina and the Chinese – going beyond Kung Fu and noodles - Subhashish Dasgupta Share this Gems 23
  • China and the Chinese – going beyond Kung Fu and noodlesDo a quick poll about China around the dinner table or the officecanteen and you will soon discover two things. First, everybodyknows something about China. Second, the things that everybodyknows about China are largely restricted to dining (sweet and sour,noodles), films (Kung Fu, Jackie Chan) and the fact that China is aunique example of an economic superpower driven by a communistpolitical ideology. Share this Gems 24
  • China and the Chinese – going beyond Kung Fu and noodlesIncreasingly China is also the place where everything in of the world’s largest luxury market. Even in the area ofthe world is made and whether you look at the label of technology devices, China’s mobile phone penetrationyour shirt or behind the battery in your smartphone, it’s is almost 100 percent, with close to 40 percent ofvery likely that this is exactly what you will find. consumers owning a smartphone. This in itself is fundamentally changing how consumers in ChinaAll of these influences are very real in helping to paint are engaging with brands, especially at the point ofa picture of China in 2013 – but equally, they produce purchase.as incomplete a view of this defining country as thatcreated by Nordic countries being famous only fortheir Viking ancestors or India being a land of snakecharmers, call centres and IT programmers.Consumer habits both in China itself and the diasporaChinese markets are rapidly developing, oftenpresenting a contrasting picture in terms of attitudesand priorities. This is prompting brands to take a distinctand individualised approach, and most importantly lookbeyond established Chinese stereotypes.In 2009, China supplanted the U.S. as the world’slargest automotive market. More recently, at the endof 2012, a report from Bain & Company revealed thata sustained boom in demand for high-end goodsacross China has elevated the country to the position Share this Gems 25
  • China and the Chinese – going beyond Kung Fu and noodlesThe implication of these trends is quite clear for all informing decisions about significant investments - inindustries. It is a myth that China, or in fact the region the automotive market, this promises to be a strongwith a significant Chinese population - Indonesia, growth year with many people across the regionMalaysia, Singapore or Hong Kong - is in any way planning to buy a new car. Buying a new house is‘emerging’. The opportunity in these markets has very also part of the plan for a quarter of those surveyed,clearly emerged; it is here and it is now. This does not while over a third are making plans to travel to a newimply, however, that a ‘one size fits all’ approach to country. At the same time, this optimism is tempered byconsumer engagement can be deployed effectively concern over the global economic outlook, its impactacross all these markets. A recent study by TNS provided on people’s own finances and the need for the countrya clear indication of the immense breadth of contrasting to deal with budget constraints.attitudes and moods among Chinese people in theregion, as the Chinese New Year approached. The The study reveals that the economic outlook isfindings, available at www.tnscny.com, show varying only one of seven areas where Chinese people aredegrees of optimism about China’s place in the world; seemingly pulled in opposite directions. There are majorconflicting opinions on issues from family to finances; contradictions which are in themselves an acceptedand a gulf in attitudes towards culture, history and reality of life in Asia – a region with polar opposites ofheritage. These contrasts paint a fascinating and crucial an ageing population which is also growing younger,picture of the very different approaches brands need to extreme poverty alongside huge affluence, andtake to demonstrate real understanding of ‘the Chinese modernising infrastructure co-existing with age-oldconsumer’ across the region. customs.The findings revealed a strong mood of positivity andconfidence, with three quarters of people feelingupbeat about the year ahead. This optimism is Share this Gems 26
