RDE challengers

A CEO of a foreign company said his fear was that his company was losing ground in India and many developing markets without seemingly realizing it. He mentioned that he was shocked to find out that his company’s 20% market share was in reality only 2% since his company’s products addressed only 10% of the Indian market. This posed two questions for the CEO. First, should he be happy with the 20% or concerned about the 2% market share? If the latter, what if at all, can they do about it?

In this article we will discuss both these questions as they form part of the central thesis of Globality. Many skeptics have said that the process of globalization has been going on for dozens of years and there is nothing unique about Globality except perhaps the coining of another consultant jargon.

While Globality as a word has been used intermittently since 1940s, we have used it to describe the emerging state of the global business era where the game is played not only by companies based in rich countries moving out of their home countries, but also by challengers from Rapidly Developing Economies (RDE). These challengers are taking on the incumbents for markets, financial resources, technologies, and talent — literally everything. It is no more a one-way street ‘west to east’, but much more like a junction with ‘roads’ from all directions bringing ‘challengers’ into the business.

The market leaders are local Indian companies, names of some of which we may not even have heard of. Globality seems to have suddenly ‘arrived’ with the RDEs taking center-stage and taking many companies by surprise, either because they were not paying sufficient attention to the fast emerging markets in RDEs or by the sheer speed of change, or both.

In 1990, RDEs constituted only 25% of global GDP compared to 51% for G7. In 2007, they are nearly equal (42% vs 44% respectively) and will overtake G7 either in 2008 or 2009. If you look at growth, the rich G7 countries contributed only 24% of the global GDP growth in 2007 compared to over 54% for these RDEs. But these RDEs are still poor countries.

The average per capita income of the now well known BRIC (Brazil-Russia-India-China) countries was nearly $2700 in 2007. US had similar per capita income way back in early 1960s. Even within the BRIC countries, let alone the RDEs, there are major differences. Per capita income varies 3 times in terms of USD PPP between the lowest and highest. Population which lives with income below $2 per day varies from 12% to 80% and urban dwellers vary from 30% to 80%.

Leaders in globality intuitively understand and exploit this characteristic of RDEs. Tata Motors came up with the tag line ‘more car for less’ when they launched Indica with more features and functionality compared to their peers at a highly competitive price. Indica, once the initial quality issues were sorted out, became a leader in its segment. The world of globality is a world of heterogeneity.

The leaders have to solve the challenge of meeting these widely divergent demand patterns in different parts of the world in the most efficient way. Another automotive example shows how leaders do it. When Renault wanted to reach out to price-sensitive customers in Central and Eastern Europe (CEE), they knew that their existing small car models like Clio were just too expensive. So they set up a team in Romania exclusively to design such a car.

This team took the basic Clio platform and re-engineered it to reduce costs by 40%. When Renault wanted to enter India, they realised that they would need to further squeeze cost out and customise the product for the Indian market. Their joint venture partner Mahindra’s engineers took the CEE Logan model and took out a further 15% of the cost before its introduction in India. Clio and Logan in Europe and Logan in India all have the same platform heritage (and thus share many parts) but are at different price points and meet different sets of customer needs. Efficiency and effectiveness together.

Unlike more mature markets, the evolving RDE markets continue to provide many opportunities to not just re-define a segment but also to create new categories. Examples of the former are the one-use shampoo sachets introduced by Cavincare which has quickly became a major player in the hair care segment with its innovative approach.

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