2014 BCG Local Dynamos How Companies in Emerging Markets Are Winning at Home The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for- profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight­ into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitiv­ e advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com. 2014 BCG Local Dynamos Ho w Companies in Emerging Markets Are Winning at Home

Vincent Chin

David C. Michael

July 2014 | The Boston Consulting Group Contents

3 Building Local Empires

5 Emerging Markets: Still Kicking

7 Meet the Local Dynamos

13 The Secrets of Their Success Catering to Customers and Local Conditions Leveraging Digital Technologies Operating at Warp Speed Adapting to Uncertainty and Circumstance Building Talent Engines Establishing Functional Excellence

24 Shaping Your Response to the Local Dynamos

26 For Further Reading

27 Note to the Reader

2 | How Companies in Emerging Markets Are Winning at Home Building Local Empires

merging markets remain global serves about one in six Mexican consumers Egrowth engines. Although some are doing and has become Mexico’s third-largest bank, better than others, emerging markets offer when measured by deposits. the most promising opportunities for expan- sion. Yet many global companies struggle to Across the Pacific Ocean, Bank Rakyat create successful business models in these Indonesia (BRI), the nation’s oldest and markets. most profitable bank, wants to serve the street vendors and merchants that power the na- At the same time, many local companies are tion’s local economy. BRI sends employees thriving in emerging markets—building busi- equipped with handheld devices into 2,300 nesses that attract local customers and defeat busy markets and bazaars, which serve nearly both other homegrown companies and multi- 6 million customers. The bank is experiment- nationals. Understanding the successful prac- ing with floating branches to reach remote tices of these companies can help you win in customers on Indonesia’s more than 900 in- these markets. habited islands.

In the banking industry, for example, several Guaranty Trust Bank, the largest and most companies have grown quickly and profitably profitable bank in Nigeria, has increased its in emerging markets, even though most con- retail presence through mobile and Internet sumers frequently have unstable incomes and communications. The bank’s “mobile money” do not have even a checking account. application facilitates money transfers, pay- ments for goods and services, purchases of In Mexico, Grupo Financiero Banorte want- mobile airtime, and ATM cash withdrawals ed to reach potential customers without that don’t require a card. constructing expensive bank branches, so it decided to rely on other companies’ bricks These three moves illustrate the ways that and mortar. The bank partnered with local companies convert the constraints of Telecomm-Telégrafos (a rural telecom emerging economies into profitable op- operator with about 1,600 retail locations) portunities. In all industries—not just bank- and 7-Eleven (one of the fastest-growing ing—homegrown companies are finding convenience chains in Mexico, with about analogous ways to win. They have moved 1,500 outlets) to offer basic financial beyond creating advantages built on cheap products, such as deposits, credit cards, labor to become thriving commercial enter- remittances, and withdrawals. Banorte now prises.

The Boston Consulting Group | 3 T o spotlight these companies, we have com- simply thriving at home with a focus on local piled a list of 50 local dynamos, energetic markets. private-sector companies that focus on their home markets. The list is representative, not Local dynamos are winning customers with exhaustive. While we want to recognize these targeted and customized business models, companies for their formidable accomplish- surpassing both local state-owned companies ments, we also want to gain insights from with built-in advantages and large multina- their successes and see how their practices tionals with deep pockets eager to find new can be applied more broadly to all companies growth opportunities. that want to do better in these markets. Local dynamos are creating digital and mo- We created the first list of local dynamos in bile solutions to overcome the constraints 2008. (See The BCG 50 Local Dynamos: How and logistical challenges of their home mar- Dynamic RDE-Based Companies Are Mastering kets. They are rapidly scaling up their opera- Their Home Markets—and What MNCs Need to tions to take advantage of the rising tide of Learn from Them, BCG report, March 2008.) local economies. And they are thriving amid The list—with the accompanying lessons uncertainty and turmoil, as well as complex derived from it—was published in Harvard regulatory environments, to create market Business Review, bringing wide and well- positions that competitors will have difficulty deserved attention to these success stories. duplicating. At the same time, they are creat- Not surprisingly, these companies have con- ing world-class capabilities in areas such as tinued to outperform. talent management, innovation, and product development. The world has changed dramatically during the past six years. The global financial crisis Local and global competitors can ignore helped expose the sharply divergent growth these dynamos at their peril—or they can patterns of mature and emerging markets, learn from their successes. while Africa’s development has highlighted just how rapidly markets that were once con- sidered hopeless can become promising and full of ambition. It is time to offer a new list—and a new set of lessons.

Notably, local dynamos are not global chal- lengers, companies from emerging markets that are becoming worldwide leaders in their respective industries. Neither are they neces- sarily global challengers in waiting. They are

4 | How Companies in Emerging Markets Are Winning at Home Emerging Markets Still Kicking

asy growth may be coming to a close in different degrees of financial health, and Emany emerging markets, but the long- facing different structural challenges.1 (See term trends remain bullish. Collectively, Exhibit 1.) emerging markets will remain the biggest sources of growth for decades, even if they Population Growth. Emerging economies are are growing at different speeds, experiencing growing four times faster than mature

Exhibit 1 | The Four Pillars of Rising Prosperity

Population Emerging markets • By 2020, 6.4 billion people will live in Growth are growing four emerging markets times faster than • South Asia and Africa will contribute mature markets the most growth

Consumption By 2020, emerging • These consumers will account for Growth markets will add 35 percent of spending, compared 730 million middle- with 25 percent today and affluent-class • Nearly half of the emerging-market consumers population will be middle class or affluent

Urbanization By 2020, emerging • About 40 percent of the world’s markets will add population will live in these cities 600 million urban • Emerging-market cities will grow ten dwellers times faster than mature-market cities

Trade More than 350 • The free-trade movement has been Liberalization free-trade especially strong in the past decade agreements are in • The Trans-Pacific Partnership and place today Regional Comprehensive Economic Partnership talks are ongoing

Sources: International Monetary Fund; BCG analysis.

The Boston Consulting Group | 5 markets. By 2020, 6.4 billion people, out of a higher economic activity and greater foreign global population of 7.5 billion, will be living investment, productivity, and R&D spending. in these markets. The population pyramids of Free trade also promotes structural economic most emerging markets are bottom heavy, reform with regard to product quality, the with younger people entering the workforce rule of law, and customs efficiency. faster than older people are retiring. Yet despite the slowdown in easy growth, Consumption Growth. The populations of multinationals still have their eyes on emerg- these markets are not just growing in size; ing markets. In a recent BCG survey of 156 they are also becoming wealthier. From 2010 executives, more than three-quarters, or to 2020, more than two-thirds of the antici- 78 percent, said that they expect their compa- pated growth in consumer spending, or nies to gain share in these markets. (See $11 trillion, will originate in emerging mar- Playing to Win in Emerging Markets: Multina- kets. In just four countries—Brazil, China, tional Executive Survey Reveals Gap Between , and Indonesia—730 million people will Ambition and Execution, BCG Focus, Septem- join the ranks of the middle and affluent ber 2013.) These executives also recognize classes. that local competitors are a bigger threat than other multinationals: nearly three- Urbanization. By 2020, the populations of quarters, or 73 percent, said that local com- cities in emerging economies will increase by panies are more effective competitors than 600 million people. More than 700 cities in other multinationals. All the more reason, China alone will have at least 250,000 people therefore, to gain a deeper understanding of in the middle and affluent classes. Urbaniza- the local dynamos driving these economies. tion brings multiple economic benefits, (See Exhibit 2.) including greater consumer spending—espe- cially on education and health care—and higher spending on infrastructure.

