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The 2400 Square Foot Dilemma: Why Most Companies Miss the Global Bull’s-Eye - OneDayGlobal

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The 2400 Square Foot Dilemma: Why Most Companies Miss the Global Bull’s-Eye

 

Last night at MIT I had the pleasure of attending the lecture of Vijay Mahajan, an accomplished marketing professor at the University of Texas Austin and the former dean of the Indian School of Business. Mr Mahajan has spent much of the last decade researching Africa and the Middle East. The result of his research provides a fascinating window into the current reality of global business and commerce.

 

How Many “Developed” Countries Exist? The GDP Per Capita Dilemma

 

Mr. Mahajan has stated that a common definition used for developed countries is a minimum GDP per capita of $10,000 dollars. This list includes the US, the UK, Japan, Germany and other global economic giants.  The more surprising element lies in the vast majority of countries that fail to qualify under this definition. Mr. Mahajan states that 86% of the world’s countries have a GDP per capita of under $10,000 dollars.  The list that includes the 86% of overall countries is actually projected to grow over the upcoming years.

 

The 14% Marketing To The World of the 86%

 

What has happened in the world of Global commerce is a stark inability of many mega corporations to successfully integrate and enter emerging and developed markets. Companies are unable to understand what and how to market their products abroad. Many look at Africa, India and the Middle East as potentially lucrative markets but with no standard formula of success.

 

Professor Mahajan’s argument is that this stems from the inability of developed nations like the US to look past their 2,400 square foot syndrome.  The 2,400 square foot syndrome refers to the size of the average house in America. What the professor is referring to is the American mentality to perceive market issues and problems from a global perspective. Products marketed and sold abroad are not addressing the general needs and wants of the greater local populations. Many Indians and Africans live in tight quarters and cannot afford the space, let alone the price of many foreign products.

 

Another problem compounding the issue of global business is the inability of companies to distribute and sell their products across a foreign country. Unlike the US that has 82% of their residents found in urban centers, India has 70% of their population located in rural areas.  No product can reach the masses in Africa and India simply by entering the main city.

 

The Argument For Inclusive Growth

 

According to his studies, Professor Mahajan feels that there are two primary indicators that lead to investing in a country: the informal economy (what percentage of the economy operates in a shadow economy), and what percentage of the economy consumer spending controls. In the US, consumer spending accounts for seventy percent of the total economy. Highly chronicled BRIC countries like India are closer to fifty percent, with China at thirty seven percent. What we do not anticipate is the large percentage of consumer spending dictating the economics in Africa. If we were to aggregate the economies of all the African nations we would find that African consumer spending accounts for over fifty percent of the total economy. With a middle class of nearly sixty million there is a real opportunity to market and create inclusive growth economies in Africa.  If investors understood and entrepreneurs focused on this, the world as a whole would profit.

 

These companies that target the middle class in Africa and the Middle East with relevant need- based products can create opportunities for many. These companies can help elevate the communities and overall economies of these nations. This is a great formula for both individual and overall economic and entrepreneurship success.

 

What It Takes To Succeed Abroad

 

According to Professor Mahajan, requirements for success include  “a deeper focus on taking the market to the people and a real understanding of what lies beneath the economic numbers.”  We must rid ourselves of our standard learned business preconceptions. A wealth of opportunities exists, but in order to capture these opportunities our global mindset must change to create relevant, meaningful and value adding products to the greater world.

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