Defenders need to resist the temptation to try to reach all customers or to imitate the multinationals. They'll do better by focusing on consumers who appreciate the local touch and ignoring those who favor global brands.
Shanghai Jahwa, China's oldest cosmetics company, has thrived by astutely exploiting its local orientation—especially its familiarity with the distinct tastes of Chinese consumers. Because standards of beauty vary so much across cultures, the pressure to globalize the cosmetics industry is weak. Nevertheless, as in other such industries, a sizable market segment is attracted to global brands. Young people in China, for example, are currently fascinated by all things Western. Instead of trying to fight for this segment, Jahwa concentrates on the large group of consumers who remain loyal to traditional products. The company has developed low-cost, mass-market brands positioned around beliefs about traditional ingredients.
Many Chinese consumers, for instance, believe that human organs such as the heart and liver are internal spirits that determine the health of the body. Liushen, or "six spirits," is the name of a traditional remedy for prickly heat and other summer ailments, and it's made from a combination of pearl powder and musk. Drawing on this custom, Jahwa launched a Liushen brand of eau de toilette and packaged it for summer use. The brand rapidly gained 6o% of the market and has since been extended to a shower cream also targeted at the liushen user. Unilever and other multinational companies lack this familiarity with local tastes; they have found their products appeal mainly to fashion-conscious city dwellers.
For those product lines that don't have such an intrinsic appeal to consumers, Jahwa has found that it can compete on price. Here Jahwa has taken advantage of the constraints that multinational companies face in adapting Western-designed products to developing countries. Multinationals typically optimize their operations on a global level by standardizing product characteristics, administrative practices, and even pricing, all of which can hamper their flexibility. Products designed for affluent consumers often aren't profitable at prices low enough to attract many buyers in emerging markets. And even if they are, a multinational might damage its global brand by selling its products cheaply.
As a result, a number of Jahwa's foreign rivals have been stuck in gilded cages at the top of the market, giving Jahwa an advantage in reaching consumers with little discretionary income. Revlon, for example, estimates its target market in China to be just 3% of the country, or 39 million people, whereas Jahwa aims at over half the market.
Jahwa has also benefited from the sheer visibility of the multinationals' strategies. Product formulations, brand positioning, and pricing are often well known long before a multinational launches its brands in a foreign market. This transparency affords defenders both the knowledge and the time to preempt a new brand with rival offerings of their own. Jahwa quickly launched its G.LF line of colognes, for example, to protect itself from the entry of a global brand targeted at the upscale urban male segment, which Jahwa had ignored.
Jahwa's strategy has allowed it to weather the initial opening of China's markets—a period when multinational companies often appear irresistible to consumers and local competitors alike. At first, consumers often flock to foreign brands out of curiosity or out of a blind belief in their virtues. Procter & Gamble, for example, grabbed over half the Chinese market for shampoo in just a few years, despite the substantially higher price of its product. But by focusing on offerings that reflect local preferences, Jahwa was able to protect some sales and buy time in which to build up the quality of its products and marketing. Jahwa's managers have good reason to believe that many consumers will eventually shake off their expensive infatuation with foreign brands and go back to Jahwa and other local lines.
Four Strategies
The "defender" strategy adopted by Shanghai Jahwa and others will not be a good fit for all emerging market companies. Niraj Dawar and Tony Frost have identified four distinct strategies - "defender", "extender", "dodger" and "contender" - all based on two parameters: the strength of globalization pressures in an industry and the degree to which a company's assets are transferable internationally.
Dawar and Frost have plotted these strategies in a matrix. (See Positioning for Emerging-Market Companies). At the same time, they warn, "As with any strategic framework, our matrix is not intended to prescribe a course of action but to help managers think about the broad options available."
