Where to Play and How to Win: How Megatrends and Country Contexts Govern Strategy in Emerging Markets

The subject of emerging markets can be so broad and complex that it is sometimes difficult to understand how to think about opportunity and prioritization in the world’s fastest-growing economies. Clearly, the pace of growth and rapidly increasing standards of living in Latin America, Africa, and the Middle East represent a massive – if risky – business opportunity, but the process of identifying and pursuing a worthwhile investment is more of an art.

By Crosby Fish MBA '18, Navdeep Singh Cornell Tech MBA, and James Godbout MBA '18

The subject of emerging markets can be so broad and complex that it is sometimes difficult to understand how to think about opportunity and prioritization in the world’s fastest-growing economies. Clearly, the pace of growth and rapidly increasing standards of living in Latin America, Africa, and the Middle East represent a massive – if risky – business opportunity, but the process of identifying and pursuing a worthwhile investment is more of an art. Dr. Sandy Narayan, Executive Director of Business Development for 3M’s international operations, provided some guidance and a broad framework for making sense of emerging markets opportunities during his ‘Leaders in Emerging Markets’ lecture.

As Dr. Narayan framed it, multinationals like 3M need to make two high-level determinations to guide their emerging markets strategy: (1) where to play and (2) how to win. If the company fails to answer these strategic questions clearly, then they are setting themselves up for failure. Emerging markets are simply too broad and too complex for a company to succeed without a clear sense of prioritization and a clear plan for positioning products and services that meet the needs of customers today and in the not-so-distant future. As students studying business in emerging markets, it is always helpful to be reminded that the simplest of frameworks are often the most powerful, and Dr. Narayan’s comments clarified how a sprawling multinational corporation looks past the noise to develop an emerging markets strategy.

Dr. Narayan’s comments come on the heels of the Emerging Markets Institute (EMI) conference at the Cornell Tech campus on Roosevelt Island in New York City, and we were glad to have the opportunity to compare Dr. Narayan’s comments with the thoughts of the speakers at the conference a few days earlier. A few themes came through clearly in both Dr. Narayan’s presentation and several of the EMI conference panels, including the importance of adaptability in executing and emerging markets strategy and the necessity of resisting the urge to assume that something that worked in one context will work in another.

Where to Play
As mentioned above, one of the key decisions that a multinational like 3M needs to make is where to play in the emerging markets. No company can be everywhere, so it is essential for firms to make deliberate decisions about the markets in which they want to invest. In other words, Dr. Narayan emphasized that companies should be clear about what they are looking for when they are expanding to new countries. These factors range from the obvious statistics on GDP growth, income distribution, population, etc. to the complex megatrends that are shaping the needs of consumers and employees in emerging markets.

On the more simplistic side, it is no secret that much of the world’s economic growth in the coming years will come from the emerging markets. The challenge is to determine which emerging market offers the right mix of risk and opportunity for a given product segment. Dr. Narayan mentioned a number of different considerations that managers might incorporate when deciding to enter an emerging market. GDP growth is critical, because it provides a snapshot of the pace of change in an emerging market and the need for products and services that can meet the lifestyle aspirations of customers and the development requirements of governments. Income distribution is also an important characteristic, because GDP growth in and of itself may not offer enough insight into the size and purchasing power of the middle class. Population is a simplistic, but important characteristic, because of the close relationship between a country’s population and the addressable market for certain products. The regulatory environment and availability of infrastructure are also important considerations for a company considering an emerging market expansion. Dr. Narayan specifically mentioned the challenges of registering a business in Brazil, which takes 80 days on average according to the world bank. While these are certainly complex areas deserving careful study before making significant investments in a country, there are many indices available for ease of doing business and infrastructure that could serve as a good first look at the regulatory and infrastructure environment. Finally, Dr. Narayan mentioned the significance of a country’s industrial production index (IPI) in assessing and understand the extent to which an economy is comprised more of manufacturing activity or services. While Dr. Narayan did not spend as much time discussing this statistical element to determining the appropriateness of a country for investment, he made it clear that these are important components of the decision.

The more interesting conversation that Dr. Narayan introduced regarding emerging markets strategies had to do with what he termed ‘megatrends’. PWC defines megatrends as “macroeconomic and geostrategic forces that are shaping the world. They are factual and often backed by verifiable data.” In other words, megatrends are the powerful social, political, technological, and environmental movements that are defining the future of the world economy. They include some of society’s greatest challenges and greatest opportunities. Dr. Narayan spent a majority of his lecture discussing megatrends and their importance for strategic positioning and planning because they have such a profound impact on how 3M chooses to prioritize among emerging markets. Not all markets are impacted equally by megatrends, so the impact of megatrends on specific markets can be an important factor for 3M’s decision of whether and how to invest in a given market.

Dr. Narayan mentioned a number of megatrends that are key for 3M, including urbanization, the growth of the sharing economy, infrastructure gaps in emerging economies, the transformation of the global energy system, and air quality and environmental concerns. Again, these megatrends do not impact all countries equally. For example, air quality is a critical problem in Chinese megacities even compared to other emerging metropolises and infrastructure gaps depend largely on the country’s wealth and the willingness of its government to undertake major infrastructure development programs. The main point, though, is that these megatrends must be taken into account alongside simpler statistics when deciding ‘where to play’.

