TNS GEMS April 2013

Gems
Insights from emerging markets

April 2013

Contents

1
Introduction 3

2
Joining the future for the Mekong 4

3
China and the Chinese - going beyond Kung Fu and noodles 23

4
Making the small screen part of the big picture 31

5
Is the reverse flow of innovation coming full circle? 39

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2

Introduction

One of the most exciting things about living The impact of mobile in sub-Saharan Africa has been massive,
however people are not actively engaging with brands via
and working in the ‘emerging markets’ is mobile, particularly in South Africa. We examine some of the
the rapid pace of change and the wealth barriers and potential solutions that companies can consider to
of new opportunities. This is perhaps best increase their effectiveness in this area.

exemplified by Myanmar, which really is the Finally, we share a perspective on reverse innovation – and
newest emerging market. the lessons that ‘mature markets’ can learn from emerging
economies.
Since sanctions lifted last year, we have been working with
Chris Riquier clients to help them to understand the values, attitudes and We’ve been at ESOMAR in Ho Chi Minh this month, talking
CEO, Asia Pacific aspirations of people in Myanmar. We were delighted to receive about some of the opportunities in Myanmar and also discussing
our formal licence to operate in March and have opened a the importance of cultural precision when building a marketing
full service office in Yangon. You can learn more about the strategy. If you’d like to see a copy of our papers, or discuss any
opportunity in Myanmar and across the new Mekong sub- of the issues in this edition, please do get in touch.
region - which includes Cambodia, Laos and Vietnam – in this
edition. Kind regards,

We kicked off the year with our Chinese New Year study –
building an understanding of how people in China, Hong
Kong, Singapore, Taiwan and Malaysia celebrate new year.
Chris Riquier,
The holidays are far behind us, but some of the insights into
CEO, Asia Pacific
attitudes are of interest beyond this.

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3

Finding Leader
Opinionfaster growth: New markets
Joining the future for the Mekong - Ralf Matthaes

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4

Joining the future for the Mekong

The Mekong sub-region represents one
of the world’s great emerging market
opportunities; and one where distinct
national characteristics, complex histories
and varied stages of development must
guide the strategies of brands.

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5


At a time when brands are seeking to decouple their
fortunes from recession-stricken developed markets and
find new engines of growth, the countries of the Lower
Mekong Basin offer a compelling case for attention.
From the South China Sea in the East to the Andaman
Sea in the West, via Vietnam, Laos, Cambodia, Thailand
and Myanmar, the Mekong sub-region incorporates
rich natural resources, genuine emerging markets and
rapidly developing urban cultures. It also represents
a study in human diversity, with a rich canvas of
languages, ethnic identities and religious traditions, and
distinct national histories that exercise huge influence
over the nature of markets today.

Of all the markets in the region, Thailand has the most
familiar dimensions for developed-world brands, with
a large, well-established middle class, a zest for living
an experiential life, a strong sense of fashion and an
appetite for premium products. Thailand has long
been the island of relatively stable prosperity in the
midst of the Mekong region – and a very attractive one more recently emerging markets for the strongest change over the past 25 years has played a key role
for global brands. However, with the rate of growth growth opportunities. in determining the course of economic development.
slowing and the Thai economy feeling the effects of the And the strongest opportunity of all appears to lie with
global recession through its impact on the tourist trade, In doing so, they will find that the strongest potential the country where those changes are most recent, and
those brands must increasingly look to the region’s for growth lies in those countries where political perhaps most fragile.

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Potential unleashed in Myanmar as an ideal trading hub; and despite decades of under-
Myanmar’s movement towards democracy during the investment and intentional disruption of education by
past three years has resulted in the easing of sanctions the government, Myanmar has a literate, well-educated
previously imposed on its ruling military junta and the
unleashing of a likely flood in Foreign Direct Investment
(FDI). This is predicted to catapult from just under $1
billion to $20 billion, dwarfing the figure for its larger
population; 18 per cent of the urban population have
some grasp of English as a second language.

Yet despite its natural resources and growth potential,
18%
of the urban population speak some English;
and wealthier near-neighbour Vietnam and setting Myanmar currently has the lowest income per capita
Myanmar apart from Cambodia and Laos, its fellow of its region, with huge disparities between rich and
members of the CaLM group of countries, which are poor; 32 per cent of its population live on or below

32%
often grouped together as Mekong territories in the the poverty line, grappling with significant gaps in
earliest stages of economic emergence. infrastructure whilst attempting to secure a better
future for themselves and their children. With more
Within this group, Myanmar enjoys some significant than half of the population under the age of 30, of people live on or below the poverty line;
advantages that help to explain its attractiveness for Myanmar is likely to experience exploding demand for
investors, and which the instability of recent years consumer goods in the medium-term future; but for
has not been able to undermine. With oil, gas and now, very few of those young men and women enjoy
gemstones it is hugely rich in immediately exploitable
natural resources; a border shared with India and China
puts it adjacent to one third of the world’s population
disposable incomes, and many are potentially harder for
brands to engage than equivalent young consumers in
other emerging markets. 1/2
half of the population are under the age of 30.

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The mobile phone that has extended online access two per cent have an internet connection, despite 25
and unleashed entrepreneurial energies across per cent saying they would like to access more news
many countries has not been able to wield such and information this way and 15 per cent saying they
influence in Myanmar, due to controlled access and
the previous regime’s policy of setting restrictively
high prices. Up to 12 months ago, SIM cards were
priced out of the reach of all but the very wealthiest
would like to own a laptop. TV dominates the media
experience, even when the incomplete and frequently
interrupted electricity supply means families may have
to resort to generators (or rigging electricity supply
68%
Burmese people – or Bamar – only compromise
consumers, however prices have dropped to 200,000 from the family motorbike) to power their set. 68% of the population;
MMK (approx. U$ 235) for a GSM SIM card and the
government continues to move towards opening up The typical family is Burmese (the ethnic group that

84%
the market with invitations to foreign operators to dominates Myanmar, representing 68 per cent of the
participate expected to dramatically increase access. In population and 84 percent in the major metropolitan
the medium-term, it is likely that many of Myanmar’s areas) with a very traditional adherence to the tenets
young consumers will adopt web-enabled smartphones of Buddhism. Community and family are hugely of people in the main metropolitan cities
as their first handsets, but for now mobiles still remain important, with duty to others keenly felt and at least are Burmese;
out of the financial reach of many. two generations typically existing under a single roof.
For those who have travelled widely in South East Asia,
The bulk of the country’s young population have little Myanmar stands out for the way in which the influence
to mitigate shortcomings in infrastructure that greatly
affect their experience of the world and the channels
which brands have available to engage them. Only
of Buddhism extends to all areas of life; and this has
a significant role in shaping consumer instincts and
attitudes to brands. 135
Myanmar government officially recognises
135 distinct ethnic groups.

