The Promised 'e-Land' for American Multinational Firms

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Includes: OMC, TCEHY, WPPGY
by: Investment U

By Tony D’Altorio

A recent survey by TNS, the market researcher owned by WPP ADR (Nasdaq: WPPGY), showed the Internet as perhaps the most important form of communication.

It also found that 61% of people with Internet access around the world used it daily. Only 54% watched television, 36% listened to the radio and 32% read a newspaper every day. Of course, the review was conducted by Internet users, so those figures make some sense. But that wasn’t all the study found.

It highlighted how emerging markets are overtaking North America and Western Europe in social networking. And it pointed out regional variations in online behavior. A full third of the world’s Internet users now live in China, India, Brazil, Russia and Indonesia. And not surprisingly, these emerging market consumers are developing different habits and preferences than their peers elsewhere.

This naturally makes things a bit confusing for western multinationals.

Emerging Market Consumer Preferences

TNS interviewed about 50,000 people in 46 countries for its Digital Life study. What it found was that, in the emerging world, consumers prefer their mobile phones to going online. In contrast, developed markets still trend towards their PCs.

Also worth noting:

  • About 55% of people in China are “highly engaged” in their Internet practices.
  • Egypt and Saudi Arabia ranked just below that.
  • Turkey, Malaysia, South Africa, Kenya, Morocco, the UAE and Brazil also scored high.
  • The United States only earned 42%.

Latin American, Middle Eastern and Chinese residents, it would seem, prefer social networking sites to email. They’re more likely to post blogs, photos or videos online, and they value Internet access more highly than people in more developed markets.

Brazilians apparently have the most Facebook friends, with an average of 231. Overall, they seem the most caught up in social networking, with half of users there posting.

Russians take the cake for frequenting micro-blogging sites like Twitter. And the Chinese prefer reading short posts, gaming or trolling entertainment sites.

The Social Network of Emerging Markets

As mentioned before, large multinational firms – most of them American – have to expand their business into these emerging markets. And they have to somehow reach those billions of consumers.

It’s risky to think of such people as inferior or even comparable to their Western peers.

The TNS study indicates the Chinese, Brazilians and Indians are turning to two-way services such as instant messaging, social media and blogs to follow friends and the news. So TV, newspaper and web portal advertisements simply won’t cut it there.

Think of how many companies still can’t quite figure out how to market on social networking sites like Facebook and Twitter. If they hope to expand outward, they need to start learning at a much faster rate.

Admittedly, some companies do get it. Coca-Cola (NYSE: KO), Starbucks (Nasdaq: SBUX) and Procter & Gamble (NYSE: PG) have already taken to Facebook. P&G even increased its online advertising budget to sell some of its products directly from the site.

It’s hardly that easy, of course, considering all of the cultural differences involved. For example, 69% of Indian web users find online brand advertising intrusive while only 9% of Chinese do. In fact, 48% of Internet users in China actually seek out brand ads on social networks. On the web, at least, Chinese users appetites for brands far outstrips that of Europe or the United States.

Overall, China takes a more private approach to social networking than most countries, regarding the World Wide Web as a much more personal space. On average, the Chinese just have 68 friends online, well below the global average. But over 70% use instant messaging services like QQ from Tencent ADR (OTCPK:TCEHY).

A Way to Play the New Markets

With all of that to figure out, global advertising agencies are doing great business lately, agencies like WPP and Omnicom Group (NYSE: OMC) are some examples. CEO Sir Martin Sorrell of WPP, the world’s largest marketing and communications company, said, “The growth in our industry has, is and will be driven by China and the Internet.”

That makes sense, since not only is the Chinese Internet population “highly engaged,” it has the world’s largest population of Internet users with over 400 million users. Not only the future of the advertising business, but perhaps the fate of many American multinationals lies in how quickly they can woo those people over.

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