Trade Liberalization. Trade barriers are Note falling as countries increasingly recognize the 1. See “From Emerging to Diverging Markets: Why It’s Time to Reassess Your Emerging-Market Strategy,” BCG value of opening their markets to foreign article, October 2013. competition and goods. Free trade leads to

Exhibit 2 | For Most Executives, Local Competitors Constitute the Largest Threat in Emerging Markets

Percentage of respondents citing each type of competitor as a threat

% 80 73

60

50 40 40

20

0 Multinationals based Multinationals based Locally based companies in developed markets in emerging markets in a specific emerging market

Source: BCG Globalization Readiness Survey.

6 | How Companies in Emerging Markets Are Winning at Home M eet the Local Dynamos

he 2014 list of local dynamos reflects eleven. (See exhibits 3, 4, and 5. For informa- Tthe consumer-driven focus of emerging tion about how we chose the dynamos, see markets as those markets increasingly re- the sidebar “Selecting the BCG 50 Local Dy- semble mature-market economies and as namos.” For a review of how the 2008 local their sources of advantages move beyond low dynamos have been doing, see the sidebar costs and low wages. “Surging Ahead.”)

Since BCG released the original list of local Many of the local dynamos are competing dynamos in 2008, the number of companies on innovation rather than cost and other in health-related sectors has jumped from traditional sources of advantage. For ex- two to five; in financial services, from eight to ample, South Africa’s Discovery Health, ten; and in consumer goods, from nine to an insurance administrator, rewards its cus-

Exhibit 3 | A High Proportion of 2014 Local Dynamos Are in the Consumer Goods and Financial Services Industries Industry

Number of companies 12 11 10 10

8 8

6 6 5 5

4 3 2 2

0 Entertainment Travel Health care Internet Retail Industrial Financial Consumer and media and goods and services goods technology energy Source: BCG analysis.

The Boston Consulting Group | 7 Exhibit 4 | Local Dynamos by the Numbers

31 Number of service companies

28 Annual percentage of revenue growth, 2009–20131

26 Annual percentage of total shareholder return, 2009–20132

9 Number of Latin American companies

6 Number of African companies

5 Number of health care companies

Source: BCG analysis. 1Revenue growth is calculated from the end of 2009 to the end of 2013. 2Shareholder return is calculated from January 1, 2009, to January 1, 2014.

Selecting the BCG 50 Local Dynamos

To identify the 2014 local dynamos, we markets and were among the leading started by dividing emerging markets into private-sector companies in their industries. seven regions: Africa; China; India; Latin America; the Middle East and Turkey; We were looking for companies that were ; and Southeast Asia. Unlike in 2008, broadly representative of the forces and we did not analyze companies in Eastern domestic industries driving success in their Europe because of the region’s increasing home markets. Still, the 50 companies we integration with the European Union. selected are certainly not the only winners with domestic-oriented business models in Then, within each region, we adopted a these markets. There are many other two-step qualitative and quantitative compelling examples of companies that approach. First, we conducted a broad have succeeded in these promising, yet search for successful private companies that challenging, environments. had strong reputations and a domestic focus but did not have traditional sources of advantage, such as government ownership, large land ownership, or a monopoly license.

Second, we narrowed the list so it included only companies that were true dynamos: those that were succeeding by adapting to the unique challenges of their home

8 | How Companies in Emerging Markets Are Winning at Home Exhibit 5 | The 2014 BCG Local Dynamos Company Business Discovery Health Health insurance administrator Douja Promotion Groupe Addoha Real estate developer and operator Equity Bank Commercial bank Africa Guaranty Trust Bank Commercial bank Woolworths Department store Zambeef Products Beef and agricultural goods producer China Minsheng Bank Commercial bank Dalian Wanda Group Property developer HaiDiLao Hotpot Restaurant chain Home Inns & Hotels Management Hotel chain Jia Duo Bao Herbal tea producer China Jiangsu Hengrui Medicine Pharmaceutical company S.F. Express Express delivery courier Tingyi Cayman Islands Holding Company Food and beverage producer Xiaomi Smartphone and consumer electronics producer Yonghui Superstores Supermarket chain Amara Raja Electronics manufacturer Bennett, Coleman & Company Media company Flipkart Online retailer IndiGo Airline India Jubilant FoodWorks Restaurant chain Micromax Consumer electronics producer Narayana Health Health care provider Shriram Transport Finance Commercial finance vendor Banco de Crédito e Inversiones Commercial bank Cielo Payment system Cinépolis Movie theater chain Enalta Inovações Tecnológicas IT solutions provider Latin America GranBio Biotechnology company Grupo Financiero Banorte Commercial bank Magazine Luiza Retailer Ourofino Veterinary products producer Quala Food and beverage company Abdi İbrahim Pharmaceuticals company Abdul Latif Jameel Auto dealer Air Arabia Airline Middle East and Turkey Almarai Dairy producers BIM Retailer LC Waikiki Apparel retailer Bashneft Oil producer Mail.Ru Internet company Russia Ozon.ru Online retailer Credit Systems Bank Consumer finance provider Bangkok Dusit Medical Services Health care provider Bank Rakyat Indonesia Commercial bank Masan Group Food and beverage producer Southeast Asia RHB Banking Group Commercial bank SapuraKencana Petroleum Oil and gas services provider SM Retailer Wings Personal-care and household products producer

Source: BCG analysis.

The Boston Consulting Group | 9 Surging Ahead

The 2008 local dynamos have lived up to 2013, compared with 18 percent for the their potential. They are now thriving S&P 500 index and 15 percent for the MSCI companies that have outpaced the compe- Emerging Market Index. tition in their home markets. Three of the companies expanded their From 2009 to 2013, these companies’ geographic footprints and became global revenues grew at an average annual rate of challengers: Goldwind Science and Technol- 19 percent, exceeding the 11 percent rate ogy, Bharti Airtel, and AirAsia Berhad. Two of the MSCI Emerging Market Index and went public: Goodbaby, of China, and the 5 percent rate of the S&P 500. SKS Microfinance, of India. Three of the original local dynamos have been acquired The five-year total shareholder return of the since the 2008 list was released. local dynamos also far outstrips other benchmarks. The 32 publicly traded local dynamos returned 25 percent from 2009 to

tomers for modifying their lifestyles and modernized and improved the efficiency of habits. its refineries. India’s Amara Raja has suc- ceeded in the automotive and industrial bat- Another innovator is China’s Xiaomi, a tery market by becoming a technological company that develops and sells smart- leader. phones online. Forgoing expensive retail outlets, Xiaomi relies heavily on its official Twenty countries are represented on the website and social media to promote the 2014 list of local dynamos, and only 27 sales of its phones and to receive consumer companies, or slightly more than half, are feedback. based in Brazil, Russia, India, or China. Africa has six companies on the dynamos While there are still 19 manufacturers among list, while Southeast Asia has seven. (For the 50 local dynamos, many of the other com- brief profiles of the three “lasting” dynamos panies on the list are building sophisticated we have identified as having staying power, logistics, inventory, and manufacturing opera- see the sidebar “Still Thriving.”) tions. The 2014 local dynamos have been growing faster than comparable companies in emerg- The 2014 local dynamos ing and mature economies. From 2009 to 2013, their revenues grew by 28 percent an- have been growing faster nually. (See Exhibit 6.)

than comparable compa- During the same period, total shareholder re- nies in emerging and ma- turn rose 26 percent annually for the 2014 lo- cal dynamos, a rate that is much steeper than ture economies. those for indices composed of similar compa- nies. (See Exhibit 7.)

