John Forsyth, Expert Principal at McKinsey & Company

1. Going for Gold in Emerging Markets:
Winning the $30 trillion Decathlon
John Forsyth – McKinsey & Company
February 19, 2014
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited

2. Going for gold
Massive opportunity
trillion
Crucial capabilities
Platform for success
x
McKinsey & Company
| 1

3. Three quarters of global growth in emerging markets
Share of GDP growth, 2010–25
Developed
economies
26
74
Emerging
economies
SOURCE: McKinsey Global Institute
McKinsey & Company
| 2

4. And half of Global GDP
$, trillion
Total GDP
113
60
Emerging
53
Developed
63
23
40
2010
2025
McKinsey & Company
| 3

5. $30 trillion of consumption in emerging markets in 2025
Total
30
China
8
India
3
Brazil
3
Russia
2
Mexico
1
Indonesia
1
Turkey
Poland
Other
SOURCE: McKinsey Global Institute
1
1
10
McKinsey & Company
| 4

6. Speed and scale unprecedented
Years to double per capita GDP
Year
Country
United Kingdom
United States
Germany
Japan
South Korea
China
India
1700
1800
1900
2000
154
53
65
33
10
12
16
McKinsey & Company
| 5

7. West’s leading companies not capturing growth
World wide
Developed
markets
Emerging
markets
North America
64
83
36
17
% of
GDP
% of
GDP
% of
company
revenue
26%
39%
Company
revenue
SOURCE: McKinsey Global Institute, company financials
McKinsey & Company
| 6

8. Going for gold
Massive opportunity
trillion
Crucial capabilities
Platform for success
x
McKinsey & Company
| 7

9. Ten crucial capabilities
Throwing accurately
Jumping in
Running the distance
1 Anticipate moments
of explosive growth
4 Build brands that
resonate and inspire
trust
7 Redeploy
resources
dynamically
2 Target urban growth
clusters
5 Innovate across the
price spectrum
8 Organize today
for tomorrow
3 Think local, act
global
6 Manage in a
multichannel world
9 Develop talent and
capabilities
10 Secure support
from key
stakeholders
McKinsey & Company
| 8

10. 1
Anticipate
moments of
explosive
growth
What is average
performance
What is Winning
performance
Follow others into
fast-growing markets
Sometimes miss the
boat
Recognize
discontinuities which
drive rapid growth
McKinsey & Company
| 9

11. Different drivers of growth
Demographics
and income
Needs
Regulation
SOURCE: McKinsey Emerging Markets team analysis
Infrastructure
Technology
McKinsey & Company
| 10

12. Rising incomes drive S-curves in consumption
“Warm-up zone”
“Hot zone”
“Chillout zone”
Sales value per capita
Sales value per capita
Sales value per capita
0
2,700 19,000
Income
per capita
SOURCE: McKinsey Global Growth Compass
0
2,700 19,000 Income
per capita
0
2,700 19,000
Income
per capita
McKinsey & Company
| 11

13. Adoption curves vary by product
Household penetration by country, 2007
Penetration
%
Refrigerator
Washing machine
100
90
80
Saturation
points
70
60
50
40
30
20
Take-off points
10
0
0
5
10
15
20
25
30
Per capita income
$ thousand, PPP
SOURCE: Euromonitor; McKinsey Global Institute analysis
McKinsey & Company
| 12

14. 2
Target urban
growth
clusters
What is average
performance
What is Winning
performance
Use countries and
business units for
strategic planning
Identify high growth
opportunities at city
cluster level
McKinsey & Company
| 13

15. The “Emerging 440” cities will generate 47% of all global growth
GDP growth, 2007-2025
26
100
27
47
Emerging
440 cities
SOURCE: McKinsey Global Institute Cityscope 1.3
Other
emerging
regions
Total
developed
Global
growth
McKinsey & Company
| 14

