Increasingly, companies from the developing world are drawing attention for their ability to survive and grow despite limited resources. These emerging country multinationals are the subject of a new book authored by academics Amitava Chattopadhyay, Rajeev Batra and Aysegul Ozsomer. Released in June, the book titled The New Emerging Market Multinationals: Four Strategies for Disrupting Marketing and Building Brands has received positive reviews for being a text-book guide to these companies, which include names such as Marico, Godrej Consumer, Tata Global Beverages, and Mahindra & Mahindra (M&M). Batra, who is a professor of marketing at University of Michigan, USA, was in Mumbai recently. He spoke to Viveat Susan Pinto on what excited him the most when working on the book and the take-homes for both emerging as well as established multinationals. Edited excerpts:
What spurred you to co-author the book on emerging multinationals?
I have been teaching, doing research and consulting in the area of brand-building for well over 20 years now. I had an interest in emerging markets. In the last few years I began to notice that there were these new brands coming out of this world that were beginning to do quite well. HTC is a case in point; the Tatas are good example from an Indian point of view. The question that popped up in my mind is: How come these brands are doing well given the perception that they come from countries where quality is not of the highest standards? How are they building brand awareness with limited resources? How are they competing with the global giants and managing to succeed? I then got in touch with Amitava in Singapore and Ozsomer in Turkey. We joined forces to write the book.
How did you arrive at the list of 39 emerging market multinationals (E-MNCs) that are part of the book?
We tried looking at the best of the lot across markets such as India, China, Russia, Brazil, Turkey etc. Much of it was also about the ease of reaching out to them-of how quickly they responded to us. We did try to look across sectors and have a decent lot of companies as well as sectors represented in the book.
What sets these E-MNCs apart from their developed country counterparts?
One is obviously that their resources are limited. They don't have deep pockets to spend massively on brand-building and advertising. They have weaker global-regional organisations though at the local level they are quite well known. They also don't have massive teams in R&D like a Unilever, P&G or Lóreal does. By necessity, E-MNCs, as I call them, have learnt to compete in a frugal way. Cost-cutting is a mantra they swear by and so is innovation. For them frugal innovation or jugaad is a way of life. Through clever, strategic acquisitions and by spending in a focused manner these companies have built the skill sets required to compete in the global marketplace.
With their growing appetite for acquisitions, are these E-MNCs becoming a threat to their western counterparts?
While the number and scale of acquisitions by these companies is growing, we found that these players didn't actually get it right in the first instance when they stepped out to do acquisitions. Take Tata Global Beverages. The Tetley acquisition in 2000 was the second time when they took a shot at that company. They were hungry for acquisitions, yes. But they also got a few things right at the second instance. They lined up the investment to acquire Tetley-Tata Sons was committed to making the acquisition and it was clear about why it wanted the company. When making acquisitions you have to have the right balance of patience and speed. Companies are slowly but steadily getting it right.
With many of the E-MNCs acquiring companies in the developed world, does this create a problem during integration given that the acquirer is from a place perceived to be economically backward in comparison to the target company, which is from a wealthy nation?
It does create problems during integration. And the irony is that while the target companies come from wealthy nations, they are actually suffering. Take Jaguar Land Rover. Ford Motors, the erstwhile owner, was unprepared to sink in any more money into the company. At the same time, this was just the right acquisition for Tata Motors, which was looking to get into the premium league of passenger cars. Here were two iconic British brands that could help it do that and so it acquired the company.
How are E-MNCs dealing with the invariable cultural issues that creep up with an international acquisition? The answer is a light-touch or soft-touch approach. That is they are hands-off in their management style as opposed to their western counterparts which tend to thrust their working style on the new acquired company. Quite often this is the deciding factor in whether an acquisition succeeds or fails. The successful companies find a way of dealing with the cultural issues an acquisition throws up. Our research shows that success rate of acquisitions by companies located in the developed world is no higher than those located in the emerging world. It is just 50 per cent, which means that companies in both the worlds need to manage cultural issues better.
Is the number of E-MNCs growing rapidly?
Yes, the number of E-MNCs is growing. In 2005, the number of such companies was 44 in the Fortune 500 list. This in 2010 touched 113. Given the ambition, the drive and zeal to be global, this number could shoot up. What is also fuelling the ambition of these companies is the access to capital. There is also an attitudinal change in many of these companies, which are family-run. With the younger generation coming to the fore, the need to be global and professional is growing.
With companies in the emerging world grappling with a slowdown, how best can they tackle a situation like that?
A slowdown can be an incentive to broaden your horizons. To step out and compete in multiple markets rather than restricting yourself to one market alone. It is not only the emerging world that is grappling with a slowdown, but also the developed world. Consumers in the developed world are beginning to seek value in the products they consume much like their developing countries. This provides a wonderful opportunity for E-MNCs to address this need. M&M, for instance, launched models in the tractor and SUV (sport utility vehicle) space in markets such as Southern Italy, Europe and Hungary to provide value to consumers because that is what they were seeking. That was a need that Mahindra gauged and addressed it. A slowdown therefore can throw up a number of possibilities for those willing to innovate.
To what extent can a company innovate?
A company can innovate across the value chain right from manufacturing to brand-building to R&D. Much depends on the objectives and goals of a company. Our sample size of companies chose to innovate across the value chain. It wasn't restricted to a particular area or function.
Your book speaks of four strategies used by E-MNCs. Can you summarise that?
The first strategy speaks of the need to lower costs cleverly. Bharti Airtel, for instance, took all its fixed costs and converted them into variable costs by outsourcing them to partners such as IBM, Erickson etc. A Chinese company BYD, which engages in the manufacture and sale of rechargeable batteries, handset components, automobiles and related products, could not afford to use the kind of technology that Intel used in manufacturing semi-conductors. Intel used something called “clean rooms” for manufacturing semi-conductors, which is an expensive exercise. BYD came up with a concept of “clean machines” that attempted to do the same: Manufacture semi-conductors without compromising on quality at the same time being economical too. The result: BYD was able to save on costs.
The next strategy speaks of those that are knowledge leveragers. These are companies that seek markets that are similar to their home turfs. They say, “We can compete in India or China, why not look at similar markets with the same consumer profile and segments.” Asian Paints, Marico, Dabur, Godrej Consumer are a case in point. They are the knowledge leveragers.
The third strategy is what we call niche customisation-categories and segments ignored by the big players but those that are relevant to the E-MNCs. Here E-MNCs, with a combination of flexible manufacturing and low-cost R&D, come up with solutions that help them in these categories and segments. In the Middle East and other markets, Titan saw a number of such small segments, neglected by the big players, but which were still relevant. It addressed these needs and this has helped it gain a strong foothold in these markets.
The fourth strategy is global brand-building. There are two ways of doing this: organically or inorganically. That is either build the capabilities in-house or you acquire. HTC and Haier, both Chinese companies, chose to build it in-house, while the Tatas have opted to acquire companies in their drive to have global brands. Our recommendation is that the fourth strategy of global brand-building is the most sustainable of approaches for competing in the international marketplace.