Emerging

Markets
Lessons
for
business
success
and
Lessons for business success and
the
outlook
for
different
markets
the outlook for different markets

Presenters:
Amna Chahal
Seemab Hussain

Lessons for Business

Success

Interpreti
ng
Economic
Indicators

Eternal
dilemma
s:
Market
entry,
Corporat
e
structur
e,
Marketin
g

Reachin
g the
local
market

Economic indicators do a good job in

measuring economic performance.
In emerging markets, the indicators are
less reliable than in developed world.
It is too expensive to collect information
on all economic activity, so collection is
based on surveys and sampling. As a
result, accounts are full of estimates.

Economic Indicators
include:

GDP (Gross Domestic Product)

Current account deficit
Short-term capital account flows
Budget deficit
Inflation
Interest rates
Exports
External debt
Foreign reserves

Gross Domestic
Product
The total market value of all final
goods and services produced within an
economy in a given year.
GDP forecasts are given great weight
in many business plans but this can be
misleading.
The Economist has said:
GDP should really stand for Grossly
Deceptive Product.

Points to be considered while

forecasting GDP:

Rely on real GDP instead of nominal GDP

Look at past trends and understand what
drives growth or decline in GDP
Data can be subjected to later revisions.
Data can be seasonally adjusted.
Compare rise in countrys GDP with
increase in its population.

Continue

Governments can manipulate data to

support their political agenda.
Technologies advances often remain
unmeasured.
Growth can be driven by strong exports
or strong government purchases.
Does not count any underground economy.
Understand the significance of the
dominant sector.

Current Account Deficit

Current account is the sum of net
exports of goods and services, net
income received from investments
abroad and net transfer payments from
abroad.
Current account deficit highlights
currency
weakness
or
potential
changes in economic policy that might
affect business

 A large demand for imported goods

results in selling of local currency
and buying foreign currency.
Deficit arises as a result of actions
that create a demand for foreign
currency.

How does a deficit arise and how

might it affect currency values?

How to overcome current-account

deficit?

Foreign Direct Investment (FDI)

International Borrowing

Sale of Foreign Exchange Reserves

Short-term Capital-Account
Flows
Capital-account flows have become
increasingly important as an indicator of
potential dangers for local currencies in
many emerging economies.
Hot money is a popular name for shortterm capital movements.
These include investments in liquid
assets like Treasury bills and bank
deposits and may also include portfolio
investment in stocks and bonds.

Budget Deficits
A budget deficit is when expenditures are
higher than revenue and is reconciled by
borrowing or by printing money.
It may lead to hyperinflation or if it
accumulates future generations finance it
by paying higher taxes.

How to overcome budget deficits?

Central banks sometimes buy
government securities (new issues
and existing debt issues). This is called
monetizing.
Off -budget funds are another way of
hiding deficits. Developed countries
have them too, but they are common in
most emerging markets.

Deficit creation is not

always bad
A temporary increase in public
spending to pull an economy out of
recession is fine, especially if the
overall government debt is within
acceptable international standards.

Inflation
The inflation rate is a measure of the
percentage change in price levels in an
economy.
The consumer price index (CPI) is the most
common indicator used to follow inflationary
trends. It is being based on a basket of
different goods and services used by typical
household and is determined by
governments.

Demand-pull inflation

Interest Rate
Central banks are much concerned of
inflation rates because if is exceeds the level
of nominal interest rates, the real interest
rate will be negative.
Negative real interest rate discourages
savings followed by less money available for
lending and for spending on capital goods,
which ultimately leads to a fall in living
standards.

Aggressive policy

Exports
The structure of exports indicates the
overall health of the economy.
If an economy is heavily dependent on
exports of commodities or semi-finished
products, it is much more likely to be
affected by swings in world prices.
It is also useful to know where exports
are heading.

Official reserves
The official reserves of a country include all foreign
currency and gold held by governments.
Governments should have at least enough reserves
to cover three months of imports.
These reserves are used for currency interventions
and to pay for any international obligations.

Currency
interventions
Rapid fall in reserves

External debt & Debt Servicing

External debt includes debt owed by both

private and public sector.
The interest payments and repayments on
external debt can be financed only by
income earned from exports.
Assess the ability of a country to service the
debt. If potential debt repayment problem
exists, economy can turn into a crisis.

Eternal dilemmas: Market entry,

Corporate structure & Marketing

Reasons for failure of firms to secure a

strong position in emerging markets

No commitment from top to long-term

dominance
Minimal or no local presence
Leaving distributors to run the business
Fly in, fly out management of local markets
Leaving distributors without or with little
support
Limited or no investment in marketing/
advertising

Local Presence

Local presence is crucial to success.

Companies need to have a local office
focusing on marketing and sales.
Dont rely solely on distributors.
Underinvestment in local offices leads to
under penetrating the market, especially
when company is in an earlier businessdevelopment stage.

Corporate Structure

Make sure CEO supports the emerging-market

business.
Make sure each region has its own boss.
Dont give a developed market head the
additional responsibility for emerging markets.
Choose a good location for the regional office
Consider clusters
Give managers operational freedom
Dont centralize the marketing and sales
functions

Localizing

Building brand image

Opportunity to re-position products
from lower market segments to higher
market segments.
Know customer needs.
Foreign product is not always preferred.
Re-design products according to
demand.
Keep purchasing power of locals in
consideration.

