Gems - Insights from emerging markets. April 2013


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Gems - Insights from emerging markets. April 2013

  1. 1. April 2013GemsInsights from emerging markets
  2. 2. Gems2Share thisContents1Introduction 32Joining the future for the Mekong 43China and the Chinese - going beyond Kung Fu and noodles 235Is the reverse flow of innovation coming full circle? 394Making the small screen part of the big picture 312
  3. 3. Gems3Share thisChris RiquierCEO, Asia PacificIntroductionOne of the most exciting things about livingand working in the ‘emerging markets’ isthe rapid pace of change and the wealthof new opportunities. This is perhaps bestexemplified by Myanmar, which really is thenewest emerging market.Since sanctions lifted last year, we have been working withclients to help them to understand the values, attitudes andaspirations of people in Myanmar. We were delighted to receiveour formal licence to operate in March and have opened afull service office in Yangon. You can learn more about theopportunity in Myanmar and across the new Mekong sub-region - which includes Cambodia, Laos and Vietnam – in thisedition.We kicked off the year with our Chinese New Year study –building an understanding of how people in China, HongKong, Singapore, Taiwan and Malaysia celebrate new year.The holidays are far behind us, but some of the insights intoattitudes are of interest beyond this.The impact of mobile in sub-Saharan Africa has been massive,however people are not actively engaging with brands viamobile, particularly in South Africa. We examine some of thebarriers and potential solutions that companies can consider toincrease their effectiveness in this area.Finally, we share a perspective on reverse innovation – andthe lessons that ‘mature markets’ can learn from emergingeconomies.We’ve been at ESOMAR in Ho Chi Minh this month, talkingabout some of the opportunities in Myanmar and also discussingthe importance of cultural precision when building a marketingstrategy. If you’d like to see a copy of our papers, or discuss anyof the issues in this edition, please do get in touch.Kind regards,Chris Riquier,CEO, Asia Pacific3
  4. 4. Gems4Share thisJoining the future for the Mekong - Ralf MatthaesOpinion LeaderFinding faster growth: New markets
  5. 5. Gems5Share thisThe 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.Joining the future for the Mekong
  6. 6. Gems6Share thisAt 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 onefor global brands. However, with the rate of growthslowing and the Thai economy feeling the effects of theglobal recession through its impact on the tourist trade,those brands must increasingly look to the region’smore recently emerging markets for the strongestgrowth opportunities.In doing so, they will find that the strongest potentialfor growth lies in those countries where politicalJoining the future for the Mekongchange over the past 25 years has played a key rolein determining the course of economic development.And the strongest opportunity of all appears to lie withthe country where those changes are most recent, andperhaps most fragile.
  7. 7. Gems7Share thisPotential unleashed in MyanmarMyanmar’s movement towards democracy during thepast three years has resulted in the easing of sanctionspreviously 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 largerand wealthier near-neighbour Vietnam and settingMyanmar apart from Cambodia and Laos, its fellowmembers of the CaLM group of countries, which areoften grouped together as Mekong territories in theearliest stages of economic emergence.Within this group, Myanmar enjoys some significantadvantages that help to explain its attractiveness forinvestors, and which the instability of recent yearshas not been able to undermine. With oil, gas andgemstones it is hugely rich in immediately exploitablenatural resources; a border shared with India and Chinaputs it adjacent to one third of the world’s populationas an ideal trading hub; and despite decades of under-investment and intentional disruption of education bythe government, Myanmar has a literate, well-educatedpopulation; 18 per cent of the urban population havesome grasp of English as a second language.Yet despite its natural resources and growth potential,Myanmar currently has the lowest income per capitaof its region, with huge disparities between rich andpoor; 32 per cent of its population live on or belowthe poverty line, grappling with significant gaps ininfrastructure whilst attempting to secure a betterfuture for themselves and their children. With morethan half of the population under the age of 30,Myanmar is likely to experience exploding demand forconsumer goods in the medium-term future; but fornow, very few of those young men and women enjoydisposable incomes, and many are potentially harder forbrands to engage than equivalent young consumers inother emerging markets.Joining the future for the Mekong32%of people live on or below the poverty line;18%of the urban population speak some English;1/2half of the population are under the age of 30.
  8. 8. Gems8Share thisThe mobile phone that has extended online accessand unleashed entrepreneurial energies acrossmany countries has not been able to wield suchinfluence 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 wealthiestconsumers, however prices have dropped to 200,000MMK (approx. U$ 235) for a GSM SIM card and thegovernment continues to move towards opening upthe market with invitations to foreign operators toparticipate expected to dramatically increase access. Inthe medium-term, it is likely that many of Myanmar’syoung consumers will adopt web-enabled smartphonesas their first handsets, but for now mobiles still remainout of the financial reach of many.The bulk of the country’s young population have littleto mitigate shortcomings in infrastructure that greatlyaffect their experience of the world and the channelswhich brands have available to engage them. Onlytwo per cent have an internet connection, despite 25per cent saying they would like to access more newsand information this way and 15 per cent saying theywould like to own a laptop. TV dominates the mediaexperience, even when the incomplete and frequentlyinterrupted electricity supply means families may haveto resort to generators (or rigging electricity supplyfrom the family motorbike) to power their set.The typical family is Burmese (the ethnic group thatdominates Myanmar, representing 68 per cent of thepopulation and 84 percent in the major metropolitanareas) with a very traditional adherence to the tenetsof Buddhism. Community and family are hugelyimportant, with duty to others keenly felt and at leasttwo generations typically existing under a single roof.For those who have travelled widely in South East Asia,Myanmar stands out for the way in which the influenceof Buddhism extends to all areas of life; and this hasa significant role in shaping consumer instincts andattitudes to brands.Joining the future for the Mekong68%Burmese people – or Bamar – only compromise68% of the population;135Myanmar government officially recognises135 distinct ethnic groups.84%of people in the main metropolitan citiesare Burmese;
  9. 9. Gems9Share thisWithin 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.Joining the future for the Mekong
