[MUSIC PLAYING][Marketing in Emerging Markets][What is an emerging market and how is it distinct?Can you speak to the origin of the term 'emerging markets'?]

JAGDISH SHETH: Emerging markets is a new word for somethingwe all talked about.[Jagdish Sheth, Charles H. Kellstadt Professorof Marketing, Emory Goizueta Business School]It used to be called Third World countries.It used to be called less-developed economies.But the new word really began in the mid '80s to early '90s

JAGDISH SHETH [continued]: as emerging markets.The definition of emerging marketsis very simple-- those economies thatare transitioning from the agricultural-based economyto more and more manufacturing or industrial based economy.That's the ultimate definition.Emerging markets are often confused

JAGDISH SHETH [continued]: with transition economies like the Soviet Union economieswhich after breakup of the Soviet Unionswe had Hungary for example, Czech and the Slovak, Poland,et cetera.But they are called transition economiesbecause they were industrialized.But they were not doing the typical free economy market

JAGDISH SHETH [continued]: economies by and large.Emerging markets are often confusedwith transition economies.The transition economies are reallythose which are already industrializedbut under the communist Soviet Union when it broke up.So countries like Hungary, Czech, Slovak,

JAGDISH SHETH [continued]: now Estonia for example, Romania, Bulgariaare the ones that are also often labeled as emerging economies,but generally they are more transition economies.The emerging markets are quite different from advanced marketsat least in three dimensions.

JAGDISH SHETH [continued]: The biggest dimension is that they allhave unbranded competition.There are no branded products and branded services.And that seems to be the biggest opportunitybecause in the Western world we have learnedthe power of branding, the power of marketing,the power of distribution.

JAGDISH SHETH [continued]: And all those competencies can become very valuableas more and more households, rather than making thingsat home, begin to buy in the marketplace commerciallyproduced, branded, quality products.That's clearly one difference.Second major difference is that emerging markets

JAGDISH SHETH [continued]: have very poor infrastructure, not onlyphysical infrastructure like the shipping for example,warehousing but financial infrastructureand infrastructures of all kinds.They don't have credit facilities, for example.There are no credit cards and all this stuffbegins to also make a big difference.

JAGDISH SHETH [continued]: The third clear difference between emerging marketsand advanced market sees that competition is very localized.Not only do you have cultural differencesbecause most of the emerging marketsare really driven by what I call social political systems,

JAGDISH SHETH [continued]: you have faith-based norms.You have a clan-based norms.You have government rules and regulations.So they're not as free competitive economiesas advanced countries would be.[Why do many of the markets that have been emerged in the globaleconomy continue to hold significant strength in it?]

JAGDISH SHETH [continued]: Many, many emerging markets have nowbecome more middle-income markets, as they callit, or more advanced economies.Perception always lags reality.So for example, people still rememberJapan as a country of low-quality, low-priced

JAGDISH SHETH [continued]: manufacturers.But Japan has moved on way beyond todayand may be one of the best quality productproducers in the world.South Korea has gone through that same journey,but our images are still stuck in the history.And to me, this is a problem about countries like Chinaright now.

JAGDISH SHETH [continued]: This is a problem about Vietnam.This is a problem about Brazil, a problem about Mexico,and definitely about India.Nobody thought that India could havein the professional services the level of IT services talent.It is probably the largest outsourcing for IT services.

JAGDISH SHETH [continued]: It is probably the largest outsourcing, surprisingly,for all professional services including accounting,legal services, and definitely publishingwhich is interesting.So India lags that image because stillbelieve India is a country of roaming cow and snake charmers.The mass media does not talk about the future positioning

JAGDISH SHETH [continued]: of the nations about these emerging economies whichcreates all kinds of interesting problemsbecause we underestimate competitioncoming from those countries.Today, China manufactures at all levels of quality--the cheapest products with no quality to the most luxury

JAGDISH SHETH [continued]: brands with the highest quality--but our image of China is that "made in China" is cheap goods.So perception lags reality.[Emerging markets tend to be clustered into acronyms.What is your take on the clustering of countries?]You know, the best report recentlythat created an excitement about emerging markets

JAGDISH SHETH [continued]: was Goldman Sachs report on BRICS economy.It was based upon the size of the economyand a new measure called purchasing power parity.The emphasis was that these are large nationswith huge populations and a stronger potential growth.There's nothing else in common.