  • outlookgoing beyond Kung Fu andof the Snake?China and the Chinese – of the year noodles Excellent/Very goodReflecting a mixed mood of cautious optimism, ourresearch found that youngsters today are keen to put 42% together as a family under the same roof, centered on the Reunion Dinner. While the increasing penetrationthe money they receive as ‘Ang Bao’ – traditional ‘Red of mobile phones and social networking has promptedPacket’ gifts at New Year – into bank saving accounts, some people to adopt these digital channels as a meanstaking a very different approach to the custom of to convey their virtual wishes, for the majority thepurchasing treats with these funds. This provides banks tradition of face-to-face greeting, even for the youngerwith a very real opportunity to tap into cash exchanging generation, remains very much intact. The pre-New Yearhands, through youth-oriented saving and interest customs of cleaning and decorating the house, buyingschemes. On the other hand, adults are showing a new clothes, having your fortunes read or getting a hair- Fair/Poorgreater inclination to live in the moment, intending cut continue to prevail among the Chinese, regardlessto spend the gift money they receive on restaurants, of age, gender or country. 27%clothes and travel. Aside from gifting Red Packets filledwith cash, bestowing presents on friends and family, is The Chinese consumer – with a burgeoning sensenow also popular at New Year. Electronic goods feature of optimism and desire to build a strong future,at the top of the gift list, especially in China and Taiwan, underpinned by the juxtaposition of traditional familywhile in Hong Kong, Malaysia and Singapore food gifts values and the benefits of technology and progressare more desirable. Brands need to understand these - presents opportunities to marketers across a rangeindividual preferences to take a slice of the lucrative of categories. And by tapping into these underlyingNew Year gifting market. attitudes of the Chinese consumer, brands will be able to develop marketing strategies that enable them toDespite a number of new trends emerging, there is realise these new opportunities. While these strategiesstill a palpable sense among Chinese consumers of the will be dependent on individual objectives, brands canneed to maintain traditional customs. In the case of learn a great deal from companies which are alreadyChinese New Year, it is still very much a time of coming successfully riding the trends in the Chinese market. Share this Gems 27
  • China and the Chinese – going beyond Kung Fu and noodles What do you do oFocus on new customer acquisition: For brands How do you plan to spend your social media when buying a car for the first time. integrating their approach with the surging uptake inlooking to convert new customers, China’s tech-orientated youngsters are a good place to start. Desire red packet money? Manufacturers need to understand how to mobilise customers and fans to become brand ambassadors, new technologies by providing customer support and practical advice for new drivers via social media.for new gadgets, coupled with a desire to invest moneyinto savings, has generated strong growth for mobilecommerce in China, with young people showing thegreatest usage of mobile banking and propensity to Checklist:adopt the service. Mobile banking strategies targeting Eat sweet dthe smartphone-savvy young consumer group in China Buy something nice for myselfare most likely to succeed and also generate positive Watch TVword of mouth. Banks in China need to ensure that Deposit it into a bankmobile and face-to-face touchpoints deliver a consistent Send giftsexperience. Invest it loved ones Travel - Internationally Attend lanAttract brand ambassadors: As mentioned, the exhibitsautomotive sector continues to witness rapid growthand evolution, and China’s economic optimism presents Donate it Spend qua with loveda significant growth opportunity for manufacturers,particularly with so many people planning a new car Spend it on food and beverages bazaa Visit night markpurchase in the year ahead. However, as a vast anddisparate market, there are very different influences in Eat at a nice restaurant Eat at a nic restaurantthe car-buyer’s path to purchase. In a market wherefamily remains so influential, there is a heavy reliance Buy clothes and accessorieson the advice of friends and relatives, as well as on Share this Gems 28
  • China and the Chinese – going beyond Kung Fu and noodlesAdopt new GTM approaches: In a sharp contrast it in the marketplace. They are happy to do three to parts of the world. The flexibility has been instrumentalto more mature Western markets, brands need to four rounds of commercialisation to get an idea right.” to making GM the top-selling foreign automaker inunderstand that quick action is critical. The average car This innovative approach to innovation itself is one that China, despite entering the market later than otherpurchase period in China is far shorter than previously works in China, in a way that would fail in many other global players.thought, with 40 percent of consumers deciding ona make and model within one month. Manufacturerscannot afford to wait, and need to engage quicklywith a compelling brand story. Getting a good deal isextremely important to Chinese buyers but at the sametime, manufacturers must ensure promotions don’tundermine the brand image; in the region, droppingprices aggressively can be negatively interpreted. Thespeed of decision-making, rules governing discountsand the great influence of online media create marketdynamics in China unlike any in Europe or the US.General Motors is investing heavily in this area byadopting China’s ‘commercialisation model’, whichquickly brings new products to the market. GMPresident Kevin Wale said in a recent interview: “WhatChina does better than anyplace else in the worldis to innovate by commercialisation, as opposed toconstantly researching and perfecting the theory, likein the West. When the Chinese get an idea, they test Share this Gems 29