  10. 10. Gems10Share thisMyanmar: U Than Kyaw’s storyDinner is U Than Kyaw’s favourite time of day. His family gatherfor it at 7.30 in the evening, in the home that he shares with hiswife, young daughter, two nephews and three nieces, above thetraditional convenience store that the family runs. U Than Kyawadores his wife’s cooking, of course. But that is not the only reasonthat he enjoys the meal so much. It is a symbol of their sharedendeavour: the ingredients bought by him in the traditional wetmarket in the morning; then cooked by her in the evening as hemonitors the vehicles of the taxi business that he runs from theirstore. Mealtime is also the occasion when the family room is filledwith energetic discussion of Dhamma doctrine, the central tenetsof Buddhism that, he loves to hear, mean as much to his youngerrelatives as they do to him.The Buddhist religion has directed U Than Kyaw’s life ever since hischildhood in the provincial upper Myanmar city of Paung during the1970’s, when the country was still undergoing the ruling militaryjunta’s experiment with centrally directed socialism. One of themost profound impacts of military rule was a narrowing of accessto education; so much so that U Than Kyaw was the only oneof his six siblings to graduate from University, at the then-capitalcity Yangon, where he still lives today. He has been determined tomake the most of his opportunity ever since, and sees caring forhis extended family as a deep personal responsibility. When he fellin love with his wife and gave up his career in the constructionindustry to help her start a business, he naturally employed hisyounger relatives to work in the shop.The traditional store has been the focus of he and his wife’s lifetogether since they married ten years ago. He has helped her tofocus on the FMCG products for which they can charge a pricetheir neighbours can afford, whilst selling enough stock to beconfident of making money. They stockpile a months-worth ofgoods in their back room to guard against price fluctuations andavoid being forced to raise prices. All the same, supporting a familyfrom the convenience store alone would be a challenge. U ThanKyaw used the management skills that he learned in constructionto set up a taxi business that he can run from the shop, bringing inmuch needed extra income.He would have found balancing the two enterprises a lot moredifficult just a year ago. It was then that he was able to buy asecond-hand mobile phone from a friend who still works in theYangon construction industry. When they worked together, theidea of owning a mobile was laughable; the cost of a handsetwas several times their annual salary. In the last year, with thegovernment altering its policies on the mobile market, the price hasplummeted to only six months’ earnings. It is still a lot of money,but being able to stay in touch with his vehicles as they movearound the city has helped U Than Kyaw to bring in a great dealmore.It was the extra money and the changing political situation thatfinally persuaded he and his wife that they could afford to bringup a child of their own. And after nine years of marriage, theirdaughter was born. Waiting so long means that they do notexpect to have any more children; so he and his wife lavish all oftheir efforts on their little girl. U Than Kyaw is determined thatshe should become a graduate; giving her the same opportunitiesthat he had – and of course, the same responsibilities to help andsupport her family as best she can.
  11. 11. Gems11Share thisCultural divides in CambodiaCambodia’s emergence from civil war in 1997 has givenit longer to progress down the path of developmentthat Myanmar is now embarking upon. The changesof the last 15 years can be seen in greater incomeper person, more established infrastructure (especiallywhere mobile is concerned) and more recognisableconsumer attitudes than those of its neighbour.However, the differences between Cambodia andMyanmar are not simply a case of countries at differentstages of development. They result from clear religiousand cultural differences, geographic location and themore damaging impact of recent history upon potential.The regime of Pol Pot was unfortunately far moreeffective at disrupting and suppressing educationalinstitutions than those holding power in Myanmar. Asa result, the population of Cambodia is significantlyless literate and has very limited command of foreignlanguages. The growth of the last decade and a halfhas made some wealthy but great inequality persists,with a third of the country remaining in poverty. Andthat inequality is most keenly felt between the ruraland urban populations. Cambodia’s urbanites enjoysignificantly greater personal income and expenditure,as well as significantly increased access to infrastructure.Understandably, those working in agriculture, fishingand forestry, the country’s dominant current industries,express a strong desire to move to more urban-oriented careers around retail and wholesale. Despitethis, the dominant share of the economy representedby Cambodia’s rural population means that brandslooking to drive growth must embrace the challengesof distributing products and building awareness in thesecommunities.As in Myanmar, TV remains the dominant mediachannel through which they can seek to do so;however, mobile phones have the potential to play astronger role in Cambodia in the immediate future,overcoming patchy electricity supply and opening upnew channels of engagement for brands in rural areas.Almost half of the population (48 per cent) expect toincrease their spend on mobile in the next year and61 per cent of web users already access the internetthrough mobile devices.Joining the future for the Mekong
  12. 12. Gems12Share thisIn terms of declared religion, Buddhism appears asinfluential in Cambodia as it is in Myanmar. Thatinfluence though is felt in a very different form whenit 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:73 per cent of Cambodians say that position and statusin society is the most important aspect of their life,and 69 per cent say they like to use brands that showtheir success.Cambodian society also differs significantly fromMyanmar when it comes to the role of women, witha traditional role in the home more firmly entrenched,both in the attitudes of women themselves andtheir husbands. Cambodian women are significantlyless likely to have received an education than theirbrothers, husbands and sons (a product both oftraditional expectations and Cambodia’s educationalshortcomings), but this does not prevent them fromasserting strong influence over domestic budgets andpurchase decisions. This is particularly true when itcomes to the education of children, something to whichCambodians, like their neighbours in Myanmar, devotea large proportion of household spending. Ambitiousmums, willing to pay a premium to get the best fortheir children, represent a hugely significant segmentin Cambodia. A better future, with children who cansupport them in their ageing years, is seen as the returnon this investment.The challenges of Cambodia appear to have hada substantial impact on the amount of foreigninvestment channelled towards the country thus far,with total FDI dwarfed not only by Vietnam but alsoby the amounts promised to Myanmar. Yet althoughCambodia does not have quite the resource riches ofMyanmar, its oil reserves alone will continue to drawmoney to the country. Economic growth is proceedingregardless of the lower level of foreign support. And alack of engagement with the country by internationalbrands provides those that can craft compelling localpropositions with strong potential opportunity inrelatively uncluttered markets.Joining the future for the Mekong69%say they like to use brands that show their success.73%of Cambodians say that position and status insociety is the most important aspect of their life, and