JAGDISH SHETH [continued]: So the BRICS, which stands for Brazil, Russia, India, China,and the other South Africa eventually-- calledBRICS eventually-- I think it is not representationof anything else.From a marketing viewpoint, it makes no sense.Some of these groups are created for geopolitical alignments.Some of these groups are created from an economic macro

JAGDISH SHETH [continued]: perspective which may or may not be useful from a marketingperspective.What I like are different set of groupings which are primarilyfree trade agreements or groupings where there'sa regional no boundaries for free flowof products and brands, free flowof advertising and communication,free flow of distribution, for example.

JAGDISH SHETH [continued]: And those are the newer groups.NAFTA would fall into that categorywhere Mexico as an emerging economyis pretty much integrated with the Northern American economy.European Union, especially the Northern Europeintegrating with Southern Europe,is exactly the same thing.Countries like Portugal, et cetera

JAGDISH SHETH [continued]: may be more in the emerging categoriesbecause still very much agriculturally oriented.They're just getting more industrializedcompared to Northern Europe.And groupings like the asean makes senseif it is free trade.So if wherever there's a free trade, there's a new groupings.Otherwise, the groupings will actually

JAGDISH SHETH [continued]: make us go in wrong direction from a marketing viewpoint.[What are the cross-cultural challengesfor firms in marketing to emerging markets?What are the opportunities?]There are probably two, maybe three cross-cultural aspects.One is the whole notion about the silent languages of doing

JAGDISH SHETH [continued]: business in different cultures.So the language of friendship-- friendship matters more in manyof these emerging economies where relationship is anchoredto friendship, mutual obligations as opposedto purely merit-based transactions.Doing business with family is considered, actually,

JAGDISH SHETH [continued]: more appropriate whereas in the Western NorthernEuropean thinking, doing business with familywould be considered nepotism, maybe conflictof interest-- key difference between the two.In emerging markets, quite often the relationshipmatters to a level where you would only

JAGDISH SHETH [continued]: do business with people that you trust and know.Give you a quick example.The whole diamond industry where India is the largest diamondmaker in the world is all within one clan, essentially.Very similar to the Hasidic Jewish clan that reallydominates the diamond business in Antwerp, in Israel,

JAGDISH SHETH [continued]: and in New York.There, there is no written language.There are no contracts.You give hundreds of thousands of dollars of diamond packagesto each other just on trust.This is unthinkable from a Western and Northern Europeanperspective.And that's one key cultural differencein terms of the silent language of friendship and relationship.

JAGDISH SHETH [continued]: Silent language of contracts-- the same way.Silent language of time-- in many countries, timeis not as critical, as precise as itwill be in the Northern European countries, for example.There's a time dimension.So these are four or five silent languagesof doing business which comes to play in the way you market

JAGDISH SHETH [continued]: to each other.Second area has much more to do with something that I'vebeen doing a lot of research.Most emerging economies are around tropical zonesaround equator.We never have studied north-south dimensionsof consumption and cultures.

JAGDISH SHETH [continued]: We always studied east-west dimensions.We always had the notion-- Rudyard Kiplingwho said "East is East.West is West.The twain shall never meet."By the way, he's not only-- he's dead wrong.He's not only dead, but he's wrong weare finding because the Asian culture is verysimilar to Western culture now.

JAGDISH SHETH [continued]: The new millenniums are the same all over the world.So those cultural assimilations are much greaterexcept for one dimension.If you plot countries north-south by climatic zones,ultimately all genetics and all cultural habits,which are the norms established by the family, or by the faith,

JAGDISH SHETH [continued]: or by a nation-- whatever they areare organized around managing your life and adaptabilityto your climatic zones.So if you take the Northern European,the only source for protein, fat, and caloriescan come from animal.There is no vegetation.So the Northern European diet will be meat and potatoes.

