Friday, September 26, 2008

Basic Needs Present a Near-term Opportunity

With $40 billion in annual sales, Royal Philips Electronics is one of the largest consumer electronics companies in the world, with an already healthy footprint in most countries. But lately the Dutch company has been touting its efforts to win emerging markets. In India, for example, Philips has acquired a locally-focused medical equipment company, designed more efficient, healthier wood stoves, partnered with local development organizations, and worked with women’s self-help groups on distribution and financing schemes.

The variety of approaches suggests Philips has figured out that there is enormous (and growing) unmet demand in developing countries for a wide range of home appliances. However, labeling efforts to engineer better stoves “philanthropy by design” shows a fundamental misunderstanding of the near-term market opportunity. Vital Wave Consulting research indicates that, among people who earn over $2 per day, ownership of appliances like washing machines, dishwashers, vacuums, refrigerators and stoves is relatively common. That is, despite their limited means, low-income consumers are finding ways of purchasing durable goods. However, far more people own similarly-priced mobile phones, radios and televisions, suggesting that home appliances with the right design, functionality and price could be adopted in greater numbers.

There is considerable growth potential for companies that treat basic needs like lighting, cooking, cleaning, and learning as immediate rather than long-term opportunities. The greatest growth will come to companies that effectively manage the transition from innovation to business development. Products and services aimed at emerging-market consumers must be supported by a solid business case with reliable projections of sustainable profits to win the support of company executives. Though the end result may be improved lighting, safer homes and better health, the savvy business manager will see these efforts more as solid growth opportunities than philanthropic endeavors.

Also in the news:

  • Mobile services - the silver lining around dark economic clouds.
  • Pfizer sees growth in emerging markets.
  • Who will bring Androids to emerging markets?

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