  13. 13. Gems13Share thisCambodia: SaingHy’s storySaingHy rises every morning at six to do chores, dress for work andprepare to get her eldest, 11 year-old son ready for school. Shemakes the most of the space whilst the rest of the household is stillasleep. The flat where she lives is also home to her husband andtwo sons, her younger sister with her husband and child, plus threeemployees who work in the tailors shop that she runs from theirfront room.Getting her son to school on time means a great deal to SaingHy.The fees at the “Western International School” are the family’ssingle biggest expense outside of food, but SaingHy firmly believesthat education and English are the key to a successful future. Shewants her children to have the opportunity to decide their ownpath in life.Such decisions were never really available to SaingHy herself. Shewas the second of five children born on the family farm in theKandal province of Cambodia. Both of her parents worked allday on the farm – and money was scarce. She loved school butwas forced to leave at the age of 13 to start learning her craft asa tailor – and helping the family to make ends meet. Despite thefact that her financial support has helped both of her brothers togo to university, she has never been able to learn English herself– something she longs to do. It’s hard to use her mobile phonewithout a grasp of the language and she longs to travel and learnmore about world events. As it stands, she stays on top of worldnews using a YouTube channel in her native Khmer language,which she can watch on her phone when she goes to bed at night.After dropping her son off at school at 8am, SaingHy makes timeto buy food for the day at the traditional ‘wet’ market. The familyhas no refrigerator so food must be bought fresh every morning.SaingHy loves to cook – and her meals are famous. Her husband,who works as a security supervisor in Grand Phnom Penh, comeshome for the main meal of the day at 12 o’clock. He won’t miss hiswife’s cooking.After lunch, SaingHy takes a short nap with her baby son, for onehour. She believes that napping is essential for health. And sheneeds it – for this is the only hour between 9am and 7pm when shewill not be working in the tailors in the front room. At busy times,she and her staff work through until 10pm to ensure that all of theclients’ shirts are freshly pressed for the morning. Her employees arewilling workers, but it frustrates SaingHy that they are not as skilledas she was at their age.Weekends are hugely important to SaingHy. She and her husbandwill take their children to the Dreamland Theme Park in the city,walk along the riverside, and stop to eat at the Pizza Company,where there is a playground for the kids. She sees their weekly mealout as a luxury – a well-earned treat for herself and those closest toher. They would be happier if they had more money to spend ondays like this – and if her work wasn’t quite so tiring. But perhapsan easier life will have to wait until she finally has the time to learnEnglish.
  14. 14. Gems14Share thisIndividualism in LaosIndependent since 1953 and a single-party socialistrepublic since 1975, the consumer attitudes of Laoshave been shaped by its communist heritage andconservative strand of Theravada Buddhism, but alsoby its proximity to Thailand and the ease with whichThai influence flows across border points such as theFriendship Bridge. The population of Laos is extremelyyoung (with an average age under 20) and increasinglyurban, with major centres such as the capital Vientianeconcentrating the Thai influence and resulting inincreased interest in fashion brands and premiumproducts with practical value.The mobile phone is one example of such a product,with mobile phone penetration far exceeding that ofMyanmar, and mobiles increasingly taken for granted asan everyday life tool. Phones are also one of a small butgrowing group of product areas where brands are seenas an important factor in purchase decisions.In common with other CaLM countries, consumersin Laos rank family harmony as their most importantconcern. However, individual ambition and assertivenessare far more strongly expressed than in Myanmar,in particular: work, career, freedom, earning moneyand educating oneself for future opportunities are allranked highly as priorities, which very much resemblesthe consumer sentiments holding sway in Vietnam adecade ago. Educating one’s children, in contrast toMyanmar and Cambodia, comes further down the list.Although choices for entertainment are limited, leisuretime appears a more familiar concept than in the otherCaLM countries, with sport a particularly strong area ofinterest for urban populations.Laos’s emerging consumer attitudes, extensive TVcoverage and growing penetration for the internet andmobile phones, offer significant potential for brandsseeking growth opportunities. However, this potentialremains restricted by income levels and a lack offamiliarity with brands and competitive markets. A thirdof Laos’s population remain below the poverty line anddespite substantial natural resources particularly when itcomes to tin, copper and hydroelectric power, economicgrowth is highly dependent on trade with immediateJoining the future for the Mekongneighbours. Consumers in Laos are not accustomedto product choice and competition – or to the role ofbrands in helping to guide their decisions. High-valueexceptions to this rule, such as mobile phones and cars,show the potential of brands to play an increased role,but as with other CaLM territories, propositions mustfirst prove their practical, everyday value to consumerswith very limited budgets.1975a republic since 1975.1953Laos has been independant since 1953 and
  15. 15. Gems15Share thisVietnam: a snapshot of the futureVietnam, with its GDP of $123 billion and substantiallyincreased purchasing power parity, appears to offer asnapshot of the future experience for Cambodia, Laosand Myanmar, especially as the country’s vital economicstatistics of 15 years ago showed striking similaritiesto those of Myanmar today. The desires expressed inMyanmar and Cambodia to live only with immediatefamily have been fulfilled in Vietnam, where the size ofeach household has shrunk, fewer members of eachhome are children – and significantly more of them areactive wage earners. The Vietnamese still place greatemphasis on family values, however the influence ofparents on the attitudes of emerging generations isnoticeably reduced when compared to Myanmar andCambodia.The influence of religion is also felt far less, with only40 per cent of the country registered as Buddhistsand half classed as non-denominational, a legacy ofthe country’s communist heritage. Vietnamese alsoshow a greatly reduced tendency to idolise the livingwhen compared to Cambodia and Myanmar, wherecurrent politicians dominate lists of “most admired”people. Many Vietnamese have no particular personJoining the future for the Mekongthat they admire outside their family and those thatdo are more likely to nominate historical figures suchas Ho Chi Minh or successful businesspeople such asBill Gates.Women still dominate spending decisions in Vietnam,but this influence is less linked to a life focused solelyon managing the household. “Your money is mymoney, and my money is my money” is the humorouscatchphrase frequently used to express an assertiveattitude, combining traditional authority on shoppingand spending with a role as wage earners.As household income increases, so too doopportunities to use that wealth for personalsatisfaction, entertainment and leisure. Whereasconsumers in Cambodia and Myanmar spend mostof their spare time sleeping or resting, those inVietnam are exploring a range of options for leisureactivities. Shopping in Vietnam is seen as a socialactivity not just a necessity, eating out and socialisinghas overtaken education when it comes to householdexpenditure and the Vietnamese are far more likelythan consumers in Cambodia and Myanmar to spendtheir leisure time with non-family members.
