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 India, 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