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Strategy

Emerging Multinationals Use Purpose for Growth

INSEAD Knowledge Editors |

Integrating a strong, cohesive purpose can ignite employee passion and drive growth, something emerging market companies have become good at.

The Florida Ice and Farm Company (FIFCO), a Costa Rican food and beverage company that counts famous drinks labels Labatt beer and Milory carbonated drinks among its products, says it brings “a better way of living to the world.” It’s not a mission statement or a contrived corporate value. The company’s CEO, Ramon Mendiola calls this its purpose.

FIFCO’s purpose is about more than just words. The company has used the idea to energise its workforce and define its place in the community; essential foundations for its growth. In fact, Mendiola says the company’s financial performance has been strengthened by its “purpose and its triple bottom line way of doing business.”

It’s not the only emerging firm that’s doing well by doing good. Natura Cosmeticos, a household name in cosmetics in Brazil calls itself the “wellbeing well” company. In 2014, Natura attained “B Corp” status, joining a community of organisations (and the first publicly traded company) to reconcile economic growth with the promotion of social and environmental wellbeing. It’s no coincidence that Natura is growing aggressively, with over 1 million sales representatives across Brazil and increasingly more in other countries.

Meanwhile in India, Tata Motors’ motto, “leadership with trust”, defines its growth model, anchoring its ambition to be a global company operating in multiple countries, and at home anywhere in the world, whilst carrying this sense of trust wherever it goes.

Learning from the emergent

Firms around the world can learn about enterprise purpose, its role and its power, from the experience of these emerging multinationals, according to a report from the World Economic Forum’s (WEF) Global Agenda Council on Emerging Market Multinationals.

The idea of a public role for enterprises, and hence enterprise purpose, is spreading as governments are increasingly being challenged to deliver the progress that society is seeking.  This may be especially true in emerging markets, says Subi Rangan, INSEAD Professor of Strategy and Chair of the WEF Council on Emerging Multinationals.  Although it’s too early to say definitively, business leaders believe that the energy of enterprise purpose is reflected in stronger employee engagement, greater productivity, greater trust in society (potentially less costly regulation), and a more adaptive and sustainable enterprise.

At a recent offsite of the WEF council on emerging market multinationals, CEOs from various sectors, academics and management consultants determined that a purpose can help firms in three key ways.

Good for society

Organisations in both emerging and developed markets are facing a more sceptical public and regulatory environment, making a firm’s license to operate more important. According to the WEF report, a purpose-led approach can provide consumer-facing companies with a strong reputational advantage, entrenching them in the community.

According to a study by communications consultancy, Cone, when consumers are given the choice between similar products produced in either socially responsible or non-socially responsible ways, 92 percent will choose the product produced in a responsible manner. This effect was more strongly felt in the millennial age group.

Natura knows this well. The company is dedicated to using indigenous natural ingredients in its products and holds strongly to its natural positioning in beauty and personal care products. It is also the founding member of the Union for Ethical BioTrade. Natura’s respect for local knowledge and ingredients in its supply chain ensures its stands out among foreign competitors, helping it expand globally. It now has over 1 million direct resellers around the world.

Global players have noticed, and are now trying to emulate its success. L’Oreal and Unilever have set up R&D centres in Brazil to localise their recipes with indigenous ingredients.

For Indian IT giant Infosys, reputation was central to the company’s rapid expansion at home and later overseas. Co-founder and former CEO, S.D. Shubulal, notes that when Infosys was launched in India it was generally accepted by corporations that money and political clout were the only way to get things done. “It was a practice we, as co-founders of Infosys, were determined not to follow,” he said. “What kept us together was our common desire to gain respect from international markets. It was the passion for this purpose that gained us a reputation for integrity and trustworthiness at home and overseas.”

Infosys’ purpose took on further dimensions. “From building a company, we helped to build an industry and further, to build credibility for our country, changing in some ways, the manner India was projected,” he added.

Good for talent

One of the biggest challenges facing both local and foreign firms operating in emerging markets is talent. There is a lack of skilled talent and, as a consequence of this skills shortage, high turnover of those in demand. Ramon Mendiola, the CEO of FIFCO encapsulates the challenge in his dealings with millennial staff members who are idealists and want to make a difference but will move if they don’t have the opportunity to do so: “they are loyal leaders, but not necessarily to the organisation,” he said.

Research has shown that millennials want to work in jobs that give them meaning and allow them to contribute to society. If emerging multinationals can offer purpose-driven motivation, they can draw top talent and align employees to common causes. This makes purpose an even more important differentiator to emerging firms, which have little brand awareness and visibility to talent.

Good for management

Lastly, defining and implementing a sense of purpose can have tangible effects on the functioning of an organisation. As emerging multinationals are increasingly competing with the global multinationals, which are constantly getting better at embedding themselves in foreign markets and snatching talent from local rivals, purpose can give emerging firms a local edge.

Communities and employees have a closer affiliation with local brands that are doing good locally, giving firms a perfect opportunity to loosen up their existing management practices and move away from the KPI systems of the MNCs.

In FIFCO’s case, before the company defined its purpose, rapid international growth had led to a proliferation of KPIs and an obsession with data collection. After the restructuring of the company around purpose, many of these control methods no longer played a central role. According to Mendiola, purpose allowed a number of control mechanisms to melt away, giving employees “continually evolving motivation”. He notes that the company’s work around purpose enhanced its triple bottom line approach and gave it an advantage over its many competitors.

Purpose has become a crucial edge for emerging market firms. It can change how a company is run, how it attracts talent and how it is positioned from a branding perspective, all essential elements for growth given the shift in consumer attention to responsible products in both developed and developing markets.

This article is part of a series in partnership with Knowledge@Wharton and the World Economic Forum Global Agenda Council on Emerging Market Multinationals.

Subramanian Rangan, the chair of the council, is a professor of strategy and management at INSEAD and The Abu Dhabi Crown Prince Court Endowed Chair in Societal Progress. He is also the programme director of AVIRA: Awareness, Vision, Imagination, Role, Action, one of INSEAD’s executive development programmes.

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