  • China and the Chinese – going beyond Kung Fu and noodlesTell a compelling story: Mobile phone manufacturer if not impossible without a brand being comfortable China may be the nation of noodles and Kung Fu,Motorola broke with the norm of using traditional existing and thriving in this contradiction. There is still but it is at the same time a nation only just realisingmedia in 2011 and developed a successful viral video much to know and learn about China and the Chinese the potential that can be brought to bear through itscampaign to raise consumer awareness and interest in population, continuously challenging every marketer to booming infrastructure, fast-growth car market, mobilethe highly durable Motorola Defy. The viral video, which look beyond the stereotype. Marketing successfully to phone-domination and deep desire for luxury. Complexshowed a man being spun around in an industrial the Chinese population requires an acute understanding the market may be; but brands who fail to navigate itwashing machine with his phone, which emerges from of the region’s key drivers and motivations. will miss a truly unmatched opportunity.the wash still working, debuted at the same time as theproduct launch and registered close to 1.5 million viewson YouKu. This interest ballooned further when peopleperformed their own ‘tests’ on the durability of theDefy, including boiling the phone. Consumer-generatedcontent at its best!Success in China, among Chinese consumers, is nota matter of taking a global product or marketingstrategy and modifying it. As revealed by the findingsaround Chinese New Year, this is a region and an ethnicgroup which, in a continuous state of progressiveevolution, co-exists with deep customs and traitsgrounded in centuries of tradition. Success is unlikely Share this Gems 30
  • Connected worldOpinion LeaderMaking the small screen part of the big picture: Understanding how South Africaninternet and mobile phone users interact with brands online - Kambe Mwaba Share this Gems 31
  • Making the small screen part of the big picture:In spite of having increased Internet accessthrough mobile phones (particularly smartphones) and being highly engaged withonline activities such as social media,South African Internet and mobile phoneusers are not interacting with brands onlineto the extent seen globally. Share this Gems 32
  • Making the small screen part of the big picture:In Sub-Saharan Africa, the mobile phone screen has Internet access and usage in South Africa vs. Globallybecome more viewed than the television screen orPC screen; and more people have access to a mobilephone than to clean drinking water. In the last threeyears, the mobile phone has emerged as the primarymeans to access the Internet on the continent mainlydue to cheaper and faster Internet access, moreadvanced and affordable smart phones and generallack of access to laptops or PCs.With the mobile Internet powering uptake ofapplications and social media in South Africa,brands have more ways than ever to reach andinteract with their consumers. However, while SouthAfrican Internet users are highly engaged with eachother online, interaction with brands is still limited, Internet Internet access Internet access Social mediawith one of the lowest incidences in the world of penetration via PC / Laptop via mobile engagementconsumers who comment about brands online andalmost two-thirds saying that they do not want toengage with brands via social media. South Africa Global average South Africa Global average Share this Gems 33
  • Making the small screen part of the big picture: Mobile phone ownership and OS market share in South Africa (%)Mobile phone ownership and OS market share in South Africa (%) 10 48 8 60 3 19 3 2 33 13 Basic feature phones BlackBerry(OS) Windows Phone 7 or higher Windows Mobile 6 Basic feature phones Blackberry (OS) Windows phone 7 or higher Windows phone 7 or lower Advanced feature phones Smartphones iOS(Apple) Android Symbian Symbian Others Advanced feature phones Smartphones ISO (Apple) Android Others Share this Gems 34 Source: TNS Mobile Lif e 2012 South Af rica Report (Note: Excludes ‘Don’t Know’ responses)
