European Firms Eye Developing World

For new customers, Western corporations have set their sights on industrializing economies. Low cost and innovation matter to this group of consumers

by Julia Bonstein

Ever on the lookout for tomorrow's customers, Western corporations have set their sights on industrializing economies and developing nations. It's a huge opportunity, but low cost isn't the only important criterion for a vast new group of consumers. Innovations are also important for this growing market.

In his quest to explore the markets of the future, Peter Kleinschmidt occasionally investigates Chinese bathroom culture and discusses things like showering habits with Asian consumers. He also spends his time wandering through country stores where lipstick might be displayed next to a rice-cooker. "In Vietnam, I've even seen Nivea products hanging from a nail on a tree," Kleinschmidt says with obvious enthusiasm.

As a member of the executive board of Beiersdorf, the Hamburg-based cosmetics company that owns the Nivea brand, he routinely fits visits with Chinese, Thai or Indonesian consumers into his travel schedule so that he can form an impression of the way they live. Kleinschmidt is convinced that "Asia, as well as Eastern Europe and South America, are among the most important engines of economic growth."

While market shares were divided up long ago in Europe and North America, Western producers are discovering and developing new growth opportunities in newly industrializing economies. In addition to providing them with legions of low-cost workers in these countries, globalization has created a constantly growing number of consumers who can now afford luxury items like skin cream, mobile phones or even a bar of soap.

In their search for customers of the future, Western cosmetics and food giants, wireless companies and even insurance providers have set their sights on countries like China, Brazil and India. "The key to growth lies in the emerging economies," says David Dean of the management consulting firm Boston Consulting. "That's where tomorrow's consumers live."

Dean has identified people with monthly household incomes of between $63 and $700 as the "Next Billion" potential consumers. It isn't the handful of new super-rich individuals but the masses whose economic ascent has only just begun that promise to deliver the true blockbuster market. Of course, Western corporations like Nestlé, German insurance and financial giant Allianz or Beiersdorf have to make allowances for their clientele's meager budgets and, of course, this requires extremely efficient and low-cost production. It is certainly no coincidence that the world's most inexpensive car was unveiled last week not by Toyota, Ford or Fiat, but by India's Tata conglomerate, which comes armed with loads of expertise on how to manufacture and market products for vast numbers of low-income consumers.

But low prices alone are not enough. For Western producers, it is also critical that they manage to sway new consumers in Africa or Asia with solutions precisely targeted to their needs. One example is a seasoning cube containing iodine, which Nestlé hopes to market successfully in Africa. In India, German consumer products maker Henkel sells miniature packages of its "Pril" dishwashing detergent for one rupee apiece, or a little less than two cents. Another innovation is a mobile phone that, though lacking complex functions, contains a built-in flashlight -- a valuable feature in countries were power outages are a daily occurrence. These are all products tailored to the unique needs of the next billion -- consumers worldwide who, though far from affluent, no longer live in poverty and have small amounts of disposable income.