JAGDISH SHETH [continued]: Spice will be only salt and pepper.That's all they know.That's all they could grow.Culturally, they are anchored to that.As you go to Mediterranean climates,you will see lot less source of protein, calorie, fatfrom animals, more from fruits and vegetables--what we call Mediterranean diet.As you go to our tropical country,

JAGDISH SHETH [continued]: it becomes even further.For example, I did the research on cheese content.Northern European cheese will have 40% fat content.If you go to Mediterranean climates, whichis the temperate climate, the cheese contentwould be in mozzarella, Parmesan,feta cheese-- would be about 2%, 2 and 1/2%.

JAGDISH SHETH [continued]: As you go toward the equator worldwide,the concept of cheese drops from all cultures.It is taken over by olive oil, coconut oil, or avocadoin Mexico.So animal-based sourcing because that'show the genes adapted themselves as they migrated--if you believe the old theory-- from Africa to everywhere else

JAGDISH SHETH [continued]: is the gene adaptation which means the genetic differencesare very sharp between emerging economy genes and advancedeconomy genes.I run the same analysis on clothing.So for example, in Northern Europe,where do you get your source for clothing?It only comes from animal which is leather and wool which

JAGDISH SHETH [continued]: is prized.In hot tropical climate, both arevery dangerous raw materials so switch to cotton or linen.The design of the clothing will bein Northern Europe insulation.You will wear three layers.You want to protect from extreme cold.

JAGDISH SHETH [continued]: In warm climates, one layer only.Northern Europeans will have very pastel colorsbecause they couldn't grow anything else.Warm climates from the Indian sarito the African native dress to Pacific Islands-- very colorfuldisplay.And this is where one looks down on the other in termsof the differences.

JAGDISH SHETH [continued]: What we are to understand is that differences are real,and there's no such a thing as a superiority of oneculture over the other culture.If you do that well then you will be better marketer.[Can you speak of some of the practical differences betweenmarketing decisions made for markets abroad,and local marketing teams devising their own strategiesand plans?]The foreign multinationals from advanced countries

JAGDISH SHETH [continued]: as they go to emerging economies take a coupleof stereotypes in their mind.One of the ones that I've been strongly,strongly talking about and publishingis that we still have the colonial mindset.Most of these are ex-colonies and therefore, wetreat them that they don't have buying power

JAGDISH SHETH [continued]: because buying power is measured by Western measures.This is clearly one key problem.So they often underestimate the market, the size of the market.They don't understand the distribution systemwhich is the second major-- market access primarily.Third thing-- they often don't knowhow to make products more affordable.

JAGDISH SHETH [continued]: So often when they go from advanced economiesto emerging markets, they may thinkthat it best how to localize-- let's saythe packaging, the content, et cetera.But many of these firms have very strong corporate policiesdoing business the same way worldwide.So take an example of McDonald's.

JAGDISH SHETH [continued]: McDonald's when it went to India simplycould not offer hamburgers in the traditional waybecause India is opposed to anything that comes from cow.If they had followed the corporate policy as it is,they would have died almost.They would have not done very well.But because of franchise system, the local franchisee

JAGDISH SHETH [continued]: understood the Indian culture.The raw material access itself is a problemin many of these countries.You can localize it.Local manufacturers or local branded products companiesunderstand that reality.They know how to source local raw materials.One of the best examples is Inca Kola in Latin America.