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Within the close-knit family environment, it is women
who control most decisions regarding finance and
spending. And an instinctive cultural rejection of ‘bling’
or the pursuit of status through belongings lends a
practical edge to that spending. The most desired
items in Myanmar are essential durables, with washing
machines and refrigerators topping consumers’ wish
lists. Outside of groceries, the dominant item of
expenditure is education, the embodiment of hope and
a legacy of an adult population who have themselves
passed through a structured education system. The
proportion of household budgets invested in education
highlights the priority that all attach to improving
the prospects of their children in a fast-developing
future. The speed with which that future is arriving,
and the obvious gains that can be rapidly delivered by
forthcoming investment, are what make the immediate
economic future of the country particularly exciting.

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9

Myanmar: U Than Kyaw’s story
Dinner is U Than Kyaw’s favourite time of day. His family gather their neighbours can afford, whilst selling enough stock to be
for it at 7.30 in the evening, in the home that he shares with his confident of making money. They stockpile a months-worth of
wife, young daughter, two nephews and three nieces, above the goods in their back room to guard against price fluctuations and
traditional convenience store that the family runs. U Than Kyaw avoid being forced to raise prices. All the same, supporting a family
adores his wife’s cooking, of course. But that is not the only reason from the convenience store alone would be a challenge. U Than
that he enjoys the meal so much. It is a symbol of their shared Kyaw used the management skills that he learned in construction
endeavour: the ingredients bought by him in the traditional wet to set up a taxi business that he can run from the shop, bringing in
market in the morning; then cooked by her in the evening as he much needed extra income.
monitors the vehicles of the taxi business that he runs from their
store. Mealtime is also the occasion when the family room is filled He would have found balancing the two enterprises a lot more
with energetic discussion of Dhamma doctrine, the central tenets difficult just a year ago. It was then that he was able to buy a
of Buddhism that, he loves to hear, mean as much to his younger second-hand mobile phone from a friend who still works in the
relatives as they do to him. Yangon construction industry. When they worked together, the
idea of owning a mobile was laughable; the cost of a handset
The Buddhist religion has directed U Than Kyaw’s life ever since his was several times their annual salary. In the last year, with the
childhood in the provincial upper Myanmar city of Paung during the government altering its policies on the mobile market, the price has
1970’s, when the country was still undergoing the ruling military plummeted to only six months’ earnings. It is still a lot of money,
junta’s experiment with centrally directed socialism. One of the but being able to stay in touch with his vehicles as they move
most profound impacts of military rule was a narrowing of access around the city has helped U Than Kyaw to bring in a great deal
to education; so much so that U Than Kyaw was the only one more.
of his six siblings to graduate from University, at the then-capital
city Yangon, where he still lives today. He has been determined to It was the extra money and the changing political situation that
make the most of his opportunity ever since, and sees caring for finally persuaded he and his wife that they could afford to bring
his extended family as a deep personal responsibility. When he fell up a child of their own. And after nine years of marriage, their
in love with his wife and gave up his career in the construction daughter was born. Waiting so long means that they do not
industry to help her start a business, he naturally employed his expect to have any more children; so he and his wife lavish all of
younger relatives to work in the shop. their efforts on their little girl. U Than Kyaw is determined that
she should become a graduate; giving her the same opportunities
The traditional store has been the focus of he and his wife’s life that he had – and of course, the same responsibilities to help and
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together since they married ten years ago. He has helped her to support her family as best she can. Gems
focus on the FMCG products for which they can charge a price
10


Cultural divides in Cambodia and urban populations. Cambodia’s urbanites enjoy
Cambodia’s emergence from civil war in 1997 has given significantly greater personal income and expenditure,
it longer to progress down the path of development as well as significantly increased access to infrastructure.
that Myanmar is now embarking upon. The changes Understandably, those working in agriculture, fishing
of the last 15 years can be seen in greater income and forestry, the country’s dominant current industries,
per person, more established infrastructure (especially express a strong desire to move to more urban-
where mobile is concerned) and more recognisable oriented careers around retail and wholesale. Despite
consumer attitudes than those of its neighbour. this, the dominant share of the economy represented
However, the differences between Cambodia and by Cambodia’s rural population means that brands
Myanmar are not simply a case of countries at different looking to drive growth must embrace the challenges
stages of development. They result from clear religious of distributing products and building awareness in these
and cultural differences, geographic location and the communities.
more damaging impact of recent history upon potential.
As in Myanmar, TV remains the dominant media
The regime of Pol Pot was unfortunately far more channel through which they can seek to do so;
effective at disrupting and suppressing educational however, mobile phones have the potential to play a
institutions than those holding power in Myanmar. As stronger role in Cambodia in the immediate future,
a result, the population of Cambodia is significantly overcoming patchy electricity supply and opening up
less literate and has very limited command of foreign new channels of engagement for brands in rural areas.
languages. The growth of the last decade and a half Almost half of the population (48 per cent) expect to
has made some wealthy but great inequality persists, increase their spend on mobile in the next year and
with a third of the country remaining in poverty. And 61 per cent of web users already access the internet
that inequality is most keenly felt between the rural through mobile devices.

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In terms of declared religion, Buddhism appears as comes to the education of children, something to which
influential in Cambodia as it is in Myanmar. That Cambodians, like their neighbours in Myanmar, devote
influence though is felt in a very different form when a large proportion of household spending. Ambitious
it comes to self-expression and emerging consumer
habits. Status is hugely important in Cambodia, closely
linked to self-esteem, and providing a different form
of opportunity for brands to establish their appeal:
mums, willing to pay a premium to get the best for
their children, represent a hugely significant segment
in Cambodia. A better future, with children who can
support them in their ageing years, is seen as the return
73%
of Cambodians say that position and status in
73 per cent of Cambodians say that position and status on this investment. society is the most important aspect of their life, and
in society is the most important aspect of their life,
and 69 per cent say they like to use brands that show The challenges of Cambodia appear to have had

69%
their success. a substantial impact on the amount of foreign
investment channelled towards the country thus far,
Cambodian society also differs significantly from with total FDI dwarfed not only by Vietnam but also
Myanmar when it comes to the role of women, with by the amounts promised to Myanmar. Yet although say they like to use brands that show their success.
a traditional role in the home more firmly entrenched, Cambodia does not have quite the resource riches of
both in the attitudes of women themselves and Myanmar, its oil reserves alone will continue to draw
their husbands. Cambodian women are significantly money to the country. Economic growth is proceeding
less likely to have received an education than their regardless of the lower level of foreign support. And a
brothers, husbands and sons (a product both of lack of engagement with the country by international
traditional expectations and Cambodia’s educational brands provides those that can craft compelling local
shortcomings), but this does not prevent them from propositions with strong potential opportunity in
asserting strong influence over domestic budgets and relatively uncluttered markets.
purchase decisions. This is particularly true when it

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Cambodia: SaingHy’s story
SaingHy rises every morning at six to do chores, dress for work and After dropping her son off at school at 8am, SaingHy makes time
prepare to get her eldest, 11 year-old son ready for school. She to buy food for the day at the traditional ‘wet’ market. The family
makes the most of the space whilst the rest of the household is still has no refrigerator so food must be bought fresh every morning.
asleep. The flat where she lives is also home to her husband and SaingHy loves to cook – and her meals are famous. Her husband,
two sons, her younger sister with her husband and child, plus three who works as a security supervisor in Grand Phnom Penh, comes
employees who work in the tailors shop that she runs from their home for the main meal of the day at 12 o’clock. He won’t miss his
front room. wife’s cooking.

