Emerging markets represent the new wave of growth for companies. In this article, we shall take a look at how two household names positioned themselves in one of the largest emerging markets today: India. Normal rules of business don’t apply in these emerging economies, which serves as a natural barrier to entry.
Unilever (UN, Financial) is the consumer staples company while Medtronic (MDT, Financial) manufactures medical equipment. Both are recession-proof sectors which are a good addition to any investment portfolio. Consumer staples goods are needed in both good and bad times. In this article, we will look at how Medtronic and Unilever broke into these markets with innovative techniques.
Medtronic: Disruptive low-cost financing for medical products
India is a hotbed for heart disease due to its high propensity for heart diseases and lack of health care insurance coverage. India has a population of 1 billion of out the global population of 7 billion, but its population represent 60% of the world’s heart disease.
After setting up its branch in India for 30 years, Medtronic realized that the Indians’ lack of awareness of their health needs, the lack of proper diagnostics, medical red tape and most importantly affordability are major issues. Medtronic was praised by Harvard Business Review for introducing the first financing scheme for pacemakers in India with its innovative business model by partnering with local partners. My research online indicates that Medtronic is possibly the only company that is providing such financing as I can’t find any competitors who are doing it.
Source: Innosight
Hence, Medtronic solved this major hurdle by creating affordable financing options for low-income Indians to purchase the pacemakers that allowed their hearts to beat normally. Medtronic worked on this from 2013 to 2015 with results of double-digit growth.
Source: Pressreader
This method would now be moved to the U.S. where it would benefit other low-income patients. Such financing that allows patients to pay 15% upfront and the remaining over a period has benefited more than 700 patients over the past seven years. It would also boost the sales for Medtronic's latest pacemaker, Mirca, which is smaller and better but much more expensive. It cost $10,000 which is way higher than the $2,500 for the usual pacemaker. Mirca is seen by industry professionals as the leading-edge pacemaker that can disrupt the market that carried along a $100 million research price tag for Medtronic.
Unilever targets female entrepreneurs
In emerging markets, there are fewer opportunities and entrepreneurship is a way to break out of poverty especially in the poorer regions of India. Women are especially disadvantaged as they don’t have the necessary education and are traditionally barred from business. This also presents a steady pool of distribution channel agents for Unilever under the banner of social enterprise.
In any country, entrepreneurs take on business risk to provide a better life for themselves and their families. Rising business costs and shrinking revenue are a recipe for disaster. This is not unlike poor families who had to afford health care in emerging countries. As a result, these entrepreneurs’ capacity for riskier forms of business are limited.
Unilever solved this problem by creating a foolproof and well-thought-out method of entrepreneurship. It is so simple that even uneducated women can understand them instinctively. A savvy wholeseller brings in the goods and entrusts a small amount with an honest female distributor. These are tracked by customized IT systems all over India.
The seller gets more goods to distribute if she pays back the first batch of goods. Over time, the honest distributor increases her income and quality of life.
Source: Unilever
Since 2001, Unilever provided such IT-enabled entrepreneurship opportunities to over 70,000 Indian women. This enrollment is known as Project Shakti ("strength") and done through local word of mouth. The project is so popular that they don’t have to worry about recruitment and retention in rural India; even men jumped on the bandwagon.
Cracking India
Both companies have cracked the Indian market successfully. They have succeeded where other brave MNCs such as Kellogg (K, Financial), Coca-Cola (KO, Financial), Domino's Pizza (DPZ, Financial) and Mercedes Benz had failed for various reasons. The management had displayed great sensitivity to local culture and nuances in planning and executing their business moves. This is a worthy achievement and both companies should have a place in your investment portfolio.
Disclosure: No shares in any stock mentioned.