JAGDISH SHETH [continued]: It always competed very successfully against Coca-Colabased upon some local [INAUDIBLE].Whether it's a myth or a reality, I don't know.But it sold very well out of Peru.It has become a cult brand almost,that they can compete against the big multinationals.I think there is another very key nationalistic spirit

JAGDISH SHETH [continued]: that many of the local makers promote to saythis is an indigenously made.It's good for us.It's good for the nation.And we can compete with world-class foreignmanufacturers or multinationals.In India, there have been number of innovations like that.For example, everybody sells shampoo.Shampoo may be very appropriate for the urban, educated class,

JAGDISH SHETH [continued]: but rural India you don't have the washing systemslike running water, for example.You don't have the affordability of a large bottle of shampoo.So somebody in India came up with the idea--was not a multinational but somebody in India-basedwho came out with a sachet-based shampoo individual serving--

JAGDISH SHETH [continued]: reduces the affordability cost.You're buying by each package pretty much.And it can be done anywhere whereyou take your bath, your shower, for example.Now, that has been emulated by multinationals.And I'm told that the largest market and the most profitablemarket for sachet-based shampoos is Mexico, interestingly.

JAGDISH SHETH [continued]: If you're a local, you understandthat whole affordability aspect, accessibility aspectquite a lot.Western multinationals always thinkabout cultural differences or product acceptability aspectsbut not about the distribution and about the pricing aspects.[What has been the impact of digital technologieson marketing in emerging markets?]

JAGDISH SHETH [continued]: Digital technologies in emerging marketsis probably more transformative than computers in America.In the US, as you know, and advanced countries,we began with the PC revolution which primarily becamethe digital platform as compared to,

JAGDISH SHETH [continued]: let's say, a telephone, as compared to print that we do.I think they leapfrogged all together into cell phones.So the mobile digital platforms arevery important to understand.In emerging markets, especially in China and India,the population size is so large, cell phones are very much more

JAGDISH SHETH [continued]: affordable than PCs would be, whichare more affordable than legacy mainframe computers, clearly.What was primarily an enterprise marketproduct, which is the PC, now becomes a consumer marketproduct.That is why when I was doing researchon cellular telephone in America,

JAGDISH SHETH [continued]: the consultants had advised us that total cellular market,telephone market services-wise, wouldbe no more than 950,000 subscribers by year 2000because they were thinking about an enterprise market.Nobody imagined that China and Indiawill be the largest cell phone subscribers and cell phone

JAGDISH SHETH [continued]: users.Each one of them is almost reachingnow billion subscribers each, and itis very affordable platform.What is happening-- what began with the voice technologyprimarily in cell phones, like the Nokia at one time,now is becoming smartphones.And as smartphones become more and more affordable,

JAGDISH SHETH [continued]: you will see large population engaging into social media.While we think of Facebook, we think of LinkedIn,we think of Twitter, but you see WhatsApp.WhatsApp is a very large platform in India, for example.Everybody uses WhatsApp.

JAGDISH SHETH [continued]: So to me, this is going to transformeverything we do in marketing.Marketing communication, marketing distribution,marketing information access-- clearly one major change.Second thing I find is that digital mediais a two-way interactive medium also with proper networking.

JAGDISH SHETH [continued]: So you are getting more and more user-generated content now.All social media generates enormous user contentreal-time.So the typical editorial approachto generating content through traditional media like print--publishing magazines, books, newspapers-- or television

JAGDISH SHETH [continued]: media or radio is totally shifting upside down here.Content is more from the users and, therefore,the biggest recommendation or the bigger strategyis how do you curate this content?How do you organize it like a good museum or a good librarywhich is a very different skill set

JAGDISH SHETH [continued]: than how do you create content and how do you publish content.To me, that is changing enormously also.The third area of digital marketing impactin emerging markets is that I thinkthey will go buying e-commerce, e-retailing as we call it,much sooner than we realized.China has already shown that Alibaba is as big as Amazon,

JAGDISH SHETH [continued]: maybe bigger.India now is starting their own startups locally.Flipkart is one of them.Snapdeal is another one, for example.Amazon is racing.To me, the largest single e-commerce marketswill be not in advanced countries,but they'll be in large emerging economiessuch as China and India.

JAGDISH SHETH [continued]: [How are firms preparing for the power shift in the developmentof their products and services as major emerging economiesbecome the world's leading economies?]Emerging economies are likely to become the largest economies,especially in consumer markets.Boston Consulting Group, for example,has done a research measuring on the purchasing power parity.

