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Making it in Emerging EconomiesInfosys Framework for Success in Emerging Economies

Despite the recent concerns about the slowdown of growth in key emerging economies, India in particular, we believe that the emerging economies story is very much intact. But it’s also a fact that between 2009 and 2011, many companies failed to meet their emerging market revenue targets. There are several - very good - reasons for this, such as low margins (albeit high volumes), resource constraints, skilled talent shortage, unpredictable policymaking and institutional voids. But every market participant encounters these obstacles.

So what separates the winners? Based on our research, we concluded that success is dependent on the extent to which players negate these challenges by transforming themselves into emerging-economy-centric organizations and embrace three key ideas, namely, Growth Momentum, Innovation and Smart Sourcing.

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Leveraging Growth Momentum Achieve Scale, Bridge Voids, Adapt to Market, Sustain Talent, Align with Government Goals

1Khanna T., Palepu K. (2010) Winning in Emerging Markets. Boston: Harvard Business Press

Growth Momentum Refers to the promise of almost unlimited growth offered by emerging economies with their large market size, high growth rates and currently low per capita incomes - which point to an opportunity for sustained significant growth. But it also refers to the existence of institutional voids, need to adapt to the market DNA, and addressing challenges related to the shortage of skilled talent, unpredictable role of government etc. Organizations need to understand and adapt the local landscape, address these challenges and voids; and offer products and services that are relevant to emerging economies.

Achieve scale : Although emerging economies have high GDPs, their income per capita is low. Organizations must mirror this Rich-Poor equation in their own business models, by aiming for huge sales volumes, at low unit price. Our own analysis indicates that businesses operating in emerging economies must make ‘scale’ their number one priority in the first 3 to 5 years, because it is easier to achieve profitability from scale than the other way round. An organization that is scaling up can also deliver other benefits with respect to building relationships with employees, customers and the government.

Bridge institutional voids : What makes the developed markets “developed” is their institutional framework of intermediaries1 that facilitates buyer-seller engagement. Examples include a functioning banking system, an education system producing quality graduates and working infrastructure. The absence or ineffectiveness of these intermediaries in emerging economies needs to be bridged or worked around. This creates both challenges and opportunities for innovation.

Adapt to market DNA : Many success stories from the developed world have failed in emerging economies by assuming that consumers would want the same things. Needs and consumption behavior can not only differ dramatically between emerging and developed markets; between different emerging economies; but also within the same emerging market (large diverse markets like India and China are prime examples). Businesses must adapt to the unique market DNA of different emerging economies, to ride their growth opportunities.

Sustain talent : Businesses can find it hard to fill positions, especially at middle and top management levels, in emerging economies. This seems like a contradiction, given the large populations of these countries. However, closer investigation reveals that a shortage of quality educational institutions and burgeoning demand for (the same) talent have combined to create a serious shortage of “industry ready” human resources. Organizations need to devise effective hiring, training and employee retention strategies to build and sustain their talent pipeline.

Align with government objectives : Government policy plays a significant role in shaping a nation’s business environment. Unfortunately, the governments of many emerging economies can act unpredictably. Our research suggests that aligning their strategies with the goals of the host market’s government, and trying to build a partnership with them can significantly help multinational organizations.

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Leveraging Innovation HubsRedesign, Think Big and Act Bold, Reduce Resource Intensity, Leverage Technology, Turn Voids into Opportunities

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Innovation Hubs

The traditional model of innovating in the developed economies and bringing it to emerging economies no longer works. Companies must innovate in the emerging economies to create products and services for the emerging economies. The consumers in these markets increasingly expect products are services that are world class, but offered with local features and at a local price point. This necessitates the development of innovation hubs that open innovation processes locally and to collaborate with the complementary ecosystem partners. Organizations are finding out that the emerging economies offer great value as innovation hubs not only for the local markets, but also for other markets, including developed ones.

Redesign to local aspirations : Since the needs of emerging economies are quite different from those of the developed world, it is intuitive that businesses design and build products specifically for them. Such innovations are best grown within local innovation hubs, and in partnership with the existing ecosystem. This ensures access to critical local knowledge (of tastes, cultures, habits and so on) and allows the organization to move fast or place big bets when the right opportunity comes along. Moreover, the market segments in the emerging economies are upwardly moving, driven by an element of ‘aspiration’ for a better life. This element of aspiration must be addressed when designing products and services for the emerging economies.

Low resource intensive approach : It is important to adopt a low resource intensive approach to innovation to create quality products and services that can be sold at affordable price points in these price sensitive markets. Low resource intensity does not mean ‘cheap’ – it means a product or a service that has every essential feature of world class quality offered at a locally affordable price point. This balancing requires innovation.

Leverage new technology : An important feature of technology is that it has very few dependencies on the previous generation of technology. This characteristic allows companies to bypass a previous generation entirely, and move directly to the state of the art. Emerging economies are increasingly doing this. For example, India has only 31 million+ land line connections compared to 920 million+ cell phone connections2. Organizations from developed countries, used to using legacy technologies due to their wide availability in their home markets, must adapt to this new reality and leverage new technologies in emerging economies.

