How to Continue Your Expansion in Emerging Markets in this Recession

How to Continue Your Expansion in Emerging Markets in this Recession
Ruth Stanat, President and CEO, SIS International Research
January 26, 2009

Background

Since the fall of the Berlin Wall in the early 1990s, multinational firms have rushed into emerging markets as the “last gold rush.” This was and continues to be the platform for corporate growth in the next few decades. During the 1990s, multinationals expanded into China and other Asian markets, in addition to Eastern and Central European economies and in Latin America. With continued liquidity and financing available in the capital markets, this continued expansion into emerging markets was an integral part of most corporate strategic and expansion plans. However, during this most recent financial and liquidity crisis this past year, the game has changed.

The Current Challenge

Companies are increasingly halting research concerning market opportunity expansion into these emerging markets in the past six months. As budgets and payrolls are getting slashed, expansion into emerging markets is being put on the back burner for most global firms. However, those firm that have the foresight to continue these research programs are prone to have a significant competitive advantage in the future when the economy rebounds.

The challenge that CEOs and senior management face today is how to continue these expansion programs in these emerging markets with limited budgets and the prospect of failure given a perceived rise in risk.

The Solution

Market Assessment and Market Entry Research do not have to stop during these recessionary times. Rather than spending large sums of money on primary research to conduct market entry and market segmentation research, a modest research budget might be possible to still keep you in the global game. The following are some considerations for a limited market assessment budget in these lean times. These will not work for everyone, but incorporate some of the concerns and risks that many companies now face.

Phase I: Market Intelligence

This phase will primarily use a secondary research methodology which will offer a snapshot or a lay of the land picture of the market opportunity for a region of specific countries. The results of this phase will deliver a prioritization of the countries which offer “the low handing fruit” for exportation of products or for local production of products.

Phase II: Limited Qualitative Research or Key Opinion Leader Interviews

Rather than channel interviews[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container][fusion_builder_container hundred_percent=”yes” overflow=”visible” type=”flex”][fusion_builder_row][fusion_builder_column type=”1_1″ layout=”1_1″ background_position=”left top” background_color=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding_top=”” padding_right=”” padding_bottom=”” padding_left=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none” align_self=”flex-start” border_sizes_undefined=”” first=”true” last=”true” hover_type=”none” link=”” border_position=”all”][fusion_text][e.g. interviews with suppliers, distributors and potential customers] which may be considered expensive, this approach will cost effectively crystallize the market potential for products in the local country or region. The deliverable or the results from this method can lay the groundwork for more streamlined quantitative research in the third phase.

Phase III: Quantitative Assessment of the Market Potential for your Products or Services

With local CATI, face-to-face or online interviews, this third phase should quantify the potential for sales of your product or services. To reduce costs on the research, research firms can analyze the sample size. If the research firm advocates an appropriate sample size that ensures the quality of research but also integrates your cost concerns, you can still pursue your expansion and market entry plans in these emerging countries.

The Issue of the Current Lack of Liquidity for Emerging Economies

This is a major obstacle to continued expansion in emerging markets. On the other hand, the lack of liquidity is primarily local to these countries. If your firm has access to liquidity in these emerging markets, then you have a strategic advantage in these emerging markets.

Remember in these markets that a little goes a long way. Countries like Mexico hardly forget those firms that entered Mexico prior to the Peso crisis in the early 1990s and made a swift “exit” during the peso crisis. Clearly, they were not welcome back with open arms after the crisis was over. In addition, those firms who stayed in South Africa during the Apartheid rule, reaped the benefits of the economy after the exit of this political regime. During this economic downturn, if companies can continue to remain in these emerging economies, they are prone to be “ahead of the game” when the recession ends. Indeed, difficulties abound with trying to “jumpstart” your re-entry at a later point in time.

Summary/Conclusions

The following are considerations for multinational corporations that have launched market assessment programs in emerging markets during the past several years:

1. Consider continuing your presence in these economies – even at a “maintenance level”
2. Consider continuing your research programs with cost effective research budgets
3. Consider assuring the local government and your local partners know that you are there “for the long term” in their market
4. Consider continuing your market entry programs with modest advertising programs to assure the local market that you “have not exited the market”
5. Consider continuing to monitor your competitors’ activities as they may “outspend” you during this recessionary period to gain market share in emerging markets.