Mastering the Market Intelligence Challenge

Multinational corporations have invested huge sums in emerging markets — more than $3 trillion since 1998, by one estimate.1 Returns from these investments, however, have sometimes been disappointing. The Economist, for example, has reported that the return on emerging-market investments for the average multinational corporation has been “mediocre” and that some companies “have lost a ton of money.”2

Even when managers think they are performing well in emerging markets, they often are not because they have set low expectations.3 Executives at multinationals, for example, may be pleased with double-digit growth in revenues or being at their target profitability in emerging markets, yet their emerging-market operations may contribute only a tiny fraction of their overall business.4 With emerging-market companies rapidly gaining competitiveness, time for Western multinational companies to build market share in these countries is running out.5

A frequently mentioned reason for the underperformance of multinational corporations in emerging markets is that these markets are different, and that multinationals need to adapt their products and operations.

The following three observations are typical of a long line of research that makes this point.

“Many multinationals simply import their domestic models into emerging markets. They may tinker at the edges, lowering prices — perhaps by selling smaller sizes or by using lower-cost labor, materials, or other resources. Sometimes they even design and manufacture their products locally and hire local country managers. But their fundamental profit formulas and operating models remain unchanged, consigning these companies to selling largely in the highest income tiers, which in most emerging markets aren’t big enough to generate sufficient returns.”6

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“For developed-market companies, winning consumers in these new high-growth markets requires a radical change in mindset, capabilities, and allocation of resources. The value consciousness of emerging-market consumers, the diversity of their preferences, and their sheer numbers mean companies must rethink every aspect of operations, including product portfolios, research and development, marketing, supply-chain management, and talent development.”7

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“[In emerging markets, Western multinational companies] have tended to gear their products and pitches to small segments of relatively affluent buyers — those who, not surprisingly, most resemble the prototypical Western consumer. They have missed, as a result, the very real opportunity to reach much larger markets further down the socioeconomic pyramid.”8

We agree with these diagnoses, and the recommendation that Western companies need to adapt their products and operations is not new. What we believe is missing, however, is the recognition of an underlying dynamic; if not addressed, it will make the necessary adaptations difficult or impossible.9 This underlying dynamic is that Western multinationals often lack good market intelligence in emerging markets. Without good market intelligence, successful adaptation is not possible.10

Why Market Intelligence Is Critical

Market intelligence is a key ingredient for good decisions. Successful adaptation of products to emerging markets, for example, is predicated on knowing what the customer wants. Similarly, successful adaptation of operating and business models to profitably deliver the products requires an understanding of the suitability and economics of viable alternatives. Readily available information sources for gaining this market intelligence are often lacking and/or unreliable.

Certain characteristics of emerging markets and internal operating methods of multinationals compound the information problem. One such characteristic of emerging markets is the vast differences in all relevant aspects of business, including consumer behavior and market structure, across geographic and income segments within most emerging market countries. This difference is far greater than what multinationals are used to within advanced-economy countries. As a result of this internal heterogeneity, a global company may obtain market intelligence about one market segment before entering an emerging-market country — for example, upper-income segments in cities are a common choice as initial target markets — but this market intelligence is unlikely to be useful as the company tries to expand beyond this segment to the larger market.

Another characteristic of emerging-market countries is that they are heterogeneous as a group, more so than advanced-economy countries. Market intelligence methods and approaches from one emerging-market country, therefore, may not readily transfer to another as much as they would from one advanced economy to another.

A third characteristic that compounds the information problem is that emerging markets are changing rapidly — much more so than advanced-economy markets. Success amid this rapid change requires the necessary market intelligence to more frequently adapt product lines and operating models to changing consumer behavior and market conditions.

Multinational corporations tend to treat market intelligence for emerging markets as they do for advanced economies, and this is an internal impediment to obtaining and using good market intelligence. For example, multinationals’ spending on market intelligence for emerging markets is often determined as a percent of revenues in the market or on an ad hoc basis. (See “Spending Patterns for Market Intelligence.”) Multinational companies often either centralize responsibility for market intelligence at the corporate office or delegate responsibility for market intelligence to the emerging country operations. (See “Where the Responsibility for Market Intelligence Lies.”) What’s more, many companies gather and update market intelligence about emerging markets on an ad hoc rather than a regular basis. These observations, based on our practice and interviews, were corroborated vividly in our survey of 127 executives at multinational corporations, most with revenues of more than $1 billion. (See “About the Research.”)

