China's Rural Market Success Goes Global

The Chinese computer technology firm Lenovo recently launched a campaign to penetrate rural small and medium-sized business and consumer markets in Indonesia, Brazil, Mexico, India and Turkey over the next three years.  The company, which has grown faster than any other major PC manufacturer for five straight quarters, is aiming to replicate its success in rural China by establishing expansive distribution networks in key emerging markets. As demand for tablets and smartphones rises in urban centers, rural segments are becoming the new drivers of low-cost PC demand. In Indonesia alone, Lenovo's efforts to penetrate the rural market led to a 100% increase in computer shipments in the first quarter of 2011.

Despite strong early results, Lenovo faces fierce competition from other international brands and entrenched local "hero" brands such as HCL of India and Positivo of Brazil, which rejected an acquisition offer from Lenovo in 2008. With a thorough understanding of local markets and well-established distribution and marketing channels, local brands are poised to capitalize on increasing rural demand for low-cost PCs. Lacking the same familiarity with these channels, new entrants into these markets also face transportation challenges and weak retail presence.

A uniquely tailored approach that takes local logistical and economic realities into consideration is critical to penetrating rural markets. Building brands and implementing strategic marketing plans that place an emphasis on understanding local tastes and conditions can provide firms with a competitive edge. Acquiring and partnering with local brands can also provide foreign firms with a strategy to mitigate risk. Competitive analysis that includes local brands as well as multinational firms can help new firms to create tailored go-to-market plans that include product, place, pricing and promotional strategies that are responsive to local market conditions and the needs and wants of rural consumers.

Learning from Local Market Leaders

Like many computer manufacturers, Chinese PC maker Lenovo has struggled in the past year with the effects of the global recession, shrinking margins and the move toward lower-priced netbooks. The company's latest financial results confirm that while its loss narrowed considerably in the second quarter, it has yet to return to profitability. Perhaps the bigger story is in its quarterly results: Lenovo is thriving in its home market of China and other emerging markets such as Russia, Latin America and Turkey even while it is losing market share in developed economies such as the U.S. and Western Europe. A Lenovo executive notes that the company has improved its position in emerging markets by using the same tactics that have worked for it in China. These tactics include focusing on consumer and small-business customers, marketing "commodity" PCs that appeal to these customers and improving its distribution and supply chain systems.

Other emerging-market giants, such as Mexican telecommunications provider Telmex and Indian industrial conglomerate Mahindra & Mahindra, have also dominated markets in their own backyards but struggled to make inroads in mature markets. These results demonstrate that the challenges to multinational corporations of crossing between emerging and mature markets go both ways.

When entering new countries, multinational firms often replicate the strategies that worked in their home markets. But, industry trends indicate that these firms would fare better by paying greater attention to the strategies of companies based in countries similar to these new markets. Taking a hard look at other companies that succeeded- and failed- in unfamiliar markets would help multinational contenders come out ahead during their own international expansion.

Social Entrepreneurs Can Help Build Emerging-Market Portfolio

April 11, 2007

This week’s news coverage of the world’s largest conference for social entrepreneurs lamented the lack of funds for developing-country projects. Entrepreneurs at the Skoll World Forum said fundraising and courting corporate partners is their biggest challenge.

“I believe corporations, especially ICT companies, should be actively investing in these enterprises,” said Kevin Jones, a principal with Good Capital and self-described serial entrepreneur. “Given the strong growth in emerging markets, all types of investors should see the advantages of partnering with international social entrepreneurs.”

Vital Wave Consulting understands the hesitancy of corporations. In many socially-oriented partnerships it is difficult to align incentive structures or demonstrate ROI. With social entrepreneurs, however, successful partnerships are more likely as both parties share the profit motive. Social entrepreneurs who do their homework and present a bullet-proof business case with an effective business model are certain to reduce the challenge of finding investors.

Corporations stand to benefit from these partnerships, as well. Social entrepreneurs can deliver expertise in target geographies, deep understanding of user needs and usage models, and in-country relationships. Successful social ventures are also excellent acquisition targets – for talent, technology and business models. Such partnerships could help speed the transition of emerging-market activities from the corporate social responsibility brochure to the company’s annual report.

Also in the news this week

• China Mobile adds 53M subscribers in 2006 for a total of 301 million

• Emerging markets capitalize on VoIP trends

• Innovation gets outsourced to “Chindia”