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September - 2007 - issue > Cover Feature
New approaches in going after emerging markets
Sharad Sharma
Saturday, June 28, 2008
Can you ignore the ’emerging markets’ anymore? No. Not, if you have anything to do with Internet users. After all, it’s impossible to disregard the blistering Internet and mobile growth rates in these markets. Nor can you ignore the ‘emerging markets’ if you sell any kind of software solutions to SMBs. Certainly not at a time when the SaaS model is making a huge latent market accessible. In fact, there are very few product categories where you can afford to sit out and brood.

Many CEOs are in a dilemma. They know that faithful replicas of traditional products, their go-to-market strategies, and even the existing business models won’t work well in ‘emerging ’arkets.’ Yet, bringing the required changes in this sphere when the mainstream markets are growing well isn’t easy. The way out is in creating a ‘new’ hub inside the company that’s focused only on ‘emerging markets.’

Ironically, our connected world has made markets more diverse. Now no single hub, no matter how good, can develop products or businesses for the whole world. The new mantra is about in-market incubation of products and businesses. So, the old company architecture of a single-hub-with-multiple-spokes is giving way to a model based on a network-of-hubs. Only those MNCs that embrace this network-of-hubs paradigm can survive credible local competitors in every emerging market.

The R&D captives in India (and China) hold the key to successful company architecture transformation of the MNCs. So far these R&D captives have been extensions of the global hub. Many have built up world-class product development capabilities and significant scale. So they can provide the seeds for the new hub for the ‘emerging markets.’ Teams that move over from the R&D captives will quickly learn how to do product and business incubation for their local markets.

India is turning out to be a safe bet for building an ‘emerging market’ hub. Apart from R&D captives, it also offers a vibrant venture ecosystem that can supplement in-house incubation.

Another advantage of India, often overlooked, is to do with its Bottom-of-the-Pyramid (BoP) innovation ecosystem. India has done very well in applying Prof. C.K.Prahalad’s ideas to create breakthrough BoP solutions in healthcare (e.g. Narayana Hrudayalaya), agri-markets (e.g. eChoupal), and related areas. When the knowledge and expertise gained from these are combined with in-market incubation efforts, they sometimes yield dramatic results. For instance, the U.S. $20 cell phones that are on their way are powered by Texas Instruments’ new chipset LoCosto that was conceived and engineered in India. Nokia has struck gold with its inexpensive no-frills, made-for-India handset whose killer feature is a built-in flashlight. Intel has experimented with its Classmate solution to tackle the One-Laptop-per-Child opportunity.

We are at the start of a powerful new virtuous cycle. The first wave of ‘emerging market hubs’ is already in place in companies like Cisco and Yahoo. Soon, I expect, some local acquisitions will happen. These deals will further rev-up the venture ecosystem, prompting more seasoned executives to turn entrepreneurs. In parallel, intrapreneurship in R&D captives will also grow. All this will make the newly formed ‘emerging market hubs’ stronger. In time, they will become meaningful parts of the parent company.

It is fair to say that ‘emerging markets’ and the product or business hubs that support them are part of a big exogenous trend. As usual, companies that ride this trend will well break out of the pack. To do this they will have to move faster, change deeper, and experiment harder to get it right. I am sure that ten years from now we will look back and reminisce on how ‘emerging market hubs’ reordered the competitive landscape in our IT industry.

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