All roads lead to the emerging markets
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Emerging markets are the new market structures that are arising from digitalization, deregulation and globalization. McKinsey estimates that by 2025, consumption in the emerging markets will account for US$30 trillion – nearly half of the global consumption. By 2020, India is projected to be the world's third largest middle class consumer market behind China and the US.
Emerging markets present phenomenal growth opportunities for global brands. However, the distribution channel in these markets is dramatically different as compared to the developed markets. Emerging markets are dominated by un-organized sector or traditional retail. Approximately 70% of goods are sold through traditional retail in these markets. The un-organized sector has a complex and weak distribution network and the most common sales channel for global brands is to operate through distributors. 90% of the goods are sold through distributors in the emerging markets.
Challenges of the emerging market distribution model
Emerging markets are characterized by a fragmented distribution network, comprising thousands of distributors and millions of retailers. Business players (manufacturers, distributors, retailers and consumers) in the distribution network in these markets work in silos. In addition, they are not technologically well enabled. In many large cities in emerging markets, distribution of goods is typically through small ‘hole-in-the-wall’ shops. For example, India itself has 12 million traditional retail stores that usually lack proper distribution networks. As a result, global brands do not get visibility into the demand chain placing pressure on forecast accuracy, managing inventory and customer service. This further impacts a brand’s ability to sense and respond to market needs.
Reaching the consumers
Brands need to collaborate with disparate distributors and improve downstream supply chain data capability to reach the un-served customers and un-tapped markets. They need to collect information from all the distribution network business players to operate effectively and efficiently in the emerging markets.
Demand chain management
Global brands need to adopt some of the below best practices to collaborate with distributors effectively in traditional trade –