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A typical view of income distribution in emerging economies is of countries composed of two types of consumers, a tiny wealthy elite and a massive poor class. This was typified in the metaphor of “Belindia,” which although used to describe Brazil as consisting of two countries, a wealthy one such as Belgium and a very poor one such as India in the 1970s, it is still being applied to other emerging countries. One outcome of this polar wealth distribution was managers of advanced economy multinationals directing their firms toward serving the wealthy classes with the same products they sold to consumers in their home countries. The introduction of the concept of the base of the pyramid changed this attitude. Even though the large segment of the population at the base of the income pyramid could not afford the products offered by foreign multinationals, they were nevertheless a potentially profitable market if only multinationals would locally adapt and innovate their products to make them very inexpensive. The result was a reinforcement of the bimodal segmentation of consumers in emerging markets: a small wealthy segment that are global consumers, and a large poor segment that are local consumers.
The middle of the pyramid, i.e., the middle-income classes, in emerging countries are increasingly becoming a large consumer market but one that is little understood. This increasingly growing middle-of-the-pyramid group is the result of the recent economic progress of many emerging economies. Individuals who until recently were very poor, and commonly ignored as consumers by most companies, are no longer so. They have become entrepreneurs or are employed in jobs that provide them with higher and more stable income. As a result, their consumption patterns have shifted, becoming an attractive but underserved and in most cases misunderstood market.
The transformation of emerging markets in recent decades has generated a new, growing, and very large middle class market, also known as the middle of the pyramid. This market segment, which is middle by the standards of emerging markets yet low by the standards of advanced economies, is extremely attractive for firms, but still understood and underserved. This volume presents detailed analyses of exemplary firms that have innovated products, services, and business models to fulfil the needs and desires of these new middle classes. It provides useful insights for managers, consultants, researchers, and students interested in emerging economies, and actionable lessons on how to innovate for a new and expanding market segment.
In this chapter, we integrated data obtained from the interviews conducted with business leaders from seventy-two companies across twelve emerging markets in five continents to better understand which capabilities leaders of emerging market multinationals identify as being strategic. In doing so, we examined which capabilities appear to be commonly assessed as being strategic across our study contexts, and which ones varied by industry, company multinationality, and country of origin. In particular, we examined emerging market companies headquartered in Eastern Europe (Russia and Poland), Asia (China, India, and Kazakhstan), Latin America (Argentina, Brazil, Chile, Colombia, Mexico, and Peru) and Africa (South Africa). Looking across the various capabilities identified by the senior managers in our study, our results suggest that the strategic capabilities needed by emerging market firms to be successful outside their home markets occur at multiple levels, including management level, firm level, industry level, and national level. These capabilities influence both a firm’s ability to internationalize and its ability to be successful, abilities that often have reinforcing influences on each other.
This chapter introduces the background and key research question of the project for this book, which is an output of a multi-country study on a highly important subject in emerging markets: what types of capabilities do emerging market firms need, and how do they acquire and upgrade these capabilities in order to achieve competitiveness in the global market? The chapter highlights two unique aspects of emerging markets: weak institutions and lack of endowment. The main theme of the book thus becomes how emerging market companies develop competitive capabilities to international levels facing these two critical constraints. The chapter also discusses the organization of the book, which comprises twelve different country studies, and presents the methodology used to select and evaluate the firms studied.
We analyze how firms from emerging markets upgrade their capabilities to improve their international competitiveness. We argue that firms use a combination methods, the four-I mechanisms, to upgrade their capabilities – imitation, integration, incorporation, and internal development – and that the underdevelopment of emerging markets affects this catching-up process. We propose that initially, as laggards in global competition, firms are more inclined to imitate products and services from more sophisticated firms, leveraging the relatively weak intellectual property protection of their home countries and aiming to serve low-income consumers. As they catch up, firms are more likely to integrate best practices through alliances to obtain technologies, or to learn by serving as suppliers of more sophisticated firms. Firms then incorporate best practices by acquiring technologies or firms that own sophisticated knowledge. Finally, as they catch up to leaders, firms focus more on internal development of capabilities. We highlight how the four-I mechanisms evolve with the development stages of firms and emerging economies.