In 2030, about 80% of the global middle class will live outside the developed world.
This is a huge number, lots of people eager to get their hands in new products and services worthy of a middle class; there no wonder that McKinsey has put a prize value of this market at $30 billon in their article “Winning the $30 billion Decathlon”.
Think about this like you are the CEO of a multinational, are you drooling yet?
If not well you should be, because according to the article mentioned above by 2025 the consuming class will go to 4.2 billion and developing economies represent 33% of the global GDP right now, and we are talking economies that are growing at a double digit pace over the next years (2013-2017).
This all seems too good to be true, well it’s because it kind of is. Unfortunately these markets have a catch waiting for the big companies wanting a piece of their pie, they normally have a very controlling government, lack of infrastructure, social conflicts, instability, or a mix of those and more issues. So for companies to just come in to this markets tends to be quite hard, or have you seen any Wal-Mart in India? In addition they face fierce competition from local incumbents are not that good at sharing, especially when it comes to markets and revenues.
So what could companies do to find the best way to enter these markets? My answer to this is: why not a bit of field research but carried by third party, outsource the research if you like, to someone that is willing to go down the trenches of emerging markets to find business models that work: the social entrepreneurs.
I have this thought while working on a fellowship in Peru this year. I was working at a portfolio company of a Venture Philanthropy company that had a business model aimed to offer low-cost-quality healthcare to the BoP market in Peru. This was in the outskirts of Lima, where most people auto-medicates and do not go to the doctor until the condition goes to severe. So this company actually did through its model two jobs, gave access to healthcare services and educations to a large number of the population that otherwise would not even go to the doctor.
So a big pharmaceutical company caught up on this model and approached us to form an alliance to come up with a strategy to get people the education and treatment for serious chronic diseases, that would normally go undiagnosed until it is very late; our first condition was osteoporosis.
We came up with several ways to educate people about the disease, give them medical test to detect any sings of it, give out tips to prevent it and, of course, we will make available a medication (by said pharmaceutical company) available in a package that included the yearly application at a much lower cost, yet profitable and convenient, for everyone involved and most importantly the patients.
This little venture gave the opportunity for the pharmaceutical company to establish with us a little commercial research lab to test the best way to make their products available. We would work together to design, pilot and scale the best strategies to get their products out to a market that it was new and difficult to get into.
Think about it, why not more companies use the unique opportunities that are social entrepreneurs in emerging markets as research labs: they can provide very valuable insight about the behavior of the clients, because of the dynamic and flexible nature of a start-up they can react faster to new conditions than a big corporation, and this type of ventures serve the image of the big corporations. So why not create this “socent-labs” and create a win-win situation for companies, social entrepreneurs and society.
This is the lesson that 2013 brought me, I have to admit that it didn’t teach me said lesson, but it surely brought a big reminder.
Sometimes plans don’t go as (ironically) planned, and you would think that for someone that has been working in a developing economy and/or in the social entrepreneurship sector this lesson should be more than evident, yet when conditions change abruptly you sometimes always end up thinking: “well, now what?”
So now it’s time to regroup and take a moment to reflect on how much impact I’ve achieved, even though it was only a year, trust me this fellowship experience has magnified every lesson that I could’ve learned over one year:
Roll with the punches, as the title of this post suggests, is the main lesson that 2013 brought in the form of some emails and a couple of phone calls. I had a plan and suddenly that plan was gone. But we should always be prepared for this, be flexible, plans change and we need to either prevent, react and adapt. Change is embeded in nature, as stated by Darwin and his work about natural selection: “adapt or perish”.
Keep yourself in check: Now I am reflecting on my goals for the future, the steps I have to take to get there and the ones that I have already taken. Always keep yourself in check, take measures on your progress to know if you have made some. Think of yourself as a production line, you need to keep checking points of all your processes (personal, health, career) to really know if you’re doing things that will get you to your goal or you need to make some adjustments. It is hard to keep yourself in check, but it is a matter of practice, practice, practice.
