Confucius and Lao Tse were two great Chinese philosophers who lived in the same age. Confucius was younger than Lao Tse. Confucius taught Confucianism while Lao Tse taught Taoism. One of the principles of Taoism is that of Yin and Yang.
Yin and Yang represent the two different forces that form everything that exists on earth. Yin is the ‘soft’ force, while Yang is the ‘hard’ one.
Confucius was a typical Yang while Lao Tse was a typical Yin. Confucius taught in a straightforward and clear way what was and was not permitted, while Lao Tse was a little abstract and was difficult to understand.
At one time Confucius asked Lao Tse, “By the end of the day, which is stronger Yin or Yang?” Lao Tse’s answer initially left Confucius very confused.
He only opened his mouth very wide and asked Confucius to look inside closely. He then offered no further explanation.
After considering briefly, Confucius knew the answer. Lao Tse was then quite elderly. All his teeth had already fallen out, but his tongue was still intact. What did that mean? The soft tongue—which illustrated Yin—could apparently survive longer than the hard teeth —which illustrated Yang.
This was an interesting story that triggered laughter among its listeners when Professor Hong Hai, Dean of Nanyang Business School, told it at an Asian Globe-The Jakarta CEO Club event organized by MarkPlus&Co held in Jakarta on 1 November 2004.
I was fortunate to be able to invite the Professor to the event to share his wisdom on the application of Yin and Yang to leadership in the business world.
Nanyang Business School is itself one of the best business schools in Asia and is the only business school from Southeast Asia included in the 2004 rankings of top 100 MBA schools by Economist Intelligence Unit. One of the secrets of its success is the application of Yin and Yang in its curriculum, which provides the best balance between the ‘hard’ and ‘soft’ skills of business in Asia.
Yin represents the ‘soft’ skills of business study; those based on divergent thinking processes such as creativity, leadership and visioning, field knowledge, and innovation. Typical Yin disciplines are marketing and entrepreneurship.
Yang represents its ‘hard’ skills; those based on convergent thinking processes such as controlling, structuring, exact knowledge, and conservation of system and procedures. Typical Yang disciplines are quantitative ones and basic accounting procedures.
The principles of Yin and Yang are rooted in Chinese philosophy but have universal meanings that we commonly meet with in our daily lives. The sun is often associated with the force of Yang and the moon with the force of Yin. Men are often associated with the force of Yang and women with the force of Yin.
The force of Yin must be balanced by the force of Yang and vice versa. Both forces can oppose one another and at the same time be interdependent. This is what Professor Hong Hai calls the paradox of Yin and Yang.
Three phenomena make up this paradox. First, Yin and Yang oppose each other, but are also interdependent.
I have observed that this also occurs in the business world. Finance— Yang in nature—is frequently in opposition to marketing— whose nature is Yin. But both are still needed in a company’s activities and need to be kept in balance so they can make their best contribution to the company. I even often say that the best CEO is the one who understands both finance and marketing.
The second paradox is that Yin and Yang wax and wane, and can transform into each other. If Yin increases, then Yang reduces and vice versa. Yin can transform into Yang and vice versa.
In the business world, one transformation of Yang into Yin can be seen with Ericsson. That company, before becoming Sony Ericsson was a typical Yang because it greatly relied on technology. Since being defeated in the competition for cell phone business by Nokia, which is a typical Yin, Ericsson, which then joined with Sony, transformed into a company that was more customer-centric, a typical Yin like Nokia.
The third paradox goes: “In Yang you will find Yin, in Yin you will find Yang.” Metrosexuals—men who have become more empathetic—are one clear example that within a man whose nature is Yang, emotion and empathy can also be found, both of which are Yin. Many of these more empathetic men have become successful CEOs, including Steve Ballmer, CEO of Microsoft Corp.
On the other hand, there are also many women whose nature is more systematic and rational. Many have also become successful CEOs. One example is Carly Fiorina, Chairman and Chief Executive Officer of Hewlett Packard (HP). Carly is a powerful and rational woman even though she is also a sensitive and feeling one, too.
What lesson can we then take from this in order to become a good business leader? To answer that, I want quote Lao Tse’s words: “Be still like a mountain and flow like a great river.” In other words, balance the Yin and Yang in your leadership style. That’s all it takes to be a great business leader.
*www.markplusinc.com
Sabtu, 22 Maret 2008
Driving Growth and Innovation through Strategic Segmentation*
Learning from various textbooks and world's marketing gurus, one can deduce that marketing's basic mission is to create a value proposition that (1) matches with the targeted group of customers, and (2) is viably different from competitors. If a marketer does this right, the gurus say, then the product will surely take off and create sustainable profits. The statements above may sound very good and make a lot of logical sense ? in fact we can say that it widely acceptable.
But if we look at everyday's corporate world, we often see that there is a big disconnect between what CEOs expect and what marketers deliver. Most CEOs today, facing intensifying competition and more demanding/sophisticated customers, are turning their attention to top-line growth and innovation in their attempts to create meaningful and sustainable differentiation relative to their competitors. Surely, the approach to create differentiation is widely understood ? i.e., using the segmentation-targeting-positioning (STP) approach. Put simply, STP is the process of dividing up the market into homogeneous groups of customers who respond similarly to particular offerings, which then serve as a base to create relevant and distinctive positioning to the target customers. And I bet that most marketing and brand managers understand this very well and are highly proficient in how it should be conducted. Despite all this, most CEOs are still not satisfied with what their marketing department has produced. CEOs complain that marketers are still too tactical in nature, by relying heavily on marketing mix (Product, Price, Place, Promotion), which cannot create true differentiation that are sustainable and avoid ?commoditization? through competitors' imitation.
So where's the source of disconnect here? One key source of this disconnect is in the way CEOs and marketers view segmentation. While CEOs look at ?strategic? segments, marketers still look at ?market? segments. Let me illustrate the difference between the two by first explaining ?market? segmentation as usually practiced by marketers, and then explain what ?strategic? segmentation really is.
Conceptually, marketers begin by identifying market segments, then selecting the appropriate segments to target and finally positioning the company's offer within the targeted segments using the marketing mix. Of course, in practice, this is a messier process. My colleagues from MarkPlus Research told me that there are two approaches used in market segmentation. The first approach is called a priori, which groups the customers based on ?Identifier Variables? such as demographics, socioeconomic factors, psychographic factors ? essentially categorizing the customers by knowing their profile before determining what they want. The second approach, called post hoc , starts by using response variables (such as to divide the market on the basis of how customers behave or respond to particular offering, and then hope that the resulting segments differ in terms of customer profiles. While the first approach focuses on ?who they are?, the second approach focuses on ?what they want?. In practice, marketers often use both approach to fine tune their understanding of the markets. Based on the segmentation study, marketers then decide which segments to target based on criteria like segment size, segment growth, the firm's relative competitive advantage, etc. Finally, positioning and unique selling proposition (USP) is developed to fit with the segments' profiles and needs. As an example, marketers in the cellular telecommunication company may find several market segments, such as ?Feature Maniacs?, ?Wannabes? and ?Bargain Hunters?, each of which has different profiles and needs for cellular services. They will then develop pre-paid and/or post-paid packages with different positioning, features, pricing schemes. Marketers in the company will also design appropriate channel access and promotion efforts to convey the intended positioning of each package.
