The 12 Emerging

Markets Strategies
that Matter
Evolve Your Capabilities In Market

Please note that the CEB program names referenced in this document have changed since the time of publication.

Investors aren’t convinced by the
emerging markets (EM) story reported
by nearly one-half of companies. As firms
intensify investments in emerging markets,
many will fail to earn economic returns in
an increasingly competitive environment.
Our survey of hundreds of emerging
markets executives at multinational
corporations reveals that emerging
markets leaders 1) clarify strategic
intent and 2) develop strong strategies
that require new capability development
and evolution.
The Emerging Markets
Credibility Gap
Nearly one-half of companies focused
on emerging markets lack a credible
message. CEB’s proprietary investor
perception research finds that 46% of
companies are not believable in their
messaging on EM growth in the eyes of
investors. The resultant cost for these
Please note that the CEB program names referenced
in this document have changed since the time of publication.
The 12 Emerging Markets
Strategies that Matter
Evolve Your Capabilities In Market
companies is significant: companies
with a dubious emerging markets story
generated an average total shareholder
return of only 2% between 2008–2010,
compared with a 32% return for those
with a credible emerging markets story.
Investor skepticism is warranted
given the flood of capital chasing
opportunity in these markets. Intense
competition from other multinationals
and rising local players overshadows the
impressive economic growth of these
markets, and it threatens the prospect
of profitable earnings. For example,
based on CEB research the typical local
Chinese business would need to either
improve margins by 300 basis points, or
double revenues, over and above existing
projections, to achieve a minimum 10%
capital return in the next three years.
What separates those companies that
generate sub-par (or negative) returns
in emerging markets versus those that
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© 2011 The Corporate Executive Board Company. All Rights Reserved. CFO0455011SYN-CEB
win in these markets? To answer this
question, CEB conducted an extensive
analysis of emerging markets strategy
and performance, including a survey
of hundreds of EM executives, and
interviewed heads of Strategy and CFOs
at both large multinationals and EM
incumbents.
Action Step #1: Clarify Your Strategic
Intent
Even more important than the choice
of strategy for EM growth is having a
strategy in the first place and ensuring
that this strategy is clear to executives
on the ground. A significant number
of executives working for Western,
multinational corporations in emerging
markets failed to identify strongly
with an emerging markets strategy we
tested. Unsurprisingly, these businesses
perform poorly in terms of growth,
profitability, and competitive positioning
relative to their peers.
-C-Figure 2:Twelve Principal Emerging Markets Strategies
Market Arbitrage
■■ Labor Arbitrage: Realize
sustainable labor cost
advantages by developing a
powerful employment brand in
key low-cost talent markets and
exporting services and goods to
key developed markets.
■■ Capital Arbitrage: Realize
capital arbitrage by raising
capital in developed markets
and deploying it in developing
markets.
■■ Regulatory Arbitrage: Realize
regulatory advantage by
locating or routing business
to jurisdictions with lower
regulatory costs.
The lesson for executives is that even if
corporate perceives that your firm has a
clear strategy in emerging markets, there
is a material chance that executives on
the ground do not. The physical and
cultural distance between headquarters
and emerging markets increases
the potential for misalignment or
misunderstanding around the strategy.
So strategic focus is important, but
what type of focus is worth pursuing?
We believe there are 12 principal
strategies that companies can employ to
extract returns from emerging markets
investments. These strategies, outlined
in Figure 2, fall into four primary
themes:
ȕȕ Market Arbitrage: Take advantage
of cost and price differences across
markets.
ȕȕ Portfolio Optimization: Allocate
market-level investments as a
portfolio of assets.
ȕȕ Privileged Access: Lock out
competitors to acquire or protect
market advantage.
ȕȕ Segment Domination: Dominate
global customer segments.
The recent survey of hundreds of
Please note that the CEB program names referenced
in this document have changed since the time of publication.
Portfolio Optimization Privileged Access Segment Domination
■■ Market Momentum: Increase ■■ Local Market Access: Achieve ■■ Privileged insight: Develop
exposure to high-growth markets sustainable market advantage privileged insight into emerging
through selective investment through local market access and customer segments.
in markets with the highest knowledge. ■■ Global Scale: Increase economies
expected growth. ■■ Distribution Lock In: Achieve of scale globally by extending
■■ Market Value: Increase expected sustainable distribution existing product sales to
return by investing in frontier advantages through investments emerging market consumers.
markets or markets with in infrastructure and/or ■■ Reverse Innovation: Realize
relatively attractive asset values. distribution. permanent cost advantage by
■■ Risk–Reward Optimization: ■■ Privileged Supply: Achieve developing disruptive innovations
Build a portfolio of country privileged access to scarce off emerging markets price
investments with optimal risk– sourcing opportunities and raw points and “reexporting” to
return characteristics. materials. developed markets.
emerging markets executives found Action Step #2: Don’t Just Chase
that firms that focused on any of these Demand; Strong Strategies Require
12 strategies achieved higher levels of Capability Evolution
profitable growth in emerging markets Even though focus on any of the
than their peers. Focus and clarity on a 12 tested strategies leads to better
strategy with a clear economic rationale performance, some strategies are
pays off. associated with significantly better
performance. We found that the
strongest strategies require a high
degree of internal change.
Figure 3: Emerging Markets Strategies—Frequency Versus Impact1
High
“Moonshots”
Privileged
Labor Customer Insight
Arbitrage
Reverse
Impact on Profitable Growth
Innovation
Global Scale
Risk–Reward
Optimization
Privileged Supply
Distribution Lock–In
Local Market “Beaten Paths”
Access
Regulatory Market
Arbitrage Value
Market
Capital Arbitrage
Momentum
Low
Low High
Frequency of Strategy Use
n = 386.
1
Impact is measured by the strength of correlation between the use of the strategy by companies
and their financial and competitive results in those markets.
2 w w w. c f o . e xe c u t i ve b o a r d . c o m
© 2011 The Corporate Executive Board Company. All Rights Reserved. CFO0455011SYN-CEB
Figure 3 compares the use frequency of
12 major strategies with their impact on
profitable growth.
Firms pursuing “reverse innovation” use
emerging markets as a launching pad
for new, disruptive, low-cost products
that they sell both in emerging markets
and globally. This “moonshot” strategy
provides outsized impact on results,
but relatively few multinationals enact
it. For example, GE sells a version of a
portable, lower-cost electrocardiogram
in the US that it originally developed
for doctors in India and China. And
Nestlé markets cheaper and leaner dried
noodles, originally created for rural
India, as healthy alternatives in Australia
and New Zealand. In general, strategies
related to segment domination had the
highest impact on performance.
Conversely, “market momentum” is a
weak, “beaten path” strategy. It is the
most common strategy, but it yields
relatively small returns. Companies in
this camp invest in emerging markets
primarily to increase exposure to a
growing demand for goods and services
like those already offered by their
company.
It is not enough for companies to simply
chase demand in emerging markets.
Winners must evolve their capabilities
and offerings to survive. Figure 4
provides a preview of our forthcoming
publication, The Strategist’s Guide to
Emerging Markets, which examines
the new capabilities we see emerging
markets leaders developing. The next
edition of the Business Intelligence
Quarterly will take a close look at the
role of the strategist in overcoming
organizational challenges associated
with capability development.
For further information about the
research in this article, please
e-mail Michael Griffin at griffinm@
executiveboard.com.
To learn about our advisory services
through the Corporate Strategy Board,
please e-mail Katie Bennett at kbennett@
executiveboard.com or visit csb.
executiveboard.com.
Michael Griffin, Executive Director,
Global Strategic Research, Finance
and Strategy Practice
D oug Eckstein, Zlatica Kraljevic,
Tom Monahan, Harlan Piper, Oleg
Polishchuk, and Brook Selassie
contributed to this article.