How to Win
The second key discussion that Dr. Narayan raised during the lecture was ‘how to win’. In order to be successful in a new country, a company needs a plan for addressing unmet needs and selling goods and services at a profit. This is a big conversation, ranging from the strategic to the tactical. Dr. Narayan noted that this entire continuum is important, and small tactical changes can sometimes have a large impact on whether or not a company is successful in a new country. His overall discussion of ‘how to win’ can be broken down into two categories: positioning and execution.

Dr. Narayan’s discussion of positioning turned again to megatrends. In his role at 3M, he is constantly thinking about which industries and product segments the company should be addressing in order to stay ahead of megatrends in its target geographies. He described megatrends as a framework that the 3M team uses to identify new solutions and stand out from the crowd. While megatrends can sometimes represent strategic threats to certain business lines, they are more productively viewed as competitive advantages for companies that can see and seize opportunity. One specific 3M example that Dr. Narayan provided was the case of respirators. Respirators are a product that 3M has sold around the world for occupational safety purposes (keeping dust and particulate matter out of workers’ lungs). The megatrend around declining air quality, however, has created a profound public health need for consumer respirators in the world’s most polluted cities. Recognizing this megatrend and staying ahead of it from a product design and customer positioning perspective has been critical for 3M’s success in these markets.

In addition to product selection and design based on megatrends, Dr. Narayan spent some time talking about execution and the unique challenges of bringing products to market in emerging markets. In short, what works in the United States probably will not work in an emerging market, and a manager will probably have to learn on the fly in order to build a stable, profitable business around a successful product. His discussion about execution started and ended with the customer. From his perspective, a customer-first mindset is the only way to figure out what specific product attributes are needed and what purchasing behavior needs to be taken into account when selecting channels. Again, he used the example of the consumer respirator. Initially in Beijing, nobody was buying 3M’s respirator because they considered it to be ugly and there was no opportunity for expression. By offering respirators with unique designs, the company was able to tap into its customers’ wish to simultaneously protect themselves from hazardous environmental conditions and express themselves. In Indonesia, the respirators were initially designed with ear loops, which did not accommodate women wearing the hijab. So, the company tweaked the design to have a single loop around the back of the head, making it possible to wear over a hijab. This is a simple, almost trivial change that made the product better address the needs of millions of women in Indonesia.

Another element of execution that Dr. Narayan discussed was the idea of appropriate metrics for determining success. This is important not only for tracking performance within a single country, but also for making ‘apples-to-apples’ comparisons across different markets so that 3M can determine how its business is doing relative to other countries and make changes accordingly. Specifically, 3M talked about using the right basis: sales per household, sales per hospital, sales per auto repair, sales per worker, and sales per road. Countries can vary widely in household size, number of hospitals, number of cars, and more, so defining metrics is critical for making international comparisons. Another specific tool that 3M uses for international comparisons is organic local currency growth. They do not hold managers directly responsible for currency devaluations in their market, placing a greater emphasis on the managers’ success in growing the business within its own context. Finally, Dr. Narayan described the significance of building relationships and developing local talent for an international company to successfully establish a presence in emerging markets. If you want to win, you have to have great people on the ground.

Comparison with EMI Conference Speakers

Dr. Sandy Narayan’s presentation to the Leaders in Emerging Markets speaker series took place only four days after the Emerging Markets Institute conference in New York City. During the Emerging Markets Institute, panelists discussed the challenges and opportunities inherent in emerging markets and provided specific insights into the Brazilian, Chinese, and Indian contexts. Like Dr. Narayan, several speakers offered their perspectives as managers within multinational corporations that have operations in many emerging markets. It was instructive to observe the similarities in their messaging because, although Dr. Narayan was alone in his focus on megatrends, all of the speakers touched on the themes of preparation, adaptation, and persistence.

Dr. Narayan, Mr. Kevin McGovern, Mr. Roberto Canizares, and Mr. Rustom Desai each shared stories of preparation, which is captured by the ‘where to play and how to win’ discussion above. They also talked about adaptation and the need to constantly learn, be humble, and make changes to adjust for the novelty and volatility of emerging economies. Likewise, persistence was a consistent theme, because failure is part of the process. To be successful doing business in emerging markets, one needs to be prepared to fail, learn from failure, and continue striving for success despite setbacks. Kevin McGovern summed this conversation up succinctly by recommending that businesses expanding into emerging markets “prepare, repair, and don’t despair”.

In closing, Dr. Narayan offered a powerful perspective on the emerging markets from his position as a business development leader at 3M. He shared the simple question of ‘where to play and how to win’ with the students, and offered his perspectives on the inherent challenges and opportunities in emerging markets. Amid the many speakers and conferences that we have had the privilege of attending recently, Dr. Narayan helped emphasize elements that we all need to bear in mind as we consider careers in emerging markets or with multinational companies.