So, what's wrong with the practice above? And why are CEOs still not satisfied? Nothing is wrong. What's described above are the correct and widely accepted ways for conducting proper STP in the marketing arena. But still, it doesn't address concerns or agenda of CEOs, who need to drive top-line growth profitably. CEOs wish that marketers can think of ?strategic segments?, in addition to ?market segments?.
What is strategic segmentation? Strategic segments are those segments that require distinct ?value networks? or often a completely ?different business model?, rather than just tweaking or adjusting different sets of ?marketing mix? proposition. ?Strategic segmentation? also often requires viewing of the market that is broader than the currently served markets by considering indirect competitors as well as product substitutes. This is much like Professor Chan Kim's view point in his famous ?Blue Ocean Strategy? book.
The emergence of low-cost-carrier (LCC) such as Southwest, Air Asia and the likes are clear example of viewing the market using strategic segmentation. The airline industry was predominated by major airline companies like American Airlines, British Airways, Singapore Airlines, etc., which offers full customer service and high prices, targeted to everyone, but mainly focus their attention to business travelers, which are the most profitable group of customers. Business travelers, who mostly do not pay by themselves, demands flexible schedule, higher and higher levels of service while not paying so much attention on price. Yet, the LCC pioneers, such as Southwest, see different strategic segments emerging. Looking at the current customers, they see that leisure travelers and self-paying entrepreneurs are not particularly happy with the flag carriers' offerings. In addition, they also see that in the broader definition of the market, there are bus and/or railroad customers, who were prevented from riding airplane because of high prices. The low-cost airline see these opportunities and offered a business model to serve these new strategic segments. Since then they have entirely shaken the industry's rule of the game and produce innovation. Relative to the flag carriers, they create a differentiation that is very deep and sustainable by creating an entirely new ?value network? (from purchasing practices, efficient operations, innovative marketing, non-traditional distribution, etc.), rather than just tweaking marketing mix elements. Do you see the difference now?
In summary, to impress their CEOs, marketers can take a more strategic role by looking and studying ?strategic segments? and help them create deep, game-changing differentiation strategy. In fact, marketers should also lead in the development of the appropriate ?value network? elements for the new emerging strategic segments. These kinds of efforts will help the company find its ?blue ocean? and drive profitable top-line growth that is demanded by today's ever-competitive business landscape.
*www.markplusinc.com
But if we look at everyday's corporate world, we often see that there is a big disconnect between what CEOs expect and what marketers deliver. Most CEOs today, facing intensifying competition and more demanding/sophisticated customers, are turning their attention to top-line growth and innovation in their attempts to create meaningful and sustainable differentiation relative to their competitors. Surely, the approach to create differentiation is widely understood ? i.e., using the segmentation-targeting-positioning (STP) approach. Put simply, STP is the process of dividing up the market into homogeneous groups of customers who respond similarly to particular offerings, which then serve as a base to create relevant and distinctive positioning to the target customers. And I bet that most marketing and brand managers understand this very well and are highly proficient in how it should be conducted. Despite all this, most CEOs are still not satisfied with what their marketing department has produced. CEOs complain that marketers are still too tactical in nature, by relying heavily on marketing mix (Product, Price, Place, Promotion), which cannot create true differentiation that are sustainable and avoid ?commoditization? through competitors' imitation.
So where's the source of disconnect here? One key source of this disconnect is in the way CEOs and marketers view segmentation. While CEOs look at ?strategic? segments, marketers still look at ?market? segments. Let me illustrate the difference between the two by first explaining ?market? segmentation as usually practiced by marketers, and then explain what ?strategic? segmentation really is.
Conceptually, marketers begin by identifying market segments, then selecting the appropriate segments to target and finally positioning the company's offer within the targeted segments using the marketing mix. Of course, in practice, this is a messier process. My colleagues from MarkPlus Research told me that there are two approaches used in market segmentation. The first approach is called a priori, which groups the customers based on ?Identifier Variables? such as demographics, socioeconomic factors, psychographic factors ? essentially categorizing the customers by knowing their profile before determining what they want. The second approach, called post hoc , starts by using response variables (such as to divide the market on the basis of how customers behave or respond to particular offering, and then hope that the resulting segments differ in terms of customer profiles. While the first approach focuses on ?who they are?, the second approach focuses on ?what they want?. In practice, marketers often use both approach to fine tune their understanding of the markets. Based on the segmentation study, marketers then decide which segments to target based on criteria like segment size, segment growth, the firm's relative competitive advantage, etc. Finally, positioning and unique selling proposition (USP) is developed to fit with the segments' profiles and needs. As an example, marketers in the cellular telecommunication company may find several market segments, such as ?Feature Maniacs?, ?Wannabes? and ?Bargain Hunters?, each of which has different profiles and needs for cellular services. They will then develop pre-paid and/or post-paid packages with different positioning, features, pricing schemes. Marketers in the company will also design appropriate channel access and promotion efforts to convey the intended positioning of each package.
So, what's wrong with the practice above? And why are CEOs still not satisfied? Nothing is wrong. What's described above are the correct and widely accepted ways for conducting proper STP in the marketing arena. But still, it doesn't address concerns or agenda of CEOs, who need to drive top-line growth profitably. CEOs wish that marketers can think of ?strategic segments?, in addition to ?market segments?.
What is strategic segmentation? Strategic segments are those segments that require distinct ?value networks? or often a completely ?different business model?, rather than just tweaking or adjusting different sets of ?marketing mix? proposition. ?Strategic segmentation? also often requires viewing of the market that is broader than the currently served markets by considering indirect competitors as well as product substitutes. This is much like Professor Chan Kim's view point in his famous ?Blue Ocean Strategy? book.
The emergence of low-cost-carrier (LCC) such as Southwest, Air Asia and the likes are clear example of viewing the market using strategic segmentation. The airline industry was predominated by major airline companies like American Airlines, British Airways, Singapore Airlines, etc., which offers full customer service and high prices, targeted to everyone, but mainly focus their attention to business travelers, which are the most profitable group of customers. Business travelers, who mostly do not pay by themselves, demands flexible schedule, higher and higher levels of service while not paying so much attention on price. Yet, the LCC pioneers, such as Southwest, see different strategic segments emerging. Looking at the current customers, they see that leisure travelers and self-paying entrepreneurs are not particularly happy with the flag carriers' offerings. In addition, they also see that in the broader definition of the market, there are bus and/or railroad customers, who were prevented from riding airplane because of high prices. The low-cost airline see these opportunities and offered a business model to serve these new strategic segments. Since then they have entirely shaken the industry's rule of the game and produce innovation. Relative to the flag carriers, they create a differentiation that is very deep and sustainable by creating an entirely new ?value network? (from purchasing practices, efficient operations, innovative marketing, non-traditional distribution, etc.), rather than just tweaking marketing mix elements. Do you see the difference now?