JAGDISH SHETH [continued]: China and India alone will be $10 trillion consumereconomies.That includes from cell phones to grocery productsto appliances to consumer electronics,automobiles, et cetera.I think this consumer market economies out

JAGDISH SHETH [continued]: of emerging economies will be more transformative.And more and more if you have consumer marketsdriven economies, it impacts the upstreaming value creation.Now, the suppliers have to understand that market.You may be a DuPont selling chemicals never to consumersbut you are to understand how your customers, your customers,

JAGDISH SHETH [continued]: your customers are changing.So it'll have a huge upstreaming impact on steel.It will be upstreaming impact on cement,upstreaming impact on chemicals, anything that you do.To me, that's a very key change.Most advanced countries are unable to understandthat because they are so much inertia with their own market.

JAGDISH SHETH [continued]: Most American corporations when you look at the revenueanalysis, if you do it, still 70, 75% of their revenuewill come from North America alone.Or if they are diversified, it willcome from Northern Europe, Western Europe,essentially, or from Japan.This requires following changes.One that I recommend is that have

JAGDISH SHETH [continued]: your corporate headquarters move to one of those emerging marketcapitals.Why should it be in New York?Why should it be in London?Because it then gives you the ecosystem of London thinking,New York thinking.You have to be where the markets are notwhere the investors are which I think

JAGDISH SHETH [continued]: is a very key paradigm shift.We've already seen the rise of professional managers comingfrom emerging economies.It's very interesting to watch how many CEOs of Silicon Valleytechnology companies now are of Indian originwhether it's a Microsoft, it's a Google, et cetera.

JAGDISH SHETH [continued]: And this is happening in UK economy that I have seen.It is happening in many advanced economies-- so to me,having a mindset of management thatcomes or is groomed into the emerging economiesnot just visiting for two weeks but living and breathing there.So my recommendation has been-- the second thing

JAGDISH SHETH [continued]: you should do is to rotate your marketingmanagers around the world into different places.And by the way, have them localizedsimilar to what people in the diplomacy corpsthey do-- foreign ministry where the diplomats after every twoor three years going to a different culture,

JAGDISH SHETH [continued]: learn different language, immerse themselvesinto the culture, so they truly become world citizens.So how do you create world citizens out of your marketingstaff is going to be very, very important second recommendationthat I make.The third one is interesting which has to do with branding.

JAGDISH SHETH [continued]: Should we have the brand that we created as the only brandsthere or should we have two brand strategy?Is it possible to take a brand from one of those emergingeconomies and make it global if youare a global enterprise because you have access to NorthAmerica as a multinational.You have access to, in fact, UK market or European market.

JAGDISH SHETH [continued]: Is it possible, therefore, for BMW?Is it possible for a Mercedes Benzto have a second brand that comes from an emerging economyand takes them globally?We have already talked about this innovation calledreverse innovation where the idea is that you createmore affordable and more accessible

JAGDISH SHETH [continued]: products such as, for example, batteryoperated medical devices because there'sno electricity in rural populations--very affordable, very portable.And take those and then offer it into advanced economies.This reverse innovation idea thathas been very heavily used by General Electric,

JAGDISH SHETH [continued]: by Phillips, by Siemens-- all these companieswho make medical devices-- very large machines.What is million plus dollars-- can you do it, in fact,for about $10,000?That's a very key disruption or a discontinuity,I think, that taught has to have the reverse marketing also

JAGDISH SHETH [continued]: not just a reverse innovation.Then I think these markets would be very much onethat you will be able to establish your beachheadand become truly global.[What are some of the key theories on the literatureof emerging markets, and how have the academic debateschanged in recent years?]Unfortunately, there is no good theory on emerging markets.

JAGDISH SHETH [continued]: Many, many years ago I wrote about international marketing.International marketing was just an extension of marketingin an international context.So you talked about cultural differences.You talked about administrative differences-- rules,regulations.You talked about economic maturity differences,

JAGDISH SHETH [continued]: et cetera.But you never talked about, in fact, whatis that local area, primarily?There is no theory of international marketingwhich is why international marketing became domaincentric, never became a theory.Now, became a discipline.I've seen the same thing about relationship marketing--became a domain not a discipline.

