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The Business of Doing Business

in Emerging Markets

Executive Summary
Emerging markets accounted for approximately half of the
worlds GDP in 2006.1 They continue to demonstrate growth
rates that far exceed those of the developed markets.2 As a
result, many companies see the ability to sell effectively to
these markets as a key success factor.

However, the upside of emerging markets


is tempered by other characteristics. The
overall sales ecosystem in emerging
markets often is complicated and quite
different from that of a developed economy. The markets are very diverse and
their business environments and practices are usually quite immature. They
also have huge bases of low-income
customers (both businesses and retail
consumers) that coexist with a growing
middle class.

Selling successfully to these markets


requires a sales approach tailored to
their unique characteristics. That means
it is necessary to understand:
1) What kind of operating style to use.
2) How to grow sales channels that help
achieve high performance.
3) How to sell to low-income customers.
4) How to deploy simple, standardized
and global processes.
Through this article, we will explore
the dynamics of the complex sales
ecosystem in emerging markets and
describe sample solutions that will
help you structure a sales strategy for
achieving high performance.

1 Basis Gross Domestic Product based on Purchasing


Power Parity (PPP) valuation of country GDP, IMF World
Economic Outlook data, April 2007
2 "World Development Indicators 2007, World Bank.
http://siteresources.worldbank.org/DATASTATISTICS/
Resources/WDI07section4-intro.pdf

The Astonishing
Growth of Emerging
Markets

Based on recent estimates, China and


India will contribute 29 percent to the
world GDP by 2030. At the same time,
the BRIC contribution will rise to 39
percent during that period.4

According to the data in Figure 1,


emerging markets accounted for 48
percent of global GDP in 2006, up from
39 percent in 1980.3 The emerging
world has witnessed growth rates that
far exceed those of the developed
world. Clearly the global balance is
shifting in their favor. (See Figure 1.)
While many people have previously
forecasted this shift,4 two recent
trends appear to have added strength
to this prediction:
The BRIC (Brazil, Russia, India and

China) economies have had impact


sooner than expected.

China and India Calling A Lot


According to Gartner, China and
India will each account for 20
percent of the global increase in
telephone connections between
2005 and 2010. While growth
in the developed markets is
expected to be marginal (only
contributing to 11 percent of
global growth during 20052010),
emerging markets will contribute
a whopping 89 percent to the
global growth during the same
period. By 2010, telephone
connections in emerging markets
will be more than double those
of the corresponding figure for
developed markets.
(Source: "Gartner Says Emerging Markets
Hold the Key to Future Telecoms."
Gartner. December 1, 2006.)

China and India are dominating the

BRIC story.

Figure 1: Who Contributes What


to World GDP?
Contribution to the World GDP
(PPP Weighted)

Contribution to the World GDP (PPP Weighted)

60%
50%
40%
30%
20%
10%
0%
1980

Other
Emerging
Markets

1985

China

1990

India

1995

Brazil

Russia

2000

2006

G7

IMF World Economic Outlook dataApril 2007


3 "Dreaming With BRICs: The path to 2050, Global Paper
# 99, October 2003.
4 Economist Intelligence Unit estimates, January 2007.

What CXOs Say


About Emerging
Markets
Executives worldwide are responding
aggressively to this changing market
dynamic. An Accenture study of CXOs
across Europe and the United States
(2006) identified globalization as one of
the key planks of corporate strategy in
the 21st century. These executives, by an
overwhelming majority, believe that the
thirst for bigger markets (70 percent)
and competitive threats (65 percent) are
the key drivers of globalization.5

Nokia Nails New Markets

in communication and high-tech


companies reveals that customer-facing
roles are the most important in the
corporate globalization effort.6 (See
Figure 2.) For companies to succeed in
such roles, it is imperative that business
leaders understand the sales context in
these markets.

Nokias sales from non-European


or North American markets
have grown from 240 million
in 1990 to 22.6 billion in 2006.
This constituted 55% of the
companys total sales. The bulk
of Nokias growth is coming from
markets like China, India and
Brazil, where it is growing at
rates above 35% year on year.
(Source: Nokia annual reports.)