In summary, to impress their CEOs, marketers can take a more strategic role by looking and studying ?strategic segments? and help them create deep, game-changing differentiation strategy. In fact, marketers should also lead in the development of the appropriate ?value network? elements for the new emerging strategic segments. These kinds of efforts will help the company find its ?blue ocean? and drive profitable top-line growth that is demanded by today's ever-competitive business landscape.
*www.markplusinc.com
Formulating Profitable Growth Strategy*
For businesses to survive, growth is an imperative, not an option . Often, the most straightforward way to increase shareholder value is top-line revenue growth, which is also usually less painful than alternative methods of value creation (such as cost reduction or changes in ownership structure). However, for all its positive implications, achieving growth is a complex and difficult task. Only a small minority of companies succeed in their attempts at sustained growth.
For companies selling into mature, or even worse, declining markets, profitable growth can be a particularly tall order. Finding creative ways to increase the size of the pie, rather than new ways to cut up the old one, is the challenge facing many of today's senior managers who want to avoid a zero-sum game with competitors.
We see two emerging school of thoughts in formulating growth strategies. The first one is very much market-based, whereby a company would identify the available opportunities in the markets that are related to the business and then think through about the development and/or acquisition of capabilities that are required to capture those opportunities. We call this the Opportunistic Approach . The second one is what we call the Growing from the Core Approach , whereby a company would first identify what they are good at and then try to leverage these competitive advantages to capture ?adjacent business opportunities? that a company can pursue to strengthen its core and grow its revenues. This second approach focuses on locating and expanding the strongest assets of a company's core businesses, which is often suited for companies whose core businesses don't operate at their full potential .
The question is then, which one is better? Our view is that neither one is better than the other. In fact, our experience in helping several companies reveal that growth strategies should adopt a hybrid-approach. That is, we hold the view that although a company should always be ready to capture the ?next waves of opportunities?, it should never go too far away from what they are really good at. Stretching your competencies too much will break apart any organization, no matter how strong and solid it is. What we know for sure is that growth strategy formulation must be based on a fact-based and rigorous process, although management wisdoms of the senior management team play a lot of role in making the final growth strategy decision.
That being said, the development of growth strategies usually involves three generic phases, which can be tailored into different company situations: (1) growth strategy identification and profiling, (2) core capabilities assessment, and (3) growth strategy evaluation and selection.
Phase 1: Growth Identification and Profiling
A rigorous growth strategy identification and profiling process is a prerequisite to ensuring the optimal strategy design. This first phase usually begins with an industry overview and trend analysis which identifies the critical drivers within a particular industry, which provides focus to strategy development sessions.
It is not uncommon to have a group of 10-15 individuals generate over 200 growth ideas during the course of a productive scenario planning session. Once the ideas have been generated, an affinity mapping technique is applied to eliminate redundant and similar growth strategies. The iterative nature of the technique encourages a broader characterization of markets and results in a set of emerging and distinct growth strategies. Each growth strategy candidates then should be profiled in detail, including the potential financial impact and execution options.
Phase 2: Core Capabilities Assessment (CCA)
A Core Capabilities Assessment (CCA) is critical to the development of a robust strategy. Its impact on growth strategy selection cannot be underestimated; successful growth strategies effectively leverage a company's core capabilities. Capabilities can be defined as any potential source of competitive advantage and, for example, may include competencies (skills and processes), assets and special relationships.
At the end of the assessment, you should be able to precisely answer questions such as ?what are the company's most differentiated and strategic capabilities?? and ?what are your most critical product and service offerings?? For the CCA to be realistic and credible, it is important to get different perspectives on the business. To this end, the assessment should involve customer assessment, self-assessment, competitor case studies and secondary research.
Phase 3: Growth Strategy Evaluation and Selection
Following the identification and profiling of potential growth strategies and an objective analysis of the client's core competencies, the next phase in the growth strategy development process is the evaluation and selection of the growth strategies. The evaluation of growth strategies is usually based upon two sets of metrics: (1) a fundamental attractiveness of the specific target market segment, and (2) its ?fit? with the client's business. Taken together, these two sets of metrics answer the questions How attractive is the market in each area? and How well does this growth platform fit with our company? By evaluating growth strategies against a common set of metrics, inherent biases are reduced and objectivity is maintained.
Once the criteria have been identified, weight factors must be applied. Here, a combination of external perspective (often provided by the consultant) and internal perspective (provided by the company's business leaders) is critical to developing a balanced view on the relative importance of each criteria.
At the end of the day, however, the selection of a growth strategy is not a mechanical exercise of choosing the strategy with the highest combined market attractiveness and company fit score. Typically the chosen strategy assumes a portfolio approach to growth which results in the adoption of several strategies that synergistically complement each other.
*www.markplusinc.com
For companies selling into mature, or even worse, declining markets, profitable growth can be a particularly tall order. Finding creative ways to increase the size of the pie, rather than new ways to cut up the old one, is the challenge facing many of today's senior managers who want to avoid a zero-sum game with competitors.
We see two emerging school of thoughts in formulating growth strategies. The first one is very much market-based, whereby a company would identify the available opportunities in the markets that are related to the business and then think through about the development and/or acquisition of capabilities that are required to capture those opportunities. We call this the Opportunistic Approach . The second one is what we call the Growing from the Core Approach , whereby a company would first identify what they are good at and then try to leverage these competitive advantages to capture ?adjacent business opportunities? that a company can pursue to strengthen its core and grow its revenues. This second approach focuses on locating and expanding the strongest assets of a company's core businesses, which is often suited for companies whose core businesses don't operate at their full potential .
The question is then, which one is better? Our view is that neither one is better than the other. In fact, our experience in helping several companies reveal that growth strategies should adopt a hybrid-approach. That is, we hold the view that although a company should always be ready to capture the ?next waves of opportunities?, it should never go too far away from what they are really good at. Stretching your competencies too much will break apart any organization, no matter how strong and solid it is. What we know for sure is that growth strategy formulation must be based on a fact-based and rigorous process, although management wisdoms of the senior management team play a lot of role in making the final growth strategy decision.
That being said, the development of growth strategies usually involves three generic phases, which can be tailored into different company situations: (1) growth strategy identification and profiling, (2) core capabilities assessment, and (3) growth strategy evaluation and selection.
Phase 1: Growth Identification and Profiling
A rigorous growth strategy identification and profiling process is a prerequisite to ensuring the optimal strategy design. This first phase usually begins with an industry overview and trend analysis which identifies the critical drivers within a particular industry, which provides focus to strategy development sessions.
It is not uncommon to have a group of 10-15 individuals generate over 200 growth ideas during the course of a productive scenario planning session. Once the ideas have been generated, an affinity mapping technique is applied to eliminate redundant and similar growth strategies. The iterative nature of the technique encourages a broader characterization of markets and results in a set of emerging and distinct growth strategies. Each growth strategy candidates then should be profiled in detail, including the potential financial impact and execution options.