While these practices may be adequate for market intelligence in other advanced economies, they are insufficient for emerging markets. It is therefore not surprising that just 26% of multinational executives that we surveyed said that the market intelligence their company has is fully or even largely adequate to make well-informed strategic decisions and adaptations necessary for sustained success in emerging markets. (See “Is the Market Intelligence Adequate?”) Only half of the executives reported that their companies always used updated market intelligence as an input to strategic decisions, and even fewer (about 29%) used updated market intelligence in reviewing the performance of their emerging-market operations and managers. As one would expect, however, our survey data shows that when multinational corporations have market intelligence that is more adequate and use the market intelligence more often for strategic decisions and performance reviews, their performance is better in terms of both sales growth and profitability.

Chewing gum giant Wm. Wrigley Jr. Co.’s successful entry and expansion in China illustrates the virtues of utilizing a company’s presence in the market to learn and gain a better understanding of the market and then using the updated market intelligence to drive its strategic actions in the market. Wrigley entered the Chinese market in the 1980s with a presence in large cities along the coast. The company used this presence to experiment with product and distribution strategies to understand what worked and then used this understanding to refine its products and operations. Once successful in the initial markets, Wrigley expanded to other cities, continuing its efforts to obtain market intelligence through experience, experimentation, and market research techniques such as focus groups. The company then used the updated market intelligence to adapt its products and operations.

Obtaining Good Market Intelligence

What can multinational corporations do to obtain the necessary market intelligence for success in emerging markets? We recommend three necessary practices.

1. Treat and manage market intelligence as a strategic asset. Treating and managing market intelligence as a strategic asset means that updated market intelligence is considered front and center when multinational corporations take strategic actions in emerging markets. It involves developing good market intelligence before entering emerging markets, investing continuously to update it, and always using updated intelligence to drive strategy.

Although multinational corporations recognize the need for market intelligence before entering new markets, what is often not fully appreciated by multinational corporations is that, because of the paucity of readily available information, market intelligence for emerging-market entry requires much greater on-the-ground effort than market intelligence for advanced-economy market entry. To address this problem, some observers suggest that multinational corporations may need to enter the market and experiment with their products and operating models to gain the necessary information. While such experimentation is indeed valuable, it does not negate the need for investing in developing good market intelligence before market entry through an initial assessment of available secondary data, followed by extensive primary research in the markets.

As an example, consider the approach taken by one of the world’s largest confectionery companies when it explored entering and expanding in the emerging markets of Africa. Rather than simply identifying investment opportunities across this large continent using secondary data and the recommendations of a few key opinion leaders, the company pursued a methodical approach of first prioritizing the 54 countries in the continent down to five and then diving deep into each of the five to develop insights, test hypotheses, and formulate individual country strategies. To narrow the initial set of countries, the company selected a set of variables for which a small amount of standardized secondary data was available.11 This included data related to the macro economy, business environment, and demographics of each country, which are available from the World Bank, the International Monetary Fund, and the United Nations Conference on Trade and Development, among other sources. For each primary variable, there was a subset of secondary variables. Under demographics, for example, the secondary variables included the size and growth of the population, percentage of people living above the poverty level, percentage of people between the ages of 15 and 34 (the company’s target population), and percentage of people living in urban areas.

The company then coded and weighted these variables according to its interests to highlight the top five prospects for deeper on-the-ground analysis. This ensured that the company focused its efforts on those countries that held greatest promise. At that point, the company dug deeper into more product-specific and market-related issues, which could only be gathered through extensive on-the-ground research — in this case, hundreds of in-person interviews over the course of a year with people in the trade, such as distributors, wholesalers, and retailers. Observations in the marketplace included shelf-space analysis and reviews of invoices and import-clearance documents. As a result, the company’s focus was not necessarily on the largest economies in Africa (such as Nigeria, which has the largest gross domestic product but also has a very high percentage of people living below the poverty line and has import restrictions for the company’s products), but on countries that were more conducive to the sale of its product category, positioning, and overall corporate objectives (such as Kenya and Côte d’Ivoire).