The term globalization has come to


imply far more than far-ranging export
activity or overseas research centers.
Increasingly, it is associated with core
revenue-building activities such as
sales, marketing and manufacturing. An
Accenture study of C-level executives

Figure 2: Customer-Facing Roles


Are Key
Functions/Processes Relevance to
Organizations Globalization Effort

Functions/Processes Relevance to Organizations Globalization Effort

60%
50%
40%
30%
20%
10%
0%
Management

1st priority

Finance &
Accounting

HR

2nd priority

Supply
Chain/Logistics

IT

Manufacturing Procurement
/Sourcing

Marketing
and Comms

R&D/Product
Development

Customer
Facing

3rd priority
5 Accenture research on high-performance businesses.
(Results from survey of 32 CEOs. These CEOs belonged
to communication and high-tech industries and were
surveyed in Feb-March 2006. The citation is a response
by the respondents about the drivers of globalization.)
6 Accenture research on globalization of communication
and high-tech companies, April 2006.

Different Ways of
Selling in Emerging
Markets
As customer-facing roles become more
important, more is expected of sales
organizations. However, the selling process in emerging markets often differs
markedly from the sales methods typical
in the developed world. Four factors are
relevant. (See Figure 3.) It is useful to
look at each in a little more detail.

are much lower than developed markets such as the United States and the
United Kingdom, which stand at 3 and
6, respectively. Particularly challenging
from the sales perspective are insufficient distribution infrastructure and
poor payment cycles. Entrants to these
markets also have observed that many
market factors are effectively unknown
(and unknowable). Hence, corporations
face steep learning curves before they
develop the necessary understanding of
local environment and customs.
Growth Rates That Can Skew Sales Goals.
Growth rates in emerging markets are
breathtaking. Gartner estimates that
the Indian IT market grew by 31 percent
in 2006 alone. It further predicts that
this market will maintain an annual
growth rate of more than 15 percent
through 2020a sharp contrast to
mature markets such as the United
States and the United Kingdom, where
annual growth rates are in the 3
percent to 5 percent range.8 A highgrowth phase may drastically alter an

Business Environments That Are Not


Yet Mature.
As attractive as emerging markets are
from a growth perspective, the immaturity of their business environments
makes it challenging to do business
successfully. The immaturity of the
BRIC countries is reflected in World
Bank rankings on ease of doing business. Of the 175 economies assessed,
Brazil is at 121, India at 134, China at
93 and Russia at 96.7 These rankings

organizations sales objectives. Customer


retention can take a back seat while
all the focus shifts to acquiring new
customers. Likewise, because of the high
latent demand, sales teams may evolve
into order takers rather than sales
generators. Sales processes also tend
to become outdated very rapidly in such
dynamic business environments.
Myriad Low-Income Buyers and Small
Businesses That Offer Huge Potential.
Per-capita income is low in emerging
market economies. Low-income customers also tend to be geographically
dispersed (and thus difficult to reach);
they are quite likely to live in villages
or urban shantytowns and often have
unsophisticated lifestyles compared to
Western counterparts. The businesses
that serve these consumers also tend to
be small, and the markets may be much
more fragmented than in developed
economies. Yet it is these customers and
businesses that offer huge potential to
new market entrants.

Figure 3: The Four Factors That


Affect
Sales Context
in Emerging Market
Sales
Strategy
Sales Strategy Context

Geographically Dispersed Markets


Large populations spread
over a huge geographical area
Cultural barriers
Lifestyle and language
differences

Large Base of Low


Income Buyers &
Small Businesses

Explosive Growth
Sales objectives are different
from developed world
Sales processes and systems
are constantly under flux

Sales Strategy

Low buying power


Fragmented markets

Immature Business
Environment
Insufficient distribution
infrastructure
Poor Payment cycles
Lack of local knowledge
& customs
7 Ease of Doing Business Rankings, Business Environment
Indicators, World Bank, 2006.
8 Worldwide Black Book, January 2007.

Markets Within Markets Within Markets.


China has a population of 1.3 billion
spread over 9.6 million square kilometers.9 It contains distinct subpopulations
with different dialects and varying lifestyles. Likewise, the populations of India,
Brazil and Russia are far from uniform.
To serve these large, diverse markets, a
broad-based sales network is necessary.