Phase 2: Core Capabilities Assessment (CCA)
A Core Capabilities Assessment (CCA) is critical to the development of a robust strategy. Its impact on growth strategy selection cannot be underestimated; successful growth strategies effectively leverage a company's core capabilities. Capabilities can be defined as any potential source of competitive advantage and, for example, may include competencies (skills and processes), assets and special relationships.
At the end of the assessment, you should be able to precisely answer questions such as ?what are the company's most differentiated and strategic capabilities?? and ?what are your most critical product and service offerings?? For the CCA to be realistic and credible, it is important to get different perspectives on the business. To this end, the assessment should involve customer assessment, self-assessment, competitor case studies and secondary research.
Phase 3: Growth Strategy Evaluation and Selection
Following the identification and profiling of potential growth strategies and an objective analysis of the client's core competencies, the next phase in the growth strategy development process is the evaluation and selection of the growth strategies. The evaluation of growth strategies is usually based upon two sets of metrics: (1) a fundamental attractiveness of the specific target market segment, and (2) its ?fit? with the client's business. Taken together, these two sets of metrics answer the questions How attractive is the market in each area? and How well does this growth platform fit with our company? By evaluating growth strategies against a common set of metrics, inherent biases are reduced and objectivity is maintained.
Once the criteria have been identified, weight factors must be applied. Here, a combination of external perspective (often provided by the consultant) and internal perspective (provided by the company's business leaders) is critical to developing a balanced view on the relative importance of each criteria.
At the end of the day, however, the selection of a growth strategy is not a mechanical exercise of choosing the strategy with the highest combined market attractiveness and company fit score. Typically the chosen strategy assumes a portfolio approach to growth which results in the adoption of several strategies that synergistically complement each other.
*www.markplusinc.com
Rabu, 05 Maret 2008
Integrating Customer Management and Marketing Communications for Customized Selling
Have you ever imagined how customized selling efforts can really make a change in your sales? I am sure you have heard about segmentation concepts. How about precision selling? Segmented selling? Personal selling? They are all very interesting and useful concepts in marketing. But, one insight I got from my personal selling experience was how a customized communication message through personal channels can make or break a deal. Of course there is always the trade off between coverage and customization of a communication message. Just like between advertising and personal selling. Since that is not the current focus, we can sum up the strength and weaknesses some other time.
Some people can send the same message through various personal hand phone numbers and emails but receive disappointing results. I found out myself, that by crafting a customized message for each person, products sell faster than ever. Remember that in order to make this possible you must have some enablers. You have to manage your customers effectively before you can create a customized marketing communication effort. Most of the time, you must have a customer database and the ability to capitalize on it. Afterwards you can create a customized selling effort. Here, technology does indeed hold a significant role. Just take a look at what someone can do with their hand phones and laptops.
A couple of days ago I received a quite interesting tip off from a friend saying that you could make a lot of money from creating ring back tones. You could be a famous artist and earn billions, just like Ahmad Dani whose song “Munajat Cinta” earned him billions of rupiahs in just three months! You could also be anybody creative enough to record a rare, expressive, interesting audio material. My friend told the story of how someone was just sitting and doing nothing when a famous recording music group passed by. Suddenly he got an idea to ask the artists to record their voices and he then sold the content as a ring back tone. Surprisingly, it was a quite success. Maybe he didn’t earn a fortune, but he earned more than many recording artists. Here, creativity plays the breakthrough role.
These days, the expressive individuals combined with the borderless world technology, so many interesting marketing dynamics are happening. We have al heard a lot of community marketing and word of mouth. Both are becoming more powerful tools due to the social-cultural change in the business landscape. With technology ordinary people can become celebrities, at least to their specified audience. Blogs and social network sites are becoming hot items over and over again. But I see that in 2008, this trend will increase rapidly.
Indonesia has the largest population of internet users at around 20 million users, but only an 8.5% penetration rate. Singapore and Malaysia have a penetration rate of over 55%, Brunei nearly reaching 48%, Vietnam 22%, while more moderate countries such as Thailand and Phillipines at 13% and 15% respectively. Asia in general is highlighted as the fastest growing region in the world in internet penetration rates. ASEAN itself has recognized the importance of information and communications technologies (ICT) in November 2000 through the e-ASEAN Framework Agreement. It is intended to facilitate the establishment of the ASEAN Information Infrastructure - the hardware and software systems needed to access, process and share information - and promote the growth of electronic commerce in the region.
If we can summarize the discussion, we can see that technology and creativity plays important roles in the customized selling process. The customized selling effort will thus result in higher sales. What can we learn from all this? As ASEAN marketers, we must be able to capitalize on the technology. Not just on our customer database, but also on the dynamics of our customers’ social-cultural lifestyle. This point means more on understanding how technology changes them. Remember, conquering your local market and going regional requires a lot of technology and customer understanding. But again, that is not enough. After that, creativity is what can create breakthroughs, edging threats and identifying opportunities. When viewing technology and customers, thinking out of the box is becoming the differentiator in many businesses. And in this case, integrating customer management and marketing communications for customized selling is the big idea. ASEAN marketers should adopt this idea in order to achieve high performance selling.
Source: The Point, Wednesday 13, 2008
Some people can send the same message through various personal hand phone numbers and emails but receive disappointing results. I found out myself, that by crafting a customized message for each person, products sell faster than ever. Remember that in order to make this possible you must have some enablers. You have to manage your customers effectively before you can create a customized marketing communication effort. Most of the time, you must have a customer database and the ability to capitalize on it. Afterwards you can create a customized selling effort. Here, technology does indeed hold a significant role. Just take a look at what someone can do with their hand phones and laptops.
A couple of days ago I received a quite interesting tip off from a friend saying that you could make a lot of money from creating ring back tones. You could be a famous artist and earn billions, just like Ahmad Dani whose song “Munajat Cinta” earned him billions of rupiahs in just three months! You could also be anybody creative enough to record a rare, expressive, interesting audio material. My friend told the story of how someone was just sitting and doing nothing when a famous recording music group passed by. Suddenly he got an idea to ask the artists to record their voices and he then sold the content as a ring back tone. Surprisingly, it was a quite success. Maybe he didn’t earn a fortune, but he earned more than many recording artists. Here, creativity plays the breakthrough role.
These days, the expressive individuals combined with the borderless world technology, so many interesting marketing dynamics are happening. We have al heard a lot of community marketing and word of mouth. Both are becoming more powerful tools due to the social-cultural change in the business landscape. With technology ordinary people can become celebrities, at least to their specified audience. Blogs and social network sites are becoming hot items over and over again. But I see that in 2008, this trend will increase rapidly.
Indonesia has the largest population of internet users at around 20 million users, but only an 8.5% penetration rate. Singapore and Malaysia have a penetration rate of over 55%, Brunei nearly reaching 48%, Vietnam 22%, while more moderate countries such as Thailand and Phillipines at 13% and 15% respectively. Asia in general is highlighted as the fastest growing region in the world in internet penetration rates. ASEAN itself has recognized the importance of information and communications technologies (ICT) in November 2000 through the e-ASEAN Framework Agreement. It is intended to facilitate the establishment of the ASEAN Information Infrastructure - the hardware and software systems needed to access, process and share information - and promote the growth of electronic commerce in the region.