16. Urban growth in China alone is staggering
City
Absolute GDP growth,
2011-2016, billion USD at PPP
Shanghai
239
Beijing
184
Shenzhen
154
Suzhou
149
Guangzhou
Growth over
$1.6 trillion
146
Tianjin
127
Hangzhou
91
Wuhan
81
Chengdu
75
Nanjing
Another
South Korea
71
Chongqing
66
Foshan
62
Fuzhou
58
Xiamen
55
Dongguan
Population
more than
Russia
52
McKinsey & Company
| 15

17. The top 20 developing cities outside China
City
Delhi
Mumbai
Moscow
Jakarta
Sao Paulo
Buenos Aires
Taipei-Keelung
Doha
Mexico City
Istanbul
Riyadh
Bangkok
Lima
Hyderabad
Kuala Lumpur
Bangalore
Bogota
Chennai
Abu Dhabi
Kolkata
Absolute GDP growth,
2011-2016, billion USD at PPP
109
108
100
Growth over
$1.2 trillion
84
77
77
77
66
58
56
55
49
48
48
42
41
38
38
38
36
Another
Indonesia
Population
6th biggest
country
McKinsey & Company
| 16

18. City-cluster approach can be very powerful
滨尔哈
滨尔哈
滨尔哈
滨尔哈
Haerbin
春长
春长
春长
春长
Changchun
连大
阳沈
阳沈
阳沈
阳沈
京北
特浩和呼
Dalian
庄家石
津天
津天
津天
津天
Shijiazhu
原太
Taiyuan
Shenyang
Beijing
Huhehaote
Tianjin
ang
安西
岛青
Qingdao
京南
Xian
南济
Nanjing
Jinan
州郑
州郑
州郑
州郑
Zhengzhou
海上
海上
海上
海上
`
Shanghai
汉武
Wuhan
都
都成
肥合
州杭
州杭
州杭
州杭
Chengdu
Hefei
Hangzhou
昌南
昌南
昌南
昌南
Nanchang
沙长
庆重
Chongqing
Changsha
州
州福
Fuzhou
州广
Guangzhou
明
明昆
SOURCE: Insights China; McKinsey analysis
Xiamen
圳深
圳深
圳深
圳深
宁南
宁南
宁南
宁南
Nanning
门厦
门厦
门厦
门厦
Kunming
Shenzhen
McKinsey & Company
| 17

19. Cluster approach can be simpler and cheaper
Packaged goods manufacturer
From…
To…
▪
Looking at 40 cities
spread out across
China for expansion
▪
Fewer key cities,
organized into 15
priority clusters
▪
Similar targets
across all regions
▪
Much sharper
differences in targets
▪
2-3% reduction in
cost-to-serve
▪
Accelerated growth
to over 20%
McKinsey & Company
| 18

20. 3
Think local,
act global
What is average
performance
What is Winning
performance
Extend developed
market strategy to
emerging markets
Refine product
offering to appeal to
local needs, while
leveraging crossmarket scale
McKinsey & Company
| 19

21. Five grocery segments are in evidence across Africa
ExperiImportance Importance Importance of mental
of price
of brand
fresh/quality Index
Low price
hunter
Local, quality
shopper
Brand
loyalist
Experimental
shopper
Fresh
lover
SOURCE: ACIC
▪ Most price conscious High
▪ Will make sacrifices
Low
Low
Low
▪ Believe price
Low
Medium
Medium
Medium
Low
High
Low
Low
▪ Like to try new things Low
▪ Enjoy shopping
Low
Low
High
▪ Look for fresh
Medium
High
Low
for lower price
▪
indicates quality
Shop locally
▪ Prefer brands
▪ Will pay more for
them
Low
McKinsey & Company
| 20

22. Although their relative importance varies from market to market
Segment distribution by country
% of country market potential that is in the specific segment, countries in order of GDP in PPP terms,
2011
Low price
hunter
Local, quality
shopper
Brand loyalist
14
14
9
18
18
10
10
21
23
52
Fresh
lover
26
SA
SOURCE: ACIC
19
Egypt
23
30
8
35
12
17
25
26
17
23
12
15
29
23
6
24
34
20
27
23
11
18
10
11
12
17
11
19
9
27
27
19
Experimental
shopper
11
42
19
50
19
9
Nigeria Algeria Morocco Angola Ethiopa Ghana
Kenya Senegal
McKinsey & Company
| 21

