To reach the “next billion” consumers, multinational companies will need to move beyond value chain localization and create new networks of local partners.
As growth in developed economies languishes, the fastest engines of global growth for several years to come will be in the emerging markets. According to the International Monetary Fund, India and China may see growth rates of 9% and 7.5%, respectively, in 2012. Multinationals are stepping up their capabilities in emerging economies by opening more R&D labs, factories and sales and marketing offices that can design, develop and sell locally relevant products and services. Increasingly, products and services sold by multinationals in emerging markets are being redesigned or entirely built from scratch using local R&D talent.
By locating R&D and manufacturing activities in growth markets, multinational companies aim to design and deliver products and services that are both economical and better suited for the average local customer. This approach has clear advantages over importing and selling high-priced products and services developed and produced in the West. However, many multinationals that rely on “value chain localization” still focus on affluent, urban customers. This strategy does not adequately prepare them for the far greater challenge (and opportunity) of reaching the mass market of the urban and rural poor.
For companies seeking to sell products and services to low-income consumers, there are challenges both in product design and delivery. These challenges necessitate bringing together local and global partners, the authors say. They also require multinationals to go beyond the value chain localization they’re accustomed to and embrace a “network orchestration” strategy that brings together local and global innovation partners.
The article is based on extensive interviews in India and China with managers in a wide range of industries including software, medical equipment, consumer electronics, telecommunications, financial services, consulting and product design. In presenting a strategy for successful network orchestration, the authors focus on three case studies in particular: Nokia’s move into technology-enabled services in India; GE Healthcare’s effort to bring affordable cardiac screening and state-of-the-art medical imaging to rural populations in India and Bangladesh; and Xerox’s innovation strategy for India and other emerging markets.
The authors conclude with four recommendations for an effective “network orchestration” strategy in emerging markets. They recommend that multinationals should extend innovation partnerships beyond the usual channel partners by engaging key community stakeholders such as government bodies, universities and NGOs; engage innovation partners strategically with a larger purpose; trust but verify in a transparent manner; and designate local partner network managers.