14 www.scip.

org Competitive Intelligence

Turbulent times have hit both Organization for
Economic Cooperation and Development (OECD) and
emerging country economies. Deceleration in growth rates
of gross domestic product (GDP), consumer expenditure,
and international trade has put corporate earnings into a
tailspin. At the same time, the competition for a share of the
consumers wallet is becoming more severe. In Chan Kim and
Renee Mauborgnes parlance, the Red Ocean is becoming
bloodier (Borengaser/Jenkins 2008).
With competition in existing markets (Red Ocean)
becoming more intense, many businesses are seeking
opportunities in new geographies. Emerging markets such
as China, India, Indonesia, Brazil, and others do provide
opportunities. Nonetheless even these markets have limited
white space, as local firms and the early-bird multinationals
are already safely ensconced there. This limits the scope of
arbitrage opportunities through geographical extension in
emerging economies.
Additionally, the emerging countries are increasing their
connections with the OECD economies. Strong linkages
exist in terms of capital flows, investment, and trade. The
impact of the international meltdown also affects emerging
economies such as India, China, Indonesia, Brazil, and
Mexico. Yet to some extent, many of these countries have
large domestic markets that are insulated from external chaos.
Companies can further extend or stretch their markets in
many product fields through the creative application of Blue
Ocean strategies.
COMPETITION PARADIGMS
The question that resonates across economies and
industries is how to build unassailable value innovations
which create new customers for specific product groups or
services. Entrepreneurs have grappled with this issue for
decades before the arrival of the stylized concept of Blue
Ocean.
The current competition paradigms, such as structure
conduct performance, five forces model and Blue Ocean
strategy, base themselves largely on the experiences of
developed countries. Several questions need to be answered
within the context of emerging economies:
How often do firms identify Blue Ocean opportunities
in emerging economies?
What is the nature of its value innovation?
How sustainable is the proposition?
EXAMPLE: LAUNDRY SOAPS AND DETERGENTS
In the early seventies, the Indian fabric wash market
was divided into two distinct categories, laundry soaps and
detergents. Laundry soap prices and quality fluctuated based
on current vegetable oil and fat prices, and the laundry soap
market was largely fragmented. The detergents market, which
could be further sub-divided into bars and powders, was
evolving. Initially the Indian subsidiary of Unilever was the
dominant player in this market.
In 1969, a small scale entrepreneur started detergent
powder production in his backyard. He priced his brand,
Nirma, at around one third the average retail price and at
75% of the quality level of existing detergent powders. This
product acquired a perceptible market size by the beginning
of the 1980s. Further, he created intensive distribution
networks in the Western Indian region where he was located.
He had lower capital costs, as his manufacturing process
did not use a blowing tower like other large scale detergent
manufacturers. A greater dependence on soda ash in the
By Siddhartha Roy, Tata Group
Emerging
Markets and Blue
Ocean Strategy
Volume 13 Number 1 January/March 2010 www.scip.org 15
product formulation enabled him to keep the material costs
low. Consumers accepted the level of product performance,
although the product was harsh on hands in bucket wash
situations.
The Nirma brand developed a strong clientele amongst
households at the lower end of the income pyramid. By
the mid-1980s it gained about 30% share of the detergent
powder market. Emboldened by this success, in 1987 he also
launched a detergent bar.
To counter Nirmas market penetration, the Indian
subsidiary of Unilever launched a brand called Wheel
which matched Nirma in most of the elements of cost and
business systems. To do this the company had to move
away from capital intensive blowing tower technology and
deliver a product formulation that would provide superior
performance at a matching cost.
Furthermore, the Wheel brand had to be supported by
a focused communication and branding exercise to carve out
a decent tonnage for itself. The bulk of this tonnage gain did
not come from market share gains within detergent powders,
but the major factor was market expansion: former non-
consumers of detergent powders (most were laundry soap
users) became detergent powder users. Within the overall
fabric wash category detergent powders substituted laundry
soaps.
In the early years a significant part of Wheels growth
came from laundry soaps. Marketing efforts carried out
by the two competitors, Nirma and Wheel, led to overall
detergents market expansion. Consequently, in the fabric
wash market laundry soaps tonnage started declining as soap
users, particularly those in the lower income groups, were
converted into customers of detergents. This value innovation
and development of new customers makes the Nirma-Wheel
saga an useful example of Blue Ocean strategy.
EXAMPLE: SHAMPOO PACKAGING
In the early 1990s Indian hair care market, the
government considered shampoos a luxury product and
subjected them to a 120% excise duty. Consequently, the
price of a 200 ml bottle was much higher than the daily wage
of an industrial worker.
In the mid-1980s, an innovative small-scale
entrepreneur in South India introduced a single-use shampoo
sachet at a very low unit cost. The packaging was a major
value innovation in terms of affordability and price point. It
sharply increased the customer base for shampoo as the focus
on unit value significantly helped in converting non-users
into customers. All the organized players and multinationals
followed suit and the shampoo market growth exploded,
further aided by the governments lowering of excise duties on
the product. Towards the end of the 1990s, the sachet market
segment held more than two thirds of the total shampoo
market.
