Embracing chaos

embracing chaosYou must have chaos within you to give birth to a dancing star.— Friedrich Nietzsche

Our Developing Market 100 meetings in Mumbai this week—like those in Shanghai several weeks ago—have left me with a distinct impression: If developing market companies can maintain the insurgency and commit to all that it requires, Western-based global multinationals are in for a rough ride.

The Western MNCs, however, can take some solace in that little if. It is not at all clear that the developing market leaders will be able to stay on track and sustain their commitment to embracing the chaotic nature of insurgency.

To help put these two thoughts into perspective, let me ask and answer three questions: 1) Why are the new emerging market insurgents such a threat to the multinationals?, 2) Why will it be so hard for the insurgents to maintain that threat? and 3) What are they doing about it?

The threat of insurgents

As we’ve seen over the last decade, multinational growth increasingly depends on success in emerging markets. That means all the MNCs are targeting the best developing markets and expecting great things. If crowding were the only threat that would be one thing—traditionally Western MNC success was dependent on winning by their rules against a limited set of global competitors. In recent years, however, it has become abundantly clear that the real competitors in these markets are not the other MNCs but an energetic crop of local insurgents. These companies are fast and nimble and are run by senior teams steeped in the Founder’s MentalitySM. They attack like guerrillas with the commitment of owners. They are obsessed with their front lines and aren’t intimidated by the size and scale of MNCs. They borrow what is useful but are just as likely to innovate.

Too often, the big MNCs are slow and unresponsive to local customers, local distributors and local partners. The energies of in-market leaders are wasted on internal conflicts, leaving them too exhausted to fight the local fight. Instead, they all too frequently rely on imposing global solutions on local markets. As I noted in a blog post called Skiing in China, local teams often find that the global scale of their companies turns out to be a competitive disadvantage.

The challenge of insurgency

Given all this, local developing market companies have every opportunity to win locally, even though the Western MNCs have huge scale advantages. These local players are unhampered by “global considerations.” They have local knowledge; they are built for speed and agility; they are proud, hungry and learning fast. They are also used to the chaos of turbulent, unpredictable markets and are able to respond quickly to changes.

But these developing market companies have their own problems. They face two major issues:

  • How do they maintain the insurgency? As we are learning from working with these companies, the more successful they are, the more they start to define themselves as “incumbents.” They lose the sense of how radical and disruptive they were and start to abide by the rules of the industry in which they compete. They gradually become just another player in the industry, which makes them vulnerable to the Western MNCs.
  • How do they scale while retaining the founder’s ability to adapt quickly to local market turbulence? Very often as these developing market companies scale, they are putting in place Western-style best practices that are actually slowing down their capacity to adapt with speed and embrace the “chaos” of their local markets.

Maintaining the insurgency

Through our DM100 meetings, we are helping companies address these two issues and share “insurgent” best practices on how to continue to fight and win against the MNCs. A lot of the lessons they have shared are about how to grow without compromising the ability to respond to changing customer needs and market turbulence quickly and continuously.

As one Indian CEO noted this week, “At our very best, we did whatever it took to help our customers win. We learned to adapt quickly to the market and helped our customers do the same. While our customers were initially enamored by the new technologies the Western MNCs were offering, over time they found these companies inflexible and slow—always pushing the global solution,” the CEO said. “Over time, our most important customers have come back to us—they like our commitment, our adaptability and our speed. Our job is to maintain this at all costs, and this will demand that we maintain a culture that thrives in chaos. I fear that too many of our managers are starting to equate ‘managerial success’ with calmness and predictability. That’s the last thing we want and need.”

We are starting to flesh out with these companies the critical capabilities they will need to embrace chaos. These include:

  • An ability to not simply react to new customer needs but to start to anticipate them. As one CEO said in the DM100 forums, “Fast responsiveness isn’t good enough anymore—we need to anticipate the challenges of our customers’ customer and start to offer up solutions proactively. Turbulence is here to stay, and our customers will demand we help them manage it.”
  • An ability to manage the complexity of the “what” while trying to simplify the “how.” In this context, the “what” is the set of specific products and solutions local customers need. As developing market companies grow, what they offer will get more complex, and they must learn to manage that complexity. The “how” is the set of capabilities needed to deliver tailored solutions. These capabilities must be codified and simplified so they can be standardized across multiple product and service platforms.This distinction between “localizing the what” and “globalizing the how” is talked about a lot within big Western MNCs, but we’ve seen few great examples of leadership teams really sorting out what this means. As one CEO said this week, “I don’t see Western MNCs doing well on either dimension. They don’t really offer local solutions—certainly not compared with what we can do. And they don’t seem to be getting any real scale advantages out of globalizing the ‘how’—I don’t see them doing things faster or cheaper then what we can do. Because we come from a culture of always localizing the ‘what’ I think we’ve done the hard part and creating common processes around the how should be relatively easier for us.”
  • A commitment to recruit as insurgents. This was a big theme in Mumbai. These local developing market insurgents must recruit people that love the ambiguity and unpredictability that comes with working for a start-up. “We have to stop promising predictable career paths and stability to our recruits as though this is a good thing,” said one CEO. “Instead, we have to promise our people they will remain part of a revolution, and revolutions spin and spin and spin—no straight lines.”

Maintaining the insurgency and embracing chaos won’t be easy. The default path for these local insurgents is to gradually become like incumbents as they grow. But the leaders of these companies are starting to recognize this and are working out the steps necessary to avoid losing their edge. It is early days, and it isn’t clear they will succeed. But what is clear is that they are well ahead of their Western rivals in asking the right questions. And that may very well make this a bad time to be a Western MNC looking for growth in emerging markets.

This entry was posted in Net benefits of scale and scope, The westward winds by James Allen. Bookmark the permalink.

About James Allen

James Allen is a senior partner in Bain & Company's London office and recognized as a leading expert in developing global corporate and business unit strategy. He is co-head of Bain’s Global Strategy practice and a member of Bain & Company's European Consumer Products practice. He is co-author, with Chris Zook, of Repeatability (HBR Press, March 2012) and Profit from the Core (HBR Press, 2001 and 2010).

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