A local brand strategy allows MNEs to serve markets that are distinct from global markets. In particular,
a portfolio of local brands may not generate huge sales margins, but it can build market
share and lower unit costs through economies of scale and volume sales. Selling one thousand units
and earning one cent for each, is as good as selling 10 units and earning one dollar each.
Consumer goods, notably durable goods such as washing machines or motorcycles, may be
adapted to the needs and purchasing power of emerging economies by reducing the variety of
models and by stripping out non-essential features. At the same time, product features may be
adjusted to the needs of the local markets, such as improving its robustness to cope with an unreliable
electricity supply or the lack of a local service network. Scholars such as Dawar and Chattopadhay
point out that such product adjustment may require development costs, but it may
allow the product to reach new consumers and increase economies of scale and thereby reduce
production costs. Others, including London and Hart, and Prahalad go one step further and advocate
the development of new products and business models in a bottom-up fashion through
direct interaction with local communities, and by giving local entrepreneurs leverage to adopt
products locally.13
A portfolio of local products and brands may be particularly suitable where average incomes are
low or where markets are regionally segmented as a result of high transportation costs (relative to
value added), attachment to local brands, the limited reach of media and people-intensive distribution
networks (as in Vietnam).
Success in the mass market requires operational capabilities to support a low-cost strategy. In this
segment, foreign entrants would compete with local firms that produce at low costs, are familiar
with the market, are well networked and are used to adjusting to a volatile economy and frequent
changes in regulation. Entrants therefore need competences and business practices in managing
production and marketing under emerging economy conditions, such as strategic flexibility and
networking capabilities.14 Such operational knowledge may be transferable between emerging economies,
allowing MNEs to share experience across subsidiaries to develop unique capabilities for
supporting local brand strategies. Firms with strong operational capabilities but without internationally-known
brands may opt for this type of strategy