Getting her son to school on time means a great deal to SaingHy. After lunch, SaingHy takes a short nap with her baby son, for one
The fees at the “Western International School” are the family’s hour. She believes that napping is essential for health. And she
single biggest expense outside of food, but SaingHy firmly believes needs it – for this is the only hour between 9am and 7pm when she
that education and English are the key to a successful future. She will not be working in the tailors in the front room. At busy times,
wants her children to have the opportunity to decide their own she and her staff work through until 10pm to ensure that all of the
path in life. clients’ shirts are freshly pressed for the morning. Her employees are
willing workers, but it frustrates SaingHy that they are not as skilled
Such decisions were never really available to SaingHy herself. She as she was at their age.
was the second of five children born on the family farm in the
Kandal province of Cambodia. Both of her parents worked all Weekends are hugely important to SaingHy. She and her husband
day on the farm – and money was scarce. She loved school but will take their children to the Dreamland Theme Park in the city,
was forced to leave at the age of 13 to start learning her craft as walk along the riverside, and stop to eat at the Pizza Company,
a tailor – and helping the family to make ends meet. Despite the where there is a playground for the kids. She sees their weekly meal
fact that her financial support has helped both of her brothers to out as a luxury – a well-earned treat for herself and those closest to
go to university, she has never been able to learn English herself her. They would be happier if they had more money to spend on
– something she longs to do. It’s hard to use her mobile phone days like this – and if her work wasn’t quite so tiring. But perhaps
without a grasp of the language and she longs to travel and learn an easier life will have to wait until she finally has the time to learn
more about world events. As it stands, she stays on top of world English.
news using a YouTube channelthis native Khmer language,
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which she can watch on her phone when she goes to bed at night.
13


Individualism in Laos concern. However, individual ambition and assertiveness neighbours. Consumers in Laos are not accustomed
Independent since 1953 and a single-party socialist are far more strongly expressed than in Myanmar, to product choice and competition – or to the role of
republic since 1975, the consumer attitudes of Laos in particular: work, career, freedom, earning money brands in helping to guide their decisions. High-value
have been shaped by its communist heritage and and educating oneself for future opportunities are all exceptions to this rule, such as mobile phones and cars,
conservative strand of Theravada Buddhism, but also ranked highly as priorities, which very much resembles show the potential of brands to play an increased role,
by its proximity to Thailand and the ease with which the consumer sentiments holding sway in Vietnam a but as with other CaLM territories, propositions must
Thai influence flows across border points such as the decade ago. Educating one’s children, in contrast to first prove their practical, everyday value to consumers
Friendship Bridge. The population of Laos is extremely Myanmar and Cambodia, comes further down the list. with very limited budgets.
young (with an average age under 20) and increasingly Although choices for entertainment are limited, leisure
urban, with major centres such as the capital Vientiane time appears a more familiar concept than in the other

1953
concentrating the Thai influence and resulting in CaLM countries, with sport a particularly strong area of
increased interest in fashion brands and premium interest for urban populations.
products with practical value.
Laos’s emerging consumer attitudes, extensive TV
Laos has been independant since 1953 and
The mobile phone is one example of such a product, coverage and growing penetration for the internet and
with mobile phone penetration far exceeding that of mobile phones, offer significant potential for brands
Myanmar, and mobiles increasingly taken for granted as seeking growth opportunities. However, this potential

1975
an everyday life tool. Phones are also one of a small but remains restricted by income levels and a lack of
growing group of product areas where brands are seen familiarity with brands and competitive markets. A third
as an important factor in purchase decisions. of Laos’s population remain below the poverty line and
despite substantial natural resources particularly when it
a republic since 1975.
In common with other CaLM countries, consumers comes to tin, copper and hydroelectric power, economic
in Laos rank family harmony as their most important growth is highly dependent on trade with immediate

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14


Vietnam: a snapshot of the future that they admire outside their family and those that
Vietnam, with its GDP of $123 billion and substantially do are more likely to nominate historical figures such
increased purchasing power parity, appears to offer a as Ho Chi Minh or successful businesspeople such as
snapshot of the future experience for Cambodia, Laos Bill Gates.
and Myanmar, especially as the country’s vital economic
statistics of 15 years ago showed striking similarities Women still dominate spending decisions in Vietnam,
to those of Myanmar today. The desires expressed in but this influence is less linked to a life focused solely
Myanmar and Cambodia to live only with immediate on managing the household. “Your money is my
family have been fulfilled in Vietnam, where the size of money, and my money is my money” is the humorous
each household has shrunk, fewer members of each catchphrase frequently used to express an assertive
home are children – and significantly more of them are attitude, combining traditional authority on shopping
active wage earners. The Vietnamese still place great and spending with a role as wage earners.
emphasis on family values, however the influence of
parents on the attitudes of emerging generations is As household income increases, so too do
noticeably reduced when compared to Myanmar and opportunities to use that wealth for personal
Cambodia. satisfaction, entertainment and leisure. Whereas
consumers in Cambodia and Myanmar spend most
The influence of religion is also felt far less, with only of their spare time sleeping or resting, those in
40 per cent of the country registered as Buddhists Vietnam are exploring a range of options for leisure
and half classed as non-denominational, a legacy of activities. Shopping in Vietnam is seen as a social
the country’s communist heritage. Vietnamese also activity not just a necessity, eating out and socialising
show a greatly reduced tendency to idolise the living has overtaken education when it comes to household
when compared to Cambodia and Myanmar, where expenditure and the Vietnamese are far more likely
current politicians dominate lists of “most admired” than consumers in Cambodia and Myanmar to spend
people. Many Vietnamese have no particular person their leisure time with non-family members.

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In this increasingly social environment, word-of-mouth
is an important channel for sharing information and
building awareness – and the role of online channels
in promoting such word-of-mouth is increasingly
established. Although TV still dominates Vietnamese
media consumption overall, online is booming,
with 53 per cent of the urban population using
the internet at least four times a week and social
networks particularly popular. Mobile phones, now
almost ever-present amongst Vietnamese, have an
increasing role to play.