Packaging must have local language

written on it.
Package size should be kept in
accordance with affordability of locals.
For example; tiny packages sold in
poor parts of Asia and Africa.

Reaching The Local

Market
Poor distribution networks can
contribute towards failure of many
companies in emerging markets.
Distribution channels are often
inefficient and full of potentially
bankrupt partners.

Selecting
Selectingthe
the
Distributor

Distributor
Interviewing
potential
candidates
Interviewing potential
candidates

Visiting
Visiting their
their premises
premises

Checking
Checking credit
credit rating
rating

Testing
Testing expertise
expertise in
in sales
sales and
and marketing
marketing

Checking
Checking word
word of
of mouth
mouth recommendations
recommendations

Checking
Checking background
background of
of their
their relationship
relationship with
with
other
other retailers
retailers and
and end-buyers
end-buyers

Checking
Checking after
after sales
sales service
service

Checking
Checking their
their nationwide
nationwide reach.
reach.

Control
Over
Distribution
Control Over Distribution
Network
Network
i.i. Have
Have local
local staff
staff working
working with
with
distributor.
distributor.
ii.
ii. Company
Company may
may use
use their
their own
own fleet
fleet of
of
vehicles.
vehicles.
iii.Place
iii.Place staff
staff members
members within
within
distributors
distributors organization.
organization.
iv.Appoint
iv.Appoint aa key
key person
person in
in distributor's
distributor's
staff
staff to
to deal
deal exclusively
exclusively with
with

Clear
Communication
Clear Communication

Distributors
Distributorsshould
shouldbe
beclearly
clearlycommunicated
communicatedabout
about
companys
companyslong
longterm
termstrategic
strategicbusiness
businessgoals.
goals.

Adapt
Distributor
to
Adapt Distributor to
Companys
CompanysStrategies
Strategies

Any
Anymarketing
marketingdone
doneby
bythe
thedistributor
distributormust
mustbe
befully
fullyinintune
tune
with
withoverall
overallcompanys
companysmarketing
marketingmessage.
message.

Price
PriceControl
Control
Avoid
Avoidpricing
pricingproblems
problemsby
bycreating
creatingpublic
publicawareness
awarenessabout
aboutprice
price
standard.
standard.
For
Forexample;
example;Colgate
Colgateadvised
advisedconsumers
consumerstotocome
comedirectly
directlytotocompany
company
ififthey
theywere
wereunable
unabletotobuy
buyproduct
productatatrecommended
recommendedprice.
price.

Improving
Improving
Performance
Performance

Keep
Keepdistributors
distributorsfocused
focusedon
onways
waystotodeliver.
deliver.

They
Theymust
mustnot
nottake
takebusiness
businessfor
forgranted.
granted.

Training
Trainingfor
forDistributors
Distributors

Companies
Companies may
may train
train their
their trusted
trusted
distributing
distributing partners
partners to
to strengthen
strengthen their
their
weaknesses
weaknesses (like
(like financial
financial reporting
reporting or
or
marketing).
marketing).

Relationship
Relationshipwith
with
Distributor
Distributor

The
The ultimate
ultimate goal
goal should
should be
be the
the
creation
creation of
of genuine
genuine partnership
partnership that
that will
will
lead
lead to
to tangible
tangible and
and intangible
intangible benefits.
benefits.

 Detailed Contract
Support Distributors
Manage Receivables
Managing
Managing
Risks
Risks

Managing
Managing
Receivables
Receivables

Issues :
I. Collapse of distributor
II. Collapse of distributors bank

Working
Working with
with several
several distributors
distributors to
to diversify
diversify
risk.
risk. IfIf one
one collapses,
collapses, not
not all
all the
the receivables
receivables go
go
with
with it.
it.

Working
Working with
with several
several banks
banks also
also diversify
diversify risk
risk
of
of bank
bank collapse
collapse during
during economic
economic crises.
crises.

Contents
Contentsof
ofDetailed
Detailed
Contract

Contract
Duration
of
contract
Duration of contract

Prices
Prices

Terms
Terms and
and conditions
conditions of
of sales
sales

Rights
Rights to
to visit
visit distributors
distributors premises
premises

Protection
Protection against
against delivery
delivery delays
delays

Marketing
Marketing and
and facilities
facilities expenditures
expenditures

AA cancellation
cancellation clause
clause for
for breach
breach of
of contract
contract

Agreed
Agreed place
place of
of arbitration
arbitration

Conclusion
Conclusion

Be
Be rationally
rationally decisive
decisive in
in selecting
selecting appropriate
appropriate
distribution
distribution channel.
channel.

Sell
Sell through
through multiple
multiple channels,
channels, include
include more
more
distributors
distributors in
in areas
areas beyond
beyond distributors
distributors reach.
reach.

Do
Do not
not hand
hand over
over key
key accounts
accounts to
to non
non trusted
trusted
distributors.
distributors.

Dont
Dont ignore
ignore rural
rural customers
customers that
that can
can provide
provide an
an
edge.
edge.

Franchises
Franchises and
and flagship
flagship stores
stores gives
gives better
better control
control
in
in market.
market.

Do
Do not
not ignore
ignore local
local competitors
competitors

Stronger
Stronger market
market position
position makes
makes easier
easier to
to survive
survive at
at
lower
lower prices.
prices.