Keynote – Going for Gold in Emerging Markets

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Going for Gold in Emerging Markets:Winning the $30 trillion Decathlon

John Forsyth – McKinsey & CompanyFebruary 19, 2014

McKinsey & Company |

Going for gold

1

Massive opportunity

Crucial capabilities

Platform for success

trillion

xx


Three quarters of global growth in emerging markets

2SOURCE: McKinsey Global Institute

Share of GDP growth, 2010–25

74Emergingeconomies

Developedeconomies

26


And half of Global GDP

3

$, trillion

Total GDP

23

60

40Developed

Emerging

2025

113

53

2010

63


$30 trillion of consumption in emerging markets in 2025

4SOURCE: McKinsey Global Institute

10

Poland 1

Turkey 1

Indonesia

Other

1

Mexico 1

Russia 2

Brazil 3

India 3

China 8

Total 30


Speed and scale unprecedented

5

Years to double per capita GDP

India 16

China 12

South Korea 10

Japan 33

Germany 65

United States 53

United Kingdom 154

Country

Year

1700 20001800 1900


West’s leading companies not capturing growth

6SOURCE: McKinsey Global Institute, company financials

World wide

% ofGDP

36

64

Emerging markets

Developed markets

Company revenue

17

83

North America

% ofGDP

26%

% of company revenue

39%


Going for gold

7

Massive opportunity



trillion

xx


Ten crucial capabilities

8

Target urban growth clusters

Innovate across the price spectrum

Organize today for tomorrow

Think local, act global

Manage in a multichannel world

Develop talent and capabilities

Secure support from key stakeholders

Anticipate moments of explosive growth

Build brands that resonate and inspire trust

Redeploy resources dynamically

Throwing accurately Jumping in Running the distance

1

2

3

4

5

6

7

8

9

10

McKinsey & Company | 9

Follow others into fast-growing markets

Sometimes miss the boat

What is average performance

What is Winning performance

Recognize discontinuities which drive rapid growth

1 Anticipate moments of explosive growth


Different drivers of growth

10

Needs

Demographics and income

Regulation

Infrastructure

Technology

SOURCE: McKinsey Emerging Markets team analysis


Rising incomes drive S-curves in consumption

11SOURCE: McKinsey Global Growth Compass

Sales value per capita Sales value per capita Sales value per capita

2,700 19,0000 2,700 19,0000 2,700 19,0000 Income per capita

Income per capita

Income per capita

“Warm-up zone” “Hot zone” “Chillout zone”


Adoption curves vary by product

12

50

40

30

20

10

0

Per capita income$ thousand, PPP

30252015

Penetration%

100

90

80

70

60

1050

SOURCE: Euromonitor; McKinsey Global Institute analysis

Household penetration by country, 2007

Take-off points

Saturation points

Washing machine

Refrigerator


Use countries and business units for strategic planning


What is Winning performance

Identify high growth opportunities at city cluster level


2


The “Emerging 440” cities will generate 47% of all global growth

14SOURCE: McKinsey Global Institute Cityscope 1.3

47

26

Global growth

100

Total developed

Other emerging regions

27

Emerging440 cities

GDP growth, 2007-2025


Urban growth in China alone is staggering

15

149

Beijing

239

184

Hangzhou

Shanghai

Guangzhou 146

154

Suzhou

91

Shenzhen

81

127Tianjin

Wuhan

75

Dongguan 52

Xiamen 55

Fuzhou 58

Foshan 62

Chongqing 66

Nanjing 71

Chengdu

Absolute GDP growth,2011-2016, billion USD at PPPCity

Growth over $1.6 trillion

Another South Korea

Population more than

Russia


Absolute GDP growth,2011-2016, billion USD at PPPCity

The top 20 developing cities outside China

16

Kolkata 36Abu Dhabi 38Chennai 38Bogota 38Bangalore 41Kuala Lumpur 42Hyderabad 48Lima 48Bangkok 49Riyadh 55Istanbul 56Mexico City 58Doha 66Taipei-Keelung 77Buenos Aires 77Sao Paulo 77Jakarta 84Moscow 100Mumbai 108Delhi 109

Growth over $1.2 trillion

Another Indonesia

Population 6th biggest

country


City-cluster approach can be very powerful

17SOURCE: Insights China; McKinsey analysis

合肥合肥合肥合肥Hefei南昌南昌南昌南昌

Nanchang

太原太原太原太原Taiyuan

南宁南宁南宁南宁Nanning

昆明昆明昆明昆明Kunming

`

西安西安西安西安Xian

北京北京北京北京Beijing

济南济南济南济南Jinan 上海上海上海上海

Shanghai

福州福州福州福州Fuzhou

长沙长沙长沙长沙Changsha 深圳深圳深圳深圳

Shenzhen

武汉武汉武汉武汉Wuhan

郑州郑州郑州郑州Zhengzhou成都成都成都成都

Chengdu 重庆重庆重庆重庆Chongqing

南京南京南京南京Nanjing杭州杭州杭州杭州Hangzhou

大连大连大连大连Dalian

沈阳沈阳沈阳沈阳Shenyang天津天津天津天津

Tianjin 青岛青岛青岛青岛Qingdao

厦门厦门厦门厦门Xiamen

广州广州广州广州Guangzhou

长春长春长春长春Changchun

哈尔滨哈尔滨哈尔滨哈尔滨Haerbin

石家庄石家庄石家庄石家庄Shijiazhu

ang

呼和浩特呼和浩特呼和浩特呼和浩特Huhehaote


Cluster approach can be simpler and cheaper

Packaged goods manufacturer

▪ Fewer key cities, organized into 15 priority clusters

▪ Much sharper differences in targets

▪ 2-3% reduction in cost-to-serve

▪ Accelerated growth to over 20%

▪ Looking at 40 cities spread out across China for expansion

▪ Similar targets across all regions

From… To…

18


Extend developed market strategy to emerging markets


What is Winningperformance

Refine product offering to appeal to local needs, while leveraging cross-market scale

