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international perspectives By Michael Diliberto

On Emerging Markets: We Have Only Just Begun

had the opportunity recently to chat with a fellow manufacturer about their plans to expand into the Chinese market. One of their primary concerns was that the market in China seems to be showing signs of cooling, and that it was now too late to realize the opportunities within this huge and growing consumer market. With overall wages in China climbing and Chinese consumers becoming reluctant to spend as much disposable income as they have in the past, it is an understandable concern. While no one can predict the future, I believe that these concerns should not necessarily prevent Western firms from entering this or other emerging markets. Despite the rising cacophony of economists speaking about the slowing of the Chinese economy, I firmly believe that current and former emerging markets offer our firms, and the brands and retailers that we support, one of the best opportunities for growth. That is not to say that the Chinese market is not coolingthe numbers certainly seem to say that it is. Rather, we have to look at this cooling off as the inevitable maturation of emerging markets into stable markets that display an increasing level of Western market demands and sophistication. It is the increasingly sophisticated demands of these markets that offer us the best opportunities to sell to a new base of consumers. EMERGING MARKET MOMENTUM Emerging markets inevitably mature, and in the process of this maturation the sales environment naturally becomes more competitive. It is during this period of maturation that more and more Western companies should be making their move into these markets. Western firms hold

the distinct advantage of already measuring their success within competitive markets. The same is not true of many domestic emerging market firms that had their start in a market with high demand and little or no competition. In the hypergrowth phase that we saw in the past decade in China, firms were rewarded for being the first to enter, but they did not experience the pressure to become more efficient or accountable to industry standard performance metrics. Now that the market is cooling a bit, these first movers are feeling the pain of their inefficiency as their high overheads reduce margins. The focus Western firms have on efficiency and performance indicators has the potential to be a significant competitive advantage. Were I to start a new retail fixture business today in the U.S. or Europe, I would be forced to start off immediately with an extremely high level of quality and pricing competitiveness. Emerging markets, on the other hand, offer a lot of momentum and pent-up demand. They have eager consumers with moneyand a market that is underserving those consumers.

As a result, the first movers in these countries are almost always rewarded with success. But translating those early wins into longterm success requires capabilities that many domestic emerging market firms do not possess. As consumers start demanding a new mix of price competitiveness and higher quality goods, firms that have already been successful within existing competitive markets are uniquely positioned to enter and compete for business within these newly competitive markets. Although it is true that the economy in China is slowing, at the same time consumers in China and other emerging markets are starting to demand a higher quality of product than is currently available in these markets. These higher quality products come along with commensurate shopping and customer service experiences. Retail stores that have been successful over the past decade in China provided little in the way of customer experience. For example, it is not unusual to find malls and department stores in second- and third-tier cities that still do not turn on their heating systems in the winter. Yet, little by little, consumer expectations are changing. The differentiated consumer experiences of Western retailers are starting to make their way into these emerging markets, and consumers, as always and everywhere, are voting with their wallets. TRANSLATE YOUR SUCCESS That is not to say that the exact same competitive strategies that drove success in your home market will translate into direct success in emerging markets; in fact, one does not need to look very far to find examples of multinational firms that entered
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China with lofty goals only to retreat a few years later, beaten back by a market with a rapid increase in Western desires but decidedly different expectations in countless other business aspects. It is the brands, retailers, and support firms that are most nimble and adaptable that tend to find success in new markets. Adapting to the demands of a marketplace is hard, but for most firms, adaptability is exactly how they initially found success in their home markets. I have met very few business owners who found instant success on day one. Success requires adaptability in order to determine and meet the desires of the market, yet so many firms forget these early lessons upon entering new markets. Just because the markets are ready for your products does not mean that they will respond well to your sales, marketing, or customer support practices. The demand for quality and selection extends not only to consumer goods but also to demands for a higher quality sales

environment. As the selection of goods in stores increases, so does the need for differentiated in-store experiences. Shopping in China, outside of most big cities, demonstrates a retail environment that is far from the level of sophistication or differentiation seen in many Western countries. As consumer product selection increases in response to customer demands, many firms will be looking for merchandising methods that help their products stand out in an increasingly crowded and competitive marketplace. As experienced leaders in visual merchandising, Western-based retail fixture and retail design firms will be well positioned to use their expertise to help Western and emerging market firms alike in their drive to sell more product in these emerging markets. In some cases it is at the request of their customers that retail fixture firms make their first forays abroad. As more and more Western consumer brands and retailers move into these emerging markets, Western retail mer-

chandising and store fixture firms have the additional advantage of being able to service their customers in multiple markets, definitely a key differentiator. Being able to offer service worldwide is often a welcome stress relief to brands and stores that have plenty of other challenges to deal with during their international expansion. I believe that, far from being over, the successes available to multinational firms in emerging markets are just beginning to fully develop. As key partners to retailers and brands around the world, retail fixture vendors will play a key role in supporting the ever-increasing global reach of the worlds top retailers and brands.

Mike Diliberto is general manager, China, for Bloomington, Minn.-based Lynx Innovation Inc. Contact him at miked@ lynxinnovation.com.

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