Emerging Markets (Buss 4) Essay
Emerging Markets is used to describe a country in the process of rapid growth and industrialisation Opportunities- Strong Economic Growth /Rising consumer incomes and growing ‘middle-classes’/Opportunities for joint ventures with local businesses Threats- Culture/varying customer needs/Difficult to protect ideas from competition due to inadequate laws/Infrastructure could be poor, making distribution and marketing difficult The US soft drinks giant announced a 6% rise in operating revenue to $11. 14bn (?6. 98bn) in the first three months of the year on the same period a year ago.It said it had seen volume growth in all regions that it operates in but highlighted India (+20%), China (+9%) and Brazil (+4%). Net profit for the quarter rose 8% on the year to $2. 05bn.
As well as Coke, the group owns other brands including Fanta, Sprite, Vitaminwater, Powerade, Minute Maid and Del Valle. Volumes grew 9% at its still beverage division, outperforming the 4% growth in sparkling beverages. In 1994, three years after the barriers to international trade had opened in India, Kellogg’s decided to invest US $65 million into launching its number one brand, Corn Flakes.The news was greeted optimistically by Indian economic experts such as Bhagirat B Merchant, who in 1994 was the director of the Bombay Stock Exchange. ‘Even if Kellogg’s has only a two percent market share, at 18 million consumers they will have a larger market than in the US itself,’ he said at the time. However, the Indian sub-continent found the whole concept of eating breakfast cereal a new one. Indeed, the most common way to start the day in India was with a bowl of hot vegetables.While this meant that Kellogg’s had few direct competitors it also meant that the company had to promote not only its product, but also the very idea of eating breakfast cereal in the first place.
The first sales figures were encouraging, and indicated that breakfast cereal consumption was on the rise. However, it soon became apparent that many people had bought Corn Flakes as a one-off, novelty purchase. Even if they liked the taste, the product was too expensive. A 500-gram box of Corn Flakes cost a third more than its nearest competitor.However, Kellogg’s remained unwilling to bow to price pressure and decided to launch other products in India, without doing any further research of the market. Over the next few years Indian cereal buyers were introduced to Kellogg’s Wheat Flakes, Frosties, Rice Flakes, Honey Crunch, All Bran, Special K and Chocos Chocolate Puffs – none of which have managed to replicate the success they have encountered in the West. Furthermore, the company’s attempts to ‘Indianize’ its range have been disastrous. Its Mazza-branded series of fusion cereals, with flavours such as mango, coconut and rose, failed to make a lasting impression.
Acknowledging the relative failure of these brands in India, Kellogg’s has come up with a new strategy to establish the company’s brand equity in the market. If it can’t sell cereal, it’s going to try and sell biscuits. The news of this brand extension was covered in depth in the Indian Express newspaper in 2000: Push Factors- Reasons for wanting to grow outside of domestic country: • Restrictive and costly legislation • Weak UK/US/EU economies • High levels of competitive rivalry • High wage costs and operating costs in UK/US/EUPull Factors – Factors that make emerging markets attractive: • Strong economic growth • Large and growing populations • Growing middle classes • Less competitive pressure • Cheaper wages and operating costs also helps that 85% of Pfizer Nutrition’s 2012 estimated $2. 4 billion sales are in emerging markets where it sells its products such as SMA and Promil.
This is basically a growth acquisition,” Mr Bulcke said. (Just to make sure we don’t miss the message. ) “Ultimately and most importantly it positions us for future growth in this attractive category by gaining and enhancing leadership where the births are.
On the other hand, the Pfizer deal is attractive for Nestle in the long term. Its exposure to emerging markets is higher than expected, which is attractive, and the margins are also higher than expected. ”There could also be a good fit in terms of product fit, with Pfizer being stronger in infant formula than Nestle which is more focused on growing-up milks. To help with the costs, Nestle said it would eventually achieve annual synergies of around $160 million, some of which will come from combining sales forces, but most of these coming from cost reductions.Nestle for example have recently announced that their sales in their main US and European markets have grown just 3. 1% versus 13% growth in emerging markets, therefore the pull factors outweigh the push factors. Maybe if a business is unsure of the country they could do a joint venture and therefore the risk is shared.
As shown by the alliance between Starbucks and Tata group. Starbucks has opted to enter into a strategic alliance with Tata Group as it attempts to establish a position in the Indian market.On 31 January 2012, Starbucks announced its objective to open 50 outlets in India by the end of 2012, through a 50-50 joint venture with Tata Global Beverages. The two partners will invest a total of $80million initially.
The need to address and respect potential cultural issues seems to have been a key factor in deciding to use the joint venture route rather than set up a separate Starbucks subsidiary in India. The world’s third-largest retailer, Tesco, says it has seen a pick-up in sales growth in South Korea, its biggest market outside Britain, as well as rising sales in China, Thailand, Malaysia and India.With China now the world’s largest market for food and grocery retail, it is hardly surprising that savvy supermarket bosses have had their eyes on the Chinese prize. But analysts argue Tesco’s expansion in emerging markets such as China, Thailand and India has led them to neglect their UK business. “Tesco went on an acquisition and diversification spree, but at the same time it under invested in existing stores in the UK and lost its focus on food,” says Gray.But Gray argues Tesco needs the UK business – which has historically done very well and has a market share of around 30% – to generate the funds it invests overseas.
“Tesco needs the UK core business in order to generate lots of mergers and acquisitions, which is how they go about expanding abroad. “For example to gain a foothold in China, Tesco initially went for a joint venture with the Hymall chain of stores, which were one of the leading chains in the country,” he says. Shareholders have also called for Tesco to rethink its US supermarket chain Fresh & Easy which is has come under fire for racking up losses.