In Russia, for example, Bashneft has shaken These companies have not followed the same up the largely state-owned oil-and-gas indus- path to success. By understanding what has try by reinvigorating exploration and produc- driven their performance, both local and tion in legacy regions and launching new global companies can compete more effec- projects, boosting output by more than 37 tively in these markets. percent over the past five years. It has also

10 | How Companies in Emerging Markets Are Winning at Home Exhibit 6 | The BCG 50 Local Dynamos Grow Faster Than Their Peers

Annual revenue growth, 2009–2013 % 30 28

20

11 10 5 3 0 BCG local MSCI Emerging Markets S&P 500 MSCI World dynamos Index companies companies Index companies

Sources: Bloomberg; BCG analysis.

Still Thriving

This year, we have identified three of the GetUpps! Android applications store, 2008 local dynamos as “lasting” dynamos. created in partnership with Yandex, helps They provide snapshots of the staying developers launch and commercialize their power of many local companies in emerg- products. MegaLab, which employs more ing markets. than 300 professionals, also looks outside of MegaFon for sources of innovation. Tencent. With annual revenues exceeding $9.9 billion in 2013 and an annual growth Astra International. With revenues of about rate of more than 50 percent since 2009, $16.6 billion in 2013, this conglomerate is China’s largest Internet service provider the largest company listed on the Indone- shows no signs of slowing down. Ten- sian stock exchange and has interests in cent’s QQ instant-messaging service has the automotive, financial-services, heavy- more than 800 million users, while its equipment, agribusiness, information newer WeChat mobile text- and voice- technology, and infrastructure sectors. messaging service has more than 500 mil- lion users. Astra still commands more than a 50 per- cent share in both the auto and motorcycle Once viewed as an imitator, Tencent is market in Indonesia. Through diversifica- placing big bets on innovation. More than tion, the company has reduced the auto half of its staff is involved in research and sector’s contribution to revenues from development, and the company is actively about 80 percent to about 50 percent. building a patent portfolio. Astra’s revenues have grown by about 18 percent per year since 2008. MegaFon. Russia’s second-largest mobile operator has nearly 70 million users and Astra has won several awards for its annual revenues of $8.4 billion. Like business practices. In 2013, it was named Tencent, MegaFon is focusing on innova- Indonesia’s best-managed company by tion. It created MegaLabs in 2011 to explore FinanceAsia. In 2012, Astra appeared on new information, entertainment, and Fortune Indonesia’s list of most admired practical innovations. For example, its companies.

The Boston Consulting Group | 11 Exhibit 7 | The BCG 50 Local Dynamos Create More Value Than Their Peers

Index of total shareholder return, 2009–2013 (base=100) 400

300

200

100

0 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014

BCG local dynamos S&P 500 MSCI World Index MSCI Emerging Markets Index

Sources: Thomson Reuters Datastream; BCG analysis. Note: The index of total shareholder return for BCG local dynamos is based on publicly traded companies.

12 | How Companies in Emerging Markets Are Winning at Home Thec Se rets of Their Success

ach local dynamo has its own par- Catering to Customers and Local Eticular story about how it has won in its Conditions home market. A unique combination of The local dynamos understand their custom- ambition, insight, capability, location, and ers intimately and know how to appeal to hard work explains the success of HaiDiLao them. They identify new customer segments, Hotpot’s home-delivery service in China, for unmet needs, and local habits that other com- example, as well as Quala’s quick success panies do not recognize. Perhaps foremost, against Red Bull in the energy-drink category they understand the cost-and-quality calculus in Colombia. that will appeal to the growing middle and af- fluent classes in these markets. They work At the same time, the 50 local dynamos share through the constraints of emerging markets six traits that give them an edge in these to offer superior customer service. markets. Four of these traits are specific to the business models that the companies Jia Duo Bao. Ten years ago, few people in deploy to thrive in emerging markets: China outside of the Guangdong province catering to customers and local conditions, consumed herbal tea. Not any longer. Jia Duo leveraging digital technologies, operating at Bao has built a $3 billion herbal-tea business warp speed, and adapting to uncertainty and in China through a deep understanding of circumstance. Chinese consumers and relentless promotion of the beverage. The other two traits—building talent engines and establishing functional excellence— After several false starts, Jia Duo Bao bor- demonstrate the rapid development of these rowed concepts from traditional Chinese companies as they create world-class medicine and marketed herbal tea, sold in a strengths and gain skills commonly found in can, to “cool heat” in the body. “Drink herbal multinational companies. tea, prevent heat” became one of Jia Duo Bao’s marketing slogans. Most of the local dynamos exhibit several, if not all, of the traits. (See Exhibit 8.) And Jia Duo Bao also actively marketed herbal tea while these companies may have a long way to restaurants serving hot pot, Sichuan to go in mastering them, their efforts are al- cuisine, and grilled food as an antidote to ready starting to pay off in developing a more overeating. Until then, restaurants had complete set of capabilities. Let’s see how proven to be a tough market to crack for they do it. canned beverages.

The Boston Consulting Group | 13 Exhibit 8 | Local Dynamos Win in Six Ways

Key Success Factors Characteristics

Emerging-Market Capabilities

• Serving new segments, local needs, or cultural habits • Delivering superior customer convenience Catering to customers and local conditions • Offering low-priced products for a rising segment of mass-market consumers

• Leapfrogging to mobile and digital business models Leveraging digital technologies • Leveraging rising online usage trends

• Becoming a first mover in fast-growing markets Operating at warp speed • Consolidating fragmented and regionalized markets • Growing organically or through acquisitions

• Responding to infrastructure, climate, and other challenges Adapting to uncertainty and circumstance • Responding to challenges in critical parts of the value chain • Pioneering unique business models

World-Class Capabilities

• Attracting top talent despite structural talent shortages • Building an engaging and rewarding work environment Building talent engines • Establishing structured human-capital-management processes

• Possessing strong R&D and operational excellence Establishing functional excellence • Developing go-to-market strengths • Implementing strong product development

Source: BCG analysis.

Jia Duo Bao adopted a hub-and-spoke ap- reluctance of Indian consumers to divulge proach to introducing herbal tea throughout credit card information and to accept delivery the country. Since Chinese consumers tend to at home. Their solution was to require cash follow city trends, the company would origi- on delivery: the courier and customer ex- nally focus on large metropolitan areas when change goods and payment at the doorstep. it entered a new province. Jia Duo Bao is now About 60 percent of Flipkart’s sales are trans- China’s best-selling canned beverage, exceed- acted this way. ing sales of Coca-Cola. Next up for Jia Duo Bao: the Southeast Asia market. The company has raised about $540 million in private equity to invest in technology, Flipkart. This e-commerce company, founded logistics, and the supply chain. Flipkart’s in 2007, is largely responsible for making monthly sales, as expressed by gross online shopping popular in India. The merchandise value, imply an annual run rate company started with just $8,000 in capital of $1.5 billion. but is now valued at about $1.5 billion; it sold nearly $200 million in goods in fiscal 2013. Yonghui Superstores. Yonghui has carved out a niche for itself in the competitive grocery The founders—Sachin Bansal and Binny Ban- market in China by emphasizing fresh foods. sal, who once worked for Amazon.com—rec- Sales of fresh foods, which account for only ognized that they would have to address the about 10 percent of the revenues at other

14 | How Companies in Emerging Markets Are Winning at Home supermarkets, exceed 40 perecent at Yonghui ket in India. Unorganized private financiers stores. dominate most of the rest of the market.

