Description
Abstract about why strategy matters in emerging markets after all.
2/11/2014 Why Strategy Matters In Emerging Markets After All - Forbes
http://www.forbes.com/sites/boozandcompany/2014/02/05/why-strategy-matters-in-emerging-markets-after-all/print/ 1/3
BUSI NESS | 2/05/2014 @ 11:41AM | 540 views
Why Strategy Matters In
Emerging Markets After All
Booz and Company, Contributor
From strategy+business
By John Jullens
Over the last few years, the conventional wisdom has coalesced around a view
that success in emerging markets is primarily a function of outstanding
execution—speed, opportunism, tenacity, and guile—instead of a well-
thought-out strategy supported by a set of winning and difficult-to-replicate
organizational capabilities. In other words, street smarts are supposed to beat
MBA smarts every time.
Even leading academics favor this perspective, ironically celebrating the
success of emerging market entrepreneurs at the expense of their own
students. For example, in Emerging Markets Rule, Mauro Guillen (Wharton)
and Esteban Garcia-Canal (University of Oviedo in Spain) describe emerging
market companies almost as latter-day Zorros, which cleverly outmaneuver
their dim-witted multinational counterparts at every turn, while “expanding
with abandon” and “surmounting challenges that their developed-market
competitors have avoided or given up on.” Their knack for “execution as
strategy” may, according to Guillen and Garcia-Canal, “give emerging market
companies an edge as they increasingly compete head-to-head with
multinationals from the developed world.”
While the romantic notion of emerging market underdogs beating villainous
multinationals clearly appeals to many readers (and publishers), is it actually
true? Did emerging market giants, such as Bimbo and Haier, succeed largely
due to their executional abilities and without the benefits of a solid strategy
and differentiated capabilities? The answer, I’m afraid, is no. In fact, the
conventional wisdom does great harm to aspiring emerging market companies
by persuading them that relying on execution alone is enough to succeed.
The reason is that emerging market companies embody an important
contradiction. They’re not only early movers in nascent domestic sectors, but
they’re also typically latecomers to globally mature industries that are
dominated by world-class competitors that have been honing their capabilities
for decades. To succeed not just in global markets but even at home,
emerging market companies must combine their traditional advantages—the
vision, risk tolerance, flexibility, and speed needed to capture early-mover
gains—with a relentless focus on developing the capabilities required to catch
up with world-class competitors elsewhere. In other words, emerging market
companies must master a new form of strategic and organizational
ambidexterity that goes far beyond execution alone.
Booz and Company
WE ARE A LEADING GLOBAL MANA GEMEN T CON SULTING FIRM.
2/11/2014 Why Strategy Matters In Emerging Markets After All - Forbes
http://www.forbes.com/sites/boozandcompany/2014/02/05/why-strategy-matters-in-emerging-markets-after-all/print/ 2/3
It’s easy to see why this is often misunderstood, as emerging markets are
invariably still in flux, with numerous institutional voids: imperfect and
frequently changing regulations, the absence of nationwide distribution
channels, poor logistics networks, limited financing options, and even the
lack of basic market data. Not surprisingly, local firms are far better at
overcoming such voids than multinationals, not because they’ve somehow
developed a superior operating model but simply because they’re often still
run by their founder?¬¬entrepreneurs: well-connected industry veterans
who are adept at finding practical work-around solutions and still make most
important decisions by themselves. In contrast, multinationals lack the local
market understanding and personal relationships with government officials
and other stakeholders, and are often hindered by their own time-consuming
global decision-making processes.
However, while often quite successful early on, emerging market companies
that focus primarily on top-line growth tend to become less coherent over
time. One-time fixes pile up to create a hodgepodge of ill-fitting processes and
ad hoc solutions. Without a solid foundation, companies begin to experience
operational problems, such as poor quality, customer defections, low
employee morale, and poor inventory management.
At the same time, double-digit growth is eventually replaced by head-to-head
competition from local rivals and increasingly competent multinationals,
while many institutional voids disappear, as the country migrates from an
emerging to a developed economy. On top of those issues, as the organization
grows larger and more complex, many founder?entrepreneurs lose
managerial control, especially when the organization branches out into
unfamiliar products and markets.
Under these circumstances, it’s easy to see why so many early stars flame out
over time, and why the vast majority of successful emerging market
companies do, in fact, derive their success from a more ambidextrous
approach that combines strategy and execution. This includes such emerging
giants as Bimbo, Cemex, CIMC, Embraer, Huawei, Haier, Natura, Tata, and
Wipro. While they certainly didn’t ignore the need for fast decision making,
speed, and opportunism, these firms focused as much on bottom-line profits
and becoming world-class companies as on top-line growth.