If we can summarize the discussion, we can see that technology and creativity plays important roles in the customized selling process. The customized selling effort will thus result in higher sales. What can we learn from all this? As ASEAN marketers, we must be able to capitalize on the technology. Not just on our customer database, but also on the dynamics of our customers’ social-cultural lifestyle. This point means more on understanding how technology changes them. Remember, conquering your local market and going regional requires a lot of technology and customer understanding. But again, that is not enough. After that, creativity is what can create breakthroughs, edging threats and identifying opportunities. When viewing technology and customers, thinking out of the box is becoming the differentiator in many businesses. And in this case, integrating customer management and marketing communications for customized selling is the big idea. ASEAN marketers should adopt this idea in order to achieve high performance selling.
Source: The Point, Wednesday 13, 2008
Building the Kijang brand through a 30 year story
We see Kijang everyday in the street. We also know that Kijang is by de-facto known as national-car, and until now there are five-generations of Kijang. That makes Kijang brand awareness higher than Toyota's.
Each of Kijang generation has its own story. The story started from the first-generation of Kijang, Kijang Buaya, made with the concept of multi-purpose vehicle and became very famous in the class in that era. The story continued with the development of the second-generation called by Kijang Doyok, which is customized into several variants, from box-car, pick-up, public transportation, etc. The third-generation is Kijang Super, made based on the concept of family-car and was famous with its TV ad which shows the testimonial of a little boy that proclaim Kijang can pick-up his whole family at once. The ad became a popular story among its customers. Toyota also created the phenomenon tagline in this era, “Kijang: memang Tiada Duanya” which is still famous until today. The fourth-generation was Kijang Kapsul and the fifth-generation is known as Kijang Innova, the Beautiful [R]evolution.
For the last 30 years, Toyota had maintained and strengthened the Kijang image, stories and associations, through the firm activities itself, the influencers, the customer and the creation of a new popular culture. Now, we are very assured with the reputation value of Kijang. For me, there is one other value that increases the value of Kijang. Do you know that around 70% of its components were made by local? Somehow, there is emotional –nationalism - value touching my heart. That’s why I am very proud of this brand, besides it is now approaching ASEAN market. In conclusion, I just want to said that branding is not about logoing, naming or tag-lining. A brand must sound its solid positioning, and branding is a integrated function of image, stories and associations.
Each of Kijang generation has its own story. The story started from the first-generation of Kijang, Kijang Buaya, made with the concept of multi-purpose vehicle and became very famous in the class in that era. The story continued with the development of the second-generation called by Kijang Doyok, which is customized into several variants, from box-car, pick-up, public transportation, etc. The third-generation is Kijang Super, made based on the concept of family-car and was famous with its TV ad which shows the testimonial of a little boy that proclaim Kijang can pick-up his whole family at once. The ad became a popular story among its customers. Toyota also created the phenomenon tagline in this era, “Kijang: memang Tiada Duanya” which is still famous until today. The fourth-generation was Kijang Kapsul and the fifth-generation is known as Kijang Innova, the Beautiful [R]evolution.
For the last 30 years, Toyota had maintained and strengthened the Kijang image, stories and associations, through the firm activities itself, the influencers, the customer and the creation of a new popular culture. Now, we are very assured with the reputation value of Kijang. For me, there is one other value that increases the value of Kijang. Do you know that around 70% of its components were made by local? Somehow, there is emotional –nationalism - value touching my heart. That’s why I am very proud of this brand, besides it is now approaching ASEAN market. In conclusion, I just want to said that branding is not about logoing, naming or tag-lining. A brand must sound its solid positioning, and branding is a integrated function of image, stories and associations.
Selasa, 04 Maret 2008
Classic Marketing Mistakes That May Never Go Away
It has been over fifty years since organizations began to understand the real importance of marketing strategy and planning. Prior to the 1950s most companies did not have marketing departments, but instead marketing activities were scattered among many departments such as advertising and sales. Things began to change as scholars and consultants pushed for companies to adopt strategies designed to unify a variety of marketing activities carried out in different parts of the company. By the 1960s most major college and university business programs were preaching the importance of marketing and an avalanche of books and magazines supported this cause.
With so much time and energy directed to improving marketing decision making, one might think that past mistakes attributed to lack of marketing knowledge would now be all but eliminated. In reality, there are many mistakes that are bound to be repeated no matter how much attention is direct to understanding marketing. Here are a few:
1. The Research Tells Us So
Relying on the results of market research as the deciding factor when making marketing decisions is a risky proposition. Why? Because research is inherently fraught with many potential problems. These problems are often the result of how the research is designed or how it is executed. It is particularly a problem if the researcher does not have access to all information. For instance, errors often occur with customer surveys including questions not being asked correctly and non-customers completing the survey. The bottom line is companies must perform market research to gain information needed to make informed marketing decisions. However, marketers must understand its limitations. In the end the marketer must weigh all available information to make their decision and not focus solely on what the research says.
2. All We Need to do is Pump More into Promotion
Wouldn’t it be great if marketing was this easy? Just spend more on advertising and other promotions and we will quickly see our sales increase. More likely what you’ll see is your profits decrease! The argument for more promotion as the medicine needed to fix lackluster sales is heard in nearly all organizations. But to view marketing problems in terms of promotional deficiencies is extremely shortsighted. Marketing is much more than advertising. Sales problems could be the result of numerous other marketing problems. Before deciding to spend more on promotion it probably makes more sense to spend time reviewing all marketing decisions to make sure problems do not lay elsewhere.
3. We Have the Best Product on the Market
Says who? The marketer might think it’s the best product, but remember the marketer is not buying the product. The marketer’s target market is supposed to buy it. If a marketer can’t understand why customers are buying a competitor’s product when the marketer thinks the competitor’s product is inferior then the marketer does not know the market well enough. More than likely how the product is positioned in customers’ minds is different than how the marketer sees things. This situation calls for extensive customer research to find out why the product is not performing as expected.
4. The Boss Knows What’s Best
A classic problem in many small businesses is when the person who built the business believes they know what works. The entrepreneur justifies this by telling everyone that the business is successful because he/she knows what the market wants. The boss often discounts market studies as a waste of funds, and worse yet, brushes aside marketing suggestions from others in the organization. While it is very likely the boss knows a lot about the market, it is unlikely the boss knows everything about the market. Making marketing decisions based on executive intuition works sometimes, but eventually lack of information, whether from refusing to undertake research or giving a cold shoulder to employees’ ideas, will lead to poor decisions.
5. Our Customers Only Care About Getting the Lowest Price
No they don’t. They care about the best value for their money. Customers first and foremost want to feel comfortable with their purchase and know they got their money’s worth from their decision. It is a miscalculation for marketers to believe customers reduce purchase decisions to selecting the product with the lowest price. Yet if a marketer undertakes a little research they will invariable find many other issues affect the purchase. Companies that feel they are losing out to lower priced competitors are really losing out to higher value competitors. Clearly to fight this requires marketing efforts that increase the value of the firm’s products in the minds of its target market.