Although it represents a smaller proportion of
household expenditure, education remains a priority
in Vietnam, with intense competition for limited
places in universities and well-regarded international
schools. Education remains the key to unlocking
improved prospects and greater earnings potential,
and as Vietnam feels the impact of the global
downturn and consumer confidence slackens,
improving prospects is seen as more important than
ever. Getting ahead remains a driving force even as
the country itself moves forward.

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Vietnam: Nguyen’s story
Her name means “beautiful flower from the highlands”. And this ends meet. The degree that she graduated with from Da Lat
year, Quynh Nguyen decided she should make sure she was living university helped to give her the skills she needed to become an
up to it. accountant when she moved to the big city, once she took some
additional courses in accountancy and computing. Her mum, a
It’s not that she worries about the affections of her husband Huy. primary school teacher all her life, approved: “It’s a stable job for
He is still the same devoted father that he has been since their son a woman,” she said. “And you will have time to take care of your
Piggy (named for the auspicious year of his birth) arrived two years husband and the kids.”
ago. Huy feeds him, bathes him and takes him to bed. He also helps
Nguyen with many of the household chores but draws the line at In fact, Nguyen’s time at home is quite limited. She works six days
cooking. Some things remain a woman’s work. a week, from Monday to Saturday, 8pm to 5pm with overtime at
the end of the month to secure her salary of US$200. Like many
Nguyen wants to make sure that she remains the priority in her couples, she and Huy need two incomes to pay the bills. They
husband’s life. She began by curling her hair, polishing her nails; waited until they were both 26 years old to get married, anxious to
she even bought some expensive Clinique make-up and filled her achieve some financial security first; even so, their wedding, with
wardrobe with colourful, sexy dresses. She feels she is becoming a two parties in Da Lat and one in Ho Chi Minh City, cost 80 percent
new woman – and it certainly seems to make Huy happy. of their annual income.

Such ideas never occurred to her when she was single, and living When Piggy was first born, Nguyen did not know how to take
in her hometown of Da Lat, a small mountainous city in Vietnam’s care of him. For advice she turned to glossy magazines that tell her
south central highlands. But then, when Nguyen was growing up how yoghurt is good for digestion and sun block is essential for
she had no access to magazines to tell her about the fashions she protecting his skin. She also relies on her mother and mother-in-law,
wears today – and no leisure time to spend hanging out with friends who counsel her to bathe Piggy in beer for a beautiful complexion
and showing off her new look. A lot has changed in Vietnam in the and hair, fit a silver ankle bracelet to protect him from cold weather,
last decade, and not just for Nguyen. and keep a knife under the pillow to ward off evil spirits.
Nguyen would like to have a girl baby next. She believes that
She was born in the late 1970’s after almost two decades of daughters stay close to their mums, just as she has. But on one
continuous war that had made Vietnam one of the poorest matter she is very different to her mother. She wants no more than
countries in the world. She grew up in an era of economic two kids. The prospect of having three children like her mother or
depression, walking several miles to school through the fields seven like her grandmother is something she can’t imagine. She
of flowers that Da LatShare thishelping her mum with the
is famous for, jokes about how much Clinique she would need to get her look Gems
housework and sewing to earn money and help the family make back then.
17


Mapping brand opportunities goods or personal care products will be different in those selling laptops and PCs is very different in all
Across these very different territories, each at different Cambodia, where consumer choices in such areas are three countries as a result of varying levels of internet
stages of market development, a broad arc of often used to express status, than in Myanmar, where access, and the increased penetration of mobile phones
opportunities exists for brands. Marketers can choose to product quality and reliability are key. The strategy for in Vietnam, Laos and Cambodia.
target wealthier, freer-spending consumers in Vietnam
using both TV and well-established online and mobile
platforms; they can engage the youthful population
of Myanmar, meeting the challenges of limited
infrastructure to build loyalty amongst families that
value the guarantee of quality that brands bring; they
can offer Cambodians a platform for expressing status,
getting ahead and bridging the increasing wealth gap
within the country for themselves and their children;
and they can seek to link brand choices to consumers’
yearning for individual advancement in Laos. However,
to exploit any of these opportunities effectively,
brands must carefully adapt their approach to the very
particular characteristics of each country.

A key element of such adaptation involves
understanding the relative development of different
sectors– and the preferences guiding consumer choice
in those sectors. The strategy for high-end white-label

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Roughly speaking the countries of the region occupy over more expensive purchases: Honda remains number
different but closely overlapping positions in the 1 for motorcycles (and is seen as a local brand by many);
consumer brand cycle, with the commodity view Sony battles it out with Dell amongst laptops and with
dominant in Myanmar, brands used increasingly as a Samsung when it comes to LCT and plasma TVs; whilst
reference in Laos and Cambodia, and brand choice Panasonic is growing rapidly to dominate the market for
used to express personality in Cambodia and Vietnam. air conditioners.
Marketers must be aware of consumers’ different
feelings towards brands in general and foreign brands Each situation and sector therefore requires a different
in particular, which result in part from these different strategic approach: emphasising and demonstrating
stages. In Myanmar, the role of brands is limited to the quality of brands in Myanmar; adopting the Khmer
guaranteeing quality – and in categories such as language and local cultural references when targeting
personal care or white goods, foreign brands are often rural Cambodia in particular; considering the adoption
perceived to offer greater quality than local equivalents. of local brands in Vietnam, or emphasising a brand’s
In Cambodia, the divide between rural and urban own deep links with the country. In each of these cases,
environments expresses itself in markedly different views brand propositions must also be carefully tailored to
of foreign brands, with rural consumers expressing a the very different levels of disposable income that exist.
strong preference for buying local (potentially due to Product strategies can be laddered to appeal to different
the language barriers that exist) and urban populations income levels; high-end brands should be carefully and
far more motivated to associate themselves with global efficiently targeted at those able to afford them but also
status symbols. In Vietnam, where increased product at those open to expressing status through consumer
quality and reliability across the board is rendering goods; and ensuring affordability through smaller
brands’ hygiene role more redundant, a preference package sizes and other strategies is an essential for
for buying Vietnamese where possible appears to be those targeting the upper reaches of the BoP across the
developing. However, this preference shows little sign Mekong region.
of eroding the dominance of established foreign brands

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19


Within the FMCG category that dominates of their products to a target audience. They must
consumer spending and the personal care sector do so within a distribution environment that
that represents a potential growing slice of it, global remains dominated by traditional markets. Shoppers
brands must prove their quality to consumers’ in Myanmar and Cambodia visit such markets
satisfaction before leveraging a brand to guarantee frequently, buying products in small, affordable
it. Price promotions and mass-reach TV advertising package sizes and topping up supplies as required
offer the most effective strategies for driving product rather than conducting large-scale weekly shops.
trial, but this must be supported by products that The market is a social setting not merely a shopping
have been developed to appeal to well-defined exercise. It represents a valued opportunity to
local preferences. The dominant share of Myanmar converse and catch up and this ensures that it retains
household spending that is commanded by MSG its influence as a distribution channel when personal
flavouring, dried noodles and rice soups is evidence or national wealth increases. The highest earners
of strongly established tastes that cannot easily be in Myanmar are more likely to send an employee
shifted; as is the popularity of traditional beauty to the market than they are to visit a supermarket
care products like Thanaka, and coconut-oil based themselves; in Vietnam, shoppers still congregate
personal care remedies. in traditional retail spaces – and across all countries,
western-style malls often appear to be used more
Traditional rules on distribution as a social gathering space than as a shopping
Carefully engineered, affordable propositions are of environment. The market rules – and brands ignore
limited value if brands cannot ensure the accessibility this regional truth at their peril.

