By Foot, Bike or Donkey

Economists point to rural Africa, India, China and Eastern Europe as the next big frontiers for multinational corporations. But to be successful in rural developing markets, companies need to customize their approach to the local market in all aspects of their business strategies.

That’s the finding of new research from Smith professor Judy Frels, “Winning in Rural Emerging Markets,” published in California Management Review in summer 2014.

Frels and coauthors from SDA Bocconi School of Management worked with executives from GE Healthcare. GE had 33 executives split into cross-functional teams, who spent five weeks examining what 15 multinational corporations were doing right in rural regions of Africa, Eastern Europe, India and China.

“The big takeaway is not that you have to customize, but the depths to which you have to do that,” Frels says. “Every element of your go-to-market strategy has to be localized to the market you’re entering. For example, in many case studies we examined, distribution channels were so important to success. In rural markets, you have to be really creative about how you get your product to customers.”

Consumers in these markets are almost always living in poverty. Many do not know how to read and lack access to clean water and electricity. This means companies need new ways to reach consumers, distribute products and build relationships. The key strategies:

Localize solutions. Beyond products, companies must also think about service, pricing, packaging, financing and human resources and talent management.

Stay flexible. Create adaptive distribution systems and go-to-market solutions. Invest in local partners to act as a guide to local tastes and norms. Sales structures need to be flexible to meet local needs.

Build trust. Develop trusting relationships with all stakeholders. Customers and employees are critical because word-of-mouth is most trusted, and many times the only marketing available. Strong relationship with government and NGO forces are also critical, as they are strong factors in shaping developing markets.

Frels points to Coca-Cola as one of the best examples of success. The food and beverage giant built a network of micro-distribution centers in rural Africa. The company recruited and trained local people and let them figure out how to distribute Coca-Cola products to customers — by hand, bike, donkey or whatever works best.

Coca-Cola established a successful chain by making sure everybody down the chain can earn a living. The model is so successful that the company partners with the U.S. Agency for International Development, the Global Fund and the Bill and Melinda Gates Foundation to distribute medicines and aid supplies. /CH/