6. We Know Who Our Competitors Are
Most marketers when asked to name their competitors can easily rattle off a list. While the length of this list shows strong knowledge of the market, what is more important is who is not on the list. Companies not viewed as competitors are potentially the biggest threat to a company, especially for companies operating in a rapidly evolving market. At the very least the marketer should have two lists – current competitors and potential competitors. The list for potential competitors should be heavily weighted with companies that are outside the current industry. In this way the marketer broadens the universe of potential influencers in their market. Having this knowledge not only makes the marketer aware of potential competitors but investigating firms in outside industries may also provide insight and ideas for product innovation, new markets and new channels for communication.
7. The Only Thing That Matters Is ROI
For many companies investing in a marketing decision must have only one payoff – profit on the investment. Yet if this approach drives all marketing decisions the company is at best an underachiever and at worst vulnerable to competitors. Why? Because not all marketing decisions should be tied to a positive return on investment. Sometimes a firm must make strategic decisions that sacrifice profits in order strengthen other parts of the company. For example, a company may spend significant funds to develop a new product that research suggests has little chance of being profitable. But the product may serve as a major annoyance to your competitor’s top product. Because of this the competitor may need to expend more resources to insure their product retains its market position. Being forced to direct more funds to support their top product may slow down their efforts to develop new products that could compete against your products.
8. Who Needs to Plan
Marketing executives within fast moving industies often feel planning beyond the short-term is useless since the market changes so rapidly. Yet failing to lay out a plan may lead to some big surprises, like running out of money! In a business environment where decisions are made quickly it is easy to lose track of where the money is going. A marketing plan can help the company insert controls on marketing expenditures. It also has the added benefit of having marketers take a step back to see where the company has been and may uncover important information that was not apparent earlier. Additionally, a marketing plan may help insure that everyone within the company is on the same page with regard to the basic direction of the firm’s marketing efforts. This may prevent finger pointing down the road. Even if a plan is limited to only covering the next six months of operations it is an exercise that should not be avoided.
By Paul Christ, KnowThis.com
With so much time and energy directed to improving marketing decision making, one might think that past mistakes attributed to lack of marketing knowledge would now be all but eliminated. In reality, there are many mistakes that are bound to be repeated no matter how much attention is direct to understanding marketing. Here are a few:
1. The Research Tells Us So
Relying on the results of market research as the deciding factor when making marketing decisions is a risky proposition. Why? Because research is inherently fraught with many potential problems. These problems are often the result of how the research is designed or how it is executed. It is particularly a problem if the researcher does not have access to all information. For instance, errors often occur with customer surveys including questions not being asked correctly and non-customers completing the survey. The bottom line is companies must perform market research to gain information needed to make informed marketing decisions. However, marketers must understand its limitations. In the end the marketer must weigh all available information to make their decision and not focus solely on what the research says.
2. All We Need to do is Pump More into Promotion
Wouldn’t it be great if marketing was this easy? Just spend more on advertising and other promotions and we will quickly see our sales increase. More likely what you’ll see is your profits decrease! The argument for more promotion as the medicine needed to fix lackluster sales is heard in nearly all organizations. But to view marketing problems in terms of promotional deficiencies is extremely shortsighted. Marketing is much more than advertising. Sales problems could be the result of numerous other marketing problems. Before deciding to spend more on promotion it probably makes more sense to spend time reviewing all marketing decisions to make sure problems do not lay elsewhere.
3. We Have the Best Product on the Market
Says who? The marketer might think it’s the best product, but remember the marketer is not buying the product. The marketer’s target market is supposed to buy it. If a marketer can’t understand why customers are buying a competitor’s product when the marketer thinks the competitor’s product is inferior then the marketer does not know the market well enough. More than likely how the product is positioned in customers’ minds is different than how the marketer sees things. This situation calls for extensive customer research to find out why the product is not performing as expected.
4. The Boss Knows What’s Best
A classic problem in many small businesses is when the person who built the business believes they know what works. The entrepreneur justifies this by telling everyone that the business is successful because he/she knows what the market wants. The boss often discounts market studies as a waste of funds, and worse yet, brushes aside marketing suggestions from others in the organization. While it is very likely the boss knows a lot about the market, it is unlikely the boss knows everything about the market. Making marketing decisions based on executive intuition works sometimes, but eventually lack of information, whether from refusing to undertake research or giving a cold shoulder to employees’ ideas, will lead to poor decisions.
5. Our Customers Only Care About Getting the Lowest Price
No they don’t. They care about the best value for their money. Customers first and foremost want to feel comfortable with their purchase and know they got their money’s worth from their decision. It is a miscalculation for marketers to believe customers reduce purchase decisions to selecting the product with the lowest price. Yet if a marketer undertakes a little research they will invariable find many other issues affect the purchase. Companies that feel they are losing out to lower priced competitors are really losing out to higher value competitors. Clearly to fight this requires marketing efforts that increase the value of the firm’s products in the minds of its target market.
6. We Know Who Our Competitors Are
Most marketers when asked to name their competitors can easily rattle off a list. While the length of this list shows strong knowledge of the market, what is more important is who is not on the list. Companies not viewed as competitors are potentially the biggest threat to a company, especially for companies operating in a rapidly evolving market. At the very least the marketer should have two lists – current competitors and potential competitors. The list for potential competitors should be heavily weighted with companies that are outside the current industry. In this way the marketer broadens the universe of potential influencers in their market. Having this knowledge not only makes the marketer aware of potential competitors but investigating firms in outside industries may also provide insight and ideas for product innovation, new markets and new channels for communication.
7. The Only Thing That Matters Is ROI
For many companies investing in a marketing decision must have only one payoff – profit on the investment. Yet if this approach drives all marketing decisions the company is at best an underachiever and at worst vulnerable to competitors. Why? Because not all marketing decisions should be tied to a positive return on investment. Sometimes a firm must make strategic decisions that sacrifice profits in order strengthen other parts of the company. For example, a company may spend significant funds to develop a new product that research suggests has little chance of being profitable. But the product may serve as a major annoyance to your competitor’s top product. Because of this the competitor may need to expend more resources to insure their product retains its market position. Being forced to direct more funds to support their top product may slow down their efforts to develop new products that could compete against your products.
8. Who Needs to Plan
Marketing executives within fast moving industies often feel planning beyond the short-term is useless since the market changes so rapidly. Yet failing to lay out a plan may lead to some big surprises, like running out of money! In a business environment where decisions are made quickly it is easy to lose track of where the money is going. A marketing plan can help the company insert controls on marketing expenditures. It also has the added benefit of having marketers take a step back to see where the company has been and may uncover important information that was not apparent earlier. Additionally, a marketing plan may help insure that everyone within the company is on the same page with regard to the basic direction of the firm’s marketing efforts. This may prevent finger pointing down the road. Even if a plan is limited to only covering the next six months of operations it is an exercise that should not be avoided.
By Paul Christ, KnowThis.com
Identify Emerging Market Opportunities
Editor’s note:
Companies are increasingly looking to emerging markets like China as a vital source of growth. The problem is these companies often lack an effective strategy for identifying which countries to do business with. In a June Harvard Business Review article, excerpted here, the authors present a “five contexts framework”—issues to consider, in essence—to understand institutional variations between countries. We excerpt a summary of the five contexts.