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Mass-reach and targeted media that future is here already – and online and mobile strategies, potentially leveraging the popularity of
Media strategies looking to drive large-scale can start to form important elements of marketing social media in the country.
awareness cannot ignore the dominant role played
by TV, with sets permanently switched on at home,
in shops and in markets. However, gaps in electricity
supply mean that near-universal TV ownership does
not always translate into universal TV coverage,
particularly in rural areas. Outdoor media have an
obvious role to play in filling such gaps, and as a
result posters fight for room and attention wherever
any form of outdoor advertising space is available.

In Myanmar and Cambodia, limitations of
infrastructure and reduced mobile penetration
restrict the potential of online as a tool for driving
large-scale awareness. However, the availability
of smartphones, tablets and laptops amongst
increasing numbers of urbanites in Cambodia
(and likely rapid growth in mobile penetration in
Myanmar), offers the possibility of targeting luxury
brand messaging at these audiences. At the same
time, substantial interest in owning laptops and
smartphones points to an increasing role for online
channels in the near future. In Vietnam of course,

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Judging tone companies that can offer educational support in the
The tone of a brand’s approach in each market can form of free or discounted resources will find a ready
be equally as important as the fundamentals of what audience for such schemes; as will those that can
it offers. In Myanmar, the strength of traditional promise increased powers of concentration amongst
Buddhism and rejection of conspicuous consumption students. The growth achieved by energy drink brands
mean that brand campaigns emphasising individual across the region may owe much to the promise of
assertiveness are likely to prove counter-productive; in increasing educational performance in this way.
Cambodia by contrast, they have far greater likelihood
of success. Price promotions are likely to be the most Aligning brands with the future
effective strategy for driving trial in any market; Great opportunity exists in the Lower Mekong Basin
however discounting strategies should vary with local wherever brands can align their business mechanics
cultural nuances: from simple affordability in Myanmar and proposition with local hopes. The aspirations
to affording the best in Cambodia, to furthering one’s they align themselves with may be simple ones:
ambitions in Laos; and exercising prudent, practical supporting a family, ensuring a better future for one’s
frugality in Vietnam. children, helping to earn the all-important respect of a
community. However, they are no less powerful for that.
The theme that resonates most powerfully across the With the vast majority of the 77 million plus population
region is education. No matter what their current under the age of 30, brands that can leverage the
economic situation, Burmese, Vietnamese, Laotians media and distribution channels available to build
and Cambodians accept that learning is the key to loyalty are likely to be rewarded by strong growth in
improving or securing it, whether that education is the region’s rapidly approaching future.
focused on themselves or their children. Brands and

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Finding Leader
Opinionfaster growth: New markets
China and the Chinese – going beyond Kung Fu and noodles - Subhashish Dasgupta

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China and the Chinese – going beyond Kung Fu and noodles

Do a quick poll about China around the dinner table or the office
canteen and you will soon discover two things. First, everybody
knows something about China. Second, the things that everybody
knows about China are largely restricted to dining (sweet and sour,
noodles), films (Kung Fu, Jackie Chan) and the fact that China is a
unique example of an economic superpower driven by a communist
political ideology.

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Increasingly China is also the place where everything in of the world’s largest luxury market. Even in the area of
the world is made and whether you look at the label of technology devices, China’s mobile phone penetration
your shirt or behind the battery in your smartphone, it’s is almost 100 percent, with close to 40 percent of
very likely that this is exactly what you will find. consumers owning a smartphone. This in itself is
fundamentally changing how consumers in China
All of these influences are very real in helping to paint are engaging with brands, especially at the point of
a picture of China in 2013 – but equally, they produce purchase.
as incomplete a view of this defining country as that
created by Nordic countries being famous only for
their Viking ancestors or India being a land of snake
charmers, call centres and IT programmers.

Consumer habits both in China itself and the diaspora
Chinese markets are rapidly developing, often
presenting a contrasting picture in terms of attitudes
and priorities. This is prompting brands to take a distinct
and individualised approach, and most importantly look
beyond established Chinese stereotypes.

In 2009, China supplanted the U.S. as the world’s
largest automotive market. More recently, at the end
of 2012, a report from Bain & Company revealed that
a sustained boom in demand for high-end goods
across China has elevated the country to the position

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The implication of these trends is quite clear for all informing decisions about significant investments - in
industries. It is a myth that China, or in fact the region the automotive market, this promises to be a strong
with a significant Chinese population - Indonesia, growth year with many people across the region
Malaysia, Singapore or Hong Kong - is in any way planning to buy a new car. Buying a new house is
‘emerging’. The opportunity in these markets has very also part of the plan for a quarter of those surveyed,
clearly emerged; it is here and it is now. This does not while over a third are making plans to travel to a new
imply, however, that a ‘one size fits all’ approach to country. At the same time, this optimism is tempered by
consumer engagement can be deployed effectively concern over the global economic outlook, its impact
across all these markets. A recent study by TNS provided on people’s own finances and the need for the country
a clear indication of the immense breadth of contrasting to deal with budget constraints.
attitudes and moods among Chinese people in the
region, as the Chinese New Year approached. The The study reveals that the economic outlook is
findings, available at www.tnscny.com, show varying only one of seven areas where Chinese people are
degrees of optimism about China’s place in the world; seemingly pulled in opposite directions. There are major
conflicting opinions on issues from family to finances; contradictions which are in themselves an accepted
and a gulf in attitudes towards culture, history and reality of life in Asia – a region with polar opposites of
heritage. These contrasts paint a fascinating and crucial an ageing population which is also growing younger,
picture of the very different approaches brands need to extreme poverty alongside huge affluence, and
take to demonstrate real understanding of ‘the Chinese modernising infrastructure co-existing with age-old
consumer’ across the region. customs.