-Figure 4: Capabilities of Emerging Markets Leaders

Global Governance Local Emerging Markets Differentiated Government

Intelligent Risk
and Organizational Manufacturing and Product and Pricing and and Community
Market Entry Management
Structure Distribution Service Innovation Branding Relations

Emerging Markets “Buy and Build” Proximity Business Target Price Driven “Citi for Cities” Visual Demand Socio Economic
Business Unit Framework Model Innovation Government Dashboard Assessment Toolbox
Program

International
Source-Focused “Equity-Light” Tailored Distribution Local Product Local Stakeholder Subsidiary Funding Ecosystem Fund
Restructuring Megaprojects Models Development Education Program Model

Independent “Low-Tier” Urban Targeted Channel Day-Definite Local Pricing

China Division China Expansion Selection Services Autonomy
and Guardrails

Emerging Emerging Markets Knowledge Process Local Premium

Consumers Division Blueprint Outsourcing Brands

Multi-Country “SynBaration” Mobile Banking Global Marketing

Organizations Cultural Initiative Adjacency Umbrella

Industry Target Price Ladder

Groups Portfolio

Globally Integrated Tiered Pricing

Procurement Function

SKU Rationalization
in India

Please note that the CEB program names referenced

in this document have changed since the time of publication.
3 w w w. c f o . e xe c u t i ve b o a r d . c o m
© 2011 The Corporate Executive Board Company. All Rights Reserved. CFO0455011SYN-CEB