This emphasis on fresh foods is hitting a Shriram fully understands the credit risks and sweet spot with consumers. The company has businesses of its borrowers as well as the val- grown by more than 40 percent during the ue of their vehicles. Field officers are required past four years, with revenues reaching near- to make monthly visits to borrowers, during ly $5 billion in 2013. Yonghui has been open- which they often collect cash payments. ing 40 to 50 stores per year and now operates nearly 300 stores. SM. The largest retailer in the Philippines, SM operates more than 230 stores, supermarkets, Rather than rely on distributors and middle- hypermarkets, and department stores and had men, Yonghui purchases 60 percent of its $4.3 billion in sales in 2013. The company has fresh foods directly from 150 farms, most of catered to the desire of Filipino consumers for them in the Fujian province. Sourcing fresh local shopping options through its Savemore foods directly has helped to lower costs and stores, which are located in barangays, small improve quality. It has also helped the chain neighborhoods without modern retail outlets. compete against traditional wet markets. In At Savemore, customers can shop in a conve- some cases, customers can buy produce nient indoor-grocery-store format to buy the picked that very day. types of low-priced, fresh groceries that are typically found in traditional markets. LC Waikiki. This Turkish fashion retailer, with more than 400 domestic stores and about $2.5 billion in sales in 2013, has survived the The local dynamos identify entry of such global competitors as Zara, Mango, and H&M by positioning itself as a new customer segments, un- family brand attuned to Turkish tastes and cost-conscious consumers. Its product lines met needs, and local habits are designed for everyone from infants to that others do not recognize. adults, and its stores cater to families, whose members tend to shop together in Turkey. Stores have well-placed seats for the elderly, S avemore is SM’s fastest-growing store for- and children are allowed to drink beverages mat, and it gives the retail giant access to and play inside. The chain relies heavily on smaller provincial cities and rapidly growing local celebrities in its advertisements. towns that do not have an SM shopping-mall complex. The number of Savemore supermar- LC Waikiki also has a strong online presence, kets has expanded from 20 in 2010 to 88 in boasting more than 650,000 registered users. 2013, with 30 to 35 new stores planned for Nearly 2 percent of sales currently take place 2014. In 2012, Savemore’s revenues grew by online, and the company wants online sales 31 percent, with same-store sales growth to reach 10 percent by 2018. reaching almost 10 percent; turnover per square meter and net margins both im- Shriram Transport Finance. This company proved. was founded in India in 1979 to provide financing to owners of small trucks, a segment Banco de Crédito e Inversiones (BCI). The that financial institutions were largely ignor- fourth-largest bank in Chile, with $40 billion in ing. Shriram originally started financing new assets, BCI was recently voted the second most vehicles but soon realized that the owners innovative company in the nation by Universi- could not afford the payments, so the compa- dad de los Andes—largely on the strength of ny entered the used-truck financing market. its digital and back-office offerings and its focus on customer satisfaction. Customers, for Shriram has grown to have more than 500 example, are able to deposit a check by branches and has a 22 percent share of the snapping a photo of it with their smartphones. preowned commercial-vehicle financing mar- New software and systems allow small and

The Boston Consulting Group | 15 midsize businesses to navigate automated Xiaomi is also mastering online marketing approvals for credit lines and other products platforms. Its social-media team is active on outside of regular business hours. WeChat, Baidu, QQ, and other online forums. Lei Jun has 8 million followers on Sina Wei- In 2012, BCI launched a transformation to im- bo, currently the most popular social-media prove the customer experience by, among oth- platform in China. er things, welcoming customers when they en- ter the bank, shortening wait times, simplifying pricing, and offering financial tools and videos. Smart companies tap mo- During the past five years, BCI has been the fastest-growing bank in Chile. In 2012, it also bile technologies in business had the second highest return on equity. models that avoid the con- straints of emerging markets. Leveraging Digital Technologies By 2018, there will be an additional 1 billion Internet users and more than 5 billion post- The company also uses social media to re- PC products—tablets and smartphones—in ceive customer feedback and improve its circulation. (See the 2013 TMT Value Cre- products. For instance, Xiaomi releases an up- ators report, The Great Software Transforma- dated version of its Android-based operating tion: How to Win as Technology Changes the software, MIUI, every week in response to World, BCG report, December 2013.) Most of customer feedback. these new users and devices will be located in emerging markets. Micromax. Just six years after entering India’s mobile-phone market, Micromax is the Smart companies are using mobile technol- number-two company, behind Samsung, ogies and the Internet to reach the new selling about 2.5 million phones per month. online users, to connect with their traditional Before entering the mobile-phone market, customers, and to build business models that Micromax distributed computer hardware avoid the constraints of emerging markets. and telecommunications equipment.

Although Internet and mobile coverage re- In 2008, the company’s leaders recognized an main spotty in emerging markets, innovation opportunity for selling affordable handsets. is sky high. Without investments in hard in- Micromax’s first phone, which sold for $30, frastructure (such as stores and branches) to had 30 days of standby battery life. This long protect, many companies are focusing their battery life appealed to rural residents, who resources on online and mobile channels. can lack reliable power supplies. The compa- ny has kept its prices low by sourcing stan- Xiaomi. This mobile-phone company, found- dard components in large volumes from Chi- ed in 2010, has skyrocketed to success by nese manufacturers. Micromax generated capturing the enthusiasm for the Internet $563 million in revenues in 2013; it aims to among young people in China. In 2013, the become a $1 billion company in 2014. company sold about 18.7 million smart- phones in the nation at about half the price By focusing on affordable innovation, Micro- of comparable Samsung and Apple phones; max changed the Indian handset market Xiaomi already outsells Apple in China. It from a seller’s market to a buyer’s. Micromax also generated more than $5 billion in rev- now sells more than 60 types of phones, rang- enues. CEO and founder Lei Jun has ambi- ing from dual-SIM models to touch-screen tions to sell 60 million smartphones in 2014. smartphones, and it has moved into tablets and hybrid “phablets.” Xiaomi holds the line on costs by selling phones only through the company’s website. It Tinkoff Credit Systems Bank (TCS). Most offers batches of 200,000 to 300,000 phones at Russians emerged from the Communist era a time, and they sometimes sell out in minutes. debt free. As oil prices surged and incomes

16 | How Companies in Emerging Markets Are Winning at Home rose rapidly for the middle and affluent franchised hotels has risen from 30 percent in classes, Oleg Tinkov, a Russian entrepreneur 2008 to nearly 60 percent in 2013. who had just sold his microbrewery, sensed that the country was ripe for an expansion in Acquisitions have enabled Home Inns to ex- consumer debt. In 2006, he founded TCS, a pand its footprint. In 2011, the organization credit card company that markets to custom- bought Motel 168, the third-largest budget ers through direct mail and the Internet and chain in China, for $470 million. Home Inns serves them through call centers and online. has made smaller acquisitions as well.