Figure 4: Hofstedes Culture


Scores on Individualism

What It Takes to Sell Successfully in Emerging Markets


Accenture observes that companies
tend to wrestle with four overarching
issues as they look to expand in
emerging markets:
1) What kind of operating style to use
2) How to grow sales channels to help
achieve high performance
3) How to sell to low-income customers
4) How to deploy simple, standardized
and global processes
The answers to these challenges depend
on many internal and external factors,
but we have found several underlying
themes common to most successful
companies:

They Opt for Personal Over


Process in Operating Styles
Emerging markets tend to require an
operating style that is personal rather
than process driven. Additional (at
times, even superfluous) manpower
may bring about the personal touch
that produces the extra dollar of profit.
Figure 4 illustrates the importance of
collectivism and the value of personal
touch worldwide. Note that the United
States and China fall on opposite ends
of the spectrum.10

Country

Individualism
(IDV)

United States

91

United Kingdom

89

Germany

67

India

43

Brazil

38

China 20
World Average

43

IDV refers to the degree to which


the society reinforces individual
achievement and interpersonal
relationships. A lower value indicates
a collective society; higher values
represent societies that value a high
degree of individualism. Higher scores
on collectivism should have a huge
bearing on corporations operating
styles. In a more collective society,
incentives can be more team-based
than individual-centric. Likewise, in
such societies of emerging markets,
the importance of relationships, best
represented in the Chinese word guanxi,
cannot be overemphasized.
A strong collaborative approach is
also seen in the way that corporations
deal with competition or develop and
leverage strong local networks. Such
collaboration may take the form of
cooperating with channel partners and
suppliersor even collaborating with
competitors in noncompeting areas. The
price of competition (extra marketing
effort, sales effort, exclusive infrastructures, etc.) contributes to higher costs
and may create waste in the system.
Collaboration potentially may reduce
some of these costs. Additionally, collaboration also may collapse time to
market, which is an important success
factor in emerging markets.

Help Me Help You


Guanxi is a central concept in the
Chinese society that essentially
refers to a network of contacts
who help each other out in
realizing their objectives, even if
their actions violate existing rules
and procedures.
My Infrastructure Is Your
Infrastructure
Vodafone recently acquired
Hutch, the second largest
operator of Global System for
Mobile (GSM) in India. One of
the first public announcements
made by Vodafone CEO Arun
Sarin was in respect to sharing
telecom network infrastructure
with Bharti, Hutchs biggest
competitor. Clearly, market
realities are forcing competitors
to eat from the same plate.
(Source: "All eyes on TRAI as Vodafone,
Bharti talk infra sharing." The Economic
Times. February 14, 2007.)

To Russia With Mobile


An example from Russia: Samsung
sells directly to Russias two largest
mobile handset retailersEuroset
and OAO Vimpel Communications
and also partners with Bang &
Olufsen. The telephones are sold
through Bang & Olufsen outlets
as well as select Samsung stores.
(Sources: B&O rings the changes
with Samsung mobile technology,
Design Week. October 13, 2005.
VimpelCom To Sell Samsung Phones;
Tariff Targets Women, Dow Jones
News Service. October 6, 2005.
Samsung to produce cell phones under
Russia's Euroset brand, Prime Tass.
April 20, 2006.)

9 http://en.wikipedia.org/wiki/China.
10 Hofstedes Dimensions of CultureIndividualism vs.
Collectivism. http://www.geert-hofstede.com/hofstede_
dimensions.php.

A fair amount of collaboration seems


to occur in the area of enabling
technologies. An example is Microsofts
FlexGo11 technology program for
subscription and pay-as-you-go
computing models in emerging
markets. This program has companies
such as Intel, AMD, Infineon, Lenovo
and Transmeta as partners. Microsoft
envisions making low-cost, full-featured
PCs available to millions of new users
through tailored financing models that
fits users lives and budgets.

They Select the Sales


Channels That Suit Each
Market Best
Corporations often struggle to find
the right balance between direct and
indirect routes to market. Establishing a
direct sales organization demonstrates
a companys commitment level to
governments and to large corporations
in emerging markets. Corporations
frequently find that end customers want
to receive service from the company
itself rather than partners. Both of these
factors have led many companies to
establish at least a limited direct sales
presence in emerging markets.
However, setting up a direct sales force
to reach an entire market may prove to
be quite costly and time consuming, at
least in the initial stages of business.
Given the size and dispersed nature
of markets such as India and China,
leveraging indirect channels is often the
most cost-effective and timely way to
reach large numbers of customers.
Indirect channels have no shortage
of challenges of their own. Poor
infrastructure, limited channel
knowledge or sophistication, disabling
regulatory conditions and lack of
supporting payment mechanisms
require new entrants to do more to
grow and retain a strong indirect
channel ecosystem. In our experience,
corporations tend to work on an assured

ROI model (promising a particular ROI


to the channel partners given a certain
investment and process adherence) and
invest in their partners through the
following methods:
a) Deployment of channel-financing
mechanisms to tide over poor payment
cycles
b) Training of channel partners through
classroom programs, certifications,
hands-on training and field-level
deployment of global best practices
c) Investment in channel marketing
support

Reaching Indias Rural Retailers


An example from India: Motorola
has ensured distribution deals
with rural retail chains, specifically
ITCs e-choupal, DCMs Hariyali
Kisaan Bazaar and Godrej Agrovet.
These initiatives will provide
consumers the assurance of a direct
channel to purchase new handsets,
especially because the market is
replete with gray market phones
and refurbished units.
(Source: "Mobile players target haats
to push growth," The Economic Times.
April 23, 2007.)

