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Keynote – Going for Gold in Emerging Markets

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John Forsyth, Expert Principal at McKinsey & Company

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Keynote – Going for Gold in Emerging Markets

  1. 1. Going for Gold in Emerging Markets: Winning the $30 trillion Decathlon John Forsyth – McKinsey & Company February 19, 2014 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
  2. 2. Going for gold Massive opportunity trillion Crucial capabilities Platform for success x McKinsey & Company | 1
  3. 3. Three quarters of global growth in emerging markets Share of GDP growth, 2010–25 Developed economies 26 74 Emerging economies SOURCE: McKinsey Global Institute McKinsey & Company | 2
  4. 4. And half of Global GDP $, trillion Total GDP 113 60 Emerging 53 Developed 63 23 40 2010 2025 McKinsey & Company | 3
  5. 5. $30 trillion of consumption in emerging markets in 2025 Total 30 China 8 India 3 Brazil 3 Russia 2 Mexico 1 Indonesia 1 Turkey Poland Other SOURCE: McKinsey Global Institute 1 1 10 McKinsey & Company | 4
  6. 6. Speed and scale unprecedented Years to double per capita GDP Year Country United Kingdom United States Germany Japan South Korea China India 1700 1800 1900 2000 154 53 65 33 10 12 16 McKinsey & Company | 5
  7. 7. West’s leading companies not capturing growth World wide Developed markets Emerging markets North America 64 83 36 17 % of GDP % of GDP % of company revenue 26% 39% Company revenue SOURCE: McKinsey Global Institute, company financials McKinsey & Company | 6
  8. 8. Going for gold Massive opportunity trillion Crucial capabilities Platform for success x McKinsey & Company | 7
  9. 9. Ten crucial capabilities Throwing accurately Jumping in Running the distance 1 Anticipate moments of explosive growth 4 Build brands that resonate and inspire trust 7 Redeploy resources dynamically 2 Target urban growth clusters 5 Innovate across the price spectrum 8 Organize today for tomorrow 3 Think local, act global 6 Manage in a multichannel world 9 Develop talent and capabilities 10 Secure support from key stakeholders McKinsey & Company | 8
  10. 10. 1 Anticipate moments of explosive growth What is average performance What is Winning performance Follow others into fast-growing markets Sometimes miss the boat Recognize discontinuities which drive rapid growth McKinsey & Company | 9
  11. 11. Different drivers of growth Demographics and income Needs Regulation SOURCE: McKinsey Emerging Markets team analysis Infrastructure Technology McKinsey & Company | 10
  12. 12. Rising incomes drive S-curves in consumption “Warm-up zone” “Hot zone” “Chillout zone” Sales value per capita Sales value per capita Sales value per capita 0 2,700 19,000 Income per capita SOURCE: McKinsey Global Growth Compass 0 2,700 19,000 Income per capita 0 2,700 19,000 Income per capita McKinsey & Company | 11
  13. 13. Adoption curves vary by product Household penetration by country, 2007 Penetration % Refrigerator Washing machine 100 90 80 Saturation points 70 60 50 40 30 20 Take-off points 10 0 0 5 10 15 20 25 30 Per capita income $ thousand, PPP SOURCE: Euromonitor; McKinsey Global Institute analysis McKinsey & Company | 12
  14. 14. 2 Target urban growth clusters What is average performance What is Winning performance Use countries and business units for strategic planning Identify high growth opportunities at city cluster level McKinsey & Company | 13
  15. 15. The “Emerging 440” cities will generate 47% of all global growth GDP growth, 2007-2025 26 100 27 47 Emerging 440 cities SOURCE: McKinsey Global Institute Cityscope 1.3 Other emerging regions Total developed Global growth McKinsey & Company | 14
  16. 16. Urban growth in China alone is staggering City Absolute GDP growth, 2011-2016, billion USD at PPP Shanghai 239 Beijing 184 Shenzhen 154 Suzhou 149 Guangzhou Growth over $1.6 trillion 146 Tianjin 127 Hangzhou 91 Wuhan 81 Chengdu 75 Nanjing Another South Korea 71 Chongqing 66 Foshan 62 Fuzhou 58 Xiamen 55 Dongguan Population more than Russia 52 McKinsey & Company | 15
  17. 17. The top 20 developing cities outside China City Delhi Mumbai Moscow Jakarta Sao Paulo Buenos Aires Taipei-Keelung Doha Mexico City Istanbul Riyadh Bangkok Lima Hyderabad Kuala Lumpur Bangalore Bogota Chennai Abu Dhabi Kolkata Absolute GDP growth, 2011-2016, billion USD at PPP 109 108 100 Growth over $1.2 trillion 84 77 77 77 66 58 56 55 49 48 48 42 41 38 38 38 36 Another Indonesia Population 6th biggest country McKinsey & Company | 16
  18. 18. City-cluster approach can be very powerful 滨尔哈 滨尔哈 滨尔哈 滨尔哈 Haerbin 春长 春长 春长 春长 Changchun 连大 阳沈 阳沈 阳沈 阳沈 京北 特浩和呼 Dalian 庄家石 津天 津天 津天 津天 Shijiazhu 原太 Taiyuan Shenyang Beijing Huhehaote Tianjin ang 安西 岛青 Qingdao 京南 Xian 南济 Nanjing Jinan 州郑 州郑 州郑 州郑 Zhengzhou 海上 海上 海上 海上 ` Shanghai 汉武 Wuhan 都 都成 肥合 州杭 州杭 州杭 州杭 Chengdu Hefei Hangzhou 昌南 昌南 昌南 昌南 Nanchang 沙长 庆重 Chongqing Changsha 州 州福 Fuzhou 州广 Guangzhou 明 明昆 SOURCE: Insights China; McKinsey analysis Xiamen 圳深 圳深 圳深 圳深 宁南 宁南 宁南 宁南 Nanning 门厦 门厦 门厦 门厦 Kunming Shenzhen McKinsey & Company | 17
  19. 19. Cluster approach can be simpler and cheaper Packaged goods manufacturer From… To… ▪ Looking at 40 cities spread out across China for expansion ▪ Fewer key cities, organized into 15 priority clusters ▪ Similar targets across all regions ▪ Much sharper differences in targets ▪ 2-3% reduction in cost-to-serve ▪ Accelerated growth to over 20% McKinsey & Company | 18
