Leaving Money on the Table in Emerging Markets

Handset manufacturer Sony Ericsson announced this week that it is in talks to acquire India-based Spice Mobile. The move is part of Sony Ericsson’s recent investments in emerging markets, an effort to counteract its slowing growth in the mid- to high-end markets of the developed world. The “People’s Phone,” Spice’s low-cost handset, could help Ericsson better compete with Nokia in India’s lower-end markets.

Traditionally known for premium phones, the bid for Spice could be Ericsson’s ticket to providing products with more local appeal. A recent China Daily article on Nokia’s entry into China outlines a different strategy but with a similar end in mind. Nokia struggled initially to gain a foothold in China and outlined drastic cost-cutting plans for key products. But at the last minute the plans were changed. Conversations with customers and channel partners convinced Nokia that new distribution channels and locally designed products would better meet customer needs - not cheaper phones. The company’s ability to respond to market intelligence delivered what is now a 35% market share for Nokia in China (in spite of fierce domestic competition) and reinforced that cost-cutting is not the only method for achieving growth in emerging markets.

Rigorous data collection and research-driven strategies can reveal new opportunities for profitability. A common assumption that price reduction should drive emerging-market strategy can often cause multinational corporations (MNCs) to leave money on the table. Foreign MNCs expanding into emerging markets would do well to leave room in their processes for thorough market research and the time to respond according to its results. With both quantitative and qualitative market data, emerging-market professionals have the business case ammunition they need to cause a big ship like Nokia to turn on a dime.

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Intel and Lenovo Target SMEs with a Simple “Open Sesame”

Intel and Alibaba.com, an English-language global trade website based in China, announced a partnership with Lenovo Group this week to launch a PC designed to make e-commerce easier for small and medium-sized enterprises (SMEs) in China. The desktop PCs, due out in September, will be preloaded with Alibaba.com’s e-commerce applications for SMEs. Intel and Alibaba.com announced their original partnership in May but have been searching for a manufacturing partner.

E-business is not yet widespread in China. With less than 1% of China’s 42 million SMEs conducting business online, there is still sizable room for growth. In emerging markets, an estimated 69% of the labor force works in micro-, small- or medium-sized businesses making SMEs a key market segment for ICT companies seeking growth opportunities. Intel and Lenovo’s focus on this market is a clear indicator of the industry’s effort to better pursue this still amorphous segment. To date, multinational corporations (MNCs) have made limited product modifications to target SMEs in developing countries. This three-way partnership strategy - embedding e-commerce applications into new hardware and pairing an MNC solution with local content and brands - may be a solid step towards tapping into China’s SME treasure.

For other MNCs seeking to crack the SME code, Lenovo’s new PC could help draw out a sub-segment of China’s market, the most technologically savvy SMEs interested in growing their business online. This small, forward-thinking group of companies makes a worthy beachhead target for nearly any technology firm interested in capturing China’s growing markets.

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Strategies for a New World

Sony’s chief executive Howard Stringer seems to have seen the emerging-markets light. In an article in last week’s Telegraph, Stringer highlights Sony’s new focus on emerging markets, particularly the BRIC countries. He also suggests, however, that the company’s reliance on brand and sophisticated features and functionality will continue; he is aiming for 90% of Sony’s electronics products to have wireless Internet connectivity by 2011.

While emerging-market consumers have shown that they are brand and quality conscious, they also become more price sensitive at lower income levels, and have demonstrated an appetite for devices with relevant or “just-enough” functionality. Sony might borrow some ideas for rethinking business strategies for emerging markets from Dell. Although Dell has a different product set (and Sony has the advantage of media content), Dell has made some smart adjustments in the past years that are leading to big gains in emerging markets. The company's BRIC revenues jumped 58 percent in the first quarter, thanks largely to strong internal executive buy-in, consumer credit partnerships with local companies, and tailored country-specific strategies. Ultimately, in emerging markets, Dell has had to migrate away from the one thing that defined them in mature markets – their direct-to-consumer distribution method.

To realize the full opportunity in emerging markets, Sony may need to undertake a similar revision of their own defining characteristics (i.e., branding and sophisticated products). Wireless connectivity would make Sony’s products attractive in top-tier emerging-market cities, but it’s not necessary or usable for millions of emerging-market users without Internet connectivity. Sony (and other tech companies that play in the high-end consumer market) would benefit from a broad range of product features that match the purchasing power and unique needs of emerging-market users. With solid data, deft management and good decision-making, these companies can develop the right products for the new world without losing their edge in the old.

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