The spectacular reversal of fortune for Chinese automakers BYD and Great
Wall is a good example of how the conventional wisdom is misguided and can
do great harm. Founded as a low-cost battery manufacturer, BYD expanded
into automotive assembly with the objective of becoming the world’s leading
automaker by 2025—a vision rooted in its belief that most cars would soon be
powered by electricity instead of internal combustion engines. The company
expanded quickly, famously prompting Warren Buffett to purchase a 10
percent stake in it, which further enhanced brand awareness and made BYD’s
F3 model the best-selling sedan in China.
But soon after, BYD began to falter. Its grand vision proved hopelessly
optimistic, while its vertical integration strategy and failure to develop the
required functional capabilities (like product development) led to serious
quality problems and other issues. Finally, the company’s overly aggressive
growth targets resulted in prohibitively expensive retail and production
overcapacity. As a result, BYD was forced to retrench and implement a full-
blown turnaround strategy, and it currently faces an uncertain future.
In contrast, its domestic rival, Great Wall, adopted a different strategy of
“becoming stronger, then bigger.” After opportunistically deciding to branch
out from a vehicle repair collective into automotive assembly, Great Wall
initially focused exclusively on the underserved pickup trucks and SUV
segments, and on developing its capabilities in such core functions as product
development, safety, and total quality management. Unlike BYD, it entered
2/11/2014 Why Strategy Matters In Emerging Markets After All - Forbes
http://www.forbes.com/sites/boozandcompany/2014/02/05/why-strategy-matters-in-emerging-markets-after-all/print/ 3/3
This article is available online at:
http://www.forbes.com/sites/boozandcompany/2014/02/05/why-strategy-matters-in-emerging-
markets-after-all/
into numerous partnerships with advanced Western suppliers to improve
vehicle quality as well as its own capabilities, and didn’t start making sedans
until 2008. Great Wall’s patience has paid off, as the company recently
overtook its local rivals, including one-time market leader BYD, to become
China’s largest domestic automaker.
In conclusion, in the words of French novelist Alphonse Karr, the more things
change, the more they stay the same: In emerging markets, as in the
developed world, strategy matters as much as execution.
doc_279764163.pdf
Abstract about why strategy matters in emerging markets after all.
2/11/2014 Why Strategy Matters In Emerging Markets After All - Forbes
http://www.forbes.com/sites/boozandcompany/2014/02/05/why-strategy-matters-in-emerging-markets-after-all/print/ 1/3
BUSI NESS | 2/05/2014 @ 11:41AM | 540 views
Why Strategy Matters In
Emerging Markets After All
Booz and Company, Contributor
From strategy+business
By John Jullens
Over the last few years, the conventional wisdom has coalesced around a view
that success in emerging markets is primarily a function of outstanding
execution—speed, opportunism, tenacity, and guile—instead of a well-
thought-out strategy supported by a set of winning and difficult-to-replicate
organizational capabilities. In other words, street smarts are supposed to beat
MBA smarts every time.
Even leading academics favor this perspective, ironically celebrating the
success of emerging market entrepreneurs at the expense of their own
students. For example, in Emerging Markets Rule, Mauro Guillen (Wharton)
and Esteban Garcia-Canal (University of Oviedo in Spain) describe emerging
market companies almost as latter-day Zorros, which cleverly outmaneuver
their dim-witted multinational counterparts at every turn, while “expanding
with abandon” and “surmounting challenges that their developed-market
competitors have avoided or given up on.” Their knack for “execution as
strategy” may, according to Guillen and Garcia-Canal, “give emerging market
companies an edge as they increasingly compete head-to-head with
multinationals from the developed world.”
While the romantic notion of emerging market underdogs beating villainous
multinationals clearly appeals to many readers (and publishers), is it actually
true? Did emerging market giants, such as Bimbo and Haier, succeed largely
due to their executional abilities and without the benefits of a solid strategy
and differentiated capabilities? The answer, I’m afraid, is no. In fact, the
conventional wisdom does great harm to aspiring emerging market companies
by persuading them that relying on execution alone is enough to succeed.
The reason is that emerging market companies embody an important
contradiction. They’re not only early movers in nascent domestic sectors, but
they’re also typically latecomers to globally mature industries that are
dominated by world-class competitors that have been honing their capabilities
for decades. To succeed not just in global markets but even at home,
emerging market companies must combine their traditional advantages—the
vision, risk tolerance, flexibility, and speed needed to capture early-mover
gains—with a relentless focus on developing the capabilities required to catch
up with world-class competitors elsewhere. In other words, emerging market
companies must master a new form of strategic and organizational
ambidexterity that goes far beyond execution alone.