  16. 16. Gems16Share thisIn 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.Joining the future for the Mekong
  17. 17. Gems17Share thisVietnam: Nguyen’s storyHer name means “beautiful flower from the highlands”. And thisyear, Quynh Nguyen decided she should make sure she was livingup to it.It’s not that she worries about the affections of her husband Huy.He is still the same devoted father that he has been since their sonPiggy (named for the auspicious year of his birth) arrived two yearsago. Huy feeds him, bathes him and takes him to bed. He also helpsNguyen with many of the household chores but draws the line atcooking. Some things remain a woman’s work.Nguyen wants to make sure that she remains the priority in herhusband’s life. She began by curling her hair, polishing her nails;she even bought some expensive Clinique make-up and filled herwardrobe with colourful, sexy dresses. She feels she is becoming anew woman – and it certainly seems to make Huy happy.Such ideas never occurred to her when she was single, and livingin her hometown of Da Lat, a small mountainous city in Vietnam’ssouth central highlands. But then, when Nguyen was growing upshe had no access to magazines to tell her about the fashions shewears today – and no leisure time to spend hanging out with friendsand showing off her new look. A lot has changed in Vietnam in thelast decade, and not just for Nguyen.She was born in the late 1970’s after almost two decades ofcontinuous war that had made Vietnam one of the poorestcountries in the world. She grew up in an era of economicdepression, walking several miles to school through the fieldsof flowers that Da Lat is famous for, helping her mum with thehousework and sewing to earn money and help the family makeends meet. The degree that she graduated with from Da Latuniversity helped to give her the skills she needed to become anaccountant when she moved to the big city, once she took someadditional courses in accountancy and computing. Her mum, aprimary school teacher all her life, approved: “It’s a stable job fora woman,” she said. “And you will have time to take care of yourhusband and the kids.”In fact, Nguyen’s time at home is quite limited. She works six daysa week, from Monday to Saturday, 8pm to 5pm with overtime atthe end of the month to secure her salary of US$200. Like manycouples, she and Huy need two incomes to pay the bills. Theywaited until they were both 26 years old to get married, anxious toachieve some financial security first; even so, their wedding, withtwo parties in Da Lat and one in Ho Chi Minh City, cost 80 percentof their annual income.When Piggy was first born, Nguyen did not know how to takecare of him. For advice she turned to glossy magazines that tell herhow yoghurt is good for digestion and sun block is essential forprotecting his skin. She also relies on her mother and mother-in-law,who counsel her to bathe Piggy in beer for a beautiful complexionand hair, fit a silver ankle bracelet to protect him from cold weather,and keep a knife under the pillow to ward off evil spirits.Nguyen would like to have a girl baby next. She believes thatdaughters stay close to their mums, just as she has. But on onematter she is very different to her mother. She wants no more thantwo kids. The prospect of having three children like her mother orseven like her grandmother is something she can’t imagine. Shejokes about how much Clinique she would need to get her lookback then.
  18. 18. Gems18Share thisMapping brand opportunitiesAcross these very different territories, each at differentstages of market development, a broad arc ofopportunities exists for brands. Marketers can choose totarget 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-labelJoining the future for the Mekonggoods or personal care products will be different inCambodia, where consumer choices in such areas areoften used to express status, than in Myanmar, whereproduct quality and reliability are key. The strategy forthose selling laptops and PCs is very different in allthree countries as a result of varying levels of internetaccess, and the increased penetration of mobile phonesin Vietnam, Laos and Cambodia.
  19. 19. Gems19Share thisRoughly speaking the countries of the region occupydifferent but closely overlapping positions in theconsumer brand cycle, with the commodity viewdominant in Myanmar, brands used increasingly as areference in Laos and Cambodia, and brand choiceused to express personality in Cambodia and Vietnam.Marketers must be aware of consumers’ differentfeelings towards brands in general and foreign brandsin particular, which result in part from these differentstages. In Myanmar, the role of brands is limited toguaranteeing quality – and in categories such aspersonal care or white goods, foreign brands are oftenperceived to offer greater quality than local equivalents.In Cambodia, the divide between rural and urbanenvironments expresses itself in markedly different viewsof foreign brands, with rural consumers expressing astrong preference for buying local (potentially due tothe language barriers that exist) and urban populationsfar more motivated to associate themselves with globalstatus symbols. In Vietnam, where increased productquality and reliability across the board is renderingbrands’ hygiene role more redundant, a preferencefor buying Vietnamese where possible appears to bedeveloping. However, this preference shows little signof eroding the dominance of established foreign brandsJoining the future for the Mekongover more expensive purchases: Honda remains number1 for motorcycles (and is seen as a local brand by many);Sony battles it out with Dell amongst laptops and withSamsung when it comes to LCT and plasma TVs; whilstPanasonic is growing rapidly to dominate the market forair conditioners.Each situation and sector therefore requires a differentstrategic approach: emphasising and demonstratingthe quality of brands in Myanmar; adopting the Khmerlanguage and local cultural references when targetingrural Cambodia in particular; considering the adoptionof local brands in Vietnam, or emphasising a brand’sown deep links with the country. In each of these cases,brand propositions must also be carefully tailored tothe very different levels of disposable income that exist.Product strategies can be laddered to appeal to differentincome levels; high-end brands should be carefully andefficiently targeted at those able to afford them but alsoat those open to expressing status through consumergoods; and ensuring affordability through smallerpackage sizes and other strategies is an essential forthose targeting the upper reaches of the BoP across theMekong region.
