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The BRIC Effect
One of our business-to-business clients recently stated during a strategy session that, “We really no longer have an option; to meet our growth goal, we must be totally committed to the emerging markets.” This belief is becoming more and more common. As we state in the business strategy book, CoDestiny, it is much easier to sell into growth markets rather than into markets which are stagnant and require you to capture share from competitors.
Many U.S. companies now realize that the next wave of growth opportunities will come not from their traditional customers located in familiar and stable business environments, but instead will emerge from the rough and tumble, dynamic developing markets. And, over and over, the most popular candidates that rise to the top are the four BRIC countries – Brazil, Russia, India and China. These BRIC countries are generally understood to be the most promising targets because their growth potential dwarfs anything to be found in the more mature, developed world such as Europe, Japan, Canada and the U.S.
Selecting the Right BRIC Country
The follow-up question then becomes: Which BRIC country must my firm participate in to sustain profitable growth? Our answer is – that depends. Each country offers different opportunities for suppliers who serve different industries through different customer chains. For example, in one study we found that a consumer packaging supplier for the food and beverage industry had more opportunity for growth in Brazil than in India even though the latter country’s population was larger than Brazil. Not only do Indian consumers purchase cold drinks less frequently (due to the popularity of hot tea), we also found that the Indian retail distribution channel – that predominantly sells six-pack packaging– is not as developed as in Brazil.
In another example, when evaluating the BRIC countries on behalf of a vehicle parts supplier, we came to another surprising conclusion. While the Chinese automotive industry was soon to bypass all other countries in total new automobile sales, the near-term need for repair and maintenance parts was small compared to the need in Russia and Brazil. Why? New vehicle purchases in China began in the early 2000s and these vehicles had less need for service. In addition, in China we found a distinct scarcity of wholesalers, distributors, dealers, and professional service outlets which created disconnect in the customers chain – parts suppliers did not have good pathways to get their product to market.
Drivers of Growth Opportunity in BRIC
These short examples illustrate the importance of understanding the drivers of opportunities in each of the BRIC countries. It is critical to go beyond just comparing and contrasting the demographics and economic characteristics of each country, and instead look for the undetected, unexpected patterns that will determine the specific growth opportunities for your company in these markets. Map out the customer chains available to you in each BRIC market to determine who the players are, how they are interdependent, and where there are potential missing links. Then use these insights to determine whether or not your firm can bring value to customers and concurrently capture value for your shareholders.
Patterns in the BRIC countries that we have helped our client pay attention to include:
Brazil’s widening middle class has increased the country’s level of disposable income per capita. Large oil and gas discoveries in the Santos Basin, and sufficient, fast growing sugar cane offer a natural resource for the biofuels industry. Companies that can have product to support the newly emerged middle class consumer or that can serve the oil and gas and/or biofuel industry should prosper in Brazil.
China must continue along the path toward evolving from a state-owned economy based on a centralized production and distribution system to a free market economy based on efficient market principles. The role of customer chain intermediaries – wholesalers, distributors, systems integrators, dealers, and retailers – are still changing and developing, which opens opportunities (and creates challenges) for suppliers.
India’s electrical grid is unreliable, overburdened and reaches only a portion of the country’s population. India must build its energy infrastructure. An organization that can bring competency to this industry should thrive in India.
Russia remains mired in the recent global economic downturn, yet its large and prosperous oil and gas industry remains a growth opportunity.
Author: Atlee Valentine Pope