Think local,act global3

19

McKinsey & Company |SOURCE: ACIC

Five grocery segments are in evidence across Africa

Importance of brand

Importance of fresh/quality

Importance of price

Experi-mental Index

Low price hunter

▪ Most price conscious▪ Will make sacrifices

for lower price

High Low Low Low

Local, quality shopper

▪ Believe price indicates quality

▪ Shop locally

Low Medium Medium Medium

▪ Prefer brands▪ Will pay more for

them

Brand loyalist

Low High Low Low

▪ Like to try new things▪ Enjoy shoppingExperimental

shopper

Low Low Low High

Fresh lover

▪ Look for fresh Low Medium High Low

20


Segment distribution by country

% of country market potential that is in the specific segment, countries in order of GDP in PPP terms, 2011

Although their relative importance varies from market to market

27

19

19

2034

29

18 12

30

24

1021

10

23

11

11

17 2323

1214 14

918 18

27

11 9 116

Freshlover

Experimentalshopper

Brand loyalist

Local, qualityshopper

Low pricehunter

Senegal

50

8

Kenya

19

17

Ghana

42

15

Ethiopa

19

35

Angola

9

25

Morocco

26

12

Algeria

17

23

Nigeria

52

10

Egypt

19

27

SA

26

23

SOURCE: ACIC 21


Addressing consumer needs and local market tastes

SOURCE: Press clippings, company website

Adding a local twist Meeting primary needs

Flexing for taste No sacred cows

22


Extensive ethnography to identify ways to re-design and innovate

Guard launched at 34 cents quickly gained market share and today represents two out of every three razors sold in India, increasing market share from 37% to 49% in 5 years.

Context: in rural India, >400m+ men using double-edge blades without lighting and running water

Solution

Single blade razor with protectivehousing

Handle texture for easy gripping

Ruthless focus on cost

23


Take existing brands but customize communication and media


What is Winningperformance

Develop and anchor brand positioning through local insights

4 Build brands that resonate and inspire trust


Able to influence with word-of-mouth

25

29

40

44

46

49

71

92

% receiving recommendations from family/friends


And in-store advice

26

“In-store experience”

Strongly disagree to somewhat disagree

55

Strongly agreeto somewhat agree

45

76

24

"I find myself leaving the store with

a different brand/product than I

planned because of the suggestion

of the in-store salesman"

"I find myself leaving the store with

a different brand/product than I

planned because of the suggestion

of the in-store salesman"


Prefer foreign brand Prefer Chinese brand

Consumer preference for foreign brands varies by category

27

24

3138

5356

Food & Beverages

Household care products

Personal care products

Household electrical appliance

Personal digital gadgets

Brand preference by category

Percent of respondents prefer foreign brands over Chinese brands


New Mainstream consumers have a higher preference for foreign brands

28

Prefer foreign brand Prefer Chinese brand

22

29

36

5255

34

45

52

6365

Household electrical appliance

Personal digital gadgets

Food & Beverages

Household care products

Personal care products

New Mainstream

Mass

Percent of respondents preferring foreign brands over Chinese brands


Ten crucial capabilities

29


Innovate across the price spectrum

Organize today for tomorrow

Think local, act global

Manage in a multichannel world

Develop talent and capabilities

Secure support from key stakeholders

Anticipate moments of explosive growth

Build brands that resonate and inspire trust

Redeploy resources dynamically

Throwing accurately Jumping in Running the distance

1

2

3

4

5

6

7

8

9

10


Going for gold

30

Massive opportunity



trillion

xx


Important choices for management

31

Speed

Values/ Culture

Fast

Refresh

Gradual

Owner-ship

Locally-driven HQ-driven

Scope of change

No sacred cows Constraints defined

Maintain


Are you ready for this journey?

32

Do you understand product S-curves and anticipate explosive growth and other market discontinuities?

Do you know your market growth prospects at granular, urban market level?

Do you understand the needs of your consumers – in both globally converging and locally differentiated segments?

Do you have trusted brands that signal quality among emerging market customers?

Can you deliver value at multiple price points and cater to the premium and entry level segments?


Are you ready for this journey?

33

Are your channels able to reach the full spectrum of emerging consumers?

Are you being sufficiently aggressive in reallocating resources to future growth areas?

Is your organization ready for effective execution across the diverging global market place?

Are you winning the war for local talent?

Are you effectively managing the full range of stakeholders in emerging markets?


John Forsyth

Expert Principal,

Stamford

[email protected]

www.youtube.com/McKinseyCMSOForum

@McK_MktgSales@McKinsey_CSI

McKinseyonMarketingandSales.com

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Keynote – Going for Gold in Emerging Markets

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