With limited scope for organic growth in the US and Europe, many companies and investors turned their eyes towards the Emerging Markets. Focus now starts to shift to the CIVET group of countries (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa). They are also all fast-growing, relatively diverse economies, which means, unlike the BRICs (Brazil, Russia, India, China), they should be less heavily dependent on external demand.
Indonesia is one of the success stories of the emerging markets, whose economy continues to grow strongly even now when most of the countries in the region and the globe are struggling. What makes the country even more appealing, especially when it comes to FMCG, is its rapidly expanding middle class – now the third largest in the world.
What we also love about Indonesia is that it poses a lot of challenges. And we love challenges! In our last article we looked at what companies can learn from challenges arising as a result of the cultural differences. Now we will look at the importance of the localness, the innovation in consumer goods and the convenience as factors to succeed in today’s market place.
Addressing the Localness
A recent Nielsen report about Indonesia found that “local content is appealing to middle class, which is why each city has its own newspaper”. This is due to the fact that Indonesia is spread across many islands and each island has a degree of its own culture and local sense. Starbucks is a great example of a company, who learned the hard way that “one size fits all” is not always the best strategy. After doing some research Starbucks found that people in different regions had different tastes for the coffee e.g. in Sun Belt prefer cold drinks; in the Northeast like drip coffee while at the Pacific Northwest – drink more espresso. Yet the executives in charge of regions of the country were divided along time zones and out of touch with what different customers wanted. Addressing the localness was in the heart of the famous Starbucks turnaround of fortune. In our last article about Indonesia we also looked at how to research the localness.
Starbucks have also an interesting approach to the Indian market. Unlike in other markets, Starbucks will enter the Indian market in a joint venture with Tata Group (the international conglomerate responsible for Jaguar, Tata Motors, and even Eight O’Clock Coffee). This way Starbucks will not just source the coffee beans in India and use the luxury Taj hotels as venues for its shops but will also benefit from the close relations of Tata officials with local authorities.
Innovation in Consumer Goods
The same Nielsen report also found that “in a number of consumer goods categories, innovation has proven to be a growth engine. For example, in the ice cream category, the number of new varieties has surged by nearly 32 percent”. A great story about innovation in consumer goods comes from a Malcom Gladwell TED talk, where he tells the story of how the Campbel Soup Company became the tomato paste market leader in the US. Back in the 80s the company was behind its main competitor and wanted to find the recipe for the perfect spaghetti sauce. What was a break through discovery back then was that there is no perfect spaghetti sauce but perfect spaghetti sauces. Through research they found that 1/3 of the American population had an unmet need for “extra chunky” spaghetti sauce and this catapulted the Campbell Soup Company to #1 in market share.
Convenience is Key
A third finding in the Nielson report that we want to address is that, surprise- surprise, “today’s middle class consumers are pressed for time, with the demands of work and family life. Products that make life a bit easier are clear winners”. A way to address this problem is by providing more convenient channels to customers e.g. shopping via the web, smartphones etc. In one of our previous blog posts we looked at how HomePlus, a South Korean grocery store chain, built a virtual store in subways, where subway passengers in transit from work and home could simply scan a QR code, pay and have their groceries delivered to them on the same day. As a result online sales rose 130%.
How does your company address these three factors when planning a new market entry?