Once multinational corporations enter emerging markets, they should invest to continuously update market intelligence. Such efforts are necessary to recognize changing market conditions at the earliest opportunity. A multinational corporation’s in-country presence can facilitate a better understanding of the market, as the company interacts with customers, distributors, suppliers, and other stakeholders. The presence also enables the company to conduct mini-experiments to gain market intelligence.

Treating market intelligence as a strategic asset also means that strategic decisions in and about emerging markets are always based on updated market intelligence rather than on potentially dated market intelligence or assumptions about the market. (See “Is the Market Intelligence Up to Date?”) Based on new findings that consumers in the fast-growing Chinese middle class are concerned about health and wellness, for example, Wrigley began to emphasize the health attributes of its products — including dental care, stress relief, and enhanced concentration. Similarly, observing Chinese consumers’ attraction to traditional medicine and herbs, Wrigley developed and introduced new products incorporating Chinese traditional medicine and Chinese herbal flavors. Based on findings from its experiments and experience that allowing higher margins for distributors motivated them to carry and sell Wrigley’s products over those of competitors, Wrigley offered larger margins for distributors. The larger margins for distributors, coupled with promotional campaigns aimed at educating customers, helped the company expand its distribution. As a result of these efforts, Wrigley now has a presence in China that is rivaled by few, if any, with well over 2 million sales outlets and, in 2015, a market share of nearly 45%.12 As one author put it, “If ever there was an American company that has actually cashed in on the mythic slogan, ‘if every one of China’s billion people bought just one …,’ it is Wrigley’s.”13

Since emerging markets are only a part of most multinational corporations’ operations, significant strategic action in emerging markets requires the involvement of both corporate managers and emerging-market country managers. For market intelligence to become an integral part of strategic action in and about emerging markets, therefore, the market intelligence must be seen as legitimate and useful by both corporate managers and emerging-market country managers. This requires organizing for market intelligence differently than is typical in multinational corporations and using a wide range of methods and sources to obtain it.

2. Organize differently for market intelligence in emerging markets. Market intelligence in many multinational corporations is considered either a staff function that is typically centralized at the corporate office or the responsibility of the emerging-market country head or country operation. While each of these modes of organizing has certain advantages, both are inadequate for market intelligence to be seen as legitimate and used as the basis for strategy. When market intelligence is centralized in the corporate office, the resulting specialization enables the corporate departments to develop sophisticated tools, techniques, and processes for market intelligence, and to groom cadres of skilled personnel. Centralization of market intelligence at the corporate office, however, has the downside of introducing a potential disconnect between business leadership in country markets and in the corporate market-intelligence function.

This potential divide is more easily bridged when managing country operations in other advanced economies, since many of the sources, tools, and techniques developed in the corporate market intelligence function are applicable for these country markets as well. The same, however, is not the case when managing emerging-market operations. The consequence of not appreciating this disconnect is that many emerging-market managers find market intelligence from the corporate office inadequate to guide strategy.

On the other hand, making the country head responsible for market intelligence can facilitate obtaining and updating market intelligence on the ground, since the in-country managers can decide on and use the appropriate methods, sources, and techniques. Such decentralization has a drawback, however, because corporate managers involved in strategic decisions in and about emerging markets may not consider the market intelligence obtained using sources and methods unfamiliar to them as credible. In addition, corporate managers who are typically used to managing in more stable environments often do not find the large and rapid changes portrayed by updated market intelligence from emerging market operations sufficiently credible to act confidently and swiftly. As a result, the market intelligence available becomes less of an input to drive strategic action in and about emerging markets, with potentially serious performance consequences. Consider how rapid change in the Indian market in favor of mobile phones with dual SIM cards did not result in a timely response from Nokia Corp. headquarters — even though the change had been clearly recognized and communicated by Nokia’s Indian managers.14 Partly as a result of this delay, Nokia’s hard-won market share in India dropped precipitously in a few years from its high of about 70% to less than half of that in 2011, before Nokia finally introduced dual-SIM phones.15

To drive strategy and strategic change, market intelligence should be organized as a shared responsibility between the corporate office and emerging-market business executives, with shared decision rights and shared resources. The shared responsibility should reflect the recognition and acceptance on the part of both corporate managers and country managers that on-the-ground efforts and corporate efforts can and should be complementary. Corporate managers can see trends based on patterns observed from other emerging markets that may be relevant to the focal emerging market. On-the-ground market intelligence, on the other hand, can provide the level of detail and nuance not easily seen from the corporate office. The shared responsibility will ensure that both corporate managers and the emerging-market heads are involved in decisions about market intelligence and take ownership for it. That, in turn, will ensure its legitimacy and validate it as a driver of strategy and strategic change.

