Competition

Competing with Giants: Survival Strategies for Local Companies in Emerging Markets

12/7/1999

A Chinese cosmetics company thrives in the face of multinational competition by developing mass-market brands that take advantage of its familiarity with local tastes and standards. It's a survival strategy - one of four identified by by Niraj Dawar and Tony Frost, and it's highlighted here in this excerpt from their article "Competing with Giants: Survival Strategies for Local Companies in Emerging Markets" in the Harvard Business Review.

by Niraj Dawar and Tony Frost

Defenders need to resist the temptation to try to reach all customers or to imitate the multinationals. They'll do better by focusing on consumers who appreciate the local touch and ignoring those who favor global brands.

Shanghai Jahwa, China's oldest cosmetics company, has thrived by astutely exploiting its local orientationвЂ"especially its familiarity with the distinct tastes of Chinese consumers. Because standards of beauty vary so much across cultures, the pressure to globalize the cosmetics industry is weak. Nevertheless, as in other such industries, a sizable market segment is attracted to global brands. Young people in China, for example, are currently fascinated by all things Western. Instead of trying to fight for this segment, Jahwa concentrates on the large group of consumers who remain loyal to traditional products. The company has developed low-cost, mass-market brands positioned around beliefs about traditional ingredients.

Many Chinese consumers, for instance, believe that human organs such as the heart and liver are internal spirits that determine the health of the body. Liushen, or "six spirits," is the name of a traditional remedy for prickly heat and other summer ailments, and it's made from a combination of pearl powder and musk. Drawing on this custom, Jahwa launched a Liushen brand of eau de toilette and packaged it for summer use. The brand rapidly gained 6o% of the market and has since been extended to a shower cream also targeted at the liushen user. Unilever and other multinational companies lack this familiarity with local tastes; they have found their products appeal mainly to fashion-conscious city dwellers.

For those product lines that don't have such an intrinsic appeal to consumers, Jahwa has found that it can compete on price. Here Jahwa has taken advantage of the constraints that multinational companies face in adapting Western-designed products to developing countries. Multinationals typically optimize their operations on a global level by standardizing product characteristics, administrative practices, and even pricing, all of which can hamper their flexibility. Products designed for affluent consumers often aren't profitable at prices low enough to attract many buyers in emerging markets.