  • Making the small screen part of the big picture: To benefit from a To seek for promotions To follow my friends promotion / special offer or special offers who are already fans To get more information To support a brand I enjoy To connect with a brand I like To use specific apps about a brand promoted by the brandWhy the resistance? Reasons for potential brand befriending online (South Africa Vs. Globally)There are several technological barriers that hindermobile Internet usage and online engagement overallin South Africa. Data costs in South Africa are relativelyhigh, and many people accessing the internet throughtheir handsets have limited air time, and so wouldrather use it for actual conversations. Added to this,internet speeds are still slow, and the two-second ruleapplies, where internet users lose interest if the contentis not downloaded within seconds. In addition, there area multitude of handsets and operating systems, whichmeans that many users are open sites that do not fittheir screens or are difficult to navigate.From the side of internet users, many do not knowwhat it actually means to interact with brands online To get more information To support a brand I enjoy To connect with a brand I like To use specific appsand are highly resistant to the idea, as they assume about a brand promoted by the brandthat it just means that companies will try to “spam or To benefit from a To seek for promotions To follow my friends promotion / special offer or special offers who are already fansscam” them. The majority of people can’t fathom whythey would let brands into their personal online space,particularly social network websites, e-mail or instantmessaging applications. One respondent in the research South Africa Global averagementioned that “it would be like talking on the phoneto your mother and suddenly an advert pops up in theconversation trying to sell cheap flights.” Share this Gems 35
  • Making the small screen part of the big picture:Another challenge is that brands make incorrect one another. Smartphone owners in South Africa interesting updates, etc). When you understand yourassumptions about why consumers choose to are usually in a higher income bracket, younger target market and their needs you may realise that aengage with them. According to the 2011 TNS (65% are under 30 years) and more tech-savvy than particular channel, such as social networks, may notDigital Life Survey, the main reasons why people feature phones users, and therefore tend to be more always be the right approach and that an alternativejoin brand communities on social networks are self- open to brand engagement through the mobile online method may be a more appropriate way toserving (e.g. to get a freebie or enter a competition) Internet. Brands need to determine which of these interact with consumers that will actually achieveor functional (e.g. to receive customer service or markets they are targeting and adapt their mobile business results.more information), and less likely to show their platform accordingly.support or loyalty for brands. Also important to note is that mobile Internet isWhat can brands do? often used when ‘on the go’, which is quite aPossible strategies to increase engagement online different experience to using a PC or laptop at aare as follows: desk. Considering the context when designing for mobile is crucial to ensure that mobi sites are easyThink mobile for digital strategies and quick to navigate and quickly provide the basicGiven that the majority of Internet users are information such as product prices, shop addressaccessing via mobile, it important to ensure a good and contact numbers.user experience – whether the site is accessed viamobile browser, or app. While smartphones are on Know thy consumerthe rise, it is important to remember that the vast Many brands are in a hurry to be online withoutmajority of South Africans still own basic feature giving thought to who they want to talk to andphones. Given the high income inequality in South why. The key for brands, however, is to understandAfrica, the country has the characteristics of both a their target audience and what their consumersdeveloped and emerging market sitting alongside want from the brand (e.g. win something, receive Share this Gems 36
  • Making the small screen part of the big picture:Tell them HOW, tell them WHY involve responding quickly to queries, addressing attitudinal challenges for brands to overcome inGiven that many are not aware of or do not see the criticism graciously, showing you care about and order to fully engage with their consumers online,point of engaging with brands online, it is therefore understand your consumers, and having a sense effective online engagement presents a powerfulessential for brands to tell consumers how and of humour. If users don’t feel like they are getting opportunity for brands to influence the attitudeswhy they need to engage with them. This includes any value from the relationship, they may just end and behaviour of their consumers, build loyalty,telling