How to Win in Emerging Markets

Village roads can be impassable, home cooking is still a way of life, product prices can be below the cost of production in developed markets, and local products often have generations of loyal customers. Nevertheless, emerging markets in Asia, Latin America and Eastern Europe are delivering some of the strongest revenue and profit growth for global makers of fast-moving consumer goods — everything from snacks to toothpaste — despite concerns that lower prices translate into lower profits.

Emerging-market leaders like Coca-Cola, Uni-lever, Colgate-Palmolive, Groupe Danone and PepsiCo earn 5% to 15% of their total revenues from the three largest emerging markets in Asia: China, India and Indonesia. The story is similar in Russia and Eastern Europe, where these companies often dominate their target categories and routinely exceed internal corporate benchmarks for profitability. And the trend is likely to continue: The gross domestic product of emerging markets equaled the gross domestic product of advanced nations for the first time in 2006, with much of the growth coming from the “BRICET” nations — Brazil, Russia, India, China, Eastern Europe and Turkey.

Until the past few years, emerging markets were a relatively low priority for the leading consumer products companies with a few exceptions, even though these markets are home to about 85% of the world’s population. The obstacles are still real — in emerging markets, multinationals compete on unfamiliar terrain dominated by local players, sell at price points below those in their home countries, and wrestle with deep-seated social and cultural customs. But with growth slowing in the mature markets of North America, Japan and Western Europe, some consumer goods companies have figured out how to tap into the purchasing power of a new and growing middle class — which has rising income, credit cards and access to personal loans — in these emerging markets. The fast-moving consumer goods market leaders have proved that, when armed with the right strategies, they can beat domestic competitors. But what separates the winners from the losers?

Flexible thinking, to begin with. Successful companies are willing to break away from business as usual. They reconfigure global products to compete with consumers’ preferences for popular local brands, both in price and taste. Or, as with Rossiya — the leading chocolate brand in Nestlé S.A.’s Russian portfolio — companies skillfully steer acquired brands with 50 years of tradition under their own umbrella.