Turn institutional voids into innovation opportunities : Many emerging market success stories have at their heart, a smart response to institutional voids. The introduction of the prepaid mobile subscription model in markets where consumer credit history is unavailable is a standout example. Organizations must proactively look for innovation opportunities in institutional voids and not to get bogged down by preconceived notions of what an organization can and should do in the market.

2TRAI Press Release on Telecom Subscription Data as on 30th April 2012 (http://www.trai.gov.in/WriteReadData/PressRealease/Document/PR-TSD-Apr12.pdf – Retrieved on 27th June 2012)

Big-bold-rapid innovation : Successful companies move fast when the right opportunity has been identified. Early movers have a distinct advantage of capturing the customer mindshare and having their brand name associated with that product or service. Marketers may also need to capture the imagination of “experience hungry” customers and create an exciting or novel experience. Speed is important since the novelty of the experience rapidly fades away when there are many similar products or services in the market. Participating in emerging markets over the long requires organizations to build the capability to achieve a big-bold-rapid innovation mindset.

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Leveraging Smart Sourcing Build Partner Ecosystem, Lighten Processes, Automate, Reverse Outsourcing, Enhance Image

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Build partner ecosystem : Resource constraints combined with the existence of institutional voids make an organization’s success depend on its ability to make the best use of what is available. Our research indicates that a key principle that organizations can adopt here is to shift the mindset from total resource ownership to creating an ecosystem of partners. This allows organizations to mitigate risks emerging from the failure of a single path caused by factors beyond the control of the organization. This approach also secures additional collateral advantages, such as local knowledge, distribution reach and co-creation opportunities.

Reverse outsourcing : One of the biggest advantages of a global footprint is that it enables businesses to leverage worldwide supplies to create an optimal supply chain. Over the last few decades, developed world organizations relocated manufacturing and supply bases to cheaper destinations, many of which were located in emerging economies. Now, for multinational corporations doing business in emerging economies, it is important to realize that the process of outsourcing does not always need to be from a developed market to an emerging market. The essence of the outsourcing approach is to source products and service where it makes business sense to do so. Organizations must treat emerging economies as hubs and look at viable outsourcing options, even from the developed economies. This is an important part of an organization’s transformation into an emerging economies centric organization.

Smart Sourcing

Emerging economies are characterized by resource constraints, downward pressures on price and infrastructural weaknesses. Taken together, these factors force organizations to become more efficient to achieve success. Companies need to make effective use of resources in agile and flexible ways to: design systems and processes, build and manage knowledge; and manage public perceptions.

Institutionalize knowledge : While organizations rely extensively on experienced professionals in developed markets, they cannot do the same in the emerging economies where specialized skills and in-depth understanding could be in short supply. Intelligent systems and institutionalization of knowledge could be effective approaches to work around the shortage of skilled human resources in critical functions.

Ensure positive public image : Sustainable practices assume greater importance in emerging economies where social development and industry compete for the same scarce natural resources. In this situation, an organization that appears exploiting, irresponsible or self-serving in its consumption of resources could face severe backlash from the Government and the community. Organizations need to be sensitive to these sentiments as well as watchful of impending developments that might jeopardize their operations. They can do so by identifying and proactively addressing the causes of negative publicity, and investing in initiatives, which benefit the community or give back to the environment. This will help them build their image as a caring and responsible corporate citizen.

Intelligent processes : The workforce in emerging economies, while abundant, often lacks the depth of experience. It is critical to compensate this with intelligent, agile and easily modified processes with simple activities that could be performed with relatively untrained employees. Nimble processes are important for other reasons as well, including an ability to respond quickly to market unpredictability.

© 2012 Infosys Limited, Bangalore, India. Infosys believes the information in this publication is accurate as of its publication date; suchinformation is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.

About Infosys

Many of the world's most successful organizations rely on Infosys to deliver measurable business value. Infosys provides business consulting, technology, engineering and outsourcing services to help clients in over 30 countries build tomorrow's enterprise.

For more information, contact askus@infosys.com www.infosys.com

Sushrut has around 16 years of experience in various areas of Information and Communications Technology – a large part of which was as a technology-strategy consultant for Fortune 100 companies. He has successfully helped clients plan and implement technology roadmaps and has lead the delivery of several large advanced technology solutions. As a member of Infosys Labs he was instrumental in establishing the Advanced Technology Centers (research collaboration) program through which Infosys clients can leverage the R&D activities at Infosys.

Sushrut leads the Emerging Economies Institute at Infosys, which focuses its research activities on the intersections of business, technology and local cultures to help Infosys customers make the key shifts necessary to succeed in emerging economies.

About The Author

Sushrut VaidyaPrincipal & (acting) Head, Emerging Economies Institute Center of Innovation for Tomorrow’s Enterprise, Infosys Ltd

Summary Despite a slowdown, the emerging economies remain measure growth engines for the world economy and represent areas of future growth for organizations. Businesses can reap the big rewards of emerging economies by transforming themselves into emerging economy centric organizations with the help of three vital levers: growth momentum, innovation hubs and smart sourcing by applying the fifteen underlying principles provided in this framework.