For some time now, companies have been looking for global hypergrowth – consistent, rapid growth – in their markets. A recent article in the Harvard Business Review, however, points out that the hypergrowth giants of the past several decades – China, Brazil, and Russia – are slowing down. As a result, companies may be looking at other emerging markets forecast to have hypergrowth.
But is hypergrowth itself likely to be a good guide for business investment? Certainly, it can indicate opportunities. Indeed, the World Economic Forum notes that hypergrowth is an important sign of systemic global economic opportunities.
But hypergrowth is only one indicator of a vibrant market. The HBR authors point out that frontier economies can have many barriers to entry. They can be characterized by corruption, wide swings in economic growth that don’t necessarily lead to growth in consumer spending, and unpredictable enforcement of laws and regulations. None of these is optimal for companies seeking to operate, expand, or enter these economies.
The better business strategy, then, is to focus on the specific competitive market on the ground for a given company’s products, rather than the growth rate alone.
Four Types of Hypergrowth Markets
To that end, the authors identify four types of hypergrowth companies. With these concepts, businesses can target global areas that benefit from their products and services, and in which provision of those products and services will be doable. This targeting of what markets need and what will flourish is likely to yield a more viable model that simply targeting the areas of rapid growth without regard to the markets on the ground.
The first type is termed workhorse. In it, businesses ranging from global multinationals to small business owners sell products to the consumer base of the country.
The second type is a cluster builder. Clusters refer to clustered industries or groups of skilled workers. These companies compete with each other and frequently operate as supply chain partners to global companies.
The third type is power brokers. Power brokers work within the domestic market of frontier economies. Rather than companies selling to consumers, however, power brokers are located in industries that need some degree of political influence. They may be utility companies or telecommunications firms that require licensing from the government. In hypergrowth countries, such licensing or regulation often benefits the government or people highly connected to the centers of power.
The fourth type is rentiers. Like power brokers, rentiers are generally connected with the government and have contracts with the government. The difference between the two types is that rentiers are exporters, often of natural resources in hypergrowth companies.
Developing a Business Strategy for Hypergrowth Markets
Armed with a concept of which type of market a particular country and sector have, companies can construct a business strategy for their products.
The case of Unilever, a workhorse, illustrates how companies can benefit from disrupting the country’s business model and restructuring products to meet the needs of the middle market and consumers.
In the developed world, Unilever sells to supermarkets and retail stores. In Africa, however, the distribution channels are not large stores, but small shops. Rather than buying in bulk as consumers in developed countries can, individuals buy small packages of detergent, toothpaste, and the like.
The owners of the stores buy large packages from distributors and create the smaller packages themselves. Currently, the disposable income of consumers in these countries allows only the smaller purchases. Simply entering the markets without realizing these differences would likely severely curtail opportunities for market penetration.
Businesses looking to thrive in hypergrowth markets would do well, then, to study the type of markets available and any necessary strategic changes to its products.