TCS has neither branches nor ATMs, a model From 2008 to 2013, Home Inns increased the that works especially well in the remote re- number of its hotels from fewer than 500 to gions of Russia, where consumers are unaccus- more than 2,000, and it boosted the number tomed to the high levels of customer service of cities served from fewer than 100 to nearly that the company provides; credit cards, for ex- 300. With revenues of $1 billion in 2013, ample, arrive via courier within 24 hours. Home Inns has a share of nearly 25 percent of the branded economy-hotel segment. The lack of branches certainly has not held the company back: TCS has become the Magazine Luiza. This retailer has grown more number-three credit-card issuer in Russia, than 26 percent annually since 2009, with with an 8 percent share and 3.5 million cards sales reaching about $4.1 billion in 2013, and in use. In October 2013, the company raised it has done so by catering to Brazil’s swelling $1.1 billion in a stock offering, and by the middle class. As a result of several acquisi- end of the year, it held $2.5 billion in tions, Magazine Luiza has more than tripled outstanding loans. the number of its stores over the past ten years. But the company has also grown organ- ically, expanding in important cities such as Operating at Warp Speed São Paulo, where it opened 44 stores in a Local dynamos have proven to be adept at single day in 2008. building their businesses swiftly and success- fully. They add people in large numbers with- out faltering. They move into new segments Many dynamos have created and rapidly become market leaders. In mar- kets comprising multiple regions and custom- national brands and estab- er segments, many of the dynamos have cre- ated national brands and established a lished a national presence. national sales and retail presence. These ad- vantages can be especially important in emerging markets, where customers are often More than 85 percent of Magazine Luiza’s forming their first—and often lasting—im- sales occur in traditional stores, where house- pression of companies. hold appliances, electronic goods, computer and other digital equipment, furniture, and Many local dynamos have also relied on ac- toys are big sellers. After raising money in a quisitions or capital spending to make inroads public offering in 2011, Magazine Luiza began in their home markets. In all cases, they have a big e-commerce push. Online sales have shown that they know how to expand without been growing faster than conventional sales, sacrificing their entrepreneurial roots. thanks to innovations such as social-shopping services and strong fulfillment. The company Home Inns & Hotels Management. This chain has, for example, created online stores on of budget hotels is taking advantage of and elsewhere that allow consum- China’s fragmented and underpenetrated ers to sell goods to friends and family on com- economy-lodging market by both franchising mission. Magazine Luiza is the only real multi- and acquiring other chains. Franchising has channel retailer in Brazil, selling all goods and helped Home Inns to lower capital spending services under the same brand name and us- and increase returns. The proportion of ing the same logistics and back-end software.

The Boston Consulting Group | 17 BIM. With more than 4,000 stores—up from modern retail formats, and interactive digital 21 in 1995—and 95 percent geographic channels. In this section, we highlight compa- coverage, BIM is the largest grocer in Turkey. nies that have found similar success in their A discounter with bare-bones store interiors home markets by finding ways to navigate lo- and a product portfolio limited to 600 items, gistical and operational roadblocks and regu- BIM has revolutionized the retail market in latory complexity. Turkey, which historically has had a low share of modern retail shopping. Despite the Despite significant progress, emerging presence of global competitors, only about markets remain challenging. The supply of half of retail sales in the country occur in electrical service is sometimes uneven. Roads modern retail outlets. Consumers have been and rail networks, high-speed wireless net- accustomed to shopping in neighborhood works, and ports are works in progress in grocery stores called bakkal. many locations. Market intelligence is occa- sionally spotty. Talent, a premium in all mar- kets, is doubly valuable in these markets. Many dynamos work through Many local dynamos have creatively worked limitations to create advan- through these limitations—often by deploy- ing the key success factors articulated earli- tages other companies will er—to create advantages that other compa- have difficulty duplicating. nies will have difficulty duplicating.

Dalian Wanda Group. For many commercial Over the past decade or so, however, BIM has real-estate developers in emerging markets, won over the newly emerging middle class finding tenants to fill a newly constructed with good quality, low prices, and conve- mall can be a challenge. As the leading nience. Nearly 3 million shoppers a day visit commercial real-estate developer in China, BIM stores, and the company generated total Wanda has solved this problem by creating a net sales of $5.5 billion in 2013, up 20 percent customized business model. from 2012. While most developers land anchor tenants Almarai. Saudi Arabia’s Almarai is the largest before completing a mall, Wanda creates integrated dairy company in the world, with strong partnerships with many retailers, revenues of $3 billion in 2013. Running a which then have an active say in the location, dairy in the middle of the Arabian desert is a size, and specific details of the mall, such as challenge. Almarai’s farms have shelters to ceiling and entrance heights. Wanda protect its 60,000 cows from the sun and maintains long-term partnerships with heat, and 4,000 vans make daily deliveries to several large global retailers (including Wal- 90,000 retail outlets. Mart, Carrefour, and B&Q) and local retailers (such as Parkson department stores and Almarai has used this distribution network to Suning, an electronic-appliance chain). These expand into related products, such as juices, partners pay their first year’s rent in advance, cheeses, butter, and poultry. Since 2007, the ensuring that the project will be financed and company has spent $3 billion to develop new will start off profitably. product lines, such as infant formula and baked goods. Wanda is also ruthless about hitting dead- lines. The company built Guangzhou Baiyun Wanda Plaza—a retail, office, and residential Adapting to Uncertainty and development with a gross floor area of Circumstance 392,000 square meters—in only 11 months; In the prior sections, we highlighted local that’s one-third the time a project of that size companies that have thrived by focusing on a would usually take. The fast turnaround specific talent, such as developing advanced helps to give prospective tenants confidence supply chains and distribution networks, that they will open on schedule and that mar-

18 | How Companies in Emerging Markets Are Winning at Home ket conditions will not have radically shifted Building Talent Engines in the interim. When senior executives are asked to name their three biggest challenges, talent almost Wanda generated revenues of $31 billion in always makes the short list, and often it is at 2013. It operates 85 malls and 54 hotels the top. In last year’s survey of 156 business across China. leaders, BCG asked the executives to identify their most critical business challenges and Equity Bank. One of the largest banks in their ability to address them. Respondents Kenya, with assets of $2.9 billion in 2013 and said that their companies demonstrated the 8.7 million customers, Equity has expanded largest performance gap in attracting and re- by providing services to customers previously taining talent and developing local leaders. viewed as “unbankable.” Rather than build local branches for people who live in remote Talent shortages are acute everywhere, but areas, Equity Bank relies on agents to deliver they are especially severe in emerging mar- financial services. kets. Historically, companies have not offered the same level of training and development These agents are under contract to Equity that schools provide, and schools just can’t Bank and are trained to offer basic banking keep up with the demand for qualified candi- services to customers. The agents use their dates. Job-hopping is often viewed as the fast- smartphones to accept an application for a est way to advance rapidly in these markets. new account: they load data onto the phone and snap a photo of the applicant and his or her supporting documents. The application is Talent, a premium in all then processed centrally, and the applicant receives notification of the status of the appli- markets, is doubly valuable cation via text messages. Once the account has been approved, the customer can sub- in emerging markets. scribe to the bank’s Eazzy 247 mobile- banking service. Local dynamos successfully overcome these Ozon.ru. One of Russia’s largest and most constraints. They hire top local talent and trusted e-commerce companies, Ozon.ru had build an engaging and rewarding environ- a gross-merchandise value of $750 million ment so that the hires will stay. They also put and 17 million users in 2013. The company in place strong human-capital-management tackled two main barriers to online shop- practices so they can identify, train, and pro- ping—slow, unreliable postal deliveries and mote their best people and help employees low credit-card usage—and turned those who need stronger skills. constraints into advantages. HaiDiLao Hotspot. A signature Chinese dish, Ozon.ru developed its own distribution com- hot pot is a metal pot of simmering soup pany, O-Courier, which now operates in 550 stock to which servers add a medley of sauces, cities across the country, with more than sliced meat, leafy vegetables, mushrooms, 2,300 pick-up points. Only about 8 percent of wontons, egg dumplings, and seafood. HaiDi- Ozon.ru’s orders are delivered by the postal Lao, founded in 1994, has grown to become a service. Most customers still pay in cash, but chain of 91 restaurants, pulling in $510 mil- the company is investing in electronic- lion in sales in 2012. The restaurants excel at payment technology. providing a captivating customer experience.

