Deloitte Debates

Headquarters or
Regions: Who Leads
Growth in Emerging
Markets?

Emerging markets present major growth opportunities – but only with the right strategic model.

With the relative slowdown in mature markets’ growth, multinationals are looking to emerging markets to meet their
targets. Yet many are discovering that entering and defending positions in these fast-growing economies is harder than
anticipated. To succeed, corporate and regional leaders must work together. But who should lead?

Here's the debate.

Point Counterpoint

Headquarters should Global headquarters must maintain Local leaders know what works in their
lead. control. Too much regional autonomy markets. Headquarters should provide
can increase risk, dilute the brand and guidance, but not take control.
lower margins.

Western executives are needed at the Companies need local talent to sustain
“Build on a proven track helm of emerging markets to develop long-term growth. Valuable employees
record.” global capabilities. Local leaders are will leave without opportunities to move
not required for effective leadership. into regional leadership positions.

Selling the same products and services Providing autonomy to emerging

across all markets allows companies to market leadership can be a catalyst for
maintain product quality and protects developing new innovative offerings
the brand. that can be leveraged globally to drive
revenue growth.
 Point Counterpoint

Regions should lead.
“It takes local know-how
to penetrate emerging
markets.”
Customer and consumer preferences
are very different in emerging markets.
Products and services must be tailored
to local tastes and needs.
People and organizations in emerging
markets simply can’t afford many
existing products. Designing products
that offer lower quality for less money
is probably the right thing to do.
Heavy investments have already been
made in R&D and brands. Now it’s time
to let the sales and marketing teams
in the markets do their jobs to push
existing products and services.
It’s too risky to create lower-end
products for emerging markets that may
then be sold into developed markets.
Such parallel trade may hurt the brand
and dilute global sales.

The ways people buy in emerging
markets are very different, so
companies must adapt how products
and services are developed, sold and
distributed. Regional connections
and local knowledge can help avoid
pitfalls.
Using existing operations and standard
processes allows companies to
penetrate the market faster and at a
lower cost. Why make changes for
smaller markets?

My take
David N. Martin, U.S. Emerging Market Growth Strategies Leader, Principal, Deloitte Consulting LLP
Many corporate leaders have long treated emerging markets as just another distribution and sales channel for their
existing market-centric products. In fact, this approach is the first of four growth strategies that companies can pursue.
Entrants sell existing products or services “as is” to penetrate emerging markets; participants tailor existing offerings to be
more competitive in local markets; creators develop innovations that break constraints restricting possible market size and
assimilators identify local innovations that can be leveraged in other existing and developed markets.

Progressing from one approach to the next increases the addressable market size, but also increases risk and requires
much more sophisticated capabilities. Identifying the correct strategy to employ is a critical component of finding success
in emerging markets. Being an entrant might be less risky from an operational setting, but this strategy can backfire finan-
cially. For example, a leading cereal manufacturer was surprised to find its boxes did not fit Indian grocery store shelves,
which forced them to adapt their box size to the local environment. Even then, their cold cereal, which is popular in U.S.
markets, was initially unsuccessful because the Indian culture favors hot breakfasts. On the other hand, customizing and/
or creating offerings for each market may not be practical.

There is a strategic balance. Some of the leading emerging market strategies combine corporate oversight with local flex-
ibility. For example, one of my clients who leads a diversified medical products company wanted to build market demand
in the BRIC (Brazil, Russia, India and China) markets plus Mexico. Their products had earned regulatory approval, so mar-
ket customization was not a near-term option. Corporate asked us to help create a business model for penetrating these
markets with their existing product lines. Analysis of the five countries revealed several commonalities, which allowed
the client to create a unified approach for building doctor and patient awareness. But distributor and physician income
structures differed among these countries, so we helped develop customized strategies for patient access in each market.
Twelve months after rollout, the CEO told me that their BRIC plus Mexico markets are on track to reach the growth targets
established in the strategy.

There is no right-or-wrong answer when it comes to who should lead the way into emerging markets. I’ve found the best
strategies are developed when corporate and regional leaders work together to reach a common strategic goal.

Deloitte Debate 2
 Perspective from Brazil
Milton Da Vila, Partner, Strategy & Operations Practice Leader, Deloitte Touche Tomatsu Brazil
Every week, I talk to at least one U.S. or European executive who wants to enter the Brazilian market. It’s easy to
understand why. Like other BRIC countries, we have a large population and a fast-growing, stable economy. But Brazil has
other advantages, too. As a Western country, we have a culture and government similar to those of developed countries,
including a strong respect for contracts and open markets. And our time zone makes conducting business with London or
New York equally convenient.

However, these similarities can be deceiving. Companies entering Brazil must carefully evaluate the market dynamics
before they build or buy operations here. Product localization, competition, distribution, tax implications and other
dimensions of the market are determinants of success.

Even then, offering localized products at the right price is not enough. Established companies fiercely defend their market
and use their larger experience to prevent competitors from gaining a foothold.

I believe it’s almost impossible for an executive sitting in Chicago or Berlin to understand the complexities of our market.
There’s no substitute for local intelligence and talent.

Perspective from China

Po Hou, Partner, Deloitte Touche Tomatsu China
The diversity among Asian countries is vast, with different languages, cultures, religions, politics and buying power. While
some major business-to-business companies can drive growth from global headquarters based on relationships with
government and corporate leaders, decisions about how to penetrate competitive consumer markets must cascade down to
the country – or even provincial – level.

During my years as a management consultant in China, I’ve seen many multinational companies struggle to develop the
right organization and leadership structure here. Some companies are now moving from a single office in Shanghai or
Beijing to multiple offices across China. A few of the early entrants, such as technology manufacturers, are moving some
core operations inland to lower costs because the first wave of “land-grabbing” is over and now is time to deepen market
penetration. For example, foremost on the marketing agenda for a global telecom company’s Asia operations is how to
penetrate tier-3 and tier-4 cities in China.

It would be difficult, perhaps impossible, for a regional leader based in Hong Kong, Singapore or Taiwan to fully grasp the
Chinese market. I believe that the direct route to broad market penetration is to locate regional offices within China – and
staff them with local talent who have the authority and guidance they need to make smart growth decisions. A given level
of control and balance from headquarters is certainly required, but you have to bake the cake before thinking about how to
split it. What’s the point of talking about risk if you’re not even in the game?

For further information, please visit: http://www.deloitte.com/us/debates/wholeadsgrowth.

Deloitte Debate 3
For further information about this debate, please contact:

David N. Martin Milton Da Vila Po Hou

U.S. Emerging Market Growth Partner Partner
Strategies Leader Strategy & Operations Deloitte Touche Tomatsu China
Principal Practice Leader pohou@deloitte.com
Deloitte Consulting LLP Deloitte Touche Tomatsu Brazil
davidmartin@deloitte.com mvila@deloitte.com

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