consumers where they can engage with the it. While there are significant technological and drive purchase and ultimately grow their brands.brand online (e.g. Facebook or Twitter) and creatingthis awareness through traditional offline channels(such as television or radio) given that many peoplein South Africa are still highly influenced by them.Brands then need to also give consumers convincingreasons or incentives to interact with the brand intheir communication, which take into account theneeds of their target market (e.g. to find out aboutpromotions or specials) and are based on the brand’sobjectives (e.g. to boost sales, increase awareness,build stronger relationships and loyalty, create anonline community, etc).Actually engage with consumersMany brands make the mistake of setting up anonline brand community and leaving it at that.However it is just not about gathering numbers, butactually engaging with your consumers. This could Share this Gems 37
  • Making the small screen part of the big picture: “Brands in South Africa that are making the small According to Farren Roper, Head of FNBscreen part of the big picture Connect ISP and Business Operations,First National Bank (FNB) offers first mobile “The FNB App created demand for Apps in Bankingbanking application with most of our competitors having launched theirFNB (First National Bank) was the first bank in own versions of an App, confirming the need forSouth Africa to offer mobile banking through mobile App technology in the banking industry”.an application for smartphone or tablet devices.The FNB Banking app was launched in July 2011and includes numerous features such as allowingcustomers to make payments, transfer funds, viewaccount balances and more. It is available for freedownload for the major mobile operating systemsnamely iOS (Apple), Blackberry and Android. Thereare currently over 250,000 active clients using thebanking app with 40,000 new users every month.In February 2012 (six months after launch), FNB hadseen over R2 billion in transactions go through theapplication. Share this Gems 38
  • Making the small screen part of the big picture:Soccer Laduma top mobile site in South AfricaSoccer Laduma is the biggest sports publication inSouth Africa. It began as a print publication in 1997,but has now spread to web and mobile and hasfull social media integration across Facebook and Soccer Ladum online user base Twitter. The publication has experienced phenomenal online user base is from mobile. Much of the brand’s growth of their mobile and social media platform, success stems from their ability to remain relevant to Mobile sitesite Mobile Website with statistics from February 2012 showing that they their target market (who are mainly lower income) Source: Website Digital 2012 Prezence hold the position as the third largest mobile site in and ensure that their mobile site is functionally on South Africa - about three quarters of their 400,000 par with its web counterpart. Share this Gems 39
  • Finding LeaderOpinionfaster growth: New products & servicesIs the reverse flow of innovation coming full circle? - Sam Curtis Share this Gems 40
  • Is the reverse flow of innovation coming full circle?As so-called ‘emerging markets’take the lead in innovation,what are the implications forthe global economy? Share this Gems 41
  • Is the reverse flow of innovation coming full circle?The idea of ‘reverse flow of innovation’ is not new -and is well documented in Dr. Vijay Govindarajan andChris Trimble’s book, “Reverse Innovation”. Howeverit is contrary to the popular and traditional belief thatinnovation happens in developed markets and is thenadopted or adapted by emerging markets. We refer to‘reverse flow’, when innovation originates in emergingmarkets and has a strong and often disruptive impacton developed markets, and there are three factorsat play when considering the potential for reverseinnovation to impact on business:„„The reverse flow actually has a long history and has resulted in genuine disruption in several powerhouse industries„„We are now at a critical juncture where the reverse flow is gaining momentum and is set to explode„„This has fundamental implications for the global economy and how international businesses structure themselves and where they invest Share this Gems 42
