The Idea in Brief
Multinationals are looking to emerging markets for future growth. But in trying to transplant their domestic business models, they end up slashing margins or confining themselves to the higher-income tiers, which aren’t big enough to generate sufficient returns.
They are overlooking a vast opportunity: the underserved “middle market” of people who struggle to meet basic needs such as refrigeration and clothes washing with low-end options because high-end alternatives are beyond their reach.
To exploit this market, companies must identify important unsatisfied needs, devise fundamentally new business models that can meet them profitably and affordably, and carefully implement and evolve the models by continually testing assumptions and adjusting them.
Right now more than 20,000 multinationals are operating in emerging economies. According to the Economist, Western multinationals expect to find 70% of their future growth there—40% of it in China and India alone. But if the opportunity is huge, so are the obstacles to seizing it. On its 2010 Ease of Doing Business Index, the World Bank ranked China 89th, Brazil 129th, and India 133rd out of 183 countries. Summarizing the bank’s conclusions, the Economist wrote, “The only way that companies can prosper in these markets is to cut costs relentlessly and accept profit margins close to zero.”
