Thought Leaders
 How To Succeed in the Biggest Market Opportunity of the Next 50 Years

Developing markets, which are home to 86 percent of the world's population, not only represent the future of global commerce but present rich opportunities today. These opportunities can be seen in growing markets for luxury goods among a newly minted luxury class, entry-level automobiles and appliances for a burgeoning middle class, and low-cost products for poor and rural customers. Today, about half of the estimated 1.7 billion members of the "consumer class" live in the developing world, and this percentage is increasing year by year.

Professor Vijay Mahajan of the University of Texas, offers market strategies for developing markets drawn from his forthcoming book, The 86 Percent Solution: How to Succeed in the Biggest Market Opportunity of the Next 50 Years, co-authored with Kamini Banga (Wharton School Publishing). Mahajan is academic co-director of the upcoming Wharton Fellows Master Class, India: Market and Sourcing Opportunities, in Mumbai and Bangalore from March 6 to 9, 2005. Until recently, he served as Dean of the Indian School of Business, which is co-sponsoring the program.

Companies won't realize this "86-percent opportunity" through the market strategies that work in the markets of the developed world. In developing markets, there are no smooth superhighways, no distribution networks, and, in many cases, no electricity. These markets are younger, behind in technology (but rapidly catching up), and inexperienced as consumers. These characteristics, which can present obstacles, also create opportunities for companies with the right strategies. Among the market strategies needed to realize these opportunities are:

  • Don't build a car when you need a bullock cart: Hindustan Motors created the Rural Transport Vehicle, designed to compete with the bullock cart rather than existing vehicles. It has a tight turning radius for narrow streets and eight gears to move from dirt roads to paved highways. To adapt to the local environment and culture, companies need to be innovative about how they approach product design. This can lead to breakthrough innovations in product and process design that can create opportunities in markets around the world.

  • Aim for the "Ricochet Economy": Immigrants working abroad sent home $93 billion in 2003 — double the size of net official financial flows and second only to foreign direct investment. And this is just one part of an economy that zigzags back and forth between the developed and developing world. Companies are capitalizing on this "Ricochet Economy" through facilitating financial transfers and creating business models that allow workers in the developed world to purchase products that relatives can pick up back at home. Sometimes the most direct route to a customer can be a "bank shot" between developed and developing markets.

  • Connect brands to the market: Beer makers, cell phone companies, and other firms that entered China soon discovered the unexpected power of local brands. As one manager said, "China is a nation but not a national market." With fragmented markets, companies need to acquire, build, and capitalize on the strengths of local brands while tailoring their global brands to connect with the market.

  • Think young: While Japan, Europe, and other parts of the developed world are facing a crisis of aging, the population of the developing world is young and growing. These young consumers create opportunities for education, games, entertainment, apparel, fast foods, cafes, fashion, magazines, beauty products, music, and other products and services. While these young people are globally attuned, the youth in developing markets can be quite different than those in the developed world. By thinking young, companies can connect with these burgeoning youth markets.

  • Grow big by thinking small: With limited income and space, consumers in the developing world are looking to fill the "just-in-time" pantry. Great successes often come in small packages. For example, small sachets of shampoos and other products account for $1 billion in annual sales in India for Unilever alone. By reducing package size, using demand pooling, and tailoring products to small spaces, companies can build billion-dollar markets a few pennies at a time.

  • Bring your own infrastructure: With frequent power interruptions, poor sanitation, and underdeveloped transportation networks, companies have to work around holes in the infrastructure. Distribution systems are weak and fragmented, often relying on networks of small, hole-in-the-wall stores. But these gaps create opportunities such as using inverters to create uninterrupted power or selling water purification systems.

  • Look for the leapfrog: Developing markets often lack of legacy systems, but this can be an advantage in leaping forward to advanced systems, such as solar-powered LED traffic lights that are off the grid, cell phones triumphing over land lines, and broadband Internet access.

  • Develop with the market: By definition, developing markets are a moving target. Companies need to look for patterns of change, such as increasing opportunities for women and the opportunities that they may create as these markets develop.

With these and other creative strategies, companies can recognize and realize this "86-percent opportunity."

The Wharton Fellows Program will hold a Master Class on India: Market and Sourcing Opportunities, in Mumbai and Bangalore, India, from March 6 to 9, 2005. For more information about applying to the Fellows or other Master Classes, see the Wharton Fellows website.

   

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