In each of these two cases value innovations driven by
small scale entrepreneurs brought about a structural change
in the markets. The demand curve shifted to the right, and
the average price point dropped significantly.
An interesting aspect of emerging market economies
is that demographic as well as economic growth leads to
market expansion. Markets in these economies grow when
more people are using the product (penetration growth) or
through increase in usage (quantity used per capita goes up).
Normally, penetration growth of a product category in an
emerging economy like China, Brazil, South Africa, or India
is faster than the increase in the usage depth. Consequently,
several players have the space to grow for several years. This is
an issue worth pondering over. The first principle of the Blue
Ocean strategy is to reconstruct market boundaries to break
from competition and create blue oceans.
Barring toilet soaps and detergents (which have 90%
penetration rate), many personal care products have much
lower customer percentages, even in urban India. For
example, for color cosmetics it is 22%, deodorants 9%, and
diapers 2%. In the rural areas where purchasing power and
media exposure are limited, usership is lower than urban
areas.
As the income, education and media exposure grows,
consumer levels go up in urban as well as rural markets. Over
six per cent per capita income growth in the last five years
have accelerated this expansion, but the average quantity
used per household or person increases rather slowly. From
the blue ocean strategy point of view, the key is to use value
innovation which can expand the contours of the market in
the low usership areas and amongst non-users located in the
smaller towns and rural India.
EXAMPLE: AUTOMOBILE SECTOR
One of the key tenets of Blue Ocean strategy is to avoid
head-to-head competition and look for blue oceans through
market reconstruction. This effort targets new customers by
looking across alternative industries, and different strategic
groups within an industry.
Take the automobile industry for example, with
established categories in terms of price and performance such
as the luxury segment, economy segment which includes
small cars and compacts, etc. Usually no company attempts
to create a discontinuity in terms of the price performance
relationship or the way a segment is normally defined. Herein
lies the opportunity of creating a blue ocean.
Another cornerstone is value innovation. In the value/
price trade-off, blue ocean strategy differs from traditional
competitiveness strategy. Traditional strategy focuses on the
trade-off between creating greater value (differentiation) at
a relatively high cost, or providing reasonable value at a low
cost. The idea behind blue ocean strategy is to provide both
at the same time.
emerging markets and blue ocean strategy
16 www.scip.org Competitive Intelligence
Blue ocean strategy provides a framework for initiating
four types of action which identify:
Factors that the industry takes for granted but can be
eliminated.
Factors that can be reduced.
Where the value offerings should be raised.
Which new factors to create that increase the value
offerings.
In a blue ocean strategy one restricts consumer choice
by either eliminating or reducing certain product offerings
on one hand, and on the other certain offerings are either
Tata Nano (passenger car)
Targeted new customers:
Upgrade two wheeler (i.e. motor cycle and scooter) users into a four wheeler user.
Upgrading can provide a huge opportunity (passenger car market in India is 1.2M, two wheeler sales are 7.4M).
Nature of value innovation:
Spacious, passenger compartment for four adults.
Fuel efficiency highest for any petrol car in India (23.6 km./liter).
High fuel efficiency plus low curb weight equals very low level of emissions.
Safety test exceeds regulatory requirements.
Base model cost around $2,500.
Four Actions Framework for new value curve (based on eliminate-reduce-raise-create structure)
Standard model is a no frills car.
Comes in only three color options.
Focus on safety, fuel efficiency, and passenger comfort.
Best leg space comfort in the small car segment.
Upgraded features available in Nano CX and Nano LX.
Tata Ace (mini truck)
Targets new customers:
Attractive upgrade of three wheeler users into safer, more comfortable and easy-to -drive four wheel vehicle. (Priced around
$4,500.)
Customer upgrades provides huge opportunity (2005 total light commercial vehicle sales in India 200,000; three wheeler sales
350,000).
Fits into the increasing use of hub and spoke model in last-mile goods distribution.
Avoids potential government restrictions on the entry of heavy and medium trucks into cities during high-traffic hours.
Nature of value innovation:
Sized as a sub-one ton category vehicle. In densely populated urban areas, streets are narrow, requiring mini trucks with adequat
maneuverability. In rural areas they provide small producers connections to nearby urban markets.
One of the few mini trucks in the world with twin cylinder diesel engine.
Maintenance cost and running costs lower than three wheelers, which improves the rate of return for the operator.
Four Actions Framework: (based on eliminate-reduce-raise-create structure)
Not a long distance truck. Maximum speed higher than three wheelers but restricted to within 65 kms/hour.
Excellent turning radius allows easy maneuverability.
Combines mini truck reliability with car-like comfort in the drivers cabin.
Provides a platform for further product extension at both ends of the market: rural passenger and semi urban transport, and
specialist logistics.
increased or created. Put together, these four types of actions
create the eliminate-reduce-raise-create framework.
