The key to successful entry into emerging markets lies in learning about customers in the field through experience. To compete against brands from emerging economies that will come to the fore in the future, it is necessary to learn “emerging market style” strategies. We met Prof. Amitava Chattopadhyay, who has studied firms from emerging markets for more than ten years, and learned those strategies from him.
The last fortnight saw the second quarter announcements of performance from both the Coca Cola Company and PepsiCo.
Although PepsiCo significantly outperformed Coca Cola’s negative 1% growth in net sales (and a 3% decline in profits) by reporting a top line growth of 4% (and a higher profit rate), they both seriously underperformed when compared to AJE, the Peruvian purveyor of Big Cola. AJE with global sales of $2bn is a minnow compared to Coca Cola or Pepsico, but according to the Financial Times, “AJE’s global sales grew at an average of 22 per cent a year from 2000 to 2013”!
The AJE Group and its brand Big Cola, interestingly owes its foundation to the reign of terror by the guerrilla movement Sendero Luminoso (Shining Path) in the 1980s, which led the Añaños family to flee their farm. Forced to think of how to survive, and seeing the withdrawal of the soft drink giants from the market, the five siblings (four brothers and one sister) started making an orange flavored beverage they called Kola Real in 1988 in their courtyard, bottling it in recycled beer bottles, and selling it door-to-door to neighborhood residents and mom and pop outlets in the city of Ayacucho!
The product caught on, and in 1991, the Añaños siblings founded the AJE Group to bottle and expand the business, expanding to smaller cities like Huancayo, Bagua, and Sullana first, then pretty much throughout Peru in a step-by-step fashion, before finally arriving in the Peruvian capital, Lima, in 1999.
In 2000 it began international expansion, targeting neighboring Venezuela and Ecuador. In 2002 it entered Mexico, followed by the countries of Central America in 2004. Around the same time, it also started to add to its brand portfolio. In 2001 it added bottled water under the brand name Cielo, in 2005 Pulp, a citrus fruit drink, and in 2006, Sporade, a hydrating drink. That same year, it also set up its corporate headquarters in Madrid, Spain. In 2010 it entered India, Vietnam, and Indonesia. Today, it is present throughout Latin America and the United States. In Asia it has expanded in to Thailand as well. And aside from Kola Real, Cielo, Pulp, and Sporade, it also owns Cifrut, Volt, and the Big Cola brands.
From the very beginning, AJE focused on serving less affluent consumers, offering lower prices; as an example, to enter Lima in 1999, the Kola Real campaign positioned the brand as “The Fair Price Drink”. And Kola Real prices are approximately 25% lower than that of its main MNC competitors’ offerings. To keep prices low, AJE needs to keep costs low. It does so by paying close attention to its entire value chain, stripping costs aggressively wherever possible. For instance, AJE manufactures its own beverages, unlike its MNC competitors like Coca Cola and PepsiCo, which rely on an extensive network of independent bottlers, because this allows them to produce their beverages at a lower cost.
AJE was also a first mover in to PET bottles, which are ubiquitous today. Not only were these bottles cheaper but they were lighter and less fragile, making them much less expensive to buy, use, and distribute. To keep costs low, AJE invests in partnering with micro-entrepreneurs who use their own transport to distribute AJE’s brands. 92% of AJE’s sales are through such direct partnerships, with only the remaining 8% going through wholesalers, who are more expensive. This distribution model not only helps AJE keep costs low, but also 1. enables them to penetrate deep in to its markets, going to remote locations which remain un- or underserved by their MNC competitors, and 2. penetrate new markets rapidly.
AJE’s success is not just due to lower costs, it also adapts to local markets. For instance, in Asia, it sells a Big Cola without caffeine, to adapt to local market needs. Or when, in Indonesia, the currency weakened, it launched a 300 ml pack priced at Rp 2000 to remain attractive to its target consumers. Today, four short years after entering Indonesia, AJE holds almost 40% of the Indonesian carbonated soft drink market of 1 billion liters per annum!
AJE’s success has drawn the attention of the big MNC operators, who have tried competing by aggressively offering promotional prices and increased spending on advertising. However, this only works in the short term; poorer consumers revert back to AJE’s brands once the promotional prices are withdrawn.
What is interesting is that the dominant MNCs in this space, Coca Cola and PepsiCo, seem unable to deliver growth in the way AJE does or come up with a clear response to AJE’s success. What can we learn from AJE’s success story? There are lessons for both wanna be AJEs, or the so-called EMNCs, as well as for MNCs. These lessons have been detailed in our book The New Emerging Market Multinationals: Four Strategies for Disrupting Markets and Building Brands, and here we review the key points that jump out from AJE’s story:
Surprisingly, PepsiCo and Coca Cola do not seem to be sensitive to these learnings! The future of growth is in the emerging markets and among the bottom of the pyramid consumers there. Failure to learn these lessons and deploy strategies based on them to compete effectively in these markets and among bottom of the pyramid consumers is likely to be perilous for the future!
Another Nazi trial began just a couple of months ago in the Netherlands. While people such Siert Bruins, the man on trial, should be tried and, if found guilty, punished for their crimes, it made me think that while so much time, energy and media space is devoted to the cases of former Nazis and their crimes, no one talks about the crimes committed by the colonial powers in their colonies in roughly the same time period as the Nazis, or the need for punishing the guilty in such cases, or at a minimum, receiving an apology for the heinous crimes that were committed.
