Development of Local Market Intelligence Capabilities in BRIC to Pick Up in Pace

July 28, 2010. Since the term "˜BRIC’ was coined by a Goldman Sachs economist in 2001, Brazil, Russia, India and China have proven to be amongst the world’s largest economies and fastest growing markets. Conducting world-class market intelligence in BRIC may remain an enormous challenge for those who are not intimately familiar with the terrain but the future is bright for those who have already set up a foothold, according to experts.

Four market intelligence leaders who have worked extensively in these markets comment on the inherent challenges of conducting research and strategic analysis in BRIC with candor and deep insight. They are Peter Read, Senior Vice President, Asia Pacific; Nicolas Pechet, Vice President, China; and Thomas Rideg, Regional Director, Latin America from M-Brain (formerly Global Intelligence Alliance) for India, China and Brazil respectively, as well as Alexander Pechersky, Managing Director of M-Brain (formerly GIA) Member company, ALT R&C, who brings us his insights on Russia.

Each expert benchmarked a BRIC country against Western European and US markets according to their decades of local market and business experience. These ratings are only meant to be illustrative and are not based on field surveys. Nor do they represent comparisons between the BRIC countries themselves.

1. Different markets, same challenges

Needless to say, Brazil, Russia, India and China are vastly different from each other. The obvious common thread that runs across all four markets is the rapid pace of change in everything from consumer markets to regulations. With complex market structures and vast land areas, it is not surprising that all four experts cited the existence of grey markets and a diversity of business cultures within each country. The other similarity is the constant prevalence of corrupt practices.

Business Environment in BRIC Regulations in BRIC

Rideg on Brazil : Of the emerging markets, Brazil may appear to be one of the least complicated to do business in, just because it is part of the Western hemisphere and shares common languages and traditions with Western Europe and America. In recent years however, the competitive environment has evolved into a dynamic marketplace, fueled by constant legislative changes, new market entrants and an increasingly sophisticated consumer base. Hence, conducting market intelligence is time consuming and can often be more costly than similar projects in the United States or Western Europe.

Pechersky on Russia : The lack of strong value systems and the increasing share of government in the economy means that there are very high levels of bribery and a centralization of power, finances and decisions in Moscow. The level of corruption increases enormously with big corporate or state-owned clients. It is possible to solve all problems without bribes, but it will take time. The increasing role of government in the economy means that it is necessary to study government plans to invest or to buy assets in your industry or to provide support programs to your competitors.

In Russia, you can also officially buy financial statements, such as balance sheets or profit and loss statements, on every form of company. There is no real privacy. This may seem odd to outsiders but it is a standard practice here. Everyone also knows that the data will often be inaccurate because of “˜creative accounting’ to avoid paying taxes.

Read on India : India is quite unique in combining a relatively well-developed educational, intellectual and English language capability with the classic chaos and corruption of a huge emerging market.

In addition, it has emerged as a global market intelligence outsourcing hub that handles research and information on any number of markets anywhere around the world. So while the domestic market remains complex and difficult to penetrate, there is no lack of talent available to take on the task and to go well beyond that into the sphere of global market intelligence and consulting.

Pechet on China : China’s growth have come both from huge state investment in infrastructure and heavy industry and from private sector expansion in light industry – not just exports. The role of exports in the economy appears to have been significantly overestimated.

The marketplace today is complex; you will find high levels of industry fragmentation, rapid consolidation, convoluted joint venture structures and an extremely dynamic regulatory environment. The sheer size of the country, uneven distribution of wealth and development, and diversity between its regions mean that any attempt to conduct market intelligence in China should start with the assumption that it comprises several markets, each of which needs to be investigated in order to get a complete picture of the total market potential.

2. Conducting world-class research is still a challenge in BRIC

The sources of information in Brazil, China, India and Russia are peculiar to each, and are very much influenced by local government and culture.

State of Primary Sources of Info in BRIC State of Secondary Info in BRIC

Rideg on Brazil : The development of reliable information structures has not matched the pace of economic development. Cultural knowledge, industry experience and years of analyzing similar data are the most valuable skills one can possess in order to overcome secondary information barriers.

The barriers in primary research are even more challenging. Interpreting primary results and transforming them into actionable solutions is impossible without local knowledge. Nothing beats being on the ground and talking to members of the value chain. In general, decision makers are difficult to reach, but once you reach them, they tend to be open. Latin Americans are generally talkative, but will not always give you the information you are looking for.

Pechersky on Russia : There is a general lack of ready-made reports, statistical data, industry associations and magazines. The common usage of cash, grey customs operations, tax avoidance and bribery compel companies to misrepresent data. This results in the need to crosscheck secondary information and to conduct primary research with in-depth interviews. Some industries are so opaque that it is challenging just to locate the real decision-makers.

Read on India : Published information is in no short supply in India and happily for international researchers, much of it is available in English. The library network is being developed and is becoming increasingly well connected via the Internet. On the down side, public domain information is often dated given the size and diversity of the country, and the range of activities being tracked by government agencies – from the onion crop to mobile phone module manufacturing to powdered baby milk consumption. Added to that is the use of unique Indian units of measurement and the financial year rather than the calendar year for statistics. As a result, international analysts often struggle, at least in the beginning.