Internet penetration in Russia is still relative- “In the dining room, patrons wearing full-size ly low: approximately 66 million people, out aprons provided by the restaurant lean to- of a population of 140 million, are online. So gether over the boiling caldrons embedded in the future for Ozon.ru, which is the leading each table, dropping morsels of uncooked online travel agent and has a 63 percent meat, fish, vegetables or tofu in a spicy share of the online book market, looks bright. steaming broth, then dipping them in flavor-

The Boston Consulting Group | 19 ful sauces. On special holidays, magicians in are located in Chengdu, Lianyungang, Shang- colorful, traditional masks perform tricks. hai, and the U.S. Patrons order using iPads. Periodically, a server breaks into the restaurant’s signature Masan Group. One of Vietnam’s largest Olympic-style ‘noodle dance,’” a Wall Street private companies, with a total market Journal article observed in 2013.1 capitalization of more than $3 billion, Masan has an executive suite composed of individu- The company has promoted this environment als with broad management and internation- through careful development and training of al experience. Veterans of Citibank, J.P. its employees. Performance evaluations, for Morgan, Morgan Stanley, Procter & Gamble, example, are based on customer satisfaction and Unilever have joined the company, which and an employee’s passion for work. And has expectations of exceeding $1 billion in HaiDiLao’s benefits are unmatched in the revenues in 2014. restaurant industry: the company offers free apartments, with air conditioning and Inter- The wealth of experience and skills that net, to employees, and it helps them solve these executives brought accelerated the any difficulties with enrolling their children transformation of the company. Known origi- in school. nally for fish, soy sauce, noodles, and instant coffee, Mason Group now deals in metals and minerals and financial services. Kohlberg HaiDiLao offers its employ- Kravis Roberts & Co., a leading U.S. private- equity firm, has invested more than $300 mil- ees free apartments com- lion in Masan Consumer.

plete with air conditioning Among Masan’s top outside hires are Madhur and Internet. Maini, a former investment banker who led Masan Group as the CEO before becoming chairman of Masan Consumer; Seokhee Won, Jiangsu Hengrui Medicine. This leader in the CEO of Masan Consumer, who joined China’s pharmaceutical industry has a clearly from Unilever; and Dominic Heaton—an Aus- articulated strategy that is built on develop- tralian with extensive mining experience in ing strong research scientists. The company is Papua New Guinea, Indonesia, and Laos— investing heavily in therapeutic areas with who is the CEO of Masan Resources. unmet medical needs and strong government support, such as oncology and diabetes. Abdul Latif Jameel (ALJ). This company has been the exclusive distributor of Toyota cars To develop a pipeline of drugs in these areas, in Saudi Arabia since 1955. Along the way it Jiangsu Hengrui employs more than 1,300 has acquired a 40 percent share of the highly specialized scientists. Four of the country’s new-car market and adopted many scientists are part of the government’s of Toyota’s key strengths, including respect “Thousand Talents” plan, which is meant to for people and a commitment to community attract foreign scientists to work in China. In involvement. addition to tapping into this highly selective program, Jiangsu Hengrui recruits from local In 2003, the company established Abdul overseas universities, looking especially for Latif Jameel Community Initiatives to pro- scientists with experience working for mote job creation, arts and culture, education, multinationals. health and social welfare, and poverty reduc- tion. ALJ’s professional and vocational re- Jiangsu Hengrui has been growing at an annu- habilitation initiative, for example, offers al rate of 24 percent for the past four years, interest-free loans to Saudi candidates in and the company reached nearly $900 million many professions. Today, the community ini- in sales in 2012. It devotes 10 percent of reve- tiatives are woven into the fabric of Saudi Ara- nues to R&D, which exceeds the industry aver- bian society and are a source of great pride for age in China, and has four R&D centers, which ALJ employees.

20 | How Companies in Emerging Markets Are Winning at Home Establishing Functional bank branches. Within its first two years of Excellence operation, RHB opened 250 Easy branches One of the ways that many local dynamos dis- and increased its market share for loan prod- tinguish themselves from the rest of the pack ucts from 9 percent to 20 percent. RHB has is by developing functional capabilities that $60 billion in assets. rival—or even exceed—those of multinational companies. These capabilities include business model innovation, technological innovation, Recognizing an unmet need, operational excellence, branding and market- ing, product offering, and customer service. RHB created Easy by RHB for The following examples show how some com- panies have succeeded in their local markets people put off by high mini- by developing such functional capabilities. mum balances and compli-

RHB Banking Group (business model innova- cated forms and products. tion). In 2009, RHB, now Malaysia’s fast- est-growing and fourth-largest financial institution, created a new bank to serve Discovery Health (business model innovation). Malaysia’s mass-market consumers—those With more than 2.4 million members, Discov- with monthly incomes of $300 to $600. At ery Health is the largest private insurance the time, mass-market households made up administrator in South Africa. But what makes 70 percent of the population but held only Discovery so intriguing is that it has changed 16 percent of bank deposits. Many banks the rules of health insurance. It is encouraging struggle to make money from these consum- healthy behaviors, such as exercising and ers and have tried to avoid serving them by buying wholesome foods, by partnering with imposing minimum balance requirements other companies to offer points similar to and other measures. frequent-flyer miles. The rewards range from reduced premiums to exotic holidays. Recognizing an unmet need, RHB created a new brand, Easy by RHB, for people put off Pick n Pay, a South African grocery chain, pro- by high minimum balances, complex applica- vides discounts of up to 25 percent on 10,000 tion forms, and complicated products. Easy by healthy foods. Airlines, including kulula, offer RHB’s branches have bright, open, informal discounted flights. Discovery Health measures layouts and are located in high-traffic loca- gym attendance by analyzing how frequently tions, such as supermarkets, train stations, membership cards are swiped at health clubs. and post offices. The reward program, called Vitality, has been Easy by RHB launched with just five products. in existence for 16 years, and nearly 70 per- Similar to a fast-food menu, each product’s cent of Discovery Health’s members have en- prices and features are on display in the rolled in it. In 2012, the company offered doc- branches. Loans carry simple interest rates tors an iPad app that provides access to the and have flexible terms and installments; ac- medical records of Vitality patients. The com- counts have low minimum-balance require- pany says that Vitality pays for itself through ments. fewer sicknesses and shorter hospital stays.