JAGDISH SHETH [continued]: On the other hand, strategy became a dominant disciplinefrom a domain primarily.So market orientation in theory came along.I think emerging markets badly needis in search of a good theory.And the question is, who will create that good theory?Will it come from marketing academics?

JAGDISH SHETH [continued]: Will it come from management-- Academyof Management scholars-- which are allfocusing on emerging markets, and theory of management,and marketing a part of that?Or will it come from totally different discipline?In marketing, consumer behavior reallyhas taken off by the psychological perspectives.

JAGDISH SHETH [continued]: Good psychological theories from simple oneslike cognitive dissonance to more complex theoriesof information processing, we have used heavily.So the question is going to be whether a theory of emergingmarkets will come from, let's say,social political institutional view out of economics?

JAGDISH SHETH [continued]: Will it come from an anthropological view,for example, which is a very different perspective?Will it come from a sociological institutional perspectivewhich we adopt and simply say this isa theory of emerging markets?I'll try to dabble in that one myself,but there is not theory as yet.It has an elements behind.

JAGDISH SHETH [continued]: I need to integrate everything into a full-fledged theoryas my professor and I did about the theory of buyer behaviorwhich be therefore, consumer became a disciplinewith a good theory.[What role does research methodology playin researching emerging markets?How vital are cross-cultural approaches,and how are they implemented?]

JAGDISH SHETH [continued]: The research methods for emergingmarkets-- we have always had a debate.Should it be different than research methodsfor advanced countries?And the answer is, of course, yes and no.When it comes to more recent data analytics,I don't think there is any difference.

JAGDISH SHETH [continued]: Social media data are both places.In fact, just recent my visit in India,I've actually gone to a cellular service operatorsand have been getting the data from themto analyze which is just like analyzing the data here.Even the old myth that the research techniqueshave to be different, AC Nielsen destroyed that.

JAGDISH SHETH [continued]: They came out with Nielsen panel anywhere in the worldincluding in India, including China-- retail audit,for example.I think the similar myth we created,Gallup destroyed that by having Gallup pollsall over the world.There are other market research firmsthat do lifestyle research all over the world.So to me, research methods are culturally agnostic.

JAGDISH SHETH [continued]: What is agnostic is actually the content and the wayyou go about doing it.So for example, if you wanted to create a sample whichis representative of a universe, youneed to know a universe-- define the universe.Many of these emerging markets, there is no census.Borders are porous.

JAGDISH SHETH [continued]: India, as an example again, for the first timeis using biometric technique to have an identificationof every human being.They just crossed 880 million people now havingbiometric information.Now you know who they are and therefore, now you

JAGDISH SHETH [continued]: can have a census properly.So you don't know the universe whichmeans you don't know how to sample that.Second major mistake we make is classificationin consumer markets where most of this researchis done about, for example, social economic classes.They were defined by the Western standards

JAGDISH SHETH [continued]: of per capita income-- kind of occupation, kind of educationthat you have.It may not map very well in emerging markets.In emerging markets, you may be in a different social economicclass because you are basically owner-managed business.May not have education, may not have the occupation

JAGDISH SHETH [continued]: that we think is career oriented.These are all owner-managed businesses,but they're very wealthy at the same time.So this destroys the notion.To me, it's mostly about sampling,definition of the universe, and sometimes language differences.Because languages are different and their meaningsare different, so try to translate

JAGDISH SHETH [continued]: what is an English language-based opinion surveyresearch is one that gets into more difficulty for us.In my own research between Yugoslavia and America,I found that was fascinating.Certain things in communist nation at that timeyou couldn't even talk about it such as roleof unions, for example, role of political parties, et cetera.

JAGDISH SHETH [continued]: I think those are the cultural differences thatcome in the way.[MUSIC PLAYING]