compete globally, but it means less
adaptation to local markets and strategic decisions not to enter new markets. P&G focuses on 10 big emerging
markets (Brazil, Russia, India, China,
South Africa, Nigeria, Poland, Turkey,
Mexico, and Indonesia).
Unilever sells products in 190 countries, facilitated by a long history of
adaptation and customization in local
markets. It has built a large portfolio of
relationships with local joint venture
partners and distributors. This raises
overall costs, but Unilever can reach
market segments not normally touched
by multinationals from high-income
countries. Unilever packages shampoo
and toothpaste in small sachets to be
sold to low-income consumers, and its
decentralized subsidiaries help develop a deep understanding of both consumers and host governments—the
latter essential for anticipating regulatory and institutional changes.
Which will succeed best in emerging markets, P&G or Unilever? Any
excellent company might combine aspects of these strategies, but the choices are difficult and involve trade-offs.
The jury is still out on the best pathway
to profitability and growth in emerging
markets. P&G seeks to reduce cost by
exploiting global economies of scale.
Unilever seeks to adapt to local consumer needs through low-cost business innovation.
When the Berlin Wall fell 25 years
ago, emerging markets were believed
to become liberal market economies.
Now we know better. Some emerging
market countries follow different po-
litical arrangements, including state
capitalism. Emerging markets pres-
ent multinational corporations with
unprecedented opportunities, provid-
ing large markets for their products
and low-cost locations for increasingly
Balanced against these opportunities are the challenges. There are two,
both of which appear to give emerging
market firms an upper hand over multinationals from developed economies.
The first is the challenge of engaging
in low-cost or frugal innovation that
requires a profound understanding of
unmet consumer needs. In China, Ali-baba’s lead over eBay, Baidu’s lead over
Google, and Xiaomi’s lead over Apple
are just a few examples to suggest this.
One reason is that business innovation
requires attention to distribution and
logistics networks as well as to designing products and services.
The second challenge lies in understanding host governments. They
impact business operations through
granting of permits and licenses, protecting intellectual property, regulating foreign direct investment, and so
on. Successful companies anticipate
changes in regulation and rules. The
unstable nature of the rule-making institutions in emerging markets adds
uncertainty and risk. It pays for companies to understand these things.
Emerging markets require companies that understand frugal innovation
and how to influence regulation and
rules in localities that are unstable or
unpredictable. Having antennae on
the ground via subsidiaries in decentralized multinational corporations
and/or through use of local emerging
market firms as partners, seems to be
a winning formula.
1. Chin, V. and Michael, D.C. BCG local dynamos: How
companies in emerging markets are winning at home.
Boston Consulting Group, 2014.
2. Goldman Sachs. Dreaming With BRICs: The path to
2050. Global Economics Paper No. 99. 2003.
3. MGI. Urban world: The shifting global business
landscape. McKinsey Global Institute, 2013.
4. P&G chief hopes his mea cupla will help turn the tide.
Financial Times (June 21, 2012).
5. Sako, M. Driving power in global supply chains.
Commun. ACM 54, 7 (July 2011), 23–25.
6. The Rise of State Capitalism, special report on
emerging market multinationals. The Economist
(Jan. 21, 2012).
7. The World Turned Upside Down, special report on
innovation in emerging markets. The Economist
(Apr. 15, 2010).
Mari Sako ( firstname.lastname@example.org) is Professor of
Management Studies at Saïd Business School, University
of Oxford, U.K.
Copyright held by author.
led by nationals
novation shows emerging market multinationals gaining ground in innovation that meets the needs of emerging
market consumers. MTN from South
Africa appears stronger than Western
mobile operators in providing services
to other African countries. Such south-south trade—the movement of goods
and services from one emerging market to another—has been on the rise; it
accounts for approximately half of total trade for China, and almost 60% of
total trade for India and Brazil. Much is
in agricultural products and minerals.
But it is spreading to manufacturing,
especially in renewable energy products (solar photovoltaic cells and modules, wind-powered generating sets,
It is also useful to examine who is
ahead or behind in implementing institutional reforms. Many emerging
market countries suffer from unstable,
weak, and inadequate institutions
for tax collection, enforcement of intellectual property rights, and other
functions. Yet global institutions are
increasingly led by nationals from
emerging market countries. These
leaders set the global policy agenda and
influence the global rules of the game.
The fifth BRICS summit in March 2013
launched a New Development Bank to
be headquartered in Shanghai as an alternative to international financial institutions such as the World Bank.
What This Means for Developed
To operate successfully in emerging
markets, multinationals must navigate
both host governments and the needs
of local consumers. They must make
clear choices about how best to do this.
Archrivals Procter & Gamble and Unilever provide a good comparison. P&G
is bigger ( 84 billion USD revenue) and
more profitable ( 12.9% net profit margin) compared to Unilever ( 67 billion
USD revenue and 9.6% net margin).
Yet, Unilever has higher sales turnover
(57% as compared to P&G’s 38%) in
fast-growing emerging markets.
P&G is global, operating in 80 countries and touching the lives of people
in 180 countries. However, P&G centralized R&D and other functions to
speed up product roll-out and to reduce the cost of operations (by 10 billion USD by 2016). This was done to