Now it’s time for me to reevaluate my goals, one thing is for sure this experience has helped me make my conviction to stay in social impact sector much stronger. So will keep you updated with my next adventures.
In the mean time Harvard Business Review and the Bridgespan Group have launched a new blog post’s section called Scaling Social Impact, with great insights on impact investment and entrepreneurship; go check it out.
By 2025, annual consumption in emerging markets will reach $30 trillion—the biggest growth opportunity in the history of capitalism, says a study by consulting firm McKinsey & Co in its report “Winning the 30 Trillion Decathlon”. It goes and says that like an athlete has to master 10 events the firm argues that companies willing to make a buck out this opportunity in emerging markets need to master 10 capabilities.
1. Surgically target urban growth clusters.
2. Anticipate moments of explosive growth.
3. Devise segmentation strategies.
4. Radically redeploy resources for the long term.
5. Innovate to deliver value across the price spectrum.
6. Build brands that resonate and inspire trust.
7. Control the route to market.
8. Organize today for the markets of tomorrow.
9. Turbo-charge the drive for emerging market talent.
10. Lock in the support of key stakeholders.
Emerging markets are a tough nut to crack, since not only products need to be adapted to the particulars of each, but also business models. I should know, with almost 1 year now working in Peru’s retail pharma sector, I agree with the statement that competing in emerging markets is like a competing in decathlon:
a) It requires a lot of smart training.
b) Most probably you won’t win your first competitions.
c) You need to keep at it to be good at it.
d) And even though there is a lot past experience from other athletes in other stadiums the reality is that said experience most likely will not apply to your particular case; and even it does it will require several iterations before you get it to work as you need it (notice I mentioned as needed, not as wanted).
If you think about it this is no easy task, and one cannot wake up one day and just say I’m going to set shop in China, Peru, Brazil or any other emerging economy because is hot right now. You need first to understand the market you are aiming to conquer (customers, government politics, etc.), all of that goes embedded on the 10 capabilities mention in McKinsey’s report. It is a simple advise and everybody says it - “know your clients” - but more times that we care to admit we tend forget it, especially when we are time-pressed to be the first one on the market.
Trust me if my experience serves as a lesson, being the first in an emerging market is not the best thing, not the worst either; what makes the differences is how well you can fill the needs of your costumers and make them aware of other needs that you can solve in their lives, that is where the money is in, well, pretty much every market; just ask Apple and the millions of fans that often say “can’t live without the new iPhone”.
In short lesson if you make a decision to enter emerging markets, make it a very conscious one and know that you are in for the long and arduous haul. Also bear in mind that if you succeed you will have access to a 30 trillion pot, which is not bad at all.
Picture of the Commercial Port of El Callao in Peru.
Let me present to you to Capón Center a big center of commercial activity located in the middle of Lima’s Chinatown. Here you can find everything from good plate of chaufa (chinese rice) to a brand-new-top-of-the-line Dj’s sound equipment.
The reason I know Capón Center is because is the go-to place to buy/sell meds at a bargain, here all the big pharmaceuticals and meds’ distributors go and sell their products to the little pharmacies in Lima and the others states. All transactions are cash, and trust me there are a lot of of them going around, yet there is quite a level of sophistication of the vendors/buyers where pretty much all of them use some kind of software to manage their inventory. It is incredible how this little-yet-huge economy works.
At some point I had to get rid of some excess inventory here and my journey was nothing short of weird and filled with adrenaline. Long story short: I had to take a box full of meds from my work all the way to this point, get paid in cash, check the bills were not fake (which I don’t even know how to do it, so I faked it) and then walk outside carrying a pretty good amount of soles to the next Metropolitano stop so I could deposit the money the next day.
I mean forget skydiving or bungee jumping, you want adrenaline, well this is the real deal my friend. It has been one of the most awkward and sketchiest experiences here in Peru, but nevertheless I think it gives me a little bit of street cred, at lest in the eyes of my co-workers so I’ll take that for now. But trust me I won’t be doing that again anytime soon, so it will stay as part of my experience so far here in Peru.1 note