As local companies win an increasing share of markets in emerging economies, multinationals need to let go of their global strategies and embrace a new mission: Integrate locally and adapt globally.
Something strange seems to be happening as globalization marches forward: Increasingly, powerful local companies are winning out against multinational competitors. This is especially true in emerging markets, where multinationals are assumed to enjoy superiority and their CEOs are counting on growth. Unilever CEO Paul Polman recently pointed out that his stiffest competition comes from fast-growing local companies. “We don’t see Procter & Gamble as our toughest competitor,” he noted. “Most of our competitors in emerging markets are regional players.”1 This sentiment appears widespread: According to one survey, 73% of executives at large multinational companies considered that “local companies are more effective competitors than other multinationals” in emerging markets.2
Not long ago, many observers worried that ever-expanding multinationals, many of which had revenues exceeding the gross domestic product of smaller countries, were going to take over the world. But consider this evidence: In China’s ice cream market, Unilever and Nestlé S.A. had won market shares of only 7% and 5%, respectively, by 2013 — despite decades of investment. The market is dominated by two companies that most people outside of China have probably never heard of: China Mengniu Dairy Co. Ltd., with a 14% market share, and Inner Mongolia Yili Industrial Group Co. Ltd., with 19%. Meanwhile, in the Chinese market for laundry detergent, Procter & Gamble was the leading foreign brand, with an 11% share in 2013, but it was overshadowed by two China-based companies: Nice Group Co. Ltd., with more than 16% of the market, and Guangzhou Liby Enterprise Group Co. Ltd., with 15%. The home appliance market is similarly structured. Chinese companies dominate the market, with Haier Group at 29%, followed by Midea Group (12%) and Guangdong Galanz Group Co., Ltd. (4%). The two top multinational competitors, Germany’s Robert Bosch GmbH and Japan’s Sanyo Electric Co. Ltd., have only niche positions (each with less than 4%).
China isn’t the only market where multinationals are losing ground to local companies.