  • Is the reverse flow of innovation coming full circle?Disruption of micropayments first emerged in Asia. NetbooksThe highest profile historical example of the emerged from Taiwan, originally intended to sellreverse flow comes from Japan as it rebuilt itself cheaply in emerging markets but became a successfrom the catastrophic effects of war. Innovation due to trends in portability and cloud services inin car production meant that by the 1980s, Japan developed markets.had replaced the US as the world’s largest carmanufacturer, with cars which were cheaper and more Western multinationals have been taking advantagereliable than anything the US could produce. Japan, of too. GE sells Indian and Chinese made medical devicescourse, ceased to be an emerging market even before in Western markets. France’s Danone started a jointthis term was coined. In the 1980s and 90s, South venture in Bangladesh with Grameen Bank, whereKorean companies like Hyundai, Samsung and LG it agreed to build local microplants that producedstarted selling their own brands globally, often being one-hundredth of the amount of yogurt of a standardfirst to market with innovative products - rather than Danone facility, in part due to the lack of refrigeratedjust the cheapest products. storage, but just as cheaply as the larger plants.More recent history is littered with examples of Growth in the global economy - and in Westerndisruptive innovation. Huawei is now one of the multinationals - is becoming increasingly reliantworld’s largest patent applicants. Mobile finance has on the breakthrough innovations coming out ofexploded out of the M-Pesa service in Kenya and the these economies, and this trend will only magnifyindustry is set for strong growth globally. The concept in the future. In the 1980s, Japan had replaced the US as the world’s largest car manufacturer. Share this Gems 43
  • Is the reverse flow of innovation coming full circle?The tipping pointI have no doubt that we are now at a tipping pointthat will lead to the exponential increase in thereverse flow of innovations. This is being driven bymany factors, including:Size (and growth) matters 31% increase in foreign direct investment in India, toDoes it seem right to classify the second, sixth andtenth largest economies in the world as emerging? The 27.5bneconomies of China, Brazil and India have emerged!The size of these economies encourages investmentin all areas, including innovation. This includes capitalinvestment from the state into growth industries andinfrastructure, as well as increased foreign investment. US Dollars,Foreign Direct Investment in India in the 2011-12 fiscalyear was $47bn, up from $35bn in 2010-11, despiteuncertainties in the global economy and local politicalinstabilities. in 2012 despite uncertainties in the global economy. Share this Gems 44
  • Is the reverse flow of innovation coming full circle?The talent gap is closingAccording to the OECD, China is second only to theUS in absolute numbers of population with a tertiaryeducation, with Brazil in 7th place and Mexico at 11th.The potential for what education can achieve as adriver of innovation in these markets is mindboggling.There are also a rapidly increasing number of studentsfrom these markets studying abroad, many of whomcome back home equipped with the best of Westerneducation and an understanding of local needs. Digital lowers the cost of entry Digital opens the door for innovators to emerge from the best exponents of this with 5,000 active start-ups anywhere. They do not need enormous investment at the start of 2012 – with a small local economy, these to develop their ideas into products. Digital has no companies think global from the off. Sitting in Silicon geographic boundaries so the potential for start-ups to Valley is no longer a pre-requisite for an internet-based gain rapid scale across markets is huge. Israel is one of company to be successful. Share this Gems 45
  • Is the reverse flow of innovation coming full circle?Frugal innovationCompanies in the developed world are accustomedto developing premium new and innovative productswhich are often packed with the latest technology, themost advanced features and targeted at the upper endof the market. Companies in emerging markets, onthe other hand, are trying to make products affordableto a wider target, and focus on how they can offera no-frills, functional and efficient product whichcan break through the price barrier. Tata Nano fromIndia is an obvious example. The need for such frugalinnovation is most pronounced for companies in theemerging markets as they need to expand their userbase to grow their bottom lines. Expectedly, therefore,these markets will lead this important area of frugalinnovation. In developed markets, high unemploymentand decreasing incomes may drive consumers to more’value for money’ products. The no-frills, functional and efficient Tata Nano, from India Share this Gems 46
