The potential and the pitfalls of digital technologies in emerging multinationals

Digital technology is in the process of transforming every branch of the economy. Companies, both large and small, feel the pressure to incorporate them in every activity along the value chain, from R&D and logistics, to manufacturing, marketing, and sales. Digital technology creates new possibilities but its value and implementation is draught with pitfalls.

Perhaps the thorniest issue confronting companies is that digital technology tends to empower the buyer by increasing his or her bargaining power. In the extreme, they may lead to disintermediation, that is, to making the company irrelevant by helping buyers and sellers interact with one another directly. To make matters worse, digital technology lowers the barriers to entry, making it easier and less costly for companies to enter new national markets and new market segments.

Another potential pitfall of digital technology is that it tends to spoil certain types of customers, making them think that the company can always offer higher product quality and convenience at lower cost. This effect has become especially problematic in the case of the millennial consumer, a customer group born into a world in which old business models are quickly fading away. The proliferation of personal electronic devices and the rise of the Internet of Things poses yet fresh challenges.

Perhaps the hottest area for the deployment of digital technology is marketing. The ostensible advantages lie in making marketing specific, interactive, and measurable in real time. Thus, companies can now be much more effective at segmenting the market and maximizing customer lifetime value.

Emerging multinationals sometimes find it difficult or costly to cover all of the necessary bases to be effective on a worldwide basis. Company websites, for instance, need to be consistent for all electronic devices, from tablets to smartphones, and from smartwatches to laptops. In the era of search engines, optimization is a must to ensure that the company’s products appear within the top 5 or top 10 in any search. Click-based and localized/situational advertising has become a science-driven endeavor. Content marketing based on blogs, digital journalism, and opinion leaders is now paramount.

One of the most significant challenges entails avoiding situations in which the buyer merely uses the company’s digital assets to gather information and compare prices, while making the purchase somewhere else. This type of leakage was once thought to be constrained to digital commodities such as books, music or travel. But it is now also affecting the so-called tough ‘n feel goods, including clothing and personal accessories. To top it all, social media has made the marketing function both more powerful and complicated. Oftentimes, it is hard to anticipate what will catch on.

Inter-modality is another key issue as more buyers start their product search on one device (i.e. a smartphone) but complete the purchase on another, or perhaps in a physical outlet. Electronic devices are more or less appropriate depending on the complexity, size or options of different products and services.

Emerging multinationals seeking to use digital marketing to enter new national markets often confront a variety of cultural issues. Some people like searching and comparing in English, but prefer to purchase in their own language. Automatic translation engines have not become fool-proof enough to eliminate the need for localized websites. The use of colors on digital channels can be exceedingly complex because they have different connotations in different cultures. For instance, red conveys danger or audacity in Europe, but it symbolizes purity in India and luck in China.

The quality of the digital infrastructure is another key problem. Uploading and downloading speeds differ massively from country to country. The use of high-resolution images or videos may work well in some markets but not in others