  20. 20. Gems20Share thisWithin the FMCG category that dominatesconsumer spending and the personal care sectorthat represents a potential growing slice of it, globalbrands must prove their quality to consumers’satisfaction before leveraging a brand to guaranteeit. Price promotions and mass-reach TV advertisingoffer the most effective strategies for driving producttrial, but this must be supported by products thathave been developed to appeal to well-definedlocal preferences. The dominant share of Myanmarhousehold spending that is commanded by MSGflavouring, dried noodles and rice soups is evidenceof strongly established tastes that cannot easily beshifted; as is the popularity of traditional beautycare products like Thanaka, and coconut-oil basedpersonal care remedies.Traditional rules on distributionCarefully engineered, affordable propositions are oflimited value if brands cannot ensure the accessibilityof their products to a target audience. They mustdo so within a distribution environment thatremains dominated by traditional markets. Shoppersin Myanmar and Cambodia visit such marketsfrequently, buying products in small, affordablepackage sizes and topping up supplies as requiredrather than conducting large-scale weekly shops.The market is a social setting not merely a shoppingexercise. It represents a valued opportunity toconverse and catch up and this ensures that it retainsits influence as a distribution channel when personalor national wealth increases. The highest earnersin Myanmar are more likely to send an employeeto the market than they are to visit a supermarketthemselves; in Vietnam, shoppers still congregatein traditional retail spaces – and across all countries,western-style malls often appear to be used moreas a social gathering space than as a shoppingenvironment. The market rules – and brands ignorethis regional truth at their peril.Joining the future for the Mekong
  21. 21. Gems21Share thisMass-reach and targeted mediaMedia strategies looking to drive large-scaleawareness 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,that future is here already – and online and mobilecan start to form important elements of marketingJoining the future for the Mekongstrategies, potentially leveraging the popularity ofsocial media in the country.
  22. 22. Gems22Share thisJudging toneThe tone of a brand’s approach in each market canbe equally as important as the fundamentals of whatit offers. In Myanmar, the strength of traditionalBuddhism and rejection of conspicuous consumptionmean that brand campaigns emphasising individualassertiveness are likely to prove counter-productive; inCambodia by contrast, they have far greater likelihoodof success. Price promotions are likely to be the mosteffective strategy for driving trial in any market;however discounting strategies should vary with localcultural nuances: from simple affordability in Myanmarto affording the best in Cambodia, to furthering one’sambitions in Laos; and exercising prudent, practicalfrugality in Vietnam.The theme that resonates most powerfully across theregion is education. No matter what their currenteconomic situation, Burmese, Vietnamese, Laotiansand Cambodians accept that learning is the key toimproving or securing it, whether that education isfocused on themselves or their children. Brands andJoining the future for the Mekongcompanies that can offer educational support in theform of free or discounted resources will find a readyaudience for such schemes; as will those that canpromise increased powers of concentration amongststudents. The growth achieved by energy drink brandsacross the region may owe much to the promise ofincreasing educational performance in this way.Aligning brands with the futureGreat opportunity exists in the Lower Mekong Basinwherever brands can align their business mechanicsand proposition with local hopes. The aspirationsthey align themselves with may be simple ones:supporting a family, ensuring a better future for one’schildren, helping to earn the all-important respect of acommunity. However, they are no less powerful for that.With the vast majority of the 77 million plus populationunder the age of 30, brands that can leverage themedia and distribution channels available to buildloyalty are likely to be rewarded by strong growth inthe region’s rapidly approaching future.
  23. 23. Gems23Share thisChina and the Chinese – going beyond Kung Fu and noodles - Subhashish DasguptaOpinion LeaderFinding faster growth: New markets
  24. 24. Gems24Share thisDo 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.China and the Chinese – going beyond Kung Fu and noodles
  25. 25. Gems25Share thisIncreasingly China is also the place where everything inthe world is made and whether you look at the label ofyour shirt or behind the battery in your smartphone, it’svery likely that this is exactly what you will find.All of these influences are very real in helping to painta picture of China in 2013 – but equally, they produceas 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 positionof the world’s largest luxury market. Even in the area oftechnology devices, China’s mobile phone penetrationis almost 100 percent, with close to 40 percent ofconsumers owning a smartphone. This in itself isfundamentally changing how consumers in Chinaare engaging with brands, especially at the point ofpurchase.China and the Chinese – going beyond Kung Fu and noodles
  26. 26. Gems26Share thisThe implication of these trends is quite clear for allindustries. It is a myth that China, or in fact the regionwith a significant Chinese population - Indonesia,Malaysia, Singapore or Hong Kong - is in any way‘emerging’. The opportunity in these markets has veryclearly emerged; it is here and it is now. This does notimply, however, that a ‘one size fits all’ approach toconsumer engagement can be deployed effectivelyacross all these markets. A recent study by TNS provideda clear indication of the immense breadth of contrastingattitudes and moods among Chinese people in theregion, as the Chinese New Year approached. Thefindings, available at, show varyingdegrees of optimism about China’s place in the world;conflicting opinions on issues from family to finances;and a gulf in attitudes towards culture, history andheritage. These contrasts paint a fascinating and crucialpicture of the very different approaches brands need totake to demonstrate real understanding of ‘the Chineseconsumer’ across the region.The findings revealed a strong mood of positivity andconfidence, with three quarters of people feelingupbeat about the year ahead. This optimism isinforming decisions about significant investments - inthe automotive market, this promises to be a stronggrowth year with many people across the regionplanning to buy a new car. Buying a new house isalso part of the plan for a quarter of those surveyed,while over a third are making plans to travel to a newcountry. At the same time, this optimism is tempered byconcern over the global economic outlook, its impacton people’s own finances and the need for the countryto deal with budget constraints.The study reveals that the economic outlook isonly one of seven areas where Chinese people areseemingly pulled in opposite directions. There are majorcontradictions which are in themselves an acceptedreality of life in Asia – a region with polar opposites ofan ageing population which is also growing younger,extreme poverty alongside huge affluence, andmodernising infrastructure co-existing with age-oldcustoms.China and the Chinese – going beyond Kung Fu and noodles