Channel partner management in


emerging markets usually calls for a
high level of hands-on supportthat
is, the need to deploy additional
manpower, finances and processes.
Effective partnering has a steep
learning curve and comes with years
of experience. One company that
partners exceptionally well is Cisco. A
few key elements of Ciscos Channel
Performance program12 are:
1) A $2 billion fund that Cisco makes
available to its partners through Cisco
Capital, providing short-term inventory
financing for channel partners in
emerging regions.
2) A specialized team of channel
account managers for engagements
with channel partners in emerging
markets, which has recently been
enlarged by 40 percent and has
undergone specialized training.
3) Regular seminars and training and
certification programs for Ciscos
channel partners.
In other cases, direct and indirect sales
models can be successfully combined
in emerging markets. Nokia shows how.
In India, Nokia13 sells through 90,000
points of sale, which are serviced
through a combination of a national
distributor, regional distributors and
micro distributors. Sales transactions are

11 Microsoft Rolls Out Pay-As-You-Go Computing Models,


Electronic News , May 5, 2006.
12 Cisco Capital Slates $2B in Financing for Channel
Partners in Emerging Markets, Channel Insider, December
13, 2006.
13 First Mover in Mobile; How Nokia is selling cell phones
to the developing world, BusinessWeek Online, May 4, 2007.

handled both by a direct sales force and


by the distributors sales teams. However,
the actual distribution of the handsets
is carried out by the distributors only.
This scenario is quite different from the
situation of five years ago, when the
company had a very limited presence and
sold only through a national distributor.

They Find Smart Ways


to Reach Low-Income
Customers
A huge and growing middle class,
together with a host of rapidly expanding businesses, gives the impression that
easy success awaits in every emerging
market. However, the durability of the
success often is defined by the way a
corporation reaches out to low-income
customers, including retail buyers and
small- and medium-sized businesses.
This outreach frequently means selling
products to unsophisticated buyers in
geographically dispersed locations; it
may involve developing a strong rural
sales structure.
Successfully reaching out to low-income
customers requires considering the
specific characteristics of these markets
when defining solution characteristics,
access methods and customer touchpoint management.
Specifically, companies need to develop
solutions that appeal to low-income
customers and small businesses.
Examples may include factors such
as smaller ticket size (for example,
shampoo sachets instead of full bottles),
no-frills solutions (for example, Intels
Community PC, a low-end, no-extras
machine)14 and monthly payments for
high-value products. Simultaneously,
access methods tend to become more
dispersed and complicated. Lowincome customers and businesses often
respond well to localized, high-intensity
promos rather than sustained national
advertising. On the other hand, the SKU
complexity that results from smallerticket items and specific solution
characteristics will necessitate specific
sales training.


It is often very useful to deploy funneltype access methods to reach out across
the broad geographical regions found
in emerging markets. In such methods,
many customers are reached through
one access point at any given instance.
An example would be retail stores that
reach many customers at one time
through one-stop shopping. The method
is usually impersonal and needs a legup in terms of brand support to sell
the product. Similar funnel-type access
channels often are effective ways to
work opportunities, support distribution
and handle post-distribution support.

Kenyans Form Buying Clubs


An example from Nairobi: A
leading mobile company learned
that many people form buying
clubs, pooling their money to buy
handsets one at a time until every
member has one. The members
draw lots to see who gets phones
in what order. Now the company
is looking for ways to encourage
this form of self-financing.
Communal finance is one way to
sell to people at the bottom of
the financial pyramid.

