Now other companies are doing the same. “We’ve learned that all of our customers are more different than similar,” says Kyle Gendreau, CFO of Samsonite, the privately held U.S. luggage company. He says Asia — not only Japan, but also emerging markets in the region like China and India — will not simply drive Samsonite’s growth but “have the potential to double our revenue in the next five years.”
A key to growth, says Gendreau, is that the company decided two years ago to abandon its centralized global philosophy and “empower” country general managers, allowing them, for example, to develop marketing and distribution strategies “to push the products” as they see fit, versus relying on corporate headquarters to dictate the plan. “Letting people be entrepreneurial on the ground drives growth,” he says. “It’s really paying off for us.”
Another practice that requires a rethink: determining exactly where the best markets are. For example, Mike Devine, CFO of Coach, the $3.3 billion, New York–based handbag and accessories company, says that while China’s megacities, including Beijing and Shanghai, have helped Coach’s sales double year on year (to $100 million in fiscal 2010), the company is now also increasingly focusing on the country’s relatively smaller “tier-two” and “tier-three” cities. Those cities, which include Chongqing and Dalian, are home to a large portion of the country’s new middle-class and will be attracting many of the 300 million rural Chinese expected to migrate to towns and cities in the next 10 years.
They are also home to many of Coach’s 75 million target customers (urban men and women born after 1966 who earn at least $10,000 a year, a consumer population that will increase to more than 200 million in the next five years). Of the 25 Coach stores being opened in China during the current fiscal year ending in June, Devine says only a “handful” will be in the biggest cities, while the majority will be in the tier-two cities, with “tweaked” marketing and product strategies to appeal to local shoppers.
This universe of fast-growing cities is expanding quickly. A recent report from Boston Consulting Group identified 717 cities around the world with populations of more than 500,000, and noted that another 371 such cities will reach this size by 2030. Among them are Ahmedabad, India; Curitiba, Brazil; and Jakarta, Indonesia. By 2015, these cities will account for 30% of global private consumption, which is growing 11% annually.
Don’t Rest Easy
A third assumption is that emerging markets have, by now, modernized and globalized. That’s only partly true. Consider China. It has been nearly 10 years since it became a member of the World Trade Organization and adopted a host of new laws and agreements that facilitate more foreign investment.
Those improvements, while critical, often lull executives from developed countries into a false sense of security, asserts Nandani Lynton, adjunct management professor at China Europe International Business School in Shanghai. “Years ago I used to think, ‘Oh, there’s another CEO who has checked his brains at Immigration.’ People were just getting carried away by the huge market and the stories of growth,” she says. “The same mistake is being made today, but it’s no longer because the markets look so exotic; it’s because the CEO or CFO who comes to visit is made to feel so comfortable.”