The findings revealed a strong mood of positivity and
confidence, with three quarters of people feeling
upbeat about the year ahead. This optimism is

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outlookgoing beyond Kung Fu andof the Snake?
China and the Chinese –
of the year noodles
Excellent/Very good
Reflecting a mixed mood of cautious optimism, our
research found that youngsters today are keen to put
42%
together as a family under the same roof, centered on
the Reunion Dinner. While the increasing penetration
the money they receive as ‘Ang Bao’ – traditional ‘Red of mobile phones and social networking has prompted
Packet’ gifts at New Year – into bank saving accounts, some people to adopt these digital channels as a means
taking a very different approach to the custom of to convey their virtual wishes, for the majority the
purchasing treats with these funds. This provides banks tradition of face-to-face greeting, even for the younger
with a very real opportunity to tap into cash exchanging generation, remains very much intact. The pre-New Year
hands, through youth-oriented saving and interest customs of cleaning and decorating the house, buying
schemes. On the other hand, adults are showing a new clothes, having your fortunes read or getting a hair-

Fair/Poor
greater inclination to live in the moment, intending cut continue to prevail among the Chinese, regardless
to spend the gift money they receive on restaurants, of age, gender or country.

27%
clothes and travel. Aside from gifting Red Packets filled
with cash, bestowing presents on friends and family, is The Chinese consumer – with a burgeoning sense
now also popular at New Year. Electronic goods feature of optimism and desire to build a strong future,
at the top of the gift list, especially in China and Taiwan, underpinned by the juxtaposition of traditional family
while in Hong Kong, Malaysia and Singapore food gifts values and the benefits of technology and progress
are more desirable. Brands need to understand these - presents opportunities to marketers across a range
individual preferences to take a slice of the lucrative of categories. And by tapping into these underlying
New Year gifting market. attitudes of the Chinese consumer, brands will be able
to develop marketing strategies that enable them to
Despite a number of new trends emerging, there is realise these new opportunities. While these strategies
still a palpable sense among Chinese consumers of the will be dependent on individual objectives, brands can
need to maintain traditional customs. In the case of learn a great deal from companies which are already
Chinese New Year, it is still very much a time of coming successfully riding the trends in the Chinese market.

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What do you do o
Focus on new customer acquisition: For brands
How do you plan to spend your
social media when buying a car for the first time. integrating their approach with the surging uptake in
looking to convert new customers, China’s tech-
orientated youngsters are a good place to start. Desire red packet money?
Manufacturers need to understand how to mobilise
customers and fans to become brand ambassadors,
new technologies by providing customer support and
practical advice for new drivers via social media.
for new gadgets, coupled with a desire to invest money
into savings, has generated strong growth for mobile
commerce in China, with young people showing the
greatest usage of mobile banking and propensity to Checklist:
adopt the service. Mobile banking strategies targeting Eat sweet d
the smartphone-savvy young consumer group in China Buy something nice for myself
are most likely to succeed and also generate positive Watch TV
word of mouth. Banks in China need to ensure that Deposit it into a bank
mobile and face-to-face touchpoints deliver a consistent Send gifts
experience. Invest it loved ones

Travel - Internationally Attend lan
Attract brand ambassadors: As mentioned, the exhibits
automotive sector continues to witness rapid growth
and evolution, and China’s economic optimism presents Donate it Spend qua
with loved
a significant growth opportunity for manufacturers,
particularly with so many people planning a new car Spend it on food and beverages bazaa
Visit
night mark
purchase in the year ahead. However, as a vast and
disparate market, there are very different influences in
Eat at a nice restaurant Eat at a nic
restaurant
the car-buyer’s path to purchase. In a market where
family remains so influential, there is a heavy reliance
Buy clothes and accessories
on the advice of friends and relatives, as well as on

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Adopt new GTM approaches: In a sharp contrast it in the marketplace. They are happy to do three to parts of the world. The flexibility has been instrumental
to more mature Western markets, brands need to four rounds of commercialisation to get an idea right.” to making GM the top-selling foreign automaker in
understand that quick action is critical. The average car This innovative approach to innovation itself is one that China, despite entering the market later than other
purchase period in China is far shorter than previously works in China, in a way that would fail in many other global players.
thought, with 40 percent of consumers deciding on
a make and model within one month. Manufacturers
cannot afford to wait, and need to engage quickly
with a compelling brand story. Getting a good deal is
extremely important to Chinese buyers but at the same
time, manufacturers must ensure promotions don’t
undermine the brand image; in the region, dropping
prices aggressively can be negatively interpreted. The
speed of decision-making, rules governing discounts
and the great influence of online media create market
dynamics in China unlike any in Europe or the US.

General Motors is investing heavily in this area by
adopting China’s ‘commercialisation model’, which
quickly brings new products to the market. GM
President Kevin Wale said in a recent interview: “What
China does better than anyplace else in the world
is to innovate by commercialisation, as opposed to
constantly researching and perfecting the theory, like
in the West. When the Chinese get an idea, they test

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Tell a compelling story: Mobile phone manufacturer if not impossible without a brand being comfortable China may be the nation of noodles and Kung Fu,
Motorola broke with the norm of using traditional existing and thriving in this contradiction. There is still but it is at the same time a nation only just realising
media in 2011 and developed a successful viral video much to know and learn about China and the Chinese the potential that can be brought to bear through its
campaign to raise consumer awareness and interest in population, continuously challenging every marketer to booming infrastructure, fast-growth car market, mobile
the highly durable Motorola Defy. The viral video, which look beyond the stereotype. Marketing successfully to phone-domination and deep desire for luxury. Complex
showed a man being spun around in an industrial the Chinese population requires an acute understanding the market may be; but brands who fail to navigate it
washing machine with his phone, which emerges from of the region’s key drivers and motivations. will miss a truly unmatched opportunity.
the wash still working, debuted at the same time as the
product launch and registered close to 1.5 million views
on YouKu. This interest ballooned further when people
performed their own ‘tests’ on the durability of the
Defy, including boiling the phone. Consumer-generated
content at its best!

Success in China, among Chinese consumers, is not
a matter of taking a global product or marketing
strategy and modifying it. As revealed by the findings
around Chinese New Year, this is a region and an ethnic
group which, in a continuous state of progressive
evolution, co-exists with deep customs and traits
grounded in centuries of tradition. Success is unlikely

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Connected world
Opinion Leader
Making the small screen part of the big picture: Understanding how South African
internet and mobile phone users interact with brands online - Kambe Mwaba

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Making the small screen part of the big picture:

In spite of having increased Internet access
through mobile phones (particularly smart
phones) and being highly engaged with
online activities such as social media,
South African Internet and mobile phone
users are not interacting with brands online
to the extent seen globally.
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In Sub-Saharan Africa, the mobile phone screen has
Internet access and usage in South Africa vs. Globally
become more viewed than the television screen or
PC screen; and more people have access to a mobile
phone than to clean drinking water. In the last three
years, the mobile phone has emerged as the primary
means to access the Internet on the continent mainly
due to cheaper and faster Internet access, more
advanced and affordable smart phones and general
lack of access to laptops or PCs.

