March 2010
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Why Global Corporates should learn about Indian, Chinese, Indonesian Customers

There is a profound change taking place in the world which has been discussed more than appreciated. The faster growth in emerging markets gets a lot of newspaper headlines but what the emerging markets consumer wants challenges the product departments of many multinational companies. The fact is that there is an impending boom in spending from sources the world has not quite understood how to serve.

For almost a hundred years most companies in the world focussed primarily on serving the American and European consumer. Of the seven billion people habiting the world only 500 million -- 200 million in the US, 200 million in Europe and 100 million in the rest of the world -- really mattered to companies. While this number is not scientifically derived it is very indicative on how companies focussed and obtained the bulk of their sales. Most of the world's people did not count.

With the growth in the high bulk countries like China , India and Indonesia at fast rates, this has started to change. The good news is that in another ten years, another two billion people will become relevant. This is a big move. India's per capita income has become $ 4000 and in many segments the Indian consumer has become the second or third largest consumer in the world. Over the next ten years this is going to become the defining feature of the global market place.

This will mean that companies will need to carefully study and understand these new consumers on their own terms. They will actually have to design products that they need, not just push products that they make. Innovation will need to shift here. If the affordable price for a product is not breakeven, they will need to break the compromise by getting economies out of massive scale. They will need blockbuster volumes or much more cost efficient distribution and market strategies to make it work. There will be a five-fold increase in consumers in the next ten years and the world is not really ready for them.

One of the best examples to illustrate the new approach required is what Godrej has tried with its chotukool refrigerator. Godrej studied the rural consumer and discovered the consumer need is to principally store milk, curd, cooked food and cool water. There was no need for an ice box and a great need to address endemic power shortages. Thus the refrigerator does not have a compressor, runs on a cooling chip and does not require power as it uses batteries with high-end insulation to stay cool for hours without power.

It is light weighing only 7.8 kg and can be shifted around the house. It does not have an ice tray and costs only Rs 3,250. Compare this even with a small refrigerator that costs about Rs 15 000 or about five times as much. This means that the volumes Godrej will need to sell will have to be five times as large for the same amount of revenues. This is going to be the challenge of the future. What will it take to succeed?

Two things are a must. One, the default models coming with the US consumer as the focus will need to change and real study and segmentation of the new consumer will be required. They will need to invest deeply in understanding this customer and create for their need. They will also need agility and speed to react to consumers and courage in creating latent markets. To maintain focus, companies will need to exit segments they do not believe they can serve well.

The new world will also see increased number of people who will be affluent, at western income levels, but they may consume differently and will feel entitled to be even more picky. The second thing is that the leadership model will need to evolve whereby the leader will need to have the ability to trust people of different nationalities, race and colour in distant markets to take big and bold decisions for the company.

This will not be easy. The company's centre will have to learn with more complexity to capture the world. It will need at the same time to allow business managers to react to their local customers by allowing manufacturing and innovation to build for these new customers outside the existing standards.

The future will challenge companies and their leaders but will come with enormous opportunity, one that will require CEOs to unlearn the past and discover the future. A challenge worthy of a more empowered and connected world. Get ready.

(Janmejaya Sinha, Chairman - Asia Pacific, The Boston Consulting Group)



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