CAIRO: Western businesses, once the unquestioned leaders in global capitalism, are finding their position increasingly challenged by their rivals in emerging markets, according to a recent report.
Adrian Wooldridge, managing editor of The Economist, examines in a special report in the April 17 issue the role of emerging markets in spurring new business models and innovation for the benefit of the whole economic pyramid in both the East and the West.
Emerging markets apply untraditional strategies used to integrate the world’s poor into the international economy, have a keen ability to drive innovation in unconventional ways across a range of sectors and are blessed with abundant untapped brainpower, says the report. As a result, this confluence of factors is reshaping the current global economic order.
Although not mentioned in Wooldridge’s piece, Egypt has also been following this trend, albeit not quite at the same pace as emerging markets such as China and India.
With a solid growth rate of 5 percent, Egypt still lags behind China and India’s impressive growth, which is often twice as much. With around 18 million people, or roughly 25 percent of the population, and in need of further economic development, much of Egypt’s population cannot be defined as an emerging market, but rather a category below which is termed a ‘survival market.’
But given the size of this market, it is a non-negligible prospect to be seized upon.
Indeed, companies in the West and even more so those in emerging markets are starting to comprehend the potential that the lower end of the economic pyramid represents in terms of consumers and wealth generation.
As Wooldridge’s report highlights, multinational corporations predict, “over 70 percent of the world’s growth will come from emerging markets.”
Businesses in emerging markets have been particularly adept at benefitting from this potential for growth, as they seem to have a firmer grasp of the needs of local people in these markets and the environments in which they live and work.
Consumers in local emerging markets are more interested in durable, reliable goods than name brands, and firms have been providing just such products — an approach termed ‘reverse innovation,’ says the report.
Also, realizing that lower-income segments not only desire better consumer goods, but have money with which to buy them, these companies are striving to include the poor into their distribution and supply chains, which means creating local jobs.
While the incomes of this segment of emerging markets are less stable and their purchasing power a fraction of their counterparts in the West, through economies of scale, companies that are cognizant of this dynamic are able to tap into this major consumer market, and benefit handsomely.
Western firms have nevertheless been quick to take notice of their counterparts’ successes and thus have reacted swiftly. As the report claims, companies in emerging markets are beginning to, not just challenge the status quo, but also build replicable business models.
In a sense, as the report argues, the West, which brought capitalism to emerging countries, now finds itself learning from its own students.
The report provides several case studies that demonstrate how the poor are being brought into the world economy and how this is creating wealth for both low-income consumers and the private sector in emerging markets.
It also addresses the obstacles of doing business in these upcoming economies such as corruption, inefficient services, poor distribution systems, pollution and piracy of consumer products, to name a few.
The report focuses almost exclusively on China and India’s role in this rapid economic transformation, while only partially drawing attention to the Middle East and Africa, where new business opportunities are plentiful.
In Egypt for instance, the potential for economic development and business growth is well-recognized.
A study issued last year by the Confederation of Danish Industry (DIBD) and in tandem with Sustainable Business Consulting (SBC), entitled, “The Base of the Pyramid in Egypt,” examines business opportunities in Egypt, concluding that the country represents a boon for firms looking for major profits by targeting the bottom of the pyramid (those earning around $3,000 per year) thanks to economies of scale.
Some firms are already doing so: Proctor and Gamble has begun selling 25 piaster bags of detergent, because local consumers cannot afford LE 40 boxes due to their unsteady incomes. But this example is more of an exception rather than the rule in Egypt.
Director of SBC and co-author of the study, Mohammed Hassan ElKalla of Sustainable Business Consulting, told Daily News Egypt, “The bottom of the pyramid in Egypt represents 40-60 percent of the market, which is currently not fully being taken advantage of.”
El-Kalla largely faults Egyptian businesses for not capitalizing on the country’s potential. He believes that for Egypt to enter the club of emerging markets, its leaders need to “shed their conventional approach to doing business, embrace the bottom of the pyramid, and invest in research and development inside of the country.”