With the mobile Internet powering uptake of
applications and social media in South Africa,
brands have more ways than ever to reach and
interact with their consumers. However, while South
African Internet users are highly engaged with each
other online, interaction with brands is still limited, Internet Internet access Internet access Social media
with one of the lowest incidences in the world of penetration via PC / Laptop via mobile engagement
consumers who comment about brands online and
almost two-thirds saying that they do not want to
engage with brands via social media. South Africa Global average

South Africa Global average

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Mobile phone ownership and OS market share in South Africa (%)
Mobile phone ownership and OS market share in South Africa (%)

10

48 8

60 3
19 3
2
33
13

Basic feature phones BlackBerry(OS) Windows Phone 7 or higher Windows Mobile 6
Basic feature phones Blackberry (OS) Windows phone 7 or higher Windows phone 7 or lower
Advanced feature phones Smartphones iOS(Apple) Android Symbian Symbian Others
Advanced feature phones Smartphones ISO (Apple) Android Others

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Source: TNS Mobile Lif e 2012 South Af rica Report (Note: Excludes ‘Don’t Know’ responses)

To benefit from a To seek for promotions To follow my friends
promotion / special offer or special offers who are already fans

To get more information To support a brand I enjoy To connect with a brand I like To use specific apps
about a brand promoted by the brand

Why the resistance?
Reasons for potential brand befriending online (South Africa Vs. Globally)
There are several technological barriers that hinder
mobile Internet usage and online engagement overall
in South Africa. Data costs in South Africa are relatively
high, and many people accessing the internet through
their handsets have limited air time, and so would
rather use it for actual conversations. Added to this,
internet speeds are still slow, and the two-second rule
applies, where internet users lose interest if the content
is not downloaded within seconds. In addition, there are
a multitude of handsets and operating systems, which
means that many users are open sites that do not fit
their screens or are difficult to navigate.

From the side of internet users, many do not know
what it actually means to interact with brands online To get more information To support a brand I enjoy To connect with a brand I like To use specific apps
and are highly resistant to the idea, as they assume about a brand promoted by the brand
that it just means that companies will try to “spam or To benefit from a To seek for promotions To follow my friends
promotion / special offer or special offers who are already fans
scam” them. The majority of people can’t fathom why
they would let brands into their personal online space,
particularly social network websites, e-mail or instant
messaging applications. One respondent in the research South Africa Global average
mentioned that “it would be like talking on the phone
to your mother and suddenly an advert pops up in the
conversation trying to sell cheap flights.”

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Another challenge is that brands make incorrect one another. Smartphone owners in South Africa interesting updates, etc). When you understand your
assumptions about why consumers choose to are usually in a higher income bracket, younger target market and their needs you may realise that a
engage with them. According to the 2011 TNS (65% are under 30 years) and more tech-savvy than particular channel, such as social networks, may not
Digital Life Survey, the main reasons why people feature phones users, and therefore tend to be more always be the right approach and that an alternative
join brand communities on social networks are self- open to brand engagement through the mobile online method may be a more appropriate way to
serving (e.g. to get a freebie or enter a competition) Internet. Brands need to determine which of these interact with consumers that will actually achieve
or functional (e.g. to receive customer service or markets they are targeting and adapt their mobile business results.
more information), and less likely to show their platform accordingly.
support or loyalty for brands.
Also important to note is that mobile Internet is
What can brands do? often used when ‘on the go’, which is quite a
Possible strategies to increase engagement online different experience to using a PC or laptop at a
are as follows: desk. Considering the context when designing for
mobile is crucial to ensure that mobi sites are easy
Think mobile for digital strategies and quick to navigate and quickly provide the basic
Given that the majority of Internet users are information such as product prices, shop address
accessing via mobile, it important to ensure a good and contact numbers.
user experience – whether the site is accessed via
mobile browser, or app. While smartphones are on Know thy consumer
the rise, it is important to remember that the vast Many brands are in a hurry to be online without
majority of South Africans still own basic feature giving thought to who they want to talk to and
phones. Given the high income inequality in South why. The key for brands, however, is to understand
Africa, the country has the characteristics of both a their target audience and what their consumers
developed and emerging market sitting alongside want from the brand (e.g. win something, receive

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Tell them HOW, tell them WHY involve responding quickly to queries, addressing attitudinal challenges for brands to overcome in
Given that many are not aware of or do not see the criticism graciously, showing you care about and order to fully engage with their consumers online,
point of engaging with brands online, it is therefore understand your consumers, and having a sense effective online engagement presents a powerful
essential for brands to tell consumers how and of humour. If users don’t feel like they are getting opportunity for brands to influence the attitudes
why they need to engage with them. This includes any value from the relationship, they may just end and behaviour of their consumers, build loyalty,
telling consumers where they can engage with the it. While there are significant technological and drive purchase and ultimately grow their brands.
brand online (e.g. Facebook or Twitter) and creating
this awareness through traditional offline channels
(such as television or radio) given that many people
in South Africa are still highly influenced by them.
Brands then need to also give consumers convincing
reasons or incentives to interact with the brand in
their communication, which take into account the
needs of their target market (e.g. to find out about
promotions or specials) and are based on the brand’s
objectives (e.g. to boost sales, increase awareness,
build stronger relationships and loyalty, create an
online community, etc).

Actually engage with consumers
Many brands make the mistake of setting up an
online brand community and leaving it at that.
However it is just not about gathering numbers, but
actually engaging with your consumers. This could

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“
Brands in South Africa that are making the small
According to Farren Roper, Head of FNB
screen part of the big picture
Connect ISP and Business Operations,

First National Bank (FNB) offers first mobile “The FNB App created demand for Apps in Banking
banking application with most of our competitors having launched their
FNB (First National Bank) was the first bank in own versions of an App, confirming the need for
South Africa to offer mobile banking through mobile App technology in the banking industry”.
an application for smartphone or tablet devices.
The FNB Banking app was launched in July 2011
and includes numerous features such as allowing
customers to make payments, transfer funds, view
account balances and more. It is available for free
download for the major mobile operating systems
namely iOS (Apple), Blackberry and Android. There
are currently over 250,000 active clients using the
banking app with 40,000 new users every month.
In February 2012 (six months after launch), FNB had
seen over R2 billion in transactions go through the
application.

