PwC 4 Billion Report: Profitable growth strategies for the Global Emerging Middle
Profitable growth strategies for the next 4 billion€¦ · Profitable growth strategies for the...
Transcript of Profitable growth strategies for the next 4 billion€¦ · Profitable growth strategies for the...
Profitable growth strategies for the next 4 billionLearning from Indian Innovations
www.pwc.com
CFO Conclave24-26 November 2011
Content
• Growth Horizon (s)
• Emerging Middle
• Research Profitable Growth Strategies
- Growth
PwC
- Profit
- Mindset
• Financial Approach
• Relevance for you
Slide 2November 2011CFO Conclave
The ‘Next 4 Bn’ countries provide a growth horizon that is particularly relevant over the coming decade
Target population
NEXT 4 BN HORIZON
HORIZON 1 HORIZON 2
Upper 1bn
Next4bn
Low 1bn
7 Bn Population
Income level > $ 12,196 $ 3,946 - $12,195 $ 996 - $ 3,945 < $ 995
Middle 1bn
DifferenceMiddle
vs. Next
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Sources: World Bank
Yrs of education 14.5 13.8 10.3 7.9
Urban (%) 78 74 41 27
Mobile phones (per 100 people)
106 92 47 22
Internet users (per 100 people)
68.3 29.9 13.7 2.3
Cars (per 1,000 people)
435.1 125.2 20.3 5.8
25%
45%
50%
54%
84%
November 2011Slide 4
CFO Conclave
France GermanyJapan
United Kingdom
United States
30,000
35,000
40,000
45,000
50,000
55,000
GDP/Capita ($), 2011
* Size of Bubble = Population
This ‘Next 4 bn’ is congruent with some of the key growth geographies over the coming decade
PwC
AlgeriaAngola
ArgentinaBrazil
ChinaEgypt India
Indonesia
Kenya
Mexico
NigeriaPakistanSenegal
South Africa
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
-2 0 2 4 6 8 10 12
GDP/Capita ($), 2011
Real GDP Growth, 2011 (%)
Middle ($12,000 - $4,000) Emerging Middle ($4,000 - $1,000) Low (<$1,000) Rich (>$12,000)
Source: IMF and World Bank
Russia
November 2011Slide 5
CFO Conclave
India’s Population Distribution (millions) 1.19 Bn 1.36 Bn
Re Household ($*/day per capita)
Classification
> 8.5 L, ($10) Upper Middle
+
3–8.5 L, ($5-$10) Middle 300
190
2021 (Projection)
170
80
2010 (%)
14%
23%
Within India, a 600 million strong ‘emerging middle’ is the focus of our research
PwC
3–8.5 L, ($5-$10) Middle
1.5 – 3 L, ($1.7-$5) Emerging middle
<1.5 L, (<$1.7) Low290
570
300
460
470
170
Sources: PWC Analysis, NCAER (National Centre for Applied Economic Research), CMI.
All figures are reported at 2010 constant prices
42%
21%
November 2011Slide 7
CFO Conclave
Remarks by Sanjeev Kumar, CFO of Coca-Cola India
1 Relevance of this market for Coke
2 Opportunities & Challenges
PwCNovember 2011
Slide 8CFO Conclave
What are key challenges for profitable growth in this segment?
•Is this horizon relevant?
•How much growth from this segment in 5-10 years?
•How to market and sell to this segment?
GROWTH
•The right business model for profit?PROFIT
PwC
•The right business model for profit?
•Systems and processes required to drive this model?PROFIT
•Understanding needed to connect with customers?
•Mindset needed internally to address this market?MINDSET
Do these innovations give you an advantage in addressing other Horizons?
November 2011Slide 10
CFO Conclave
Our research looked at ‘Profitable Growth’ leaders and practitioners as well as case studies
Innovative Business Models
Shift in Mindset
New Value Propositions
Alam - Emerging Middle Citizen
(Rs 15K per month) “my children should have a better education”
Case study analysis to
document strategies
PwC
MINDSETGROWTH PROFIT
CEO - Mobile Company
“This segment is mainstream for us, with 30-40% of our revenues
over 5 years”
Innovation LeaderR.A. Mashelkar
“More for Less for More should be the mantra for
success”
document strategies of Pioneers and
leaders
Data on trends and solutions relevant
for India
November 2011Slide 11
CFO Conclave
The Indian emerging middle class will constitute a $1 Trillion economy by 2021 with a young, largely rural base
Significant
$ 1 Trillion economy
• Double from now• 30% of Indian economy
DEMOGRAPHICS
PwC
Significant demographic shift and aspiration for
change
Young and Rural
Rapid Change
• Median age < 30 yrs• ~ 70% Rural
• Food less important• Ceremonies, Education etc.