  27. 27. Gems27Share thisReflecting a mixed mood of cautious optimism, ourresearch found that youngsters today are keen to putthe money they receive as ‘Ang Bao’ – traditional ‘RedPacket’ gifts at New Year – into bank saving accounts,taking a very different approach to the custom ofpurchasing treats with these funds. This provides bankswith a very real opportunity to tap into cash exchanginghands, through youth-oriented saving and interestschemes. On the other hand, adults are showing agreater inclination to live in the moment, intendingto spend the gift money they receive on restaurants,clothes and travel. Aside from gifting Red Packets filledwith cash, bestowing presents on friends and family, isnow also popular at New Year. Electronic goods featureat the top of the gift list, especially in China and Taiwan,while in Hong Kong, Malaysia and Singapore food giftsare more desirable. Brands need to understand theseindividual preferences to take a slice of the lucrativeNew Year gifting market.Despite a number of new trends emerging, there isstill a palpable sense among Chinese consumers of theneed to maintain traditional customs. In the case ofChinese New Year, it is still very much a time of comingtogether as a family under the same roof, centered onthe Reunion Dinner. While the increasing penetrationof mobile phones and social networking has promptedsome people to adopt these digital channels as a meansto convey their virtual wishes, for the majority thetradition of face-to-face greeting, even for the youngergeneration, remains very much intact. The pre-New Yearcustoms of cleaning and decorating the house, buyingnew clothes, having your fortunes read or getting a hair-cut continue to prevail among the Chinese, regardlessof age, gender or country.The Chinese consumer – with a burgeoning senseof optimism and desire to build a strong future,underpinned by the juxtaposition of traditional familyvalues and the benefits of technology and progress- presents opportunities to marketers across a rangeof categories. And by tapping into these underlyingattitudes of the Chinese consumer, brands will be ableto develop marketing strategies that enable them torealise these new opportunities. While these strategieswill be dependent on individual objectives, brands canlearn a great deal from companies which are alreadysuccessfully riding the trends in the Chinese market.China and the Chinese – going beyond Kung Fu and noodlesoutlook of the year of the Snake?42%Excellent/Very good27%Fair/Poor
  28. 28. Gems28Share thisChecklist:Buy something nice for myselfInvest itTravel - InternationallyDonate itDeposit it into a bankSpend it on food and beveragesEat at a nice restaurantBuy clothes and accessoriesHow do you plan to spend yourred packet money?Focus on new customer acquisition: For brandslooking to convert new customers, China’s tech-orientated youngsters are a good place to start. Desirefor 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 toadopt the service. Mobile banking strategies targetingthe smartphone-savvy young consumer group in Chinaare most likely to succeed and also generate positiveword of mouth. Banks in China need to ensure thatmobile and face-to-face touchpoints deliver a consistentexperience.Attract brand ambassadors: As mentioned, theautomotive sector continues to witness rapid growthand evolution, and China’s economic optimism presentsa significant growth opportunity for manufacturers,particularly with so many people planning a new carpurchase in the year ahead. However, as a vast anddisparate market, there are very different influences inthe car-buyer’s path to purchase. In a market wherefamily remains so influential, there is a heavy relianceon the advice of friends and relatives, as well as onsocial media when buying a car for the first time.Manufacturers need to understand how to mobilisecustomers and fans to become brand ambassadors,China and the Chinese – going beyond Kung Fu and noodlesintegrating their approach with the surging uptake innew technologies by providing customer support andpractical advice for new drivers via social media.Eat sweet dWatch TVSend giftsloved onesSpend quawith lovedVisit bazaanight markEat at a nicrestaurantAttend lanexhibitsWhat do you do o
  29. 29. Gems29Share thisAdopt new GTM approaches: In a sharp contrastto more mature Western markets, brands need tounderstand that quick action is critical. The average carpurchase period in China is far shorter than previouslythought, 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 testit in the marketplace. They are happy to do three tofour rounds of commercialisation to get an idea right.”This innovative approach to innovation itself is one thatworks in China, in a way that would fail in many otherChina and the Chinese – going beyond Kung Fu and noodlesparts of the world. The flexibility has been instrumentalto making GM the top-selling foreign automaker inChina, despite entering the market later than otherglobal players.
  30. 30. Gems30Share thisTell a compelling story: Mobile phone manufacturerMotorola broke with the norm of using traditionalmedia in 2011 and developed a successful viral videocampaign to raise consumer awareness and interest inthe highly durable Motorola Defy. The viral video, whichshowed a man being spun around in an industrialwashing machine with his phone, which emerges fromthe 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 unlikelyChina and the Chinese – going beyond Kung Fu and noodlesif not impossible without a brand being comfortableexisting and thriving in this contradiction. There is stillmuch to know and learn about China and the Chinesepopulation, continuously challenging every marketer tolook beyond the stereotype. Marketing successfully tothe Chinese population requires an acute understandingof the region’s key drivers and motivations.China may be the nation of noodles and Kung Fu,but it is at the same time a nation only just realisingthe potential that can be brought to bear through itsbooming infrastructure, fast-growth car market, mobilephone-domination and deep desire for luxury. Complexthe market may be; but brands who fail to navigate itwill miss a truly unmatched opportunity.
  31. 31. Gems31Share thisMaking the small screen part of the big picture: Understanding how South Africaninternet and mobile phone users interact with brands online - Kambe MwabaOpinion LeaderConnected world
  32. 32. Gems32Share thisMaking 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.