Keeping these in mind, lets examine two examples from
the automobile sector. The first is the Tata-Nano, a small
car which has already created ripples amongst automobile
enthusiasts around the world. The second example is the
small truck called Tata-Ace (see Sidebar).
Scaling up of these two vehicles has been very rapid.
More than 200,000 orders for Nano were placed during the
bookings period of April 9
th
through April 25
th
. Within two
years of its launch in 2005, 100,000 Ace vehicles have been
sold. In both cases, product differentiation coupled with cost
focus provides a sustainable competitive advantage.
SIDEBAR: TATA NANO AND TATA ACE
emerging markets and blue ocean strategy
Volume 13 Number 1 January/March 2010 www.scip.org 17
The high volume generation through value innovations
makes the strategic advantage more sustainable, as it places
imitators at a cost disadvantage. In addition, the technical
platform created by the mini truck Tata-Ace has been
extended indo developing two new products, Magic and
Winger. These multi-passenger commercial vehicles once
again take the company to a new value curve. Finally, the
value innovation of Tata Nano buttressed by media reporting
has created a brand buzz which imitators will find difficult to
counter both in the country and other geographies.
EXAMPLE: MICROFINANCE
Another example of making competition irrelevant is
the micro finance institutions working amongst the poor.
Traditional wisdom suggests bankers should avoid lending
to the rural poor in less developed and developing countries.
Until recently banks held the general belief that the business
of extending micro finance can never be a profitable activity.
Given the vast multitude of rural poor across geographies
this is clearly a large Blue Ocean. Bangladesh Grameen Bank
showed that once the bankers learn how to work with the
poor through microfinancing, they can develop increased
returns by harnessing hundreds of micro entrepreneurs.
The success of Grameen Phone, a mobile telephony joint
venture between Telenor and Grameen Bank, also emphasizes
this point. Extending mobile telephony use amongst previous
non-customers like farmers and fishermen in any country,
be it China, India or Indonesia requires an understanding
of which add-on service provides exceptional utility to these
customers and their acceptable price point. For example,
informing fishermen who are out in the sea about the prices
and landings in different ports or sending an early indication
about a shoal of fish based on satellite imagery can be of
immense commercial utility to them.
Obviously the companys cost structure will have to
be adjusted to meet the requirements of these customers.
This thought is very similar to the Blue Ocean Idea Index
suggested by Kim and Mauborgne sustainable competitive
advantage can only be derived by being increasingly useful to
the consumer. The Blue Ocean idea index has four essential
tenets:
utility to the consumer
affordable price
affordable cost to the manufacturer
ease of adaption
All four elements can be found in the telecom example
above. However, for a traditional telecom multinational,
adoption of these practices would require major cultural and
operational changes. Unless they are accomplished, it would
be very difficult to become a successful competitor in the
rural and semi-rural markets of the emerging countries.
The examples provided in this paper suggest that
businesses in emerging economies have already understood
the need for seeking out new target groups of consumers and
for expanding the market in order to survive and grow. These
businesses also identified which value innovations should
be included in their offerings. In most cases, differentiation
and cost focus have been combined, avoiding an either/or
situation.
Thirdly, through trial and error, entrepreneurs have also
determined which factors connected to their products or
services should be decreased or eliminated and which ones
should be increased or added de novo. The contribution of
Kim and Mauborgnes Blue Ocean strategy lies in providing
a theoretical structure and an analytical construct for the
empirical evidence. Viewed from that perspective, Kim and
Mauborgnes framework hopefully will enable lesser mortals
like strategy planners to develop the necessary business
insight which comes naturally to legendary entrepreneurs.
REFERENCES
Borengaser, Stephen; Jenkins, Anne (2008). Applying the
blue ocean strategy, Competitive Intelligence, July/
August, v11n4, p17-22.
Clayton, Christensen (1997). The Innovators Dilemma: When
New Technologies Caused Great Firms to Fail. Harvard
Business School Press, Boston.
Clayton, Christensen (2004). Seeing Whats Next, Harvard
Business School Press, Boston.
Hamel, Gary (1998). Opinion: strategy innovation and the
Quest for value, MIT Sloan Management Review.
Kim, Chan W; Mauborgne, Renee (2005). Blue Ocean
Strategy. Harvard Business School Press, Boston, MA.
Porter, Michael E. (1988). Competitive Advantage, New York
Free Press.
Dr. Siddhartha Roy is Economic Advisor to the Tata Group.
He has nearly three decades of research and in-house consultancy
experience in the areas of competitive strategy, macro and
micro econometric modeling, strategic planning, country/
firm competitiveness studies, pricing research, new opportunity
identification, etc. Siddhartha has first hand knowledge of
the examples mentioned in the text; both as a midfield player
and also as a spectator on the sidelines. He can be contacted at
siddhartha_roy_in@yahoo.com.
emerging markets and blue ocean strategy