Unilever provides an example of how shared responsibility can lead not just to better market intelligence, but also to market intelligence that is more likely to be a driving force for strategy. In order to leverage its insights across different emerging markets or even geographic regions within the same emerging market, Unilever may assemble an interdisciplinary task force to drive insights and enact findings. For example, when trying to develop a business model for serving low-income consumers in emerging markets, Unilever developed a task force comprised of people from packaging, product development, marketing, and operations in countries as diverse as Nigeria, India, and China to share learning, craft a new business model, and customize findings for each country. As a result, the company was able to very quickly identify the greatest common challenge to executing a profitable model for serving those consumers — reducing the cost of the last mile of distribution — and focus efforts on innovative means for aggregating demand at the point of purchase. Unilever was also able to identify opportunities to add value to the products in question in ways that didn’t increase the price and that uniquely addressed the needs of low-income consumers in emerging markets, such as offering household cleaners that require less water to use and packaging for dishwashing detergent that could double as an abrasive for cleaning. Such insights would not have been possible without a cross-functional and cross-country team.

3. Use a wide range of sources and methods to obtain market intelligence. Because of the paucity and unreliability of information sources, multinationals need to use a wide range of sources and methods to obtain market intelligence in emerging markets. In-country partners (such as suppliers and distributors), market-facing staff, business press, social media, internal and external market research, and the company’s own experience and experiments in the market are some of the particularly useful sources of information for market intelligence. Quantitative methods such as statistical tools, data mining, and simulations can help gain insight from numerical data (a multinational corporation’s own sales data, for example), while the qualitative method of creating and discussing alternative scenarios is particularly helpful in understanding all available information.

Methods involving multiple primary sources and synthesizing the information thus obtained are often necessary. Take the case of market sizing, an important area of market intelligence either before entry into a new emerging country market or before expansion into a new product category or new geography within an existing market. In emerging markets, numbers for market sizing are very often unreliable or inconsistent, if they even exist. To build an accurate estimate of the market size for any given product, multiple methods have to be used and then triangulated and tested to ensure they are reasonable. For example, in our work, we often start by triangulating demand- and supply-side estimates, and for each, we attempt two methods. For the demand side, we might calculate demand both from the perspective of consumers and intermediaries, such as retailers. For the supply side, we might look at in-country sales of all the players and triangulate this with import/export and production figures. No single method is likely to give us an accurate and complete picture. Only when comparing such figures can we uncover the nuances of the market and verify the size. Further, no single source is typically able to provide all the information we need for one method. For example, for demand-side intermediary estimates, we might need to speak to a representative sample of retailers regarding their monthly sales of a given product, as well as to distributors regarding their average drop sizes to these retailer types, and to salespeople regarding typical account invoices or sales.

Similarly, when identifying potential partners in emerging markets, lists or databases of companies that one might have access to in an advanced economy often don’t exist or are at best incomplete. For example, in the case of distributors, names of potential partners often have to be gathered by going to the point of sale and checking product labels to see who has distributed them, reviewing customs data to identify importers and distributors, and broadening one’s perspective and considering other manufacturers who supply to the same point of sale or even competitors as possible contenders.

When it comes to negotiations with such partners, it may be difficult to uncover and understand the economics of their businesses to identify where and on what terms one is most likely able to gain concessions. For instance, in the case of contract manufacturers, one may be able to gather some data from the manufacturers themselves via a set of preliminary discussions, but this will need to be triangulated with audited financials or other contract manufacturers. If access to such additional points of data is not available, other methods might be necessary, such as in the case of India, where we have sometimes had to travel by bus to the local tax authority and seek permission to review companies’ financial statements and tax filings and copy them by hand in a notebook to validate the information.

