Competition from local players is one of the biggest challenges for many multinationals in Asian emerging markets, especially in China. Over the last few months, Frontier Strategy Group conducted primary research with over thirty leading multinationals in Asia to gather the most innovative best practices to play against local competitors. While we found a number of common (and quite renowned) themes (e.g. R&D localization, Asia-for-Asia products, supply chain optimization), here are 3 winning strategies which separate leaders from laggards.
1. Invest on value-driving differentiators
Most multinationals operating in emerging markets have clear differentiators vs. their local competitors, brand equity being a common example. However, it is important to make a clear distinction between hygiene factors and real value-driving differentiators.
One common example of the former is sustainability (and its variations, such as CSR or environmental friendliness). As the President Asia Pacific of a global chemicals conglomerate puts it: “Sustainability is a key priority for us, but it doesn’t really give us any advantage in the marketplace. As a multinational, of course you have to be sustainable: it is your license to play in countries like China. But we haven’t been able to realize a premium from sustainable products”. Sustainability is becoming a hygiene factors in Asia; if you are betting on sustainability to gain market share from your competitors (local or multinational), you might be soon disappointed.
The good news is: value-driving differentiators might be right up your alley. Here is an example from a recent discussion with the Global BU head of a multinational in the chemicals space: “We resolved that Speed and Flexibility was going to be our motto. It dominates our internal culture and the way we do everything here. […] That is why our clients work with us: they want certain volumes, and they want it quickly. They might not pay a huge premium, but they give their business to us and not to anybody else.”
Especially in commoditized industries, a reputation for quality and consistency can work as a differentiator. Here is an extreme example; speaks a Board Member of a leading EU-based shipping company: “Fuel trading is a big business for us in Asia. Shipping companies simply pay a price per ton, and that’s the market-clearing price, with very small plus and minuses. So many companies dilute the fuel to make more money [..] but that spoils the engine of their clients’ ships in the long run. We win clients because we don’t do that, and they know it.”
In heavy industries, MNCs often manage to differentiate their solutions thanks to a lower TCO (Total Cost of Operation), longer lifecycle, or higher reliability. Speaks the President Asia Pacific of a leading supplier of gas-powered technology: “Our solutions are more CAPEX intensive, but much less OPEX intensive. Plus they are more reliable and last longer. No doubt our solutions are superior to those of local competitors, our main challenge is to educate our customers on that.”
And that leads us to the next point… Come back tomorrow for Part II.