Monday, June 14, 2010

Culture and Consumer Choices

The article "Cultural research tour reveals who likes what" in the Financial Times discusses the disparities in consumer behavior when it comes to jewelery here.  For the astute, this also provides insights in luxury and aspirational consumer goods and services as well.  In emerging markets of China and South Asia (India, Pakistan, Bangladesh), jewelery provides the deepest insights as it represents social standing as well as continuation to brand loyalty as it can be a significant both monetarily and as an emotive purchase.

"In the US today, the average price of a piece of diamond jewellery is $199, while in China it is $1,000 - David Rudlin, Japan-based global marketing director for De Beers’ Forevermark"

The article did not highlight though whether the jewelery industry is a follower or a predecessor to overall consumer markets trend?  Or does it stay constant?  That would be valuable information.

Few more interesting trends, for example, the difference in American and Japanese consumers overall are highlighted simply:

"In the US, 80 per cent of diamonds sold are for the bridal market. The American market is more ready than the Japanese to sacrifice quality for size... “The Japanese reject anything with even invisible flaws,” says Mr Rudlin."

"The biggest jewellery chain in the world, Chow Tai Fook, has 1,000 stores in China and will have 2000 by 2020. In China, 70 per cent of the market is made up of solitaire wedding rings, which are relatively easy to design and manufacture."

"“India, with its jewellery culture inspired by maharajas, is unlike anywhere else in the world,” says Mr Rudlin. “The demand is skewed to elaborate multi-stone pieces, with a focus on necklaces, earrings, bracelets and bindis and hair jewels.”"

Tuesday, June 1, 2010

Innovation in Emerging Market: New Business Models

In Economist's recent report on innovation in emerging markets here, the article "Here be dragons" talks about three specific business models that - "are not only important innovations in their own right but have serious implications for the way that Western companies run their affairs".

The three business models discussed and shared below are designed for the culture and society that is under pressure of growth and has a deep desire to fulfill its aspirational goals. The West cannot copy and paste these. It can only succeed if the society is willing and driving its own transformation. Will it? In another article from the report, "The power to disrupt":

"Anand Mahindra, vice-chairman of the eponymous family firm, says that these days when Indians go to bed at night their dreams about their country’s future “are not just colourful but steroidal”. His compatriots are at last beginning to believe that “the sandcastles we build in our minds are not going to be simply washed away by the morning tide.” The same is true across the emerging world, whose “sandcastles” are now being built on the solid foundations of business innovation. They will endure, changing not just emerging markets but the rest of the world as well."

Business Models -

The first business model is "scaling out, which means involving a wider range of people in the process of production and distribution, something that has been made much easier by mobile phones and the internet. The most successful examples of this are clinics on wheels, but there are plenty of others. Nutriset, a French manufacturer of fortified food for malnourished children, has outsourced production to local franchises in Africa. The company maintains quality control and the franchises are close enough to the children to make distribution quick and easy." This is in comparison to "scaling up".

The second business model is "“pull” model ..., designed to help companies mobilise resources when the need arises. Hong Kong’s Li & Fung or China’s Chingquing Lifan Group can use their huge supply chains to produce fashion items or motorcycles in response to demand. Taiwan’s Quanta and Compel can produce cheap computers and digital cameras for a fashion-conscious digital marketplace." this is in comparison to the "push" model.

The third business model is "the application of mass-production techniques to sophisticated services. This started with India’s outsourcing firms, which demonstrated that economies of scale and scope could be reaped from services that used to be highly fragmented and geographically rooted. These outsourcers are still expanding and moving upmarket. Indian consultancies are now challenging Western ones in complex services, not just dealing with customer complaints."