Some market intelligence is hard to glean from interviews or secondary sources and is best obtained through observation or experiments in the market. For example, customers in emerging markets may use products and services differently, and such differences are best understood through observation. The Procter & Gamble Co., for example, uses a simulated hutong (a Chinese home) within its research premises in China to observe how P&G products are used and to gain intelligence on modifications that may be necessary.16 L’Oreal hosts a social media platform in China to aggregate customer reviews and discussions of the company’s products.17 Such reviews and discussions provide a window to observe how the company’s products are viewed and used by customers. Millions of customers in many emerging markets live in areas served only by traditional retailers that carry a limited spread of goods. These customers represent a large potential market for e-commerce companies. Market intelligence to devise effective strategies to reach these customers, many of whom do not have a smartphone or have never logged on to a computer, is difficult, if not impossible, to obtain through interviews and secondary data. Amazon.com Inc. has sought to obtain this market intelligence in India by engaging store owners. A storekeeper can guide customers through Amazon’s website on a laptop computer, take down their orders in a ledger, collect cash from the customers once Amazon delivers the product, and pass on the payment to Amazon, less the store owner’s fee. Such experiments provide insight into these hard-to-reach customers and about the best methods for reaching them.18

Multiple sources and methods are also required to detect changes in emerging markets. Panel data that would enable tracking changes in the market are typically lacking or are incomplete and unreliable. Multinationals, therefore, may resort to regular contacts and conversations with distributors, retailers, suppliers, and other stakeholders to obtain market intelligence to detect changes in the market. While such primary sources are indeed valuable, based on our experience, we find three critical problems that often render such market intelligence ineffective. First, since multinationals often gather such market intelligence using routine contacts with stakeholders by their staff from various divisions and departments, the market intelligence thus obtained remains within the respective divisions and departments. Second, the market intelligence can be incomplete and biased since the information is obtained piecemeal and often reflects the perspective of the external source. Third, the market intelligence often does not draw systematic attention from managers and therefore does not lead to a timely response.

Companies need to address each of these issues. Country and corporate managers must treat the collection of market intelligence to detect changes in the market as strategically important and set aside time each month for a formal review of the information collected. Such reviews should pool the information collected by all divisions and departments, ensuring that the organization can gain as complete a picture of the changes as the collected information will allow. The review sessions should also be used to compare information collected from external contacts with other data that the company may have, to check for potential bias. Mining the company’s own sales data for trends, for example, may confirm or contradict information obtained from external contacts. In addition, investing to create a panel of experts who can be interviewed each month on changes in the market can serve as an alternate source of information for cross-checking the market intelligence obtained by the company’s staff during their contacts with market participants. The objective of the reviews is to flag changes in the market so the multinational corporations can respond with strategic decisions in a timely manner. Scenario development, a tool typically used to study the future, can be particularly helpful in this regard, since it promotes shared cognition and, as a result, a more timely response to market intelligence.19

When corporate and country managers work together to develop and discus alternative future scenarios for the emerging market, such work can create a shared understanding of the country market among the two sets of managers. Market intelligence gleaned from the reviews can then be interpreted in the context of this shared understanding. The market intelligence, for example, may signal which of the alternative scenarios, if any, is unfolding and thereby promote a timely response.

A shortage of reliable and readily available information is common in emerging markets. As noted earlier, however, emerging markets are heterogeneous. The sources and methods for market intelligence therefore require some modification before they can be transferred from one emerging market to another. For example, while primary sources and methods are important across all emerging markets, gaining access to primary sources — such as interviewing distributors and suppliers — requires different approaches in different markets. In some markets, a formal written request on company letterhead is necessary; in others, gaining such access may require an honorarium to compensate the interviewee for the time spent or a willingness to wait for an hour or more after the scheduled interview time. For market intelligence on competitors, distributors in some emerging markets are willing to share information, including invoices from competitors. Distributors in certain other countries, however, are reluctant and need to be convinced that they can share only what they are comfortable sharing.

In emerging markets where traditional trade is dominant and urbanization is low, aggregating sales data is vastly more difficult and time-consuming than where urbanization and penetration of modern retailers is high. With the necessary modifications, however, multinational corporations should be able to leverage market intelligence practices across emerging markets.20 (See “A Checklist for Obtaining Good Market Intelligence.”) Organizing market intelligence as a shared responsibility between corporate and country managers — and using a wide range of sources and methods — will enable multinational corporations to obtain and use the market intelligence necessary to succeed.