Just how do you win against larger competitors who have more resources than you? A new wave of smaller companies from emerging market countries have discovered that you can not only win, but have the advantage over larger companies. It’s just a matter of deploying your resources — however limited they are — very strategically.
In researching our book, we studied 39 new companies, which we characterize as “Emerging Market Multinationals” (EMNCS), and found patterns in how these upstarts compete with larger companies. For example, larger competitors are likely to standardize their products and processes, manufacturing through contracted and distant facilities. As a smaller company, you can out-compete them by better tailoring your products to customer needs using your self-owned, lower-cost, and more flexible design and manufacturing resources. Take Taiwanese GPS manufacturer Mitac, which used this strategy to develop customized devices for each Asian market, serving their specific needs better than Garmin or Tom-Tom could.
From researching the book, we mainly found that as a small business it’s especially critical to target how you deploy your (limited) resources. These have to be targeted in ways that maximize impact. Instead of a resource-sucking broad-front attack against its big Western competitors in the consumer packaged goods industry, India’s Godrej has picked just 3 product categories (hair color, soaps, insecticides), and 3 geographies (South Asia, the Middle East, North Africa), to compete in. Brazil’s Natura creates all its cosmetics from natural ingredients from the local Amazon rainforest, where it can source supplies better than anybody else.
Of course, there are other areas where you should pinpoint exactly where your efforts should go:
R&D: Just as Apple chooses to focus on consumer-delighting innovation with its relatively meager annual R&D spending (only 2.2% of sales, versus 15% by Microsoft), Haier targets its innovation into neglected segments: small refrigerators for dorm rooms and for wine cellars. India’s pharma-player Ranbaxy chooses to innovate in drug delivery mechanisms, not new molecules.
Marketing spending: Saudi Arabia’s Savola Afia and India’s Marico build their food and hair oil businesses through single mega-brands (Safola and Parachute respectively) rather than multiple brands. Mahindra tractors grows its US business by launching in just 2 US states, not all 50. India’s IT-provider WIPRO uses its $1.3 million marketing budget (versus IBM’s $150 million-plus) to reach its targeted Fortune-1000 CTOs in airport lounges in Narita, Kennedy, and Heathrow.
New customers: Where are they cheaper to acquire? Small-budget competitors find it hard to build high-profile brands, so customer segments that use functional selection criteria are easier targets. Lenovo thus goes after medium and large businesses before targeting the mass consumer market. Haier USA knows it can win trade customers more easily than end-consumers, so uses a ‘push’ rather than ‘pull’ go-to-market strategy.
New markets: Underserved, ‘special needs’ market segments also make sense to exploit, because they are often ignored by the larger incumbents — such as the landscaping firms and hobby farmers in the US and Australia targeted by Mahindra’s under-100 HP tractors. LG, entering the North American market for washing machines, targeted the high-growth but underserved front-loader segment, because it is easier to win over a customer newly-entering a growing category than it is to steal share in a stagnant one.
When resources are scarce, smaller competitors need to find new ways to lower resource-demands, throughout the value chain. Can you reduce costs by ‘variabilizing’ cost-elements traditionally considered ‘fixed investments,’ as India’s Airtel did with its mobile network infrastructure? Can you share R&D costs with university partners, as Natura does, to generate 65% of its revenues from innovations launched in the past two years? Can you use the ‘earned media’ of public relations as much as HTC and Lenovo do, and the ‘co-branding quality rub-off’ from highly-respected brand alliance partners, as Haier and WIPRO do?
It’s also important to remember that most EMNCs need to work get stronger over time in their targeted domains. R&D, technology, innovation, and design capabilities that are missing but important need to be acquired or built-up, as did Apollo Tires, HTC, Tata Motors, and Mitac, in our sample. Others used targeted acquisitions for hard-to-access raw materials (Tata Beverages) and distribution channels (VitrA, with Villeroy & Boch). Higher-prestige brands, and local market knowledge, need to be developed or acquired too, for they lead to higher, more-sustainable profits (Ulker’s acquisition of Godiva). The talent hired into the organization too needs to be built-up over time, perhaps the most important challenge of all.
Despite the daunting resource limitations they suffer from, smaller firms can still perform well against much larger competitors. What it requires is a competitive strategy that is fully cognizant of these resource limitations, and finds clever ways to overcome them.