  33. 33. Gems33Share thisSouth Africa Global averageInternetpenetrationInternet accessvia PC / LaptopInternet accessvia mobileSocial mediaengagementSouth Africa Global averageIn Sub-Saharan Africa, the mobile phone screen hasbecome 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,with one of the lowest incidences in the world ofconsumers who comment about brands online andalmost two-thirds saying that they do not want toengage with brands via social media.Making the small screen part of the big picture:Internet access and usage in South Africa vs. Globally
  34. 34. Gems34Share thisMaking 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 (%)3319486010833213Source: TNS Mobile Life 2012 South Africa Report (Note: Excludes ‘Don’t Know’ responses)Basic feature phonesSmartphonesAdvanced feature phonesBlackBerry(OS) Windows Phone 7 or higher Windows Mobile 6Android Symbian OthersiOS(Apple)Basic feature phonesAdvanced feature phones SmartphonesBlackberry (OS) Windows phone 7 or higher Windows phone 7 or lowerAndroidISO (Apple) OthersSymbian
  35. 35. Gems35Share thisMaking the small screen part of the big picture:Why the resistance?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 onlineand are highly resistant to the idea, as they assumethat it just means that companies will try to “spam orscam” 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 researchmentioned that “it would be like talking on the phoneto your mother and suddenly an advert pops up in theconversation trying to sell cheap flights.”Reasons for potential brand befriending online (South Africa Vs. Globally)South Africa Global averageTo get more informationabout a brandTo benefit from apromotion / special offerTo support a brand I enjoyTo seek for promotionsor special offersTo connect with a brand I likeTo follow my friendswho are already fansTo use specific appspromoted by the brandTo benefit from apromotion / special offerTo seek for promotionsor special offersTo follow my friendswho are already fansTo get more informationabout a brandTo support a brand I enjoy To connect with a brand I like To use specific appspromoted by the brand
  36. 36. Gems36Share thisMaking the small screen part of the big picture:Another challenge is that brands make incorrectassumptions about why consumers choose toengage with them. According to the 2011 TNSDigital Life Survey, the main reasons why peoplejoin brand communities on social networks are self-serving (e.g. to get a freebie or enter a competition)or functional (e.g. to receive customer service ormore information), and less likely to show theirsupport or loyalty for brands.What can brands do?Possible strategies to increase engagement onlineare as follows:Think mobile for digital strategiesGiven that the majority of Internet users areaccessing via mobile, it important to ensure a gooduser experience – whether the site is accessed viamobile browser, or app. While smartphones are onthe rise, it is important to remember that the vastmajority of South Africans still own basic featurephones. Given the high income inequality in SouthAfrica, the country has the characteristics of both adeveloped and emerging market sitting alongsideone another. Smartphone owners in South Africaare usually in a higher income bracket, younger(65% are under 30 years) and more tech-savvy thanfeature phones users, and therefore tend to be moreopen to brand engagement through the mobileInternet. Brands need to determine which of thesemarkets they are targeting and adapt their mobileplatform accordingly.Also important to note is that mobile Internet isoften used when ‘on the go’, which is quite adifferent experience to using a PC or laptop at adesk. Considering the context when designing formobile is crucial to ensure that mobi sites are easyand quick to navigate and quickly provide the basicinformation such as product prices, shop addressand contact numbers.Know thy consumerMany brands are in a hurry to be online withoutgiving thought to who they want to talk to andwhy. The key for brands, however, is to understandtheir target audience and what their consumerswant from the brand (e.g. win something, receiveMaking the small screen part of the big picture:interesting updates, etc). When you understand yourtarget market and their needs you may realise that aparticular channel, such as social networks, may notalways be the right approach and that an alternativeonline method may be a more appropriate way tointeract with consumers that will actually achievebusiness results.
  37. 37. Gems37Share thisMaking the small screen part of the big picture:Tell them HOW, tell them WHYGiven that many are not aware of or do not see thepoint of engaging with brands online, it is thereforeessential for brands to tell consumers how andwhy they need to engage with them. This includestelling consumers where they can engage with thebrand 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 couldinvolve responding quickly to queries, addressingcriticism graciously, showing you care about andunderstand your consumers, and having a senseof humour. If users don’t feel like they are gettingany value from the relationship, they may just endit. While there are significant technological andattitudinal challenges for brands to overcome inorder to fully engage with their consumers online,effective online engagement presents a powerfulopportunity for brands to influence the attitudesand behaviour of their consumers, build loyalty,drive purchase and ultimately grow their brands.
  38. 38. Gems38Share thisMaking the small screen part of the big picture:Brands in South Africa that are making the smallscreen part of the big pictureFirst National Bank (FNB) offers first mobilebanking applicationFNB (First National Bank) was the first bank inSouth Africa to offer mobile banking throughan 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.“The FNB App created demand for Apps in Bankingwith most of our competitors having launched theirown versions of an App, confirming the need formobile App technology in the banking industry”.“According to Farren Roper, Head of FNBConnect ISP and Business Operations,
  39. 39. Gems39Share thisMaking 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 andSoccer Ladum online user baseMobile siteWebsiteMobile site WebsiteTwitter. The publication has experienced phenomenalgrowth of their mobile and social media platform,with statistics from February 2012 showing that theyhold the position as the third largest mobile site inSouth Africa - about three quarters of their 400,000online user base is from mobile. Much of the brand’ssuccess stems from their ability to remain relevant totheir target market (who are mainly lower income)and ensure that their mobile site is functionally onpar with its web counterpart.Source: Prezence Digital 2012
  40. 40. Gems40Share thisIs the reverse flow of innovation coming full circle? - Sam CurtisOpinion LeaderFinding faster growth: New products & services
  41. 41. Gems41Share thisAs so-called ‘emerging markets’take the lead in innovation,what are the implications forthe global economy?Is the reverse flow of innovation coming full circle?
  42. 42. Gems42Share thisIs 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
  43. 43. Gems43Share thisIs the reverse flow of innovation coming full circle?DisruptionThe highest profile historical example of thereverse flow comes from Japan as it rebuilt itselffrom the catastrophic effects of war. Innovationin car production meant that by the 1980s, Japanhad replaced the US as the world’s largest carmanufacturer, with cars which were cheaper and morereliable than anything the US could produce. Japan, ofcourse, ceased to be an emerging market even beforethis term was coined. In the 1980s and 90s, SouthKorean companies like Hyundai, Samsung and LGstarted selling their own brands globally, often beingfirst to market with innovative products - rather thanjust the cheapest products.More recent history is littered with examples ofdisruptive innovation. Huawei is now one of theworld’s largest patent applicants. Mobile finance hasexploded out of the M-Pesa service in Kenya and theindustry is set for strong growth globally. The conceptof micropayments first emerged in Asia. Netbooksemerged from Taiwan, originally intended to sellcheaply in emerging markets but became a successdue to trends in portability and cloud services indeveloped markets.Western multinationals have been taking advantagetoo. GE sells Indian and Chinese made medical devicesin Western markets. France’s Danone started a jointventure in Bangladesh with Grameen Bank, whereit agreed to build local microplants that producedone-hundredth of the amount of yogurt of a standardDanone facility, in part due to the lack of refrigeratedstorage, but just as cheaply as the larger plants.Growth in the global economy - and in Westernmultinationals - is becoming increasingly relianton the breakthrough innovations coming out ofthese economies, and this trend will only magnifyin the future.In the 1980s, Japan had replaced the US as theworld’s largest car manufacturer.
