Everyone likes a good David-versus- Goliath story, never mind how many times one has heard similar tales before. That is primarily the strength of the book The New Emerging-Market Multinationals. Authors Amitava Chattopadhyay, Rajeev Batra and Aysegul Ozsomer examine the growth of a new pack of fleet-footed, sharp-toothed multinational firms from middle-income, emerging and developing economies that are shaking up entire industries – from the humble home equipment (Arçelik from Turkey) to the more aspirational ones such as telecom services (MTS) and sport utility vehicles (Mahindra & Mahindra) – and changing the rules of global competition.
The emerging-market multinationals, or EMNCs, are a hot topic because their number is growing. In 2005, the number of such companies was 44 in the Fortune 500 list. This touched 113 in 2010. What is fuelling the ambition of these companies is the access to capital. There is also an attitudinal change in many of these companies that happen to be family-run. With the younger generation coming to the fore, the need to be global and professional is growing.
While much of what you read in the book has appeared in bits and pieces in various analyst reports and media articles, what clicks in this case is the amount of global research and the number of first-hand interviews across continents that have gone into putting together The New Emerging-Market Multinationals. (The Notes segment or the bibliography is fantastic if you want to read more on the subject.) The authors say they have tried looking at “the best of the lot” across markets such as India, China, Russia, Brazil, Turkey and so on. Much of it was also about the ease of reaching out to them — of how quickly they responded to the authors’ queries.
The three questions the book answers very well are: how are these brands doing well given the perception that they come from countries where quality is not of the highest standards? How are they building brand awareness with limited resources? How are they competing with the global giants and managing to succeed?
In the process, the book identifies four broad strategies used by EMNCs. The first strategy speaks of the need to lower costs cleverly. Bharti Airtel, for instance, took all its fixed costs and converted them into variable costs by outsourcing them to partners such as IBM, Erickson, etc. A Chinese company, BYD, which engages in the manufacture of rechargeable batteries, handset components, among others, could not afford to use the kind of technology that Intel used for manufacturing semi-conductors. Intel used something called “clean rooms” to manufacture semi-conductors, which is expensive. BYD came up with the idea of “clean machines”, which attempted to do the same: manufacture semi-conductors economically without compromising on quality.
The next strategy is employed by the knowledge leveragers. These are companies that seek markets similar to their home turfs. Asian Paints, Marico, Dabur and Godrej Consumer Products are a few examples.
The third strategy is what the authors call niche customisation — segments ignored by the big players but relevant to EMNCs. Here EMNCs, with a combination of flexible manufacturing and low-cost R&D, yield surprising results. In West Asia and other markets, Titan saw a number of such small segments, neglected by the big players, but still relevant. It addressed these needs and was able to gain a strong foothold in these markets.
The fourth strategy is global brand-building. There are two ways of doing this: organically and inorganically, that is, either build capabilities in-house or acquire them. HTC and Haier, both Chinese companies, chose to build capabilities in-house, while the Tatas opted to acquire companies in their drive to possess global brands.
The authors’ recommendation is that the fourth strategy of global brand-building is the most sustainable of approaches for competing in the international marketplace.
Is there a common thread that can explain the success of the new EMNCs that have been cited in the book? Yes. In fact, the book is about the common thread, say the authors. First, there is a mindset change among these players; EMNCs today have the confidence and the capability to build global branded businesses. Second, they are focused narrowly. Mahindra & Mahindra focuses on UVs and SUVs; Marico focuses on pre- and post-hair care. Third, they focus on the consumer. Marico, which saw the need for hair-care products free from alcohol to target Muslim consumers, has built up a strong presence in West Asia and is marketing a hair gel formulated without alcohol. Fourth, they are innovative in terms of both product and process innovation. The entire success of the Indian IT industry led by Infosys, TCS and Wipro rests on the process innovation that has been labelled the global delivery model. Not only do such innovations improve efficiency, but they also reduce costs.
A final point. There is no visual relief, which gives one the sense the book – mind you, not the research – was put together in a tearing hurry. But ultimately, like all underdog stories, this book is most gratifying because when a dark horse succeeds, it gives our inner dark horse hope that we too can get there someday.
THE NEW EMERGING-MARKET MULTINATIONALS
Amitava Chattopadhyay, Rajeev Batra and Aysegul Ozsomer
McGraw-Hill; 335 pages
