Finding Fast Expanding Markets in Zero Growth Countries: Italy

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Home > Articles > Finding Fast Expanding Markets in Zero Growth Countries: Italy

 Finding Fast Expanding Markets in Zero Growth Countries: Italy

Dr Terence Tse and Dr Mark Esposito | Today's Manager
December 2, 2013

In the previous issue of Today’s Manager, we presented a Fast Expanding Market (FEM)—namely, virtual stores in South Korea. We admittedly hesitated to discuss this market because readers can be easily misled to think that FEM can most likely be found in countries like Korea,  which have enjoyed stellar economic rise in recent decades. When the concept of FEM was first introduced in Issue Two, we pointed out that FEM can exist even in countries that are suffering from poor economic and business environments. The  example of “pre-Abenomics” Japan was  used to illustrate this point.

THIS time, we look at another country, Italy, which by all indications has seemingly gone into a permanent decline. The country’s gross domestic product (GDP) not only failed to grow last year, it actually contracted. The current unemployment rate stands at 12 per cent. If we examine the age group segments, more than 40 per cent of those aged 15 to 24 are jobless. The debt that Italy is carrying is more than 100 per cent of its GDP. On top of that, it is standing at the centre of the Eurozone crisis, with the need for a country bail-out remaining a not-so-remote possibility.

Looking simply at these high-level evidences, does that mean that there is no bright prospect with the country at all? We beg to differ. As we argued before, focusing on macroeconomic data can only lead us to overlook and miss out on the opportunity to take advantage of new, fresh, and fast-growing possibilities of value-creation.

Indeed, taking a closer look at Italy, it can be seen that a number of FEMs have been developing themselves, which many observers have failed to notice. One such example is DiaSorin. Based in Saluggia near Vercelli, the company has become an expert in making tests to detect vitamin D deficiency. Relatively unknown to the wider public, the worldwide market of Vitamin D detection testing is US$350 million and has been growing at a compound annual growth rate of 76 per cent—a typical growth rate of FEM between 2007 and 2010. Despite the fact that it operates out of a provincial town in Italy, DiaSorin has successfully captured over 50 per cent of the Italian market, 51 per cent of the US market and 98 per cent (effectively a monopoly) of the Israeli market.

Rapidly growing markets are not only confined to technology companies; FEM can also be created by traditional commodity businesses. While this may be the first time that readers may have heard of DiaSorin, they should be familiar with the name Lavazza, the coffee company. Unlike Nespresso, which in itself is a FEM, Lavazza has taken a different approach to finding a new FEM by entering India, a nation that has long been  associated with tea drinking.

It all started in 2007 in Mumbai, when Lavazza acquired  two major local coffee companies, Barista Coffee  Company and Fresh & Honest Café. Before the acquisition, Barista was the second-largest Indian coffee shop chain in terms of outlets with 150 coffee shops at the time of the sale, 132 of which were located in  major cities. It did not take long before Lavazza reached the target of 400 outlets in India by 2010, representing a growth of almost 300 per cent in just three years. Fresh & Honest Café, on the other hand, focused on the vending machine business, especially on office coffee services, as well as the bean-to-cup segment, supplying high quality bean products. Having footprints in 22 Indian cities, the company supplied on average 300,000 cups of coffee a day, which is equal to some 800 tons of coffee  a year. Fresh & Honest Café has since continued to  expand rapidly. Again, high-level data is unlikely to reveal selling coffee in a country of primarily tea-drinkers  as a source of growth. According to the Tea Board of India, the average yearly per capita consumption of tea is more than two kilogrammes in Britain and Ireland, about one kilogramme in Sri Lanka and Pakistan, but only 800 grammes in India. Still, that figure dwarfs the average 85 grammes of coffee that the average Indian consumes annually.

As different as these two examples may be, they are both common in at least one aspect: they are both small- and medium-sized enterprises (SMEs). We believe that companies of such sizes are much better at, and perhaps more inclined to exploring new markets and identifying new FEMs. SMEs are more agile in nature. They are able to make quick decisions as they are less weighed-down by processes and organisational and coordinating burdens.

In the current times of economic difficulties, the capability to discover new markets is most likely to be essential  to companies’ economic survival. Contrary to blindly accepting what macroeconomic statistics seem to point out, we argue that the concept of FEM represents a fresher way of identifying new business opportunities.  By diverting resources to detect new and unexplored  markets, managers can increase the likelihood of their companies continuing to prosper.

Special thanks to research assistant, Mariam Sherzad, from Harvard University, who has conducted the research on this Fast Expanding Market.


Reference
1Ghosh, Palash (2013) “Tea Or Coffee: Which Is India’s National Drink?” International Business Times, 13 May, http://www.ibtimes.com/tea-or-coffee-which-indias-national-drink-1255279.


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Dr Terence Tse is an Associate  Professor in Finance at the  London campus of ESCP Europe  Business School. He is also the Head of Competitiveness Studies  at i7 Institute for Innovation and Competitiveness, a Paris and  London-based academic think-tank. He began his career in investment banking, and later as an independent consultant to a  University of Cambridge-based  biotech start-up and various major corporations. He worked as a consultant at Ernst & Young in London. He holds a PhD from the Judge Business School, University of Cambridge, UK.


Dr Mark Esposito is an Associate Professor of Management at Grenoble Graduate School of Business in France & Instructor at the Harvard Extension School in the USA. He serves as Senior Associatefor the University of Cambridge Program for Sustainability Leadership in the UK. He has advised governments, the UN, and the NATO over the past 10 years on development and sustainability issues. He holds a PhD from the International School of Management in Paris/ New York, in joint programme with St. John’s University.

 

Copyright © 2013 Singapore Institute of Management

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Today's Manager Issue 4, 2013

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