The application and approval process is also Abdi Ibrahim (technological innovation). simple. Using biometric, paperless technolo- Turkey’s largest pharmaceutical company is gy, Easy by RHB applicants are able to open a investing heavily in R&D to enhance its new account in 10 minutes. Setup costs are reputation as a branded or “value-added” one-seventh, and operational costs are generics manufacturer. The company opened one-quarter, those of a typical bank branch. the first accredited R&D facility in Turkey in Easy by RHB branches can also be opened six 2008 and devotes 5 percent of annual times more swiftly and are eight times more revenues to innovation. In 2011, the company productive in generating loans than typical was a finalist for the innovation award

The Boston Consulting Group | 21 sponsored by the European Business Awards. After beginning in 2001 with a 300-bed cardi- Abdi Ibrahim developed the first orally ac hospital in Bangalore, the company has disintegrating tablet. It also has been able to grown to 17 hospitals and about 6,000 beds combine molecules—such as analgesic and since 2001. The hospitals perform about nonsteroid anti-inflammatory agents—into a 12 percent of all cardiac surgeries and the single pill to improve patient compliance. In greatest number of dialysis treatments and 2012, Abdi Ibrahim generated revenues of bone marrow transplants in the country. They $804 million. also perform the highest number of surgeries on children in the world. The middle- and IndiGo (operational excellence). This airline, lower-income levels of India, which historical- the largest in India, was the only domestic ly have been without quality health care, con- carrier to report annual profits from 2009 to stitute Narayana Health’s primary market. 2013: it generated $1.7 billion in revenues in fiscal 2013 and $127 million in profits that The low costs and high quality of Narayana year. The low-fare carrier is relentlessly Health’s services are helping to accelerate the focused on keeping its planes in the air as medical-tourism industry in India as well. The much as possible, concentrating on serving organization’s hospitals have performed 15,000 the most heavily traveled routes and elimi- surgeries on patients from 25 countries. nating waste. Bennett, Coleman & Company (branding and IndiGo flies one family of planes, the Airbus marketing). The biggest publisher in South A320, which simplifies maintenance, repairs, Asia, this company owns the largest English- and operations: the carrier is able to prepare language publication in the world—the Times an aircraft for flight in 31 minutes, for exam- of India—as well as a host of other brands in ple. The average age of the fleet is less than print, broadcasting, online, outdoor-display, three years, which keeps maintenance costs and theatrical media. Bennett, Coleman low. IndiGo saves fuel by using measures such generated more than $915 million in reve- as carefully instructing pilots how to climb to nues in fiscal 2013. flight altitude gradually and even eliminating heavy in-flight magazines. The carrier has about 100 employees per aircraft, a ratio that Narayana Health’s low costs is far lower than its competitors. and high quality are help- As a consistently profitable enterprise, IndiGo is able to negotiate attractive and creative fi- ing accelerate India’s nancing and operating terms. These “power medical-tourism industry. by the hour” agreements require the compa- ny to pay when airplanes are in use and re- quire vendors to provide spare parts and pay While the businesses of most other major for replacement on demand. publishers are in decline, Bennett, Coleman is thriving. Over 175 years, it has built a Narayana Health (operational excellence). strong brand that advertisers and readers India’s Narayana Health has revolutionized trust, and the company has parlayed this the health care industry by providing strength into other media platforms—some- high-quality care at low cost. By handling thing many companies struggle with. It owns greater volumes, Narayana Health is able to India’s largest radio station and two of the sharpen the skills of its surgeons, negotiate nation’s most viewed television channels: En- better terms with vendors, and improve glish news, and entertainment and lifestyle. capacity utilization. The hospital chain offers heart surgeries at half the cost of other Quala (product offering). In Colombia, Quala Indian providers and about 10 percent of the competes effectively against Unilever, Procter cost of the procedures in Europe and the & Gamble, and other multinationals by U.S. The chain expects to generate about investing heavily in R&D and creating con- $200 million in revenues in this fiscal year. sumer goods that appeal to local tastes.

22 | How Companies in Emerging Markets Are Winning at Home One year after launch, for example, Quala’s The company has a talent-recruiting function Vive100% surpassed Red Bull as the leading to target promising employees, a two-year energy drink in Colombia. Vive100% is made managerial-training program, and an MBA from tea and guarana, a climbing plant native sponsorship. At Cinépolis University, the com- to the Amazon region. In addition to empha- pany’s 24,000 employees can attend training sizing its indigenous qualities, Quala pro- sessions and acquire new skills. motes the product as an energy drink to busy students and business executives. Cinépolis’s revenues grew by 11 percent annually from 2009 through 2012, reaching Quala is the third leading company in soft $1.2 billion. It is now the fourth-largest movie drinks—and the second in sauces, dressings, operator in the world. and condiments—in Colombia. It has also had success in other product categories, such Cielo (customer service). Brazil’s largest as ice cream and shampoo. Quala’s BonIce credit- and debit-card merchant faced a set of brand took share from local vendors selling tall challenges immediately after going public homemade ice cream, and the company’s in 2010. Cielo had been the exclusive proces- eGo shampoo was the first to be marketed to sor of Visa cards, while Redecard had exclu- men in Colombia. Quala posted 2012 reve- sively handled Mastercard transactions. Then nues of $401 million. the Brazilian government opened competi- tion in payments processing. The deregula- Cinépolis (product offering). This company tion caused several new domestic and global has grown to become the largest movie competitors to enter Brazil with big ambi- operator in Mexico, with 295 cinemas and tions. They began to target Cielo’s key clients, 136.7 million annual visitors, by offering an using price as their main weapon. unparalleled theatrical experience. Its the- aters have comfortable stadium seating and Cielo responded in four ways. First, it made a modern digital technologies. strong commitment to remain the market leader. Second, the company invested in inno- Based on market research, Cinépolis developed vation, such as portable point-of-sale units movie snacks with Mexican flavors, such as and e-commerce services. Third, it strength- popcorn with lemon juice and chili sauce. Cus- ened its relationships with its largest custom- tomers can enjoy a meal while watching a ers and expanded into the small and midsize movie in the VIP room. Some of the theaters markets. Finally, it made selected acquisitions are equipped with “4DX” technology, which to build out capabilities in mobile, e-com- produces movement, smells, mist, and wind in merce, and other areas. addition to sound and video. Cinépolis has also developed facilities where children can watch The strategy paid off. Since its IPO, Cielo has movies while playing in a ball pit. maintained market leadership, with a market share above 50 percent. Cielo’s revenues The company seeks out innovative and entre- reached $2.9 billion in 2013 when it pro- preneurial ideas through Cinépolis Seed- cessed around 5 billion transactions, served Camp, a program in which members of the 1.5 million active merchants, and was recog- public are invited to help develop ideas to im- nized for the third consecutive year as the prove the consumer’s overall experience. best financial-services company in Brazil by Cinépolis is looking outside the company to Istoé Dinheiro, a leading local-business mag- develop innovative social-media, mobile, and azine. in-theater experiences.

Cinépolis relies on its people to provide a captivating experience for the consumer. “The sum of talents is the key to our success,” Note explained CEO Alejandro Ramirez. For the 1. See “A Hit in China, Noodle Dance Extends Reach to California,” Wall Street Journal, May 21, 2013. past nine years, Cinépolis has won an award as one of the best places to work in Mexico.