Siert Bruins, a former Nazi on trial in the Netherlands
Consider for instance the Jalianwala Bagh massacre in 1919. British Army General Dyer ordered 150 British troops to open fire without warning on peaceful celebrators on the occasion of the Punjabi New Year on April 13, 1919. According to colonial British Raj sources there were 379 fatalities and about 1100 wounded. Civil Surgeon Dr. Smith indicated that there were 1,526 casualties. The true figures of fatalities are unknown, but are likely to be many times higher than the official figure of 379.
According to historian and British Army officer Horace Swanson, “At six minutes to sunset they opened fire on a crowd of about 20,000 people without giving any warning. Towards the exits on either flank, the crowds converged in their frantic effort to get away, jostling, clambering, elbowing and trampling over each other. Seeing this movement, Brigs drew Dyer’s attention to it, and Dyer mistakenly imagining that these sections of the crowd were getting ready to rush him, directed the fire of the troops straight at them. The result was horrifying. Men screamed and went down, to be trampled by those coming after. Some were hit again and again. In places the dead and wounded lay in heaps; men would go down wounded, to find themselves immediately buried beneath a dozen others.
Entrance to Jalianwala Bagh
The firing still went on. Hundreds abandoning all hope of getting away through the exits, tried the walls which in places were five feet high and at others seven or ten. Fighting for a position, they ran at them, clutching at the smooth surfaces, trying frantically to get a hold. Some people almost reached the top to be pulled down by those fighting behind them. Some more agile than the rest, succeeded in getting away, but many more were shot as they clambered up.
20,000 people were caught beneath the hail of bullets: all of them frantically trying to escape from the quiet meeting place which had suddenly become a screaming hell. Some of those who endured it gave their guess as a quarter of an hour. Dyer thought probably 10 minutes; but from the number of rounds fired it may not have been longer than six. In that time an estimated 1000 people were killed, and 1,500 men and boys wounded. The whole Bagh was filled with the sound of sobbing and moaning and the voices of people calling for help.”
General Dyer was never punished. Indeed the then Lieutenant Governor of Punjab, Michael O’Dwyer had a telegram sent to General Dyer saying ” “Your action is correct and the Lieutenant Governor approves.” Dyer died a natural death in Britain in 1927 after being exonerated by a commission. The British government to date has not apologized for this horrific official action by the British Army at Jalianwala Bagh.
Or consider the Hoả Lò Prison in Vietnam. The prison was built in Hanoi by the French, with a capacity to hold 460 prisoners, at the tail end of the 1800s, when Vietnam was still part of French Indochina. The French called the prison Maison Centrale, a traditional euphemism to denote prisons in France. It was intended to hold Vietnamese prisoners, particularly political prisoners agitating for independence, who were often subject to torture and execution. The prison was grossly overcrowded and toward the end of France’s occupation of Vietnam, held over 2000 people; with its inmates held in subhuman conditions. No one has been tried or punished for the inhuman treatment of the Vietnamese, which occurred a full decade after the end of the Nazi era, by the French colonial administration.
Hoả Lò Prison in Hanoi
Or consider the suppression of the Mau Mau by the British in Kenya, which occurred in the post WW II era. The BBC quotes Solicitor Martyn Day as saying “They were put in camps where they were subject to severe torture, malnutrition, beatings. The women were sexually assaulted. Two of the men were castrated. The most severe gruesome torture you could imagine.”
Thousands of Mau Mau suspects were detained in prison camps
“A lot of the officers involved were white, they were controlling the violence against these Mau Mau. It wasn’t just isolated individual officers. It was systematic. The whole purpose was to break the Mau Mau.”
The BBC goes on to report that “The UK says the claim is not valid because of the amount of time since the abuses were alleged to have happened, and that any liability rested with the Kenyan authorities after independence in 1963.”
I wonder at this asymmetry. Why are the atrocities committed by individual Nazis during the Second World War worthy of so much greater attention than these other atrocities? True the Holocaust is particularly heinous not only in modern history, but in history per se, but the individual actors, aside from the architects of that atrocity, generally had no more blood on their hands than the likes of General Dyer or the French adminstrators of Hao Lo Prison.
The answer I think lies in the fact that the Nazi trials are about the death of white Europeans; not brown, yellow, or black people. Why do I say this? One only has to look at the pronouncements of the colonial powers to see this mindset. For instance, the Portuguese government in Lisbon, the overseas empire was a matter of national interest, to be preserved at all costs. And, a Portuguese delegate to the International Labour Conference in Geneva in 1919, less than 100 years ago, is reported to have said: “The assimilation of the so-called inferior races, by cross-breeding, by means of the Christian religion, by the mixing of the most widely divergent elements; freedom of access to the highest offices of state, even in Europe – these are the principles which have always guided Portuguese colonisation in Asia, in Africa, in the Pacific, and previously in America.” (Humbaraci, Arslan and Muchnik, Nicole (1974), Portugal’s African Wars, New York: Joseph Okpaku Publishing Company, p. 99-100). Clearly, non-white citizens of the colonies were seen as inferior, in need of cross-breeding like cattle to raise them to an equal status with their European masters by the Portuguese! One hears the echoes of same racism in the works of celebrated British author and Nobel Laureate in literature, Rudyard Kipling. He portrayed Indian characters and other colonized people as being incapable of surviving without the help of Europeans. His works refer to “lesser breeds without the Law” in “Recessional” and “half-devil and half-child” in the poem “The White Man’s Burden”.
These racist views have not changed. They have merely been suppressed due to their perceived political incorrectness in today’s day and age. One only has to look at the frequent instances of abuse hurled at non-white players during European football matches, or the treatment of North Africans in France, or…, to see that this view still lives on, albeit mainly under the surface on in peoples’ unconscious minds. This is why, I am suggesting that former Nazis are aggressively pursued for their crimes, but the crimes committed by European colonists are swept under the rug!