As we helped companies think through their globalization strategies, we came up with a simple conceptual device—the five contexts framework—that lets executives map the institutional contexts of any country. Economics 101 tells us that companies buy inputs in the product, labor, and capital markets and sell their outputs in the products (raw materials and finished goods) or services market. When choosing strategies, therefore, executives need to figure out how the product, labor, and capital markets work—and don’t work—in their target countries. This will help them understand the differences between home markets and those in developing countries. In addition, each country’s social and political milieu—as well as the manner in which it has opened up to the outside world—shapes those markets, and companies must consider those factors, too.
The five contexts framework places a superstructure of key markets on a base of sociopolitical choices. Many multinational corporations look at either the macro factors (the degree of openness and the sociopolitical atmosphere) or some of the market factors, but few pay attention to both. We have developed sets of questions that companies can ask to create a map of each country’s context and to gauge the extent to which businesses must adapt their strategies to each one. [...]
Political and Social Systems.
Every country’s political system affects its product, labor, and capital markets. In socialist societies like China, for instance, workers cannot form independent trade unions in the labor market, which affects wage levels. A country’s social environment is also important. In South Africa, for example, the government’s support for the transfer of assets to the historically disenfranchised native African community—a laudable social objective—has affected the development of the capital market. Such transfers usually price assets in an arbitrary fashion, which makes it hard for multinationals to figure out the value of South African companies and affects their assessments of potential partners.
The thorny relationships between ethnic, regional, and linguistic groups in emerging markets also affects foreign investors. In Malaysia, for instance, foreign companies should enter into joint ventures only after checking if their potential partners belong to the majority Malay community or the economically dominant Chinese community, so as not to conflict with the government’s long-standing policy of transferring some assets from Chinese to Malays. This policy arose because of a perception that the race riots of 1969 were caused by the tension between the Chinese haves and the Malay have-nots. Although the rhetoric has changed somewhat in the past few years, the pro-Malay policy remains in place.
Executives would do well to identify a country’s power centers, such as its bureaucracy, media, and civil society, and figure out if there are checks and balances in place. Managers must also determine how decentralized the political system is, if the government is subject to oversight, and whether bureaucrats and politicians are independent from one another. Companies should gauge the level of actual trust among the populace as opposed to enforced trust. For instance, if people believe companies won’t vanish with their savings, firms may be able to raise money locally sooner rather than later.
Openness.
CEOs often talk about the need for economies to be open because they believe it’s best to enter countries that welcome direct investment by multinational corporations—although companies can get into countries that don’t allow foreign investment by entering into joint ventures or by licensing local partners. Still, they must remember that the concept of “open” can be deceptive. For example, executives believe that China is an open economy because the government welcomes foreign investment but that India is a relatively closed economy because of the lukewarm reception the Indian government gives multinationals. However, India has been open to ideas from the West, and people have always been able to travel freely in and out of the country, whereas for decades, the Chinese government didn’t allow its citizens to travel abroad freely, and it still doesn’t allow many ideas to cross its borders. Consequently, while it may be true that multinational companies can invest in China more easily than they can in India, managers in India are more inclined to be market oriented and globally aware than managers are in China.
The more open a country’s economy, the more likely it is that global intermediaries will be allowed to operate there. Multinationals, therefore, will find it easier to function in markets that are more open because they can use the services of both the global and local intermediaries. However, openness can be a double-edged sword: A government that allows local companies to access the global capital market neutralizes one of foreign companies’ key advantages.
The two macro contexts we have just described—political and social systems and openness—shape the market contexts. For instance, in Chile, a military coup in the early 1970s led to the establishment of a right-wing government, and that government’s liberal economic policies led to a vibrant capital market in the country. But Chile’s labor market remained underdeveloped because the government did not allow trade unions to operate freely. Similarly, openness affects the development of markets. If a country’s capital markets are open to foreign investors, financial intermediaries will become more sophisticated. That has happened in India, for example, where capital markets are more open than they are in China. Likewise, in the product market, if multinationals can invest in the retail industry, logistics providers will develop rapidly. This has been the case in China, where providers have taken hold more quickly than they have in India, which has only recently allowed multinationals to invest in retailing.
Product Markets.
Developing countries have opened up their markets and grown rapidly during the past decade, but companies still struggle to get reliable information about consumers, especially those with low incomes. Developing a consumer finance business is tough, for example, because the data sources and credit histories that firms draw on in the West don’t exist in emerging markets. Market research and advertising are in their infancy in developing countries, and it’s difficult to find the deep databases on consumption patterns that allow companies to segment consumers in more-developed markets. There are few government bodies or independent publications, like Consumer Reports in the United States, that provide expert advice on the features and quality of products. Because of a lack of consumer courts and advocacy groups in developing nations, many people feel they are at the mercy of big companies.
Labor Markets.
In spite of emerging markets’ large populations, multinationals have trouble recruiting managers and other skilled workers because the quality of talent is hard to ascertain. There are relatively few search firms and recruiting agencies in low-income countries. The high-quality firms that do exist focus on top-level searches, so companies must scramble to identify middle-level managers, engineers, or floor supervisors. Engineering colleges, business schools, and training institutions have proliferated, but apart from an elite few, there’s no way for companies to tell which schools produce skilled managers. For instance, several Indian companies have sprung up to train people for jobs in the call center business, but no organization rates the quality of the training it provides.
Capital Markets.
The capital and financial markets in developing countries are remarkable for their lack of sophistication. Apart from a few stock exchanges and government-appointed regulators, there aren’t many reliable intermediaries like credit-rating agencies, investment analysts, merchant bankers, or venture capital firms. Multinationals can’t count on raising debt or equity capital locally to finance their operations. Like investors, creditors don’t have access to accurate information on companies. Businesses can’t easily assess the creditworthiness of other firms or collect receivables after they have extended credit to customers. Corporate governance is also notoriously poor in emerging markets. Transnational companies, therefore, can’t trust their partners to adhere to local laws and joint venture agreements. In fact, since crony capitalism thrives in developing countries, multinationals can’t assume that the profit motive alone is what’s driving local firms.
Several CEOs have asked us why we emphasize the role of institutional intermediaries and ignore industry factors. They argue that industry structure, such as the degree of competition, should also influence companies’ strategies. But when Harvard Business School professor Jan Rivkin and one of the authors of this article ranked industries by profitability, they found that the correlation of industry rankings across pairs of countries was close to zero, which means that the attractiveness of an industry varied widely from country to country. So although factors like scale economies, entry barriers, and the ability to differentiate products matter in every industry, the weight of their importance varies from place to place. An attractive industry in your home market may turn out to be unattractive in another country. Companies should analyze industry structures—always a useful exercise—only after they understand a country’s institutional context.
Excerpted with permission from "Strategies That Fit Emerging Markets," Harvard Business Review, Vol. 83, No. 6, June 2005.