  • Is the reverse flow of innovation coming full circle?Implications Thirdly, established companies in markets such as the 410bnThe implications of these changes are vast and UK offer emerging market multinationals, and stateprofound but I would like to touch briefly on what investment arms, something very attractive – accessit means for the companies I am working with to affluent consumers and new markets. The Chinain London. Investment Corporation was established in 2007 to manage China’s foreign currency reserves and their China’s foreign currency reserves and their assetsThe first implication is one of structure. If London- assets have grown to $410 billion by 2011. These have grown to $410 billion at the end of 2011.based companies want to tap into the innovations entities are using these funds to acquire companiescoming out of emerging markets, then the best way and their technologies in developed markets – as was 10%to do this is to actually be there. Many large multi- seen in the case of China Investment Corporationnationals now have innovation hubs based in these acquiring 10% of Heathrow Airport Holdings inmarkets - Fortune 500 companies have well over November 2012. Companies in developed markets100 R&D centres in China alone. are now exposed to increased competitive pressure of Heathrow Airport Holdings was recently acquired (both from increase competition for consumer spend by the China Investment Corporation.The second implication relates to investment. M&A and a threat of acquisition).functions of multi-national companies need to havetheir eyes trained on start-ups in emerging markets. The process of reverse innovation is gaining pace.With Instagram costing Facebook $1bn, surely there It may not be that long before the reverse flow is theis better value to be had within emerging markets? established flow and we will witness the majority of theM&A functions can take greater risk, based on lower innovations originating from the emerging markets.capital investment. Share this Gems 47
  • About the authors Her passion for the growth of mobile internet and Ralf is a certified Market Research trainer as well as a BoardChinese New Year - Subhashish Dasgupta applications in emerging markets resulted in two awards in Member of CanCham and the ESOMAR representative forSubhashish Dasgupta is the Automotive Director for TNS 2012 at the Southern African Marketing Research Association Vietnam. He holds a double honours degree from WilfredSouth East Asia and responsible for multi-country automotive (SAMRA) conference for her research paper “Making the Laurier University in Canada.projects in the Asia Pacific region. small screen part of the big picture: Understanding how South African internet and mobile phone users interact with About TNSSubhashish’s career in market research and marketing spans brands online”. TNS advises clients on specific growth strategies around newmore than 13 years in both Asia and Europe. During 2008- market entry, innovation, brand switching and stakeholder2009, he was working in the Stakeholder Management Is the reverse flow of innovation coming full circle? - management, based on long-established expertise andpractice at TNS Infratest in Germany consulting clients Sam Curtis market-leading solutions. With a presence in over 80across multiple sectors. Prior to this position, he headed the Sam Curtis has worked for TNS for six years and is currently a countries, TNS has more conversations with the world’sTNS Automotive practice for India, leading teams across Global Director in the Retail & Shopper practice. consumers than anyone else and understands individualprojects focused on product planning, branding and dealer human behaviours and attitudes across every cultural,development. Sam has worked on global projects throughout his economic and political region of the world. career, especially in the areas of mobile, digital and brandSubhashish has two post graduate degrees with an MBA positioning, which has involved extensive experience TNS is part of Kantar, one of the world’s largest insight,specialising in Marketing and Marketing Communication. researching consumers in developing economies. information and consultancy groups. Please visit www.tnsglobal.com for more information.Making the small screen part of the big picture: Joining the future for the Mekong - Ralf MatthaesUnderstanding how South African internet and mobile phone Ralf Matthaes is Regional Managing Director at TNS, based Get in touchusers interact with brands online - Kambe Mwaba in Vietnam, Cambodia, Myanmar, Laos. Ralf has been with If you would like to talk to us about anything you have readKambe Mwaba is Research Executive at TNS in South Africa. TNS for 18 years during which time he has established TNS in this report, please get in touch viaShe joined in 2010 after completing her degree in Business Vietnam in 1996, has opened offices in Cambodia and is in enquiries@tnsglobal.com or via Twitter @tns_globalScience Marketing at the University of Cape Town. She works the midst of establishing the Myanmar operations. Prior toon the South African Breweries (SAB) client team and is coming to Vietnam in 1994, Ralf served as a policy analystmainly involved in quantitative adhoc studies. for the Provincial Minister of Finance for Ontario, Canada. Share this Gems 48
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