November 2011Slide 12
CFO Conclave
Aspiration Tradeoffs
Understand the very different aspirations,
influencers, and tradeoffs of this segment
Position product and Design Product or
GROWTH
Growth requires understanding unique aspirations positioning and customization for this segment
PwC
Platform Customization
Beyond Cost Position
Design product and services with a few key features, but tailoring it for diversity
Position product and services beyond cost,
pricing beyond functional considerations
Design Product or Service with the specific needs of
this market
November 2011Slide 13
CFO Conclave
Ecosystem Collaboration
Extract value by creating an ecosystem, collaborate with the unorganized sector
Have a modular design, Create a scalable
PROFIT
Profit requires scale thinking, collaboration and use of technology with offline interventions
PwC
Smart Reach
Modular Scale
Cluster marketing and distribution, create local financing mechanism,
enable through technology and offline
Have a modular design, aggregate local demand and think scale from the
beginning
Create a scalable business through collaboration, Technology and
offline
November 2011Slide 14
CFO Conclave
Trusted
Endorsement
Build the brand with aspiration in mind, but using word of mouth to
drive awareness
Drive this business with
Create trust with this segment and
MINDSET
A mindset that creates trust in a unique way backed by performance measures and disruptive thinking
PwC
Disruptive
AND
Values & Metrics
Disruptive changes required in this model alongside
‘AND thinking’
Drive this business with broader values and
incubate it with different metrics
this segment and drive business by measures and disruptive thinking
November 2011Slide 15
CFO Conclave
Idea cellular took a path that consolidated its position in this market before moving up
“Targeted Emerging Middle”
• Smaller town licences to start the
business
PROFITABLE GROWTH FRAMEWORK
80
2010
PwC
business
• Customized for rural and low-
income consumers
• Distribution network of 1,520
branded service centers
• Strength to Move up
Source: PwC analysis, primary research
460
470
170
November 2011Slide 16
CFO Conclave
We see our profitable growth framework comprising 6 key themes and 3 enabling mindsets
PROFITABLE GROWTH FRAMEWORK
Trusted Endorsement
PROFIT
MINDSET
GROWTH
PwC
Ecosystem Collaboration
Values & Metrics
Disruptive AND
Platform
Customization
November 2011Slide 17
CFO Conclave
Financial approach in one case followed a different approach in the Adoption, Acceleration and Steady State
Adoption Acceleration Steady Phase
Revenue
COGS
PwC
Source PwC Analysis
Gross Margin
SG&A
Operating Margins
Asset Investment
Asset Turnover
ROCE
November 2011Slide 19
CFO Conclave
900
1,200
1,500
HORIZON 1 HORIZON 2
2
Population
(Millions)
Resulting innovations can be used to address other horizons
NEXT 4 BN HORIZON
PwC
0
300
600 3 1
Population
(Millions)
Source: PWC Analysis, World bank, IMF
November 2011Slide 21
CFO Conclave
Where are you in this journey? Where are your different businesses?
Next Steps Not Present Entering Steady State NewHorizon
Assess X X
Organizational Situation
PwC
Design X
Construct X
Implement X
Operate & Review
X
November 2011Slide 22
CFO Conclave
How do you create profitable growth in this Horizon?
Demographics and growth:• Opportunity and Growth• Consumer trends• Lateral research Aspiration Tradeoffs:
Beyond Cost Position/ Mass Customization/ Disruptive AND: • Consumers Strategy• Pricing and Market positioning• Innovation strategyTrusted endorsements:• Branding and Messaging
POTENTIAL
ENTRY STRATEGY
DESIGN &ASSESS &
PwC
Aspiration Tradeoffs:• Competition and Substitutes
Modular scale • Value Chain DesignSmart Reach • Sales and Distribution• Alliances
• Finance and Regulatory• Quality Control• Operations Management• Training, Recruitment, HR
OPERATING MODEL
STEADY STATE/NEW HORIZON
DESIGN &CONSTRUCT
CONSTRUCT &
IMPLEMENT
OPERATE &REVIEW
ASSESS &DESIGN
November 2011Slide 23
CFO Conclave
Thank you!
© 2011 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.