Arthur D. Little: The BRIC Battle - Winning the Global Race for the Emerging Middle Segment

A new study identifies what major growth in the four largest emerging economies will mean for mature market multinationals


LONDON, Dec 11, 2008 (BUSINESS WIRE) -- With global policy makers and business leaders predicting the emerging BRIC markets will remain the key source for growth in the crisis, a new study by Arthur D. Little explains that mature market multinationals must re-evaluate their outmoded globalization philosophies or risk losing out to a new generation of ambitious, fast growing emerging market companies. The report, "The BRIC Battle - Winning the Global Race for the Emerging Middle Segment," explores how to capture a significant share of the largest customer segment in these countries.

"Just a few days ago private equity house Actis announced it has raised GBP 2.9bn for investment specifically in the BRIC emerging markets - proof positive that as the developed economies face recession in a post-credit crunch environment, emerging markets will continue to grow, albeit at a slower pace" reflects Kurt Baes, a co-author of the report and principal of Arthur D. Little's Shanghai office. "Multinationals find themselves at a tipping point - they must either begin to re-engineer their engagement with the BRIC markets now, or risk being left behind."

Growing middle segment

According to Arthur D. Little's latest report, over the next 20 years Brazil, Russia, India, and China - the so-called BRIC - will account for 50% of global incremental GDP growth. Based upon project experience and interviews with hundreds of leading companies in the US, Europe and Asia, the report's authors found that mature market multinational companies (MNCs) currently operating in BRIC markets tend only to target the premium segment - leaving local competitors free to serve the lower and emerging middle market segments. The BRIC "middle segment" consist of those products with good basic functionality but without the 'bells and whistles' of excess packaging, branding, and differentiating features to which many mature market consumers and companies have become accustomed. As the emerging markets' middle classes grow, so are the local companies that serve them. Hence the imperative for MNCs to address this market segment now.

"Unless the MNCs begin targeting the growing middle segment in the BRIC economies, they will not exploit the huge growth potential and risk losing ground to increasingly sophisticated local players, who are now taking the success gained in their home markets and translating that into rapidly expanding global offerings," added Wilhelm Lerner, co-author of the report and Head of Arthur D. Little's Central European Strategy & Organisation Practice. "As the economy enters a period of global recession where we are seeing developed nations hit the hardest, multinational brands must re-think their emerging market strategies and develop the product offerings and market knowledge to capture a larger share of the growing BRIC middle segment. That is their only chance to remain successful in the long term."

Entering with caution

Western white goods giant Whirlpool, home furnishings retailer Ikea, detergent brand Unilever, fast food chain KFC, and car manufacturer Toyota are all developed market companies that have made an early and definitive decision to target the BRIC middle segment. The report outlines how each company faced significant cultural, technical, and geographic challenges in successfully capturing these markets' middle segments, and offers businesses a new strategy for entering the emerging markets: BRIC 2.0.
Arthur D. Little's BRIC 2.0 strategy is based on a double-rationale for why mature market companies must act now to drive growth in the emerging markets' middle segments: to exploit the immense local growth opportunity and to protect their position in their home market. To achieve this, the report offers three ingredients to consider in developing a BRIC market entry strategy:

-- Fight - Combine international brand power with proven, local go-to-market approaches
-- Focus - First invest in a single, key region; roll out to subsequent regions once a strong market position is achieved
-- Simplify - Actively leverage the MNCs' technical expertise to design new product and service offerings that address local needs, far beyond simple copying or de-engineering of existing offerings.
"The complexities of entering a new market have been compounded by the continuous growth and changing nature of the BRIC middle segments over the last decade. As local players from each of the emerging markets aggressively pursue growth in both mature and other emerging markets, MNCs must act now to avoid losing ground to these new competitors, who have adapted successful go-to-market approaches specifically tailored for the growing global middle segment," concluded Petter Kilefors, co-author of the report and Global Practice Leader of Arthur D. Little's Strategy & Organisation Practice.

Looking ahead

As part of this study, Arthur D. Little gathered primary data from 60 MNCs in different geographies and industries, in order to develop the first ever publication of combined BRIC revenues disclosed on a per company basis. This data is currently being analysed to identify BRIC market "winners". "The Arthur D. Little BRIC Honorary Award" and accompanying analysis will be revealed in Q1 2009.
So far the research shows significant differences between industries: both construction industry & materials players and engineering & manufacturing firms have understood the message clearly, pushing their BRIC share into 20-40% growth figures annually since 2005. On the other hand, semiconductor and mobile device manufacturers' BRIC shares have stagnated in their portfolio; a sign that they may be missing out.

Industry Ranking Revenue share of BRIC Revenue share increase
(Revenue share of BRIC in total revenue) in total revnue (%) of BRIC '05-'07 (CAGR. %)
1. Semiconductor Manufacturers >20% <13%>13%
5. Engineering & Manufacturing 10% -20% >13%
6. Pharma & Chemicals >13%
7. Construction Industry & Construction materials suppliers >13%
8. Consumer Goods & Retail >13%
Average (across sample) 11.3% 12.9%

The BRIC Battle - Winning the Global Race for the Emerging Middle Segment is now available for download at http://www.adl.com/BRIC

About Arthur D. Little

Arthur D. Little (ADL), founded in 1886, is a leading global management consulting firm that links strategy, innovation and technology to master complex business challenges while delivering sustainable results to our clients. Arthur D. Little has a collaborative client engagement style, exceptional people, and a firm-wide commitment to quality and integrity. ADL is proud to serve many of the Fortune 100 companies globally in addition to many other leading firms and public sector organisations.

Arthur D Little has over 30 offices worldwide, employing over 1,000 people. If you would like additional information on the firm, please visit www.adl.com.

SOURCE: Arthur D. Little

Petter Kilefors
Arthur D. Little
Tel: +46-8-50306542
kilefors.petter@adlittle.com
or
Wilhelm Lerner
Arthur D. Little
Tel: +49 175 5806151
lerner.wilhelm@adlittle.com
or
Kurt Baes
Arthur D. Little
Tel: +86 21 6447 8866
baes.kurt@adlittle.com
or
Sue Glanville/ Maita Soukup
Say Communications
Tel: +44 (0)208 971 6411 / 6423
sglanville@saycomms.co.uk
msoukup@saycomms.co.uk

Copyright Business Wire 2008