International Marketing: Harnessing innovation in developing countries

The greatest recession since the great depression has taught us many lessons, not the least of which is the strength and potential of developing economies, where so much management innovation is taking place. I recently read a special report on The Economist about business innovation in developing countries. The article talks about the way companies in countries like China, India and Brazil are becoming the new hotspots for R&D and for rethinking business practices. This is no surprise for me. Having spent the first years of my career in Venezuela, one of the strongest economies of Latin America and a particularly attractive market in the region, I have seen first hand how obstacles like poor infrastructure and politics, as well as promising growth can make innovation a priority for companies there.

With mature economies showing slow growth and consumption especially hit because of the recession, global companies are depending more and more on developing markets as a source of growth. Some markets are especially attractive because of increasing income levels. Venezuela, for example, was an especially attractive market earlier this decade because of increased oil wealth and a drive to consumption that is common in that culture and also common sense, as inflation is so high that saving money in a bank account means losing money. Chavez has increasingly made business harder for companies there in the past few years.

But despite the attractiveness of emerging markets, there are also many challenges, and a section of this report does a good job of pointing them out. First of all, infrastructure can make distribution and operations almost impossible. From poor roads to deficient communications or utilities, being able to distribute products or establish supply chains can be extremely difficult. There’s also the subject of autocratic governments, corruption and bureaucracy. This has been the biggest challenge in Venezuela in the past 11 years, as Chavez’s government has seized factories, buildings and inventory from local and foreign companies, with no compensation in sight.

Another important issue, that is particularly interesting for me as a marketer, is how poverty and poor distribution of wealth can affect consumer behavior, and consequently product development, pricing, distribution and marketing communications. As I mentioned in my previous post, though Venezuela has been one of the richest countries in South America because of its oil wealth, corruption and a decaying education system has led to increasing poverty levels, which some say is as high as 80%. But what is particularly striking is how people living in with different income levels can have such different ways of spending money and obtaining goods. Values and lifestyles can vary strikingly between people living in the middle class and those in the lower income levels, as researchers from a poverty research center (Proyecto Pobreza) at Andres Bello Catholic University (UCAB) have discovered. I had a sociology professor that said that in Venezuela instead of social classes, we had parallel universes. He referred to the fact that people start families earlier and have many more children when they have lower incomes and that even making priorities in life can be very different depending on income levels. Though this is clearly an exaggeration, marketers have to understand that consumer behavior can be very different depending on your target segment.

Marketers in that country have discovered that people who live on low incomes usually live in the moment, making do with what they have in their purses. Unlike the middle class, which spends a big part of income on private schools and housing, the lower income groups often live in shacks or poorly constructed homes, which they may have built themselves on land that they invaded. Decaying public education means that children may not grow with the ambition or the academic level to enter a university, even though some of the best in the country are public and tuition is free. Tomorrow is uncertain, so when they have a little money left over, they are happy to spend it. This makes them an important target of some high-ticket items like BlackBerry handsets and expensive athletic shoes, both which are indispensible items for social acceptance. While the middle class may splurge on a car as a means to protect their money from inflation (which last year was over 30%), someone with low income may scratch to buy a smartphone legitimately or get one from a black market of stolen phones and then pay a cheap, prepaid plan to make use of the BlackBerry Messenger service instead of paying for SMS packages. Without a home computer or phone line, smartphones become an important source of communication.

Household items are also bought and used differently. Middle class families may buy goods at wholesale stores like Makro, but lower class groups often buy from a local “bodega”, which is a tiny shop that sells food in small amounts. For example, Coke can be bought by the glass, poured from 2 L Coke bottles. Shampoo can be bought in 1-portion bags, which are sometimes packaged by the store owner. And when it comes to marketing communications, it is important to understand their Carpe Diem philosophy.

In my experience, local companies and foreign companies who understand these challenges have only been able to succeed when adapting to these changes. From careful segmentation and changes in their supply chain, marketing communications and product lineup to courting governments and rethinking their relationships with local stakeholders, taking advantage of these markets means rethinking the business. It means thinking on your feet. Working in a country like Venezuela means being eternally flexible and inventive. Some say Venezuelan doctors are highly coveted abroad because they learn to work with such difficult conditions (hospitals may have poor technology, constant interruptions in energy supply and usually need patients to buy and bring in materials like gauze, gloves, blankets, syringes and medicines). As a former journalist in a time of political violence (particularly against reporters) and political upheaval (coups, nationwide strikes and massacres all in just a few years), it has also taught me to think quickly and accept and adapt to change easily. It is clear that an increasing amount of companies is understanding this. The results will likely be innovations in marketing and business management, which we will be learning more of in the future.