  44. 44. Gems44Share thisIs 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) mattersDoes it seem right to classify the second, sixth andtenth largest economies in the world as emerging? Theeconomies 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.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.27.5bnUS Dollars,31%increase in foreign direct investment in India, toin 2012despite uncertainties in the global economy.
  45. 45. Gems45Share thisThe 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.Is the reverse flow of innovation coming full circle?Digital lowers the cost of entryDigital opens the door for innovators to emerge fromanywhere. They do not need enormous investmentto develop their ideas into products. Digital has nogeographic boundaries so the potential for start-ups togain rapid scale across markets is huge. Israel is one ofthe best exponents of this with 5,000 active start-upsat the start of 2012 – with a small local economy, thesecompanies think global from the off. Sitting in SiliconValley is no longer a pre-requisite for an internet-basedcompany to be successful.
  46. 46. Gems46Share thisFrugal 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.Is the reverse flow of innovation coming full circle?The no-frills, functional and efficient Tata Nano, from India
  47. 47. Gems47Share thisImplicationsThe implications of these changes are vast andprofound but I would like to touch briefly on whatit means for the companies I am working within London.The first implication is one of structure. If London-based companies want to tap into the innovationscoming out of emerging markets, then the best wayto do this is to actually be there. Many large multi-nationals now have innovation hubs based in thesemarkets - Fortune 500 companies have well over100 R&D centres in China alone.The second implication relates to investment. M&Afunctions of multi-national companies need to havetheir eyes trained on start-ups in emerging markets.With Instagram costing Facebook $1bn, surely thereis better value to be had within emerging markets?M&A functions can take greater risk, based on lowercapital investment.Thirdly, established companies in markets such as theUK offer emerging market multinationals, and stateinvestment arms, something very attractive – accessto affluent consumers and new markets. The ChinaInvestment Corporation was established in 2007 tomanage China’s foreign currency reserves and theirassets have grown to $410 billion by 2011. Theseentities are using these funds to acquire companiesand their technologies in developed markets – as wasseen in the case of China Investment Corporationacquiring 10% of Heathrow Airport Holdings inNovember 2012. Companies in developed marketsare now exposed to increased competitive pressure(both from increase competition for consumer spendand a threat of acquisition).The process of reverse innovation is gaining pace.It may not be that long before the reverse flow is theestablished flow and we will witness the majority of theinnovations originating from the emerging markets.Is the reverse flow of innovation coming full circle?410bnChina’s foreign currency reserves and their assetshave grown to $410 billion at the end of 2011.10%of Heathrow Airport Holdings was recently acquiredby the China Investment Corporation.
  48. 48. Gems48Share thisRalf is a certified Market Research trainer as well as a BoardMember of CanCham and the ESOMAR representative forVietnam. He holds a double honours degree from WilfredLaurier University in Canada.About TNSTNS advises clients on specific growth strategies around newmarket entry, innovation, brand switching and stakeholdermanagement, based on long-established expertise andmarket-leading solutions. With a presence in over 80countries, TNS has more conversations with the world’sconsumers than anyone else and understands individualhuman behaviours and attitudes across every cultural,economic and political region of the world.TNS is part of Kantar, one of the world’s largest insight,information and consultancy groups.Please visit for more information.Get in touchIf you would like to talk to us about anything you have readin this report, please get in touch or via Twitter @tns_globalAbout the authorsChinese New Year - Subhashish DasguptaSubhashish Dasgupta is the Automotive Director for TNSSouth East Asia and responsible for multi-country automotiveprojects in the Asia Pacific region.Subhashish’s career in market research and marketing spansmore than 13 years in both Asia and Europe. During 2008-2009, he was working in the Stakeholder Managementpractice at TNS Infratest in Germany consulting clientsacross multiple sectors. Prior to this position, he headed theTNS Automotive practice for India, leading teams acrossprojects focused on product planning, branding and dealerdevelopment.Subhashish has two post graduate degrees with an MBAspecialising in Marketing and Marketing Communication.Making the small screen part of the big picture:Understanding how South African internet and mobile phoneusers interact with brands online - Kambe MwabaKambe Mwaba is Research Executive at TNS in South Africa.She joined in 2010 after completing her degree in BusinessScience Marketing at the University of Cape Town. She workson the South African Breweries (SAB) client team and ismainly involved in quantitative adhoc studies.Her passion for the growth of mobile internet andapplications in emerging markets resulted in two awards in2012 at the Southern African Marketing Research Association(SAMRA) conference for her research paper “Making thesmall screen part of the big picture: Understanding howSouth African internet and mobile phone users interact withbrands online”.Is the reverse flow of innovation coming full circle? -Sam CurtisSam Curtis has worked for TNS for six years and is currently aGlobal Director in the Retail & Shopper practice.Sam has worked on global projects throughout hiscareer, especially in the areas of mobile, digital and brandpositioning, which has involved extensive experienceresearching consumers in developing economies.Joining the future for the Mekong - Ralf MatthaesRalf Matthaes is Regional Managing Director at TNS, basedin Vietnam, Cambodia, Myanmar, Laos. Ralf has been withTNS for 18 years during which time he has established TNSVietnam in 1996, has opened offices in Cambodia and is inthe midst of establishing the Myanmar operations. Prior tocoming to Vietnam in 1994, Ralf served as a policy analystfor the Provincial Minister of Finance for Ontario, Canada.
  49. 49. Gems49Share