Magazine article Marketing

Why Brave the New Worlds?

Magazine article Marketing

Why Brave the New Worlds?

Article excerpt

Multinational companies know that the new glittering prizes of consumer spending are to be won in developing countries. Danny Refers and Harriet Marsh report on the global quest for the 'top development markets'

Vietnam seems to have a knack for resisting US invasions; 25 years after pulling their troops out of Saigon, the Americans have returned to the region armed with soap powder, toothpaste and marketing campaigns. Again, they have run into formidable resistance.

Last week, soap and personal-care giant Procter & Gamble revealed that its venture to break into the Vietnam market had recorded losses of $28m ([pounds]17.5m) over two years.

Analysts say that the travails of P&G are fairly typical of those facing foreign investors in Vietnam, although the company acknowledges that it had unrealistic expectations of the market.

P&G's original feasibility study was, it appears, a little too optimistic. Not only did the company find itself marketing brands such as Carnay, Pantene Pro V and Head & Shoulders to an extremely poor country where people generally don't buy branded soaps, but Alan Hed, director of P&G Vietnam, said it also discovered that many locals prefer to make their own shampoo by boiling the native boket plant with lemon.

Unusually for P&G, it only discovered some of these facts about the market once it was already in it.

Exploring new frontiers

The forces of multinational marketing, such as Coca-Cola, P&G and Unilever, know they cannot afford to stay out of emerging international markets.

To maintain the growth rates that senior management and shareholders have come to expect in recent-years, they are having to go in search of the new consumers. They claim that the rewards for such enterprise will be rich.

This fever for expansion was underlined by P&G chairman and CEO John Pepper at the company's AGM in Cincinnati two weeks ago. Pepper said P&G could only achieve its aim of doubling sales to $70bn ([pounds]44bn) by the middle of the next decade by driving growth in what he calls "top development markets".

"Today, we sell $60 ([pounds]36) worth of P&G products for every man, woman and child in the United States. But in top development countries-China, Russia and Eastern Europe - we sell less than $4 ([pounds]2.40) per person."

Last year, the company increased its business by 17% in these regions, but Pepper stressed that there were far greater opportunities ahead.

Indeed, despite early miscalculation and misfortune in Vietnam, P&G remains confident there is a large FMCG market to be tapped and has increased its original $14.3m ([pounds]8.9m) investment to $37m ([pounds]23m). P&G is also seeking permission from the government to spend a further $60m ([pounds]37.5m). The money will go toward capital infrastructure, business operations and marketing.

P&G's closest rival, Unilever, is in the same game. Both companies know that in developed countries they are now battling it out for share of market, with the margins shifting only slightly up or down. In virgin territories, they are talking about massive growth potential.

The wealth of nations

In the same week as Pepper's speech, Niall FitzGerald, chairman of Unilever, spoke of countries where gross domestic product is increasing two to three times faster than in the developed world. Alongside Vietnam and other South-East Asian countries, he includes Poland, India, China, Mexico, Argentina and Brazil.

"Europe is a mature market," said FitzGerald. "Europe is an over-regulated market. Europe is full of older people getting older; grumpy, many of them, embittered in a way that is simply incomprehensible to the average world citizen who has seen his standard of living double in the past 15 years."

The 'glittering prizes' for Unilever, he stressed, lay well outside the stagnant markets of North America and Western Europe. …

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