The Boston Consulting Group | 23 Shaping Your Response to the Local Dynamos

he 50 local dynamos are formidable conquer their home markets. They are not Tcompetitors. They are defeating foreign satisfied by growing on pace with the and other local companies with a comprehen- market, and you shouldn’t be either. Aim sive understanding of their own backyards to grow twice as fast as the market. and their willingness to “go for it.” They do not have to negotiate with remote headquar- •• Have you created a profitable business ters to gain resources or to reach a decision. model that delivers growth now? You are competing against companies that How can you compete against these home- have proven they know how to deliver grown companies? You need both to emulate what customers want and create value in the dynamos and emphasize your own emerging markets. You can’t simply strengths. export what worked in another emerging market or, worse, expect that what worked Emulating the dynamos will require you to at home will succeed in any of these operate with their energy, ambition, and en- markets. You need to deliver something trepreneurial zeal and to adopt the character- special to your customers at a price that istics that we identified earlier as keys to they can afford and that will generate their success in their home markets. Asking revenues for you. yourself the following questions may help you translate the success of the dynamos into •• Do you and your senior team spend your own organization. enough time on the ground? The top executives of local dynamos grew up in •• Are your best and brightest employees these markets. You need to be more than deployed in emerging markets? The a tourist to succeed against them. Beyond dynamos often win against multinationals visiting airport conference rooms and in competing for top talent in their home executive suites, do you and your team markets. Job candidates see boundless spend time on the ground, walking the opportunity at dynamos but glass ceilings streets, taking public transportation, and at multinationals. If you are not sending visiting stores, homes, hospitals, and your best people to compete against the government offices? dynamos, you will lose. •• Are your initial investments big •• Are your aspirations bold enough? Top enough? Money does not buy success in executives of local dynamos want to these markets, but it can help to over-

24 | How Companies in Emerging Markets Are Winning at Home come the running start that local dyna- cars because of their reputations in China for mos enjoy. You simply cannot make up greater safety and reliability. the lost ground with incremental invest- ments. Yum!—which owns the KFC, Pizza Hut, and Taco Bell restaurant chains—has succeeded Emphasizing your own strengths should be in China by customizing its menus to local an easier task. You do not have to abandon tastes as a way to compete against local what worked at home or in other overseas restaurants and by building world-class sup- markets. But you do have to figure out how to ply-chain, distribution, and real-estate opera- apply your scale, expertise, brand, R&D tions. The number of KFCs in China has risen capabilities, access to capital—and whatever from 766 in 2002 to nearly 2,000 in late 2007 other strengths you possess—in a different and to more than 4,500 today. setting. For KFC, 2013 was a rough year in China. Re- Six years ago, BCG’s first local dynamo re- ports that two suppliers may have been in- port highlighted two companies that were jecting poultry with growth hormones and successfully competing in emerging markets: antibiotics, combined with an outbreak of the Hyundai Motor Group and Yum! Brands. avian flu, contributed to a 13 percent decline They had both adapted to local markets and in same-store sales in China. applied their world-class capabilities to serve the customers there. That formula still works But rather than retrench, the company contin- for the companies, which continue to thrive ued to expand, opening more than 400 restau- and expand in these markets. rants in China and placing 8,000 recruits into its management-training program in 2013. Despite slowing growth in global sales, Hyun- KFC also revised its menu and rolled out sev- dai and its affiliate, Kia, continue to thrive in eral digital initiatives in an effort to restage its emerging markets—Hyundai is the num- brand. With four restaurants per million peo- ber-two automaker in both Africa and India ple—compared with 58 per million in the and number three in China—by localizing U.S.—Yum! is not letting a down year derail the product line and running highly efficient its long-range ambitions. and automated factories. In Russia, for exam- ple, the Hyundai Solaris is trimmed with sev- KFC also opened more than 150 restaurants eral cold-weather features, such as heated in India in 2013 and expects to have more outside mirrors, a winter-friendly battery, and than 400 restaurants, up from 250 today, op- a four-liter windshield-washer reservoir. In In- erating in Russia and the Commonwealth of dia, Hyundai’s Santro has a high roofline to Independent States by the end of 2015. accommodate drivers and passengers wear- ing turbans. The success of Hyundai and Yum! shows that global companies can win against strong com- Sales in Brazil, Russia, India, and China con- petitors in emerging markets. By combining stituted 37 percent of Hyundai’s global sales their legacy strengths with the lessons in 2013. In China, where Hyundai is planning learned from the dynamos, they can pack a to build a fourth plant, sales rose 21 percent, one-two punch that will be hard to counter. and the company is projecting a 10 percent increase in 2014. Hyundai is also benefitting from a growing preference for foreign-made

The Boston Consulting Group | 25 for further reading

The following publications by The The Chinese Digital Consumer in Winning in Africa: From Trading Boston Consulting Group will help a Multichannel World Posts to Ecosystems readers who want to understand An article by The Boston Consulting A report by The Boston Consulting how to win in emerging markets. Group, April 2014 Group, January 2014 Going to Market in Developing Why It’s Time to Reassess Your Economies: Winning Big by Emerging-Market Strategy: From Targeting Small Emerging to Diverging Markets An article by The Boston Consulting An article by The Boston Consulting Group, April 2014 Group, October 2013

Understanding Consumers in the Playing to Win in Emerging “Many Africas” Markets: Multinational Executive A Focus by The Boston Consulting Survey Reveals Gap Between Group, March 2014 Ambition and Execution A Focus by The Boston Consulting Group, September 2013

The BCG 50 Local Dynamos: How Dynamic RDE-Based Companies Are Mastering Their Home Markets—and What MNCs Need to Learn from Them A report by The Boston Consulting Group, March 2008

26 | How Companies in Emerging Markets Are Winning at Home not e to the reader

About the Authors Acknowledgments For Further Contact Vincent Chin is a senior partner The authors would like to thank the If you would like to discuss this and managing director in the dozens of colleagues around the report, please contact one of the office of The Boston globe who assisted with the re- authors. Consulting Group. David C. search and analysis for this report. Michael is a senior partner and Several partners, consultants, and Vincent Chin managing director in the firm’s San knowledge-team members made Senior Partner and Managing Director Francisco office. contributions in each local market BCG Singapore covered by the report. The authors +65 6429 2500 would especially like to thank [email protected] Belinda Gallaugher, Markus Herrmann, Grace Kuo, Peter David C. Michael Ullrich, and Tracy Wu. Senior Partner and Managing Director BCG The authors would also like to +415 732 8000 thank Katherine Andrews, Gary [email protected] Callahan, Lilith Fondulas, Kim Friedman, Abigail Garland, Sara Strassenreiter, and Mark Voorhees for their editorial and production support.

The Boston Consulting Group | 27 © The Boston Consulting Group, Inc. 2014. All rights reserved.

For information or permission to reprint, please contact BCG at: E-mail: [email protected] Fax: +1 617 850 3901, attention BCG/Permissions Mail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA

To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.

Follow bcg.perspectives on Facebook and .

7/14 How Companies in Emerging Markets Are Winning at Home 2014 BC G L ocal D ynamos

Abu Dhabi Chennai Johannesburg Shanghai Amsterdam Chicago Kiev Nagoya Singapore Athens Cologne Kuala Lumpur New Delhi Stockholm Atlanta Copenhagen Lisbon New Jersey Stuttgart Auckland Dallas New York Sydney Bangkok Detroit Oslo Taipei Barcelona Dubai Luanda Paris Tel Aviv Beijing Düsseldorf Madrid Perth Tokyo Berlin Frankfurt Melbourne Philadelphia Toronto Bogotá Geneva Mexico City Prague Vienna Boston Hamburg Miami Rio de Janeiro Warsaw Brussels Helsinki Milan Rome Washington Budapest Ho Chi Minh City Minneapolis San Francisco Zurich Buenos Aires Hong Kong Monterrey Santiago Calgary Houston Montréal São Paulo Canberra Istanbul Moscow Seattle Casablanca Jakarta Mumbai Seoul

bcg.com | bcgperspectives.com