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Reinventing strategies for emerging markets: beyond the transnational model

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Abstract

With established markets becoming saturated, multinational corporations (MNCs) have turned increasingly to emerging markets (EMs) in the developing world. Such EM strategies have been targeted almost exclusively at the wealthy elite at the top of the economic pyramid. Recently, however, a number of MNCs have launched new initiatives that explore the untapped market potential at the base of the economic pyramid, the largest and fastest-growing segment of the world's population. Reaching the four billion people in these markets poses both tremendous opportunities and unique challenges to MNCs, as conventional wisdom about MNC global capabilities and subsidiary strategy in EMs may not be appropriate. How MNCs can successfully enter these low-income markets has not been effectively addressed in the literatures on global and EM strategies. An exploratory analysis, involving interviews with MNC managers, original case studies, and archival material, indicates that the transnational model of national responsiveness, global efficiency and worldwide learning may not be sufficient. Results suggest that the success of initiatives targeting low-income markets is enhanced by recognizing that Western-style patterns of economic development may not occur in these business environments. Business strategies that rely on leveraging the strengths of the existing market environment outperform those that focus on overcoming weaknesses. These strategies include developing relationships with non-traditional partners, co-inventing custom solutions, and building local capacity. Together, these successful strategies suggest the importance of MNCs developing a global capability in social embeddedness.

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Notes

  1. For instance, multinationals such as Procter & Gamble, DuPont, Dow Chemical, Hewlett-Packard, Johnson & Johnson, Ford, Tetra Pak, and Coca-Cola have made financial commitments to join think tanks focused directly on examining the potential for serving the four billion people, approximately two-thirds of humanity, who constitute this huge emerging market (for example, see http://www.kenan-flagler.unc.edu/KI/cse/bop.cfm). Furthermore, the World Business Council on Sustainable Development, a coalition of 160 international firms, has established a Sustainable Livelihoods Program. This project, with active involvement from MNCs such as British Petroleum, Eskom, and Suez, explores the business case for companies interested in pursuing low-income markets (see http://www.wbcsd.org).

  2. The GNP is the value of all the goods and services produced in an economy, including the value of the goods and services imported, but less the goods and services exported. PPP equates the price of a basket of identical traded goods and services in two countries. PPP provides a standardized comparison of real prices between countries.

  3. The United Nations, for example, has a vision of a more sustainable and inclusive global economy. The recent Johannesburg World Summit on Sustainable Development emphasized the growing importance attached to eradicating global poverty. Similarly, the Global Compact was created as a voluntary international initiative that allies companies with UN agencies, non-governmental organizations, and various other civil-society actors in the pursuit of social goals in areas of human rights, labor, and the environment.

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Acknowledgements

We are grateful for comments on an earlier version that was presented at the Strategic Management Society Conference in November 2003, where the manuscript was awarded Best Conference Paper – Honorable Mention. We also thank the anonymous reviewers and JIBS Special Departmental Editor Joan Enric Ricart for their insightful and instructive suggestions in developing this paper.

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  1. Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC, USA

    Ted London

  2. Johnson School of Management, Cornell University, Ithaca, NY, USA

    Stuart L Hart

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Correspondence to Ted London.

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Accepted by Joan Enric Ricart, Special Departmental Editor, 13 May 2004. This paper has been with the author for one revision.

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London, T., Hart, S. Reinventing strategies for emerging markets: beyond the transnational model. J Int Bus Stud 35, 350–370 (2004). https://doi.org/10.1057/palgrave.jibs.8400099

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