LG, Samsung and Nokia are reaching


out to low-income customers in
India in increasingly innovative ways.
Distribution infrastructures have been
shored up to connect even the smallest
villages. These companies have achieved
double-digit growth rates in emerging
markets by using combinations of
local distributors, access through local
markets and deployment of local sales
teams. LG, for instance, has ensured
speedy access to credit (and also a
system of equal monthly payments for
its products) through tie-ups with banks
to further facilitate sales to low-income
customers. Similarly, Nokia has deployed
a fleet of distinctive blue Nokia-branded
vans that travel Indias country roads.
These mobile advertisements are parked
in villages, often on market or festival
days. There, with crowds clustering
around, Nokia representatives explain
the basics of how mobile phones
work and how they can be purchased.
Distribution innovations like these have
helped Nokia reach annual revenues of
$3.7 billion in India.15

14 The race is on to serve "the next billion" in emerging


markets, BusinessWeek, June 12, 2006.
15 First Mover in Mobile; How Nokia is selling cell phones
to the developing world, BusinessWeek Online, May 4, 2007.

They Strive for the Right


Mix of Local and Global
Processes
Large transnational corporations have
developed robust sales processes over
many years. However they repeatedly
struggle to achieve the right mix of
local and global in emerging markets.
Often, many companies assume the
more localized the better. In fact there
are many stories that speak of how
companies have failed by rolling out
global process in emerging markets.
Experience shows that the most
successful answer tends to be a blended
approach of local and global processes.
We have found the most important
areas to localize are the distribution
channels themselves. Leveraging global
standards for many of the back office
procedures, sales methodologies and
supporting technologies, on the other
hand, has been proven to be very
effective in providing some needed
structure and operating efficiencies to
these fast-growing markets.
One example of success comes from a
large, high-tech company that expanded
into both India and China using a
global inside sales capability. Various
sales and support processes, such as
lead generation, account review and
approach, reporting, problem escalation
and repeat business generation,
remained similar to global best practices.
The only differences were local market
expediencies such as communication
methods (personal vs. impersonal),
market information sources (formal vs.
informal channels), review frequency,
etc. The key idea was to establish a
robust sales support that helped the
organization to scale, react to the
dynamic market and provide the right
support at the right time to the sales
force at the point of sale.
Emerging markets exhibit huge variability
from place to place and from time to
time. As a result, flexible sales processes
become vital. For example, when a

global incentive structure or process is


employed, companies must balance key
sales objectives for sales volume, sales
mix and new product sales in different
scenarios (which are being played at
the same time in different geographies).
At 30 percent annual revenue growth
rates, a company more than doubles
its size in three years time. In such a
scenario, companies would need sales
processes that scale to support rapid
growth as well as support systems that
are sufficiently robust to function in a
dynamic business environment.
Accentures recent work with one
of Chinas leading mobile telephone
companies demonstrates this need
very clearly. We helped the company to
migrate to a more flexible and scalable
channel management system that was
particularly geared to manage Chinas
rapidly changing market dynamic. The
management system defines sales
objectives by flexible groupings of
channel partners and customers. Sales
processes have a built-in flexibility
regarding objectives, incentives and
timelines, with appropriate controls at
all levels. This system, with its elasticity
and inherent ability to react to market
conditions, has allowed the company
to respond much faster to changing
business conditions than its competitors.

The Next Step Is


Yours
Success in emerging markets is rapidly
becoming a critical success factor for
global companies. The core challenge is
to grow in a cost-effective and profitable
way given the vast size of the markets,
the differing economic and infrastructure
capacities, and the variations in the
markets cultures and customs.

The key, Accenture has found, is to


start by adopting an appropriate
operating style that leverages personal
connections. The second step usually
involves a demonstrated commitment
to growing sales channels that help
achieve high performance, which
requires more intensive investment than
in many developed countries. Success is
ensured by sales outreach that targets
low-income customers with appropriate
offerings and access mechanisms. And
it is accelerated when a company can
localize customer-facing processes
while building a strong and scalable
foundation of back-end processes that
rely on best global practices.

Today is a good day to begin


rethinking your approach to
emerging markets.

For more information contact


cht_inquiries@accenture.com
and reference selling to
emerging markets.

Copyright 2007 Accenture


All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

About Accenture
Accenture is a global management
consulting, technology services and
outsourcing company. Committed
to delivering innovation, Accenture
collaborates with its clients to help
them become high-performance
businesses and governments. With
deep industry and business process
expertise, broad global resources and
a proven track record, Accenture can
mobilize the right people, skills and
technologies to help clients improve
their performance. With more than
170,000 people in 49 countries, the
company generated net revenues of
US$19.70 billion for the fiscal year
ended Aug. 31, 2007. Its home page is
www.accenture.com.