The 1980s were the heydays for multinational corporations. New consumer classes were emerging from closed regimes and state-run economies.

There was a global wave of privatisation and deregulation, coupled with increasing urbanisation and industrial development, all of which helped MNCs flourish. Emerging markets’ contribution to MNC sales increased from the 1980s onwards right up to the middle of this decade, reaching 50 per cent in sectors such as F&B and electronics.

 

 

However, the last five years have been difficult for MNCs across many emerging markets, with declining shares and dwindling profits. China, which was once the beacon for MNC growth, has seen brands like KFC, NEC, Panasonic, Home Depot and Tesco withdraw.

As per Kantar Worldpanel, local FMCG (fast moving consumer goods) brands control to 75 per cent volume share in China, 61 per cent in Indonesia and 57 per cent in India. This shift can be attributed to increasing sophistication of local competitors, easier access to capital and increasing digital information flows that have helped local brands innovate at a faster pace than MNCs. Cases in point are brands like Patanjali in India, Huawei and Haier in China, and closer home, companies like Almarai and Nadec in F&B, Beko in appliances and Lulu in retail.

So, do MNCs have a future in emerging markets? What strategies could they adopt to maintain their presence and relevance in a radically changed environment?

* Localise — one strategy would be to dig deeper roots by on-shoring production, supply chain and even marketing functions. This way, MNCs would function almost like local companies, though with the advantage of global R&D capabilities and the ability to make fast capital investment when needed. Unilever has done this well, with brands like Lux, Surf/Omo and Signal being considered as local brands by consumers in many markets.

* Collaborate — getting into partnerships with local companies with strong production, marketing and/or distribution muscle is another strategy. This enables MNCs to enter alien markets with strong local support and can also help expand regional footprint.

This has been particularly successful in automotive and technology sectors. Examples would be that of Maruti-Suzuki in India, the SAIC-GM-Wuling partnership in China, or the Ooredoo tie-up with Germany’s Rocket internet to create Asia internet Holdings.

* Franchise — another option for MNCs is to license their rights to local players. This is what KFC did in China. Despite being one of the first fast food chains to enter the market in 1987, they franchised their brands to their largest rival, Sino Foods, in 2016.

While franchising in an attractive strategy for many MNCs, because it helps them build brand equity in new markets with minimal investment, it is not without risk. Just recently, McDonald’s in India had to cancel their franchise agreement with one of their partners due to non-compliance of terms, which led to the closure of around 170 outlets.

* Digitise — with internet penetration rising rapidly in emerging markets, this is a potentially attractive way for MNCs to enter new markets. By digitising their offer, companies like Uber, Airbnb and Zomato have become borderless business platforms. This strategy, however, may be more applicable to service sectors as compared to others.

* Explore frontier markets — global MNCs can continue taking on the world’s frontier economies. Across Asia, Africa and Latin America, there are still a few markets that have not yet integrated completely with the global economy. And these offer potential for growth.

Iran, Myanmar and Cuba are three frontier markets that have partially opened up in recent years. These could, however, be higher risk markets with lower per capita GDP, political instability and lack of consistent business practices. And investment into these markets needs to be a carefully weighed decision.

With dwindling market share and increasing competition in key markets, MNCs will need to modify their strategies in order to get back their mojo. It is also interesting to note that many local companies are now trying to go global, and may be faced with very similar challenges once they venture out of their home bases.

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