Global companies increasingly view emerging markets not only as a source of supply but also as a source of sales. Clive Geldard, group vice president for retail and supply chain at Solving Efeso, discusses supply chain challenges that these markets present and steps companies can take to improve performance.
Generalizations are not useful when talking about emerging markets, says Geldard. “Emerging markets is used as a general term, but there are many different types of markets out there,” he says. “When it comes to operating in these countries, it is very important to understand the specifics of the market you are talking about.”
Additionally, emerging markets are very fragmented in terms of their trade structures, he says. India, as an example, has some 13million retail points of sale, compared with fewer than one million in the U.S. Additionally, Geldard says, companies looking to sell in emerging markets, especially those with global brands, need to recognize that they may need to modify their products to fit the market. “The mass of people in many developing countries survive on less than $5 a day, which means that companies may have to re-engineer their products to make them affordable,” he says. Products also may need to be changed to appeal to local tastes. “Sometimes the temptation is to take to market products that are designed for Western or North American tastes without really understanding the local culture and local preferences regarding taste and such things as how people cook,” he says.
Product availability is another issue to consider. “In emerging markets, having products available in the cities is not enough,” says Geldard. “The rural areas and secondary towns are very significant markets, but often are difficult to reach.”
Service expectations are not lower, however, Geldard says. “Consumer expectations obviously do vary, but business metrics for supply chain performance in developing markets are equally as stringent as they are in mature markets.”
“In many of the developing markets, it really is tough to earn your dollar,” Geldard says. “For example, Brazil is a tremendous market opportunity, but a lot of companies have struggled with margin and profit contribution in Brazil because of the very high cost to serve.”
The real quandary for companies expanding into emerging markets is how to “future proof” their supply chains, says Geldard. “How do you design a supply chain that works today and that will be able cope with a scale-up of demand?” Geldard recommends a step-by-step approach to capability development, while keeping as much flexibility as possible. “Keep your options open with your infrastructure, networks and supply chain so you can adapt to changing conditions.”