  20. 20. 3 Think local, act global What is average performance What is Winning performance Extend developed market strategy to emerging markets Refine product offering to appeal to local needs, while leveraging crossmarket scale McKinsey & Company | 19
  21. 21. Five grocery segments are in evidence across Africa ExperiImportance Importance Importance of mental of price of brand fresh/quality Index Low price hunter Local, quality shopper Brand loyalist Experimental shopper Fresh lover SOURCE: ACIC ▪ Most price conscious High ▪ Will make sacrifices Low Low Low ▪ Believe price Low Medium Medium Medium Low High Low Low ▪ Like to try new things Low ▪ Enjoy shopping Low Low High ▪ Look for fresh Medium High Low for lower price ▪ indicates quality Shop locally ▪ Prefer brands ▪ Will pay more for them Low McKinsey & Company | 20
  22. 22. Although their relative importance varies from market to market Segment distribution by country % of country market potential that is in the specific segment, countries in order of GDP in PPP terms, 2011 Low price hunter Local, quality shopper Brand loyalist 14 14 9 18 18 10 10 21 23 52 Fresh lover 26 SA SOURCE: ACIC 19 Egypt 23 30 8 35 12 17 25 26 17 23 12 15 29 23 6 24 34 20 27 23 11 18 10 11 12 17 11 19 9 27 27 19 Experimental shopper 11 42 19 50 19 9 Nigeria Algeria Morocco Angola Ethiopa Ghana Kenya Senegal McKinsey & Company | 21
  23. 23. Addressing consumer needs and local market tastes Flexing for taste Adding a local twist SOURCE: Press clippings, company website No sacred cows Meeting primary needs McKinsey & Company | 22
  24. 24. Extensive ethnography to identify ways to re-design and innovate Context: in rural India, >400m+ men using double-edge blades without lighting and running water Solution Ruthless focus on cost Single blade razor with protective housing Guard launched at 34 cents quickly gained market share and today represents two out of every three razors sold in India, increasing market share from 37% to 49% in 5 years. Handle texture for easy gripping McKinsey & Company | 23
  25. 25. 4 Build brands that resonate and inspire trust What is average performance What is Winning performance Take existing brands but customize communication and media Develop and anchor brand positioning through local insights McKinsey & Company | 24
  26. 26. Able to influence with word-of-mouth % receiving recommendations from family/friends 92 71 49 46 44 40 29 McKinsey & Company | 25
  27. 27. And in-store advice "I find myself leaving the store with a different brand/product than I planned because of the suggestion of the in-store salesman" “In-store experience” Strongly agree to somewhat agree 24 45 Strongly disagree to somewhat disagree 76 55 McKinsey & Company | 26
  28. 28. Consumer preference for foreign brands varies by category Brand preference by category Percent of respondents prefer foreign brands over Chinese brands 56 53 38 31 24 Personal digital gadgets Household electrical appliance Prefer foreign brand Personal care products Household care products Food & Beverages Prefer Chinese brand McKinsey & Company | 27
  29. 29. New Mainstream consumers have a higher preference for foreign brands Mass New Mainstream Percent of respondents preferring foreign brands over Chinese brands 65 55 63 52 52 45 36 34 29 22 Personal digital gadgets Household electrical appliance Prefer foreign brand Personal care products Household care products Food & Beverages Prefer Chinese brand McKinsey & Company | 28
  30. 30. Ten crucial capabilities Throwing accurately Jumping in Running the distance 1 Anticipate moments of explosive growth 4 Build brands that resonate and inspire trust 7 Redeploy resources dynamically 2 Target urban growth clusters 5 Innovate across the price spectrum 8 Organize today for tomorrow 3 Think local, act global 6 Manage in a multichannel world 9 Develop talent and capabilities 10 Secure support from key stakeholders McKinsey & Company | 29
  31. 31. Going for gold Massive opportunity trillion Crucial capabilities Platform for success x McKinsey & Company | 30
  32. 32. Important choices for management Speed Fast Gradual Ownership Locally-driven HQ-driven Scope of change No sacred cows Constraints defined Values/ Culture Refresh Maintain McKinsey & Company | 31
  33. 33. Are you ready for this journey? Do you understand product S-curves and anticipate explosive growth and other market discontinuities? Do you know your market growth prospects at granular, urban market level? Do you understand the needs of your consumers – in both globally converging and locally differentiated segments? Do you have trusted brands that signal quality among emerging market customers? Can you deliver value at multiple price points and cater to the premium and entry level segments? McKinsey & Company | 32
  34. 34. Are you ready for this journey? Are your channels able to reach the full spectrum of emerging consumers? Are you being sufficiently aggressive in reallocating resources to future growth areas? Is your organization ready for effective execution across the diverging global market place? Are you winning the war for local talent? Are you effectively managing the full range of stakeholders in emerging markets? McKinsey & Company | 33
  35. 35. John Forsyth Expert Principal, John_Forsyth@mckinsey.com Stamford @McKinsey_CSI @McK_MktgSales McKinseyonMarketingandSales.com www.youtube.com/McKinseyCMSOForum McKinsey & Company | 34

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