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Soccer Laduma top mobile site in South Africa
Soccer Laduma is the biggest sports publication in
South Africa. It began as a print publication in 1997,
but has now spread to web and mobile and has
full social media integration across Facebook and

Soccer Ladum online user base

Twitter. The publication has experienced phenomenal online user base is from mobile. Much of the brand’s
growth of their mobile and social media platform, success stems from their ability to remain relevant to
Mobile sitesite
Mobile Website with statistics from February 2012 showing that they their target market (who are mainly lower income)
Source: Website Digital 2012
Prezence hold the position as the third largest mobile site in and ensure that their mobile site is functionally on
South Africa - about three quarters of their 400,000 par with its web counterpart.

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Finding Leader
Opinionfaster growth: New products & services
Is the reverse flow of innovation coming full circle? - Sam Curtis

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Is the reverse flow of innovation coming full circle?

As so-called ‘emerging markets’
take the lead in innovation,
what are the implications for
the global economy?

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The idea of ‘reverse flow of innovation’ is not new -
and is well documented in Dr. Vijay Govindarajan and
Chris Trimble’s book, “Reverse Innovation”. However
it is contrary to the popular and traditional belief that
innovation happens in developed markets and is then
adopted or adapted by emerging markets. We refer to
‘reverse flow’, when innovation originates in emerging
markets and has a strong and often disruptive impact
on developed markets, and there are three factors
at play when considering the potential for reverse
innovation to impact on business:
„„The reverse flow actually has a long history
and has resulted in genuine disruption in several
powerhouse industries
„„We are now at a critical juncture where the
reverse flow is gaining momentum and is set
to explode
„„This has fundamental implications for the global
economy and how international businesses
structure themselves and where they invest

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Disruption of micropayments first emerged in Asia. Netbooks
The highest profile historical example of the emerged from Taiwan, originally intended to sell
reverse flow comes from Japan as it rebuilt itself cheaply in emerging markets but became a success
from the catastrophic effects of war. Innovation due to trends in portability and cloud services in
in car production meant that by the 1980s, Japan developed markets.
had replaced the US as the world’s largest car
manufacturer, with cars which were cheaper and more Western multinationals have been taking advantage
reliable than anything the US could produce. Japan, of too. GE sells Indian and Chinese made medical devices
course, ceased to be an emerging market even before in Western markets. France’s Danone started a joint
this term was coined. In the 1980s and 90s, South venture in Bangladesh with Grameen Bank, where
Korean companies like Hyundai, Samsung and LG it agreed to build local microplants that produced
started selling their own brands globally, often being one-hundredth of the amount of yogurt of a standard
first to market with innovative products - rather than Danone facility, in part due to the lack of refrigerated
just the cheapest products. storage, but just as cheaply as the larger plants.

More recent history is littered with examples of Growth in the global economy - and in Western
disruptive innovation. Huawei is now one of the multinationals - is becoming increasingly reliant
world’s largest patent applicants. Mobile finance has on the breakthrough innovations coming out of
exploded out of the M-Pesa service in Kenya and the these economies, and this trend will only magnify
industry is set for strong growth globally. The concept in the future.

In the 1980s, Japan had replaced the US as the
world’s largest car manufacturer.

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The tipping point
I have no doubt that we are now at a tipping point
that will lead to the exponential increase in the
reverse flow of innovations. This is being driven by
many factors, including:

Size (and growth) matters
31%
increase in foreign direct investment in India, to
Does it seem right to classify the second, sixth and
tenth largest economies in the world as emerging? The

27.5bn
economies of China, Brazil and India have emerged!
The size of these economies encourages investment
in all areas, including innovation. This includes capital
investment from the state into growth industries and
infrastructure, as well as increased foreign investment. US Dollars,
Foreign Direct Investment in India in the 2011-12 fiscal
year was $47bn, up from $35bn in 2010-11, despite
uncertainties in the global economy and local political
instabilities.

in 2012
despite uncertainties in the global economy.

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The talent gap is closing
According to the OECD, China is second only to the
US in absolute numbers of population with a tertiary
education, with Brazil in 7th place and Mexico at 11th.
The potential for what education can achieve as a
driver of innovation in these markets is mindboggling.
There are also a rapidly increasing number of students
from these markets studying abroad, many of whom
come back home equipped with the best of Western
education and an understanding of local needs.

Digital lowers the cost of entry
Digital opens the door for innovators to emerge from the best exponents of this with 5,000 active start-ups
anywhere. They do not need enormous investment at the start of 2012 – with a small local economy, these
to develop their ideas into products. Digital has no companies think global from the off. Sitting in Silicon
geographic boundaries so the potential for start-ups to Valley is no longer a pre-requisite for an internet-based
gain rapid scale across markets is huge. Israel is one of company to be successful.

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Frugal innovation
Companies in the developed world are accustomed
to developing premium new and innovative products
which are often packed with the latest technology, the
most advanced features and targeted at the upper end
of the market. Companies in emerging markets, on
the other hand, are trying to make products affordable
to a wider target, and focus on how they can offer
a no-frills, functional and efficient product which
can break through the price barrier. Tata Nano from
India is an obvious example. The need for such frugal
innovation is most pronounced for companies in the
emerging markets as they need to expand their user
base to grow their bottom lines. Expectedly, therefore,
these markets will lead this important area of frugal
innovation. In developed markets, high unemployment
and decreasing incomes may drive consumers to more
’value for money’ products.

The no-frills, functional and efficient Tata Nano, from India

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Implications Thirdly, established companies in markets such as the

410bn
The implications of these changes are vast and UK offer emerging market multinationals, and state
profound but I would like to touch briefly on what investment arms, something very attractive – access
it means for the companies I am working with to affluent consumers and new markets. The China
in London. Investment Corporation was established in 2007 to
manage China’s foreign currency reserves and their China’s foreign currency reserves and their assets
The first implication is one of structure. If London- assets have grown to $410 billion by 2011. These have grown to $410 billion at the end of 2011.
based companies want to tap into the innovations entities are using these funds to acquire companies
coming out of emerging markets, then the best way and their technologies in developed markets – as was

10%
to do this is to actually be there. Many large multi- seen in the case of China Investment Corporation
nationals now have innovation hubs based in these acquiring 10% of Heathrow Airport Holdings in
markets - Fortune 500 companies have well over November 2012. Companies in developed markets
100 R&D centres in China alone. are now exposed to increased competitive pressure of Heathrow Airport Holdings was recently acquired
(both from increase competition for consumer spend by the China Investment Corporation.
The second implication relates to investment. M&A and a threat of acquisition).
functions of multi-national companies need to have
their eyes trained on start-ups in emerging markets. The process of reverse innovation is gaining pace.
With Instagram costing Facebook $1bn, surely there It may not be that long before the reverse flow is the
is better value to be had within emerging markets? established flow and we will witness the majority of the
M&A functions can take greater risk, based on lower innovations originating from the emerging markets.
capital investment.

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TNS GEMS April 2013

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