Booz and Company
WE ARE A LEADING GLOBAL MANA GEMEN T CON SULTING FIRM.
2/11/2014 Why Strategy Matters In Emerging Markets After All - Forbes
http://www.forbes.com/sites/boozandcompany/2014/02/05/why-strategy-matters-in-emerging-markets-after-all/print/ 2/3
It’s easy to see why this is often misunderstood, as emerging markets are
invariably still in flux, with numerous institutional voids: imperfect and
frequently changing regulations, the absence of nationwide distribution
channels, poor logistics networks, limited financing options, and even the
lack of basic market data. Not surprisingly, local firms are far better at
overcoming such voids than multinationals, not because they’ve somehow
developed a superior operating model but simply because they’re often still
run by their founder?¬¬entrepreneurs: well-connected industry veterans
who are adept at finding practical work-around solutions and still make most
important decisions by themselves. In contrast, multinationals lack the local
market understanding and personal relationships with government officials
and other stakeholders, and are often hindered by their own time-consuming
global decision-making processes.
However, while often quite successful early on, emerging market companies
that focus primarily on top-line growth tend to become less coherent over
time. One-time fixes pile up to create a hodgepodge of ill-fitting processes and
ad hoc solutions. Without a solid foundation, companies begin to experience
operational problems, such as poor quality, customer defections, low
employee morale, and poor inventory management.
At the same time, double-digit growth is eventually replaced by head-to-head
competition from local rivals and increasingly competent multinationals,
while many institutional voids disappear, as the country migrates from an
emerging to a developed economy. On top of those issues, as the organization
grows larger and more complex, many founder?entrepreneurs lose
managerial control, especially when the organization branches out into
unfamiliar products and markets.
Under these circumstances, it’s easy to see why so many early stars flame out
over time, and why the vast majority of successful emerging market
companies do, in fact, derive their success from a more ambidextrous
approach that combines strategy and execution. This includes such emerging
giants as Bimbo, Cemex, CIMC, Embraer, Huawei, Haier, Natura, Tata, and
Wipro. While they certainly didn’t ignore the need for fast decision making,
speed, and opportunism, these firms focused as much on bottom-line profits
and becoming world-class companies as on top-line growth.
The spectacular reversal of fortune for Chinese automakers BYD and Great
Wall is a good example of how the conventional wisdom is misguided and can
do great harm. Founded as a low-cost battery manufacturer, BYD expanded
into automotive assembly with the objective of becoming the world’s leading
automaker by 2025—a vision rooted in its belief that most cars would soon be
powered by electricity instead of internal combustion engines. The company
expanded quickly, famously prompting Warren Buffett to purchase a 10
percent stake in it, which further enhanced brand awareness and made BYD’s
F3 model the best-selling sedan in China.
But soon after, BYD began to falter. Its grand vision proved hopelessly
optimistic, while its vertical integration strategy and failure to develop the
required functional capabilities (like product development) led to serious
quality problems and other issues. Finally, the company’s overly aggressive
growth targets resulted in prohibitively expensive retail and production
overcapacity. As a result, BYD was forced to retrench and implement a full-
blown turnaround strategy, and it currently faces an uncertain future.
In contrast, its domestic rival, Great Wall, adopted a different strategy of
“becoming stronger, then bigger.” After opportunistically deciding to branch
out from a vehicle repair collective into automotive assembly, Great Wall
initially focused exclusively on the underserved pickup trucks and SUV
segments, and on developing its capabilities in such core functions as product
development, safety, and total quality management. Unlike BYD, it entered
2/11/2014 Why Strategy Matters In Emerging Markets After All - Forbes
http://www.forbes.com/sites/boozandcompany/2014/02/05/why-strategy-matters-in-emerging-markets-after-all/print/ 3/3
This article is available online at:
http://www.forbes.com/sites/boozandcompany/2014/02/05/why-strategy-matters-in-emerging-
markets-after-all/
into numerous partnerships with advanced Western suppliers to improve
vehicle quality as well as its own capabilities, and didn’t start making sedans
until 2008. Great Wall’s patience has paid off, as the company recently
overtook its local rivals, including one-time market leader BYD, to become
China’s largest domestic automaker.
In conclusion, in the words of French novelist Alphonse Karr, the more things
change, the more they stay the same: In emerging markets, as in the
developed world, strategy matters as much as execution.
doc_279764163.pdf