Each local dynamo has its own story about how it has won in its home market. At the same time, the 50 companies share six traits that give them an edge. Four of these traits are specific to the business models that they deploy to thrive in emerging markets: catering to customers and local conditions, leveraging digital technologies, operating at warp speed, and adapting to uncertainty and circumstance.
The other two traits—building talent engines and establishing functional excellence—demonstrate the rapid development of these companies as they create world-class strengths and gain skills commonly found in multinational companies. (See Exhibit 2.)
Let’s see how they do it.
Catering to Customers and Local Conditions. The local dynamos understand their customers intimately and know how to appeal to them. They identify new customer segments, unmet needs, and local habits that other companies do not recognize. Perhaps foremost, they understand the cost-and-quality calculus that will appeal to the growing middle and affluent class in these markets.
Shriram Transport Finance, for example, was founded in India in 1979 to provide financing to owners of small trucks, a segment that financial institutions were largely ignoring. Shriram now boasts more than 600 branches and about a 25 percent share of the preowned commercial-vehicle financing market in India. Field officers make monthly visits to borrowers, during which they often collect cash payments.
Leveraging Digital Technologies. By 2018, there will be an additional 1 billion Internet users and more than 5 billion post-PC products—tablets and smartphones—in circulation than there are today. Most will be located in emerging markets.
Although Internet and mobile coverage remains spotty in these markets, innovation is sky high. Without investments in hard infrastructure (such as stores and branches) to protect, many companies are focusing their resources on online and mobile channels.
Xiaomi, for example, forgoes expensive retail outlets and sells mobile phones directly to consumers in China. In 2013, the company sold about 18.7 million smartphones at about half the price of comparable Samsung and Apple phones; Xiaomi already outsells Apple in China. CEO and founder Lei Jun has ambitions to sell 60 million smartphones in 2014. Xiaomi offers batches of 200,000 to 300,000 phones at a time, and they sometimes sell out in minutes.
Xiaomi is also mastering online marketing platforms. Its social-media team is active on WeChat, Baidu, QQ, and other online forums. Lei Jun has 8 million followers on Sina Weibo, currently the most popular social-media platform in China.
Operating at Warp Speed. Local dynamos have built their businesses swiftly and successfully. They add people in large numbers without faltering. They move into new segments and rapidly become market leaders. In markets comprising multiple regions and customer segments, many of the dynamos have created national brands and established a national sales and retail presence.
Brazil’s Magazine Luiza, a retailer with $4.1 billion in sales in 2013, has grown more than 26 percent annually since 2009 by catering to Brazil’s swelling middle class. As a result of several acquisitions, Magazine Luiza has more than tripled the number of its stores over the past ten years. But the company has also grown organically, expanding in important cities such as São Paulo, where it opened 44 stores in a single day in 2008.
Online sales have been growing faster than conventional sales, thanks to innovations such as social-shopping services and strong fulfillment. The company has, for example, created online stores on Facebook and elsewhere that allow consumers to sell goods on commission to friends and family.
Adapting to Uncertainty and Circumstance. Still, the emerging-market environment remains challenging. The supply of electrical service is sometimes uneven. Roads and rail networks, high-speed wireless networks, and ports are works in progress in many locations. Market intelligence is occasionally spotty. But local dynamos have creatively worked through these limitations to meet the needs of their customers.
Equity Bank, one of the largest banks in Kenya, has expanded by providing services to customers previously viewed as “unbankable.” Rather than build local branches for people who live in remote areas, Equity Bank relies on agents to deliver financial services. The agents use their smartphones to accept an application for a new account. The application is then processed centrally, and the applicant receives notification of the status of the application via text messages.
Building Talent Engines. Talent shortages may be acute everywhere, but they are especially severe in emerging markets. Historically, companies have not offered the same level of training and development that schools provide, and schools just can’t keep up with the demand for qualified candidates. Job-hopping is often viewed as the fastest way to advance rapidly in these markets.
Local dynamos successfully overcome these constraints. They hire top local talent and build an engaging and rewarding environment. They also put in place strong people practices so they can identify, train, and promote their best employees and help those who need stronger skills.
HaiDiLao Hotpot, a thriving hot-pot restaurant chain in China, provides a captivating customer experience that would be impossible to pull off without engaged employees. “On special holidays, magicians in colorful, traditional masks perform tricks. Patrons order using iPads. Periodically, a server breaks into the restaurant’s signature Olympic-style ‘noodle dance,’” a Wall Street Journal article observed in 2013.
The company has promoted this environment through careful development and training of its employees. Performance evaluations, for example, are based on customer satisfaction and an employee’s passion for work. And HaiDiLao’s benefits are unmatched in the restaurant industry: the company offers free apartments, with air conditioning and Internet, to employees and helps them solve any difficulties with enrolling their children in school.
Establishing Functional Excellence. One of the ways that many local dynamos distinguish themselves from the rest of the pack is by developing functional capabilities that rival—or even exceed—those of multinational companies. These capabilities include business model innovation, technological innovation, operational excellence, branding and marketing, product offering, and customer service.
Cinépolis excels in many of these areas. The company has grown to become the largest movie operator in Mexico, with 295 cinemas and 136.7 million annual visitors, by offering an unparalleled and innovative theatrical experience. Its theaters have comfortable stadium seating and modern digital technologies.
Heeding the results of market research, Cinépolis developed movie snacks with Mexican flavors, such as popcorn with lemon juice and chili sauce. Customers can enjoy a meal while watching a movie in the VIP room. Some of the theaters are equipped with “4DX” technology, which produces movement, smells, mist, and wind in addition to sound and video. Cinépolis has also developed facilities where children can watch movies while playing in a ball pit.