Finance and Economics

Developing Markets Aren’t Just About Opportunity

RR Developing MarketsWhile Stephen Elop was describing the culture of a Finnish telecom company he could easily have been referring to many western retail organizations today, specifically the pervasive attitudes around what is valued and how we address the changing competitive landscape.

To put Nokia’s turning point into context, consider Nigeria — Africa’s most important mobile device market.

At one time Nokia had a 70% market share in Nigeria, but by the time I arrived to conduct research for them, it was spiraling downwards hastened by the relentless onslaught of Chinese manufacturers who were shaking up not only the technology, but the entire approach to the channel.

Now understand that Nigerian retail is not defined by the likes of a Best Buy but instead is made up of thousands of small owner-operated businesses. I began to understand Nokia’s larger problem through an innocuous line of questioning around re-stocking. Retailers explained that they were required to re-stock Nokia’s product every day; in the morning they’d buy product, stock the shelves, and at the end of the day they’d go to the distributor and pay for it. But they added that in the course of two years they had, on average, given up 50% of their available space to Chinese brands you’ve never heard of. Why? Because while Chinese companies were introducing products faster, more importantly they were delivering stock directly to the stores and then doing an inventory check at the end of every week – making it easier for the retailer to do business.

Speed we expect from a Chinese company (in speaking to Nokia’s own field personnel they lamented that it took longer to get branded umbrellas than it did for the competition to get new devices to market), but service? Yes; the critical flaw the Chinese competitors detected was an entrenched lack of customer centricity in the way Nokia served its market. And I fear that this adaptability and appreciation of what was critical for building share may be the tip of an iceberg that goes far beyond the mobile device sector.

China, Brazil, and other developing markets are now producing viable homegrown competitors that are moving into the world’s most advanced retail markets and it begs the question: will their new way of thinking about business be creating our next burning platforms?

In a recent interview with an executive in a licensing company that counts a number of leading US and European luxury brands in its stable, I was amazed to hear how profound the differences are in the ways of doing business between their clients and that of the Asian licensees he sells to: “We’ll present an opportunity and in 48 hours the decision has been made to do a deal that involves rolling out hundreds of stores – at the same time our clients in Germany or New York will expect months to work through the details.”

These developing market companies have been shaped by domestic environments that require a much more aggressive speed-to-market approach than what we see in developed markets. And many of the most likely threats are from companies who began life as more traditional manufacturers, but have shifted focus to areas of the value chain that account for a greater percentage of profits, specifically brand and retail ownership.

Consider Bosideng, China’s largest down-apparel company that owns its own supply chain. It has almost 12,000 stores in its domestic market and has now shifted its focus to include multiple fashion categories and recently opened its first European flagship store in the heart of central London. Or how about Natura, Brazil’s leading manufacturer of beauty products that traditionally has relied on a direct sales model — and now boasts over a million resellers – but recently opened its first physical format in Paris, the heartland of the beauty industry.

These companies are smart, aggressive, cash rich, and able to reach consumers in our countries where customers, according to research, have low levels of brand loyalty and are open to trying new products. It’s not like we haven’t had time to adapt to threats posed by new sales models or competitors — challenging market conditions have been around as long as there’s been competition — but it has become much more complex with the intro-duction of the web and has been further exacerbated by mobile technology.

And yet our business strategy, certainly that emblematic of larger, often public companies, has become defined by a battle of inches. This is reflected in both expectation of market gains, and worryingly how far we move when responding to threat or opportunity. This was illustrated in a recent meeting I had with an executive from a retail group counted in the world’s top five who explained that they had a publicly accessible test store specifically designed to test innovation in real market conditions, and yet almost never was it possible to translate successful innovation into their main estate. Why? A culture “resistant to change.”

So in an environment where executive bonuses are at stake, where the perception of shareholders is more important than the customers you serve, what else can we expect? Steve Jobs dominated his industry – and then created one of the most successful retail operations in the world by practicing business in a way that’s the antithesis of what I’ve described here.

It was remarkable to hear former Apple CEO John Sculley recently describe this disparity of approach between aggressive builders versus. entrenched leaders. When asked what actually happened in the firing of Steve Jobs he explained that he came to understand that he didn’t have the breadth of experience at that time to really appreciate just how different leadership is when you are shaping an industry, as Bill Gates or Steve Jobs did, versus when you’re a competitor in an industry. “In a public company, where you don’t make mistakes because if you lose, you’re out.” Referencing Nokia again, I once asked an executive if they’d ever taken a run at the Japanese market, he explained they had but had been tossed out by local competitors. He said, “Only one company that’s not Japanese has succeeded there and that’s Apple – they killed everybody.”

I’m not ultimately advocating for Steve Jobs or Apple per se, but I am challenging the finance-dominated cultures that see their businesses – specifically value deliverys –  in the abstract. That may have worked at one time but it’s getting harder. And while I still believe western companies have a creative edge, not enough of it is being reflected in our way of doing business, and this is creating a vulnerability to fast moving emerging market challengers who aren’t governed by the instinct to protect what they’ve got, but rather to take what you have.

As someone who’s spent 25 years working internationally with large corporations, I can tell you what the ultimate problem is: too many companies focus on process over meaning for their customers. And business schools aren’t working hard enough to get the point across that great companies – not just profitable ones – are built around great products and experiences.

A few decades ago, the Japanese caught the US automotive industry on its heels. Today many of our brands and retail businesses are going to face the same “destructor” issue. If you want to sell more, you need to mean more to your customers. Emerging market players may have the advantage of speed and supply-chain control, but they can’t compete with conceiving brilliant products. I submit that it’s time to put down our spreadsheets and get back to our greatest strengths: creativity an innovation. the alternative isn’t very pretty. While you’re focusing on their backyards they’ll be taking over yours. The greater threat may be what you prioritize in your own business.

Robert Hocking is a London-based retail brand consultant and writer who loves retail but hates shopping – yet he continues to search for stores that will change his mind.

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