New Strategies in Emerging Markets

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Once viewed as "less developed countries," emerging markets (EMs) now offer a significant growth opportunity for multinational corporations (MNCs). Because they differ dramatically from mature markets, however, they raise new strategic questions that traditional marketing frameworks do not resolve.

While traditional models argue against first-mover advantages in EMs, additional sources of advantage — favorable government relations, pent-up demand, marketing productivity, marketing resources, and consequent learning — can make early market entry a desirable option. The authors provide a framework, oriented toward demand rather than risk, that enables companies to assess long-term market potential, identify business prospects, and predict potential benefits. Using the framework, companies can categorize EMs on the basis of short- and long-term potential.

Once an MNC decides to enter a market, it needs new frameworks to guide product and partner policy decisions. The different patterns of market development in EMs imply that, contrary to conventional models, companies can expand the market rapidly, should offer a combination of global imported brands and locally made joint venture brands, and use EMs to test product innovations. The design and management of relationships with local distributor partners is the most critical challenge for executives. In the areas of industry experience, direct selling, local autonomy, and exclusivity, experienced MNCs are adapting the approaches employed in developed markets in ways that are appropriate for emerging markets.

As MNCs continue to gain experience in EMs, marketing models will have to change to incorporate the new practices and new learning that are coming from markets.

David J. Arnold is assistant professor of business administration at the Harvard Business School. John A. Quelch is dean and professor at London Business School.

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