Primary research is the essential complement to secondary information, especially through talking not only to customers but also to the value chain players on the ground. The greater the detail sought, the more essential it becomes. Encouraging industry people to talk and share information is often not too much of a challenge in India. It has been said one only needs to spend a few hours in the eateries near Dr. Reddy’s for a few days to find out everything that is coming up in the pharmaceutical industry. The real challenge is in cutting through the verbal noise to identify the real signals. Years of experience in this type of intelligence gathering count for a lot and triangulating information by using multiple sources is critical.

Pechet on China : Information sources in China are different from one county, economic zone or province to another. In many cases, local economic and financial reporting and information systems are opaque. Most times, quality information is unregistered or even considered classified – there are no universal standards and protocols. In some places, money can still be a taboo subject and families who own private businesses are not eager to disclose information.

Information is often only available through networks of people. It is typically those who are well placed or who are in positions of power that are able to extract reliable information that can support market and investment decisions. People in general, are willing to be interviewed, especially with a small incentive. With some basic “˜guanxi’ development of interpersonal relationships, they will talk with almost little care for intellectual property or confidential information. Interviewees however, tend to overestimate everything in order to create a positive impression. Hence, field research is best left to experienced professionals who have the experience to obtain accurate information.

3. Local companies need to develop market intelligence skills

Junior research staff are readily available in BRIC, but with few certified and recognized training courses available, market intelligence talent often needs to be groomed in-house through hands-on work experience. Of the four countries, India is probably the most advanced in terms of the skills, experience and exposure of the local talent pool.

MI talent in BRIC

Rideg on Brazil : The development of market intelligence in Brazil still falls short of international standards. Fortunately, local companies are suddenly waking up to the need for a structured market intelligence function. Local industry giants are still smaller than many multinationals on a global level, but they will catch up soon, if they continue to invest in and instill their market intelligence culture across their locations.

Pechersky on Russia : Most companies, except for the very largest ones, often do not separate market intelligence as a function on its own and see it as part of strategy. Local talent is being developed, albeit it as a slow pace. There is hope that as the competition gets tougher, more companies will set up professional market intelligence functions.

Read on India : Market intelligence in India is relatively well developed for an emerging market. Some multinational companies even use India as their regional or global market intelligence hub. In terms of ambition and capabilities, the larger local companies are not far behind the multinationals.

Nonetheless, the willingness for local companies to fund market intelligence programs still lags behind that of the West. The exception to that rule would be when a strategic issue or risk comes to the attention of the CEO, at which point project funding becomes available rapidly. So while local ambitions and organizational structures may be more advanced than in the other BRIC countries, they still fall behind smaller globalizing companies in Western Europe and North America.

Pechet on China : It is extremely challenging to find professional market intelligence talent in China. Even those with at least four years of relevant experience lack the capabilities we might expect them to have. Fresh graduates do not have common business sense and need to be “˜hand-held’.

Local companies don’t understand market intelligence and require a lot of orientation. They don’t know how to identify and define their own needs internally, and often rely on vendor proposals for thought leadership so they can try to do the work in-house. There is hope that Chinese companies with global aspirations will lead the charge on the development of market intelligence. Companies that are very closely held by the government or with deeply embedded government influence will develop at a slower pace.

4. The future is bright for the market intelligence function in BRIC

Business optimism abounds in BRIC, so does the positive outlook for market intelligence in these four countries.

Rideg on Brazil : The pace of business in Brazil today is comparable to that of New York or Tokyo. There has been quite a lot of consolidation though mergers and acquisitions of late and domestic companies have been looking to expand overseas. Businesses are rapidly expanding into alternative market niches and innovative commercial and distribution strategies have redefined industries overnight. These trends mean that many local companies are expanding the scope of their market intelligence beyond Brazil to the rest of the world.

Conversely, multinationals are busy investing in market entry or expansion studies, as they explore opportunities in Brazil’s large and growing domestic market. High employment, controlled inflation, access to credit, lower interest rates and a stable currency are just some of the attractions. Upcoming construction and infrastructure developments over the next four to six years, especially with the World Cup in 2014 and the Olympics in 2016, help boost the interest for foreign companies.

Pechersky on Russia : The level of competition in Russia today is high, thanks to the relative openness of the market. Simple market strategies do not work.

So while there has been a rapid emergence of ready-made reports of comparatively low quality recently, it would be dangerous to solely rely on them. Also, we have until now, access to detailed customs statistics and data, including declarations of company name, product description, price, weight or destination. Such access is not lately to last for too much longer. Proper customized strategic market intelligence is still key to market success.

Read on India : India could be said to be one of the knowledge capitals of the world, with over 300 multinational research and development centers. This has had a spillover effect onto the larger population with the rapid increase in connectivity between information sources such as government organizations and libraries. Technology is increasingly making it possible to gather information from remote and rural locations.

World-class market intelligence capabilities are likely to advance faster in India, compared to the other BRIC economies.

Pechet on China : The sheer size of China’s market potential overshadows the rest of BRIC. Coupled with its rate of growth and pace of regulatory change, the need for market intelligence in order to understand and compete effectively here will continue to be strong.

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