Innovation and Change Become the Hallmarks of Global Success

Looking out over the economic landscape of the global economy over the next 10 years, it is possible to see the shape of opportunities to come.  They are embodied in the vast middle-class population that is arising in a dozen developing countries, including but not limited to the so-called BRIC nations — Brazil, Russia, India, and China. 

This population represents 2 billion people with a yearly spending power of nearly $7 trillion.  Research published by the McKinsey Quarterly¹ indicates that this spending power will balloon to $20 trillion in 10 years, making it an economic force twice as big as that of the United States.

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This state of affairs can be likened to the conditions that companies faced in the 1920s in the United States, when the present consumer culture was not yet developed.  Those companies that captured leadership in a market at that time remained in the first or second position throughout the century.  The McKinsey Global Institute traced this pattern in 17 categories of products, including those offered by Kraft, Del Monte Foods, and Wrigley, whose biscuits, canned fruit, and chewing gum — respectively — were the leaders in their field.

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But companies seeking to meet the demands of this new class of consumers face competition from strong local players in each developing nation.  For example, Hangzhou Wahaha is a Chinese soft-drink company that generates $5.2 billion in revenue, despite having to compete head-on with Coke and Pepsi. 

China is a special case because its population is so large.  But in many cases, established multinational companies can't justify entering a market where capturing significant share might mean gaining revenue of only a few tens of millions of dollars.  This means that companies have to be able to approach a market at lightning speed and to scale up rapidly in order to make the battle worth their while. 

To do that, companies need to aggregate groups of consumers with similar needs from a variety of diverse markets.  No one group of customers will represent large enough rewards.  As an alternative, a company may find a local partner who has enough knowledge of the market to make a local effort work through careful product development and innovative distribution and positioning.

Entering these markets is tricky.  In the United States, companies can count on consumers to spend about 25 percent of their income on food, leaving plenty for discretionary items.  In ... To read the full article, you must be a Trends Magazine Subscriber. To learn more, click here