Companies are increasingly looking to emerging markets like China as a vital source of growth. The problem is these companies often lack an effective strategy for identifying which countries to do business with. In a June Harvard Business Review article, excerpted here, the authors present a “five contexts framework”—issues to consider, in essence—to understand institutional variations between countries. We excerpt a summary of the five contexts.
As we helped companies think through their globalization strategies, we came up with a simple conceptual device—the five contexts framework—that lets executives map the institutional contexts of any country. Economics 101 tells us that companies buy inputs in the product, labor, and capital markets and sell their outputs in the products (raw materials and finished goods) or services market. When choosing strategies, therefore, executives need to figure out how the product, labor, and capital markets work—and don’t work—in their target countries. This will help them understand the differences between home markets and those in developing countries. In addition, each country’s social and political milieu—as well as the manner in which it has opened up to the outside world—shapes those markets, and companies must consider those factors, too.
The five contexts framework places a superstructure of key markets on a base of sociopolitical choices. Many multinational corporations look at either the macro factors (the degree of openness and the sociopolitical atmosphere) or some of the market factors, but few pay attention to both. We have developed sets of questions that companies can ask to create a map of each country’s context and to gauge the extent to which businesses must adapt their strategies to each one. [...]
Political and Social Systems.
Every country’s political system affects its product, labor, and capital markets. In socialist societies like China, for instance, workers cannot form independent trade unions in the labor market, which affects wage levels. A country’s social environment is also important. In South Africa, for example, the government’s support for the transfer of assets to the historically disenfranchised native African community—a laudable social objective—has affected the development of the capital market. Such transfers usually price assets in an arbitrary fashion, which makes it hard for multinationals to figure out the value of South African companies and affects their assessments of potential partners.
The thorny relationships between ethnic, regional, and linguistic groups in emerging markets also affects foreign investors. In Malaysia, for instance, foreign companies should enter into joint ventures only after checking if their potential partners belong to the majority Malay community or the economically dominant Chinese community, so as not to conflict with the government’s long-standing policy of transferring some assets from Chinese to Malays. This policy arose because of a perception that the race riots of 1969 were caused by the tension between the Chinese haves and the Malay have-nots. Although the rhetoric has changed somewhat in the past few years, the pro-Malay policy remains in place.
Executives would do well to identify a country’s power centers, such as its bureaucracy, media, and civil society, and figure out if there are checks and balances in place. Managers must also determine how decentralized the political system is, if the government is subject to oversight, and whether bureaucrats and politicians are independent from one another. Companies should gauge the level of actual trust among the populace as opposed to enforced trust. For instance, if people believe companies won’t vanish with their savings, firms may be able to raise money locally sooner rather than later.
Openness.
CEOs often talk about the need for economies to be open because they believe it’s best to enter countries that welcome direct investment by multinational corporations—although companies can get into countries that don’t allow foreign investment by entering into joint ventures or by licensing local partners. Still, they must remember that the concept of “open” can be deceptive. For example, executives believe that China is an open economy because the government welcomes foreign investment but that India is a relatively closed economy because of the lukewarm reception the Indian government gives multinationals. However, India has been open to ideas from the West, and people have always been able to travel freely in and out of the country, whereas for decades, the Chinese government didn’t allow its citizens to travel abroad freely, and it still doesn’t allow many ideas to cross its borders. Consequently, while it may be true that multinational companies can invest in China more easily than they can in India, managers in India are more inclined to be market oriented and globally aware than managers are in China.
The more open a country’s economy, the more likely it is that global intermediaries will be allowed to operate there. Multinationals, therefore, will find it easier to function in markets that are more open because they can use the services of both the global and local intermediaries. However, openness can be a double-edged sword: A government that allows local companies to access the global capital market neutralizes one of foreign companies’ key advantages.
The two macro contexts we have just described—political and social systems and openness—shape the market contexts. For instance, in Chile, a military coup in the early 1970s led to the establishment of a right-wing government, and that government’s liberal economic policies led to a vibrant capital market in the country. But Chile’s labor market remained underdeveloped because the government did not allow trade unions to operate freely. Similarly, openness affects the development of markets. If a country’s capital markets are open to foreign investors, financial intermediaries will become more sophisticated. That has happened in India, for example, where capital markets are more open than they are in China. Likewise, in the product market, if multinationals can invest in the retail industry, logistics providers will develop rapidly. This has been the case in China, where providers have taken hold more quickly than they have in India, which has only recently allowed multinationals to invest in retailing.
Product Markets.
Developing countries have opened up their markets and grown rapidly during the past decade, but companies still struggle to get reliable information about consumers, especially those with low incomes. Developing a consumer finance business is tough, for example, because the data sources and credit histories that firms draw on in the West don’t exist in emerging markets. Market research and advertising are in their infancy in developing countries, and it’s difficult to find the deep databases on consumption patterns that allow companies to segment consumers in more-developed markets. There are few government bodies or independent publications, like Consumer Reports in the United States, that provide expert advice on the features and quality of products. Because of a lack of consumer courts and advocacy groups in developing nations, many people feel they are at the mercy of big companies.
Labor Markets.
In spite of emerging markets’ large populations, multinationals have trouble recruiting managers and other skilled workers because the quality of talent is hard to ascertain. There are relatively few search firms and recruiting agencies in low-income countries. The high-quality firms that do exist focus on top-level searches, so companies must scramble to identify middle-level managers, engineers, or floor supervisors. Engineering colleges, business schools, and training institutions have proliferated, but apart from an elite few, there’s no way for companies to tell which schools produce skilled managers. For instance, several Indian companies have sprung up to train people for jobs in the call center business, but no organization rates the quality of the training it provides.
Capital Markets.
The capital and financial markets in developing countries are remarkable for their lack of sophistication. Apart from a few stock exchanges and government-appointed regulators, there aren’t many reliable intermediaries like credit-rating agencies, investment analysts, merchant bankers, or venture capital firms. Multinationals can’t count on raising debt or equity capital locally to finance their operations. Like investors, creditors don’t have access to accurate information on companies. Businesses can’t easily assess the creditworthiness of other firms or collect receivables after they have extended credit to customers. Corporate governance is also notoriously poor in emerging markets. Transnational companies, therefore, can’t trust their partners to adhere to local laws and joint venture agreements. In fact, since crony capitalism thrives in developing countries, multinationals can’t assume that the profit motive alone is what’s driving local firms.
Several CEOs have asked us why we emphasize the role of institutional intermediaries and ignore industry factors. They argue that industry structure, such as the degree of competition, should also influence companies’ strategies. But when Harvard Business School professor Jan Rivkin and one of the authors of this article ranked industries by profitability, they found that the correlation of industry rankings across pairs of countries was close to zero, which means that the attractiveness of an industry varied widely from country to country. So although factors like scale economies, entry barriers, and the ability to differentiate products matter in every industry, the weight of their importance varies from place to place. An attractive industry in your home market may turn out to be unattractive in another country. Companies should analyze industry structures—always a useful exercise—only after they understand a country’s institutional context.
Excerpted with permission from "Strategies That Fit Emerging Markets," Harvard Business Review, Vol. 83, No. 6, June 2005.
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