ANALYSIS: Why brave the new worlds? - Multinational companies know that the new glittering prizes of consumer spending are to be won in developing countries. Danny Rogers and Harriet Marsh report on the global quest for the ’top development market

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

dollars 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 Camay,

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 dollars 70bn (pounds

44bn) by the middle of the next decade by driving growth in what he

calls ’top development markets’.

’Today, we sell dollars 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 dollars

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 dollars 14.3m (pounds 8.9m) investment to dollars

37m (pounds 23m). P&G is also seeking permission from the government to

spend a further dollars 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.

Unilever is clearly putting its marketing money where its mouth is. Last

week, the company bought Brazil’s largest ice-cream manufacturer, Kibon,

from Philip Morris for pounds 573m, making it the market leader in South

America.

Sales of ice-cream in Brazil average 1.2 litres per head each year.

Unilever expects to increase this to the levels seen in other South

American countries, such as Argentina (3.3 litres) or Chile (4.2

litres). As in those countries, it will introduce international

ice-cream brands to Brazil, such as Magnum, Vienetta and Solero.

But Unilever may find, as P&G did, that the road to the Shangri-La of

New-Consumer Land may not always be an easy one.

Unilever’s attempt to launch Impulse body spray in Indonesia several

years ago missed the mark due to the wrong pricing strategy. It has also

found that different washing routines may affect packaging or pricing

policies. For example, shampoo in Indonesia is still most commonly sold

in sachets.

The product development, production and marketing machine that can now

launch a product and have it rolled out across all established markets

within two years, has to have the brakes applied when it comes to the

unknown markets.

Pam Robertson, director of strategy for Interbrand, argues that emerging

markets vary not only in habits but in aspirations. She gives the

example of the modest and understated nature of many Asian countries,

where companies who ’overclaim’ products’ attributes can meet with a

negative reaction.

Other considerations include religious influences, which may affect

washing habits or attitudes.

Customs and expertise

’The benchmark of taste may also be different,’ says Linda Caller,

international planning director at Ogilvy & Mather. ’For example, if you

are introducing an English chocolate product into a new country, that

product may have a milk quantity which in the new market does not match

the benchmark taste.’

Caller says there can also be a huge initial surge of enthusiasm for a

brand just because it comes from the West. But that is quickly replaced

by a more candid assessment on what benefits the brands offer.

’After a while, people start applying more robust criteria to their

decision-making. This can lead to a false reading of the potential in

the market,’ says Caller.

’Moving into new markets is always a risk,’ says Hans Jorg Renk, deputy

spokesman for Nestle International, perhaps the most experienced FMCG

manufacturer at pushing into new markets. ’Our policy is always to try

to have majority ownership, or at least a 50:50 joint venture, and to

accept there are likely to be difficult periods.’

Nestle is present in around 80 countries. And the regions of Asia,

African and Oceania make up 21.9% of its worldwide sales.

Nestle currently rates China and South-East Asia among its biggest

growth markets, surpassed only by Central and Eastern Europe.

A big factor in this focus is political stability. Nestle pulled out of

Cuba when the political situation made its presence untenable.

For this reason, Western manufacturers tend to be more wary of Africa or

South America, despite the huge potential of these regions.

An unknown quantity

As well as politics, the potential of a new market may be threatened by

economic instability.

’Inflation, exchange rates and the distribution of wealth among the

population are all factors to be considered when assessing a

marketplace,’ says Interbrand’s Robertson.

’For example, while post-apartheid South Africa is an obvious target

market for some businesses, FMCG manufacturers may be put off by the

fact there is still only a small percentage of people who can afford to

buy their products.’

Often, the biggest hurdle to overcome in a new country is gaining access

to an efficient distribution chain; while local partners may reduce

profit levels, local knowledge and contacts can be invaluable.

’Distribution is particularly problematic in Eastern Europe due to the

level of bribery and corruption,’ says Robertson.

Despite all these obstacles, FMCG companies are more determined than

ever to exploit the steady increase in the popularity of Western brands

in emerging markets, as the products continue to be viewed as status

symbols, synonymous with success.

’Ultimately, there are enormous similarities between these markets,’

says David Baker, worldwide director at J Walter Thompson. ’The basic

human requirements are more similar than dissimilar.’

MAKING UP WITH CHINA

- The reunification of Hong Kong with China is expected to have a

positive impact on consumer growth on the mainland. Hong Kong’s

cosmetics and toiletries market is expected to grow by 24% by 2001 to

dollars 10bn (pounds 6.25bn).

- Cosmetics and toiletries sales in China are expected to reach a value

of dollars 8bn (pounds 5bn) by 2001 - up by 121% on this year.

- The closest rival to China’s growth in this market is Eastern Europe,

which grew by 104% between 1992 and 1996.

- The rural market is dominated by spending on basic products such as

toilet soaps, shampoo and toothpaste. Skin-care products are much lower

down the scale than in other Asian countries.

- Spending per head on all cosmetics and toiletries products increased

by 189% between 1992 and 1996, reaching a total of dollars 2.60 (pounds

1.60) in 1996, compared with around dollars 100 (pounds 63) in the

US.

Based on Euromonitor’s report ’The Market for Cosmetics and Toiletries

in China and Hong Kong’.

LOST IN TRANSLATION

- In Taiwan, the translation of the Pepsi slogan ’Come alive with the

Pepsi Generation’ came as ’Pepsi will bring your ancestors back from the

dead’.

- Ford had to rapidly rename the Pinto in Brazil when it found out the

name was Brazilian slang for ’tiny male genitals’. Nameplates were

subsequently prised off and substituted with Corcel, which means

horse.

- Parker Pen marketed a ball-point pen in Mexico with the strap ’It

won’t leak in your pocket and embarrass you’. However, it translated as

’It won’t leak in your pocket and make you pregnant’.

DRINKS IN THE MIDDLE EAST

- The soft drinks market in the Middle East has seen sales soar in

recent years. It was worth over dollars 5.3bn (pounds 3.3bn) in 1996 -

an increase of 56% since 1991, according to Euromonitor figures. Sales

of soft drinks have grown by 8% every year since 1991.

- Euromonitor forecasts that the soft drinks market in the Middle East

will grow by 85.1% between now and 2005 in volume sales.

- Turkey, Egypt and Saudi Arabia are now the largest markets for soft

drink consumption in the Middle East, making up the only markets where

sales exceed one billion litres. Turkey and Egypt have sales of two

billion litres.

- On the basis of drinks per head of the population, Oman, Kuwait,

United Arab Emirates, Saudi Arabia and Israel lead with soft drink

consumption of 70 litres per person. Tunisia, Jordan, Turkey and Egypt

follow with consumption per capita of between 29 and 50 litres.

- Local companies tend to act as licensees for the major international

companies, such as PepsiCo, Coca-Cola and Cadbury Schweppes.

Based on Euromonitor’s report ’Soft Drinks in the Middle East’.

This article was first published on Marketing