And it is the third model that is creating impact beyond the traditional information technology driven growth: "[Indian entrepreneurs] see a huge market for legal services requiring a high level of expertise. Dr Shetty is only one of many Indians who are applying Henry Ford’s principles to health care. LifeSpring has reduced the cost of giving birth in a private hospital to $40 by looking after many more mothers. Aravind, the world’s biggest eye-hospital chain, performs some 200,000 eye operations a year. It takes the assembly-line principle literally: four operating tables are laid side by side and two doctors operate on adjacent tables. When the first operation is done, the second patient is already in place."

Innovation in Emerging Market: Consumer Spending

"To flourish in this atmosphere, it helps to have the spirit of a frontier settler, not a corporate bureaucrat." states the article "Grow, grow, grow" in Economist's recent report on innovation in emerging markets here.

Innovation in Emerging Market: Universal and Apsirational Brands

From the Economist's recent report on innovation in emerging markets here, the article "Easier said than done" showcases pyramid-straddling - the concept where a brand is able to win across all socio-economic market segments.

"... the masters of pyramid-straddling are mobile-handset makers. Nokia produces phones for every market, from rural models designed to cope with monsoons to fashion accessories that will look cool in a Shanghai nightclub. The cheap phones are sold through a vast network of local outlets, such as mom-and-pop stores and rural markets, and the upmarket models through shops in fashionable city centres. The aim is to create a brand that is at once universal and aspirational."

Innovation in Emerging Market: Dilemma Managent vs. Problem Solving

In Economist's recent report on innovation in emerging markets here, the article "Easier said than done" talks about differentiated and unique approaches to putting economically profitable business ideas into practice. An exceptional example is from Kenya:

"East African Breweries, a division of Diageo, launched a cut-price beer, Senator Keg, to help reduce demand for illicit alcohol, which is cheap but is frequently contaminated with methanol, fertilisers and battery acid. The company reduced the cost of the beer by negotiating a tax waiver with the government and by distributing it in kegs rather than bottles. The company made use of the shadow economy to get the beer delivered to the outlets. It also trained bar staff to understand the importance of rotating kegs to make sure the beer was fresh, and of washing glasses. Senator Keg is now ubiquitous in Kenya, sold in every makeshift roadside bar, and is affectionately known as “Obama”."

This is 21st Century Dilemma management vs. 20th Century Problem Solving. Thinking beyond maximizing the shareholder value on a quarterly basis yields the above innovative solution.

Innovation in Emerging Market: Data Points

"The engineering gap" in the January Economist states:

"According to the [Aspiring Minds, India], only 4.2% of India’s engineers are fit to work in a software product firm, and just 17.8% are employable by an IT services company, even with up to six months’ training. A larger share could cope in business-process outsourcing (call centres and the like). These findings are even gloomier than the 25% figure for employability that has been bandied about since 2005, when McKinsey released the results of a survey of international companies."

Download the complete report here.

The article "Grow, grow, grow", in Economist's recent report on innovation in emerging markets here, states: "McKinsey reckons that only 25% of India’s engineering graduates, 15% of its finance and accounting professionals and 10% of those with degrees of any kind are qualified to work for a multinational company."

The emerging market growth is fantastic, yet reviewing the thorough report from the Aspiring Minds raises or should raise questions for the multinationals. Also, curious if this level of employability applies to the Indian scientists as well?

In the report on innovation in emerging markets, the following statistics provide food for thought:

"The number of companies from Brazil, India, China or Russia on the Financial Times 500 list more than quadrupled in 2006-08, from 15 to 62. Brazilian top 20 multinationals more than doubled their foreign assets in a single year, 2006...

Multinationals expect about 70% of the world’s growth over the next few years to come from emerging markets, with 40% coming from just two countries, China and India...

Fortune 500 [companies] have 98 R&D facilities in China and 63 in India. ... General Electric’s health-care arm has spent more than $50m in the past few years to build a vast R&D centre in India’s Bangalore... Cisco is splashing out more than $1 billion on a second global headquarters—Cisco East—in Bangalore... Microsoft’s R&D centre in Beijing is its largest outside its American headquarters in Redmond... a quarter of Accenture’s workforce is in India."