23. Addressing consumer needs and local market tastes
Flexing for taste
Adding a local twist
SOURCE: Press clippings, company website
No sacred cows
Meeting primary needs
McKinsey & Company
| 22

24. Extensive ethnography to identify ways to re-design and
innovate
Context: in rural India, >400m+ men using double-edge blades without lighting and running
water
Solution
Ruthless focus on cost
Single blade razor with protective
housing
Guard launched at 34 cents quickly
gained market share and today
represents two out of every three razors
sold in India, increasing market share
from 37% to 49% in 5 years.
Handle texture for easy gripping
McKinsey & Company
| 23

25. 4
Build brands
that resonate
and inspire
trust
What is average
performance
What is Winning
performance
Take existing brands
but customize
communication and
media
Develop and anchor
brand positioning
through local
insights
McKinsey & Company
| 24

26. Able to influence with word-of-mouth
% receiving recommendations from family/friends
92
71
49
46
44
40
29
McKinsey & Company
| 25

27. And in-store advice
"I find myself leaving the store with
a different brand/product than I
planned because of the suggestion
of the in-store salesman"
“In-store experience”
Strongly agree
to somewhat agree
24
45
Strongly disagree
to somewhat
disagree
76
55
McKinsey & Company
| 26

28. Consumer preference for foreign brands varies by category
Brand preference by category
Percent of respondents prefer foreign brands over Chinese brands
56
53
38
31
24
Personal
digital gadgets
Household
electrical
appliance
Prefer foreign brand
Personal
care products
Household
care products
Food &
Beverages
Prefer Chinese brand
McKinsey & Company
| 27

29. New Mainstream consumers have a higher preference
for foreign brands
Mass
New Mainstream
Percent of respondents preferring foreign brands over Chinese brands
65
55
63
52
52
45
36
34
29
22
Personal
digital gadgets
Household
electrical
appliance
Prefer foreign brand
Personal
care products
Household
care products
Food &
Beverages
Prefer Chinese brand
McKinsey & Company
| 28

30. Ten crucial capabilities
Throwing accurately
Jumping in
Running the distance
1 Anticipate moments
of explosive growth
4 Build brands that
resonate and inspire
trust
7 Redeploy
resources
dynamically
2 Target urban growth
clusters
5 Innovate across the
price spectrum
8 Organize today
for tomorrow
3 Think local, act
global
6 Manage in a
multichannel world
9 Develop talent and
capabilities
10 Secure support
from key
stakeholders
McKinsey & Company
| 29

31. Going for gold
Massive opportunity
trillion
Crucial capabilities
Platform for success
x
McKinsey & Company
| 30

32. Important choices for management
Speed
Fast
Gradual
Ownership
Locally-driven
HQ-driven
Scope
of
change
No sacred cows
Constraints
defined
Values/
Culture
Refresh
Maintain
McKinsey & Company
| 31

33. Are you ready for this journey?
Do you understand product S-curves and anticipate
explosive growth and other market discontinuities?
Do you know your market growth prospects at granular,
urban market level?
Do you understand the needs of your consumers – in both
globally converging and locally differentiated segments?
Do you have trusted brands that signal quality among
emerging market customers?
Can you deliver value at multiple price points and cater to
the premium and entry level segments?
McKinsey & Company
| 32

34. Are you ready for this journey?
Are your channels able to reach the full spectrum of
emerging consumers?
Are you being sufficiently aggressive in reallocating
resources to future growth areas?
Is your organization ready for effective execution
across the diverging global market place?
Are you winning the war for local talent?
Are you effectively managing the full range of
stakeholders in emerging markets?
McKinsey & Company
| 33

35. John Forsyth
Expert Principal,
John_Forsyth@mckinsey.com
Stamford
@McKinsey_CSI
@McK_MktgSales
McKinseyonMarketingandSales.com
www.youtube.com/McKinseyCMSOForum
McKinsey & Company
| 34