Global firms grow in emerging markets through local brand acquisition

Though multinational corporations are having success in emerging markets, it’s not necessarily because their global brands and products are besting local competition, according to new research from Georgetown University’s McDonough School of Business. Rather, those corporations are entering and succeeding in emerging markets by launching adapted products and acquiring local brands.

Using data from Euromonitor, the researchers examined the product categories of beer, hair care, and carbonated soft drinks in the “big four” emerging markets: Brazil, Russia, India, and China. They found that global firms posted average annual gains of about 4.1 percent over the first decade of the millennium, but that much of those gains came from local brand acquisition.

“The ‘inevitable’ domination of world markets by global firms is not inevitable,” said Johny K. Johansson, lead author of the study and professor of international business and marketing in Georgetown’s McDonough School of Business. “Multinational companies are enticed to bring their global brands into rapidly industrializing economies with large markets and weak domestic competitors. But those ‘weak’ competitors can have strong loyalties among consumers in the local market.”

For instance, Coca-Cola acquired the largest single cola brand in the Indian market, Thums Up, in 1993 with the intent of gradually replacing Thums Up with the main Coca-Cola brand. However, resistance from loyal distributors and consumers sustained Thums Up,with a market share of 15.7 percent in 2000 and 15.3 percent in 2009. Thums Upstayed neck-and-neck with Pepsi Cola, whose cola share moved down from 18.4 percent in 2000 to 14.9 percent in 2009. 

Johansson and his co-author, Laurence Leigh, assistant professor of marketing at the American University of Beirut, found that in the beer product category with high local loyalty, global firms generally bought up local brands. They found that most local beer producers are under the umbrella of the four big global firms: ABInBev, Carlsberg, Heineken, and SABMiller.

In Russia, the amount of those purchased local brands, or hybrid brands, rose from 35 to 72 percent in the decade, while the truly global brands grew significantly but remained a small share of the market.

Multinationals’ experiences in entering the hair care market also illustrated the strength of local competition. Though global hair care firms and their brands dominate the Russian market at about 65 percent, local brands held steady and some gained slightly from 2001 to 2009. In India and Brazil, the local firms and brands showed more significant market share gains in the decade than the global brands. But in China, global firms increased their shares from about 34 to 60 percent in that time period.

“Many local firms in these markets are competing successfully and creating better products, further ensuring brand loyalty and securing the opportunity to expand internationally,” Johansson said. “In this sense, the globalization process has had a positive effect on the emerging countries and their economies.”

The full study, “The Rate of Penetration by Multinationals into Emerging Markets: Evidence From the BRIC Countries,” was published by the Multinational Business Review and is available at http://www.emeraldinsight.com/journals.htm?articleid=1947885&show=abstract.

About the Author

Johny K. Johansson and Laurence Leigh

Johny K. Johansson, PhD, has been the McCrane/Shaker Professor at Georgetown University’s McDonough School of Business since 1989. A graduate of the Stockholm School of Economics and the University of California, Berkeley, he has published widely in the international marketing area, including Japanese marketing strategies and cross-cultural consumer behavior. His recent work involves global branding and global marketing strategy.