European and US consumer goods makers, confronted by slowing growth at home, are turning to the fast-growing countries of Africa, Asia, and Latin America. In 2002 the top 20 consumer goods companies spent more than $10 billion to expand their share of these markets, which now account for nearly 40 percent of all worldwide sales of clothing and grocery products (Exhibit 1). However, many such companies find that their expensive brands and management processes are more a hindrance than a help in reaching the lower-income segments.

Our study of global consumer goods makers¹ operating in emerging markets revealed a consistent pattern: companies perform best in the vast low-income segment by adopting local branding and organizational strategies, which often run counter to established practice in more advanced regions.² Most of the companies we studied entered an emerging market by acquiring a local competitor; they were essentially buying access to local distribution networks and facilities. Next they brought in brand managers from more developed markets, who typically overhauled manufacturing processes and launched expensive marketing campaigns. In addition, most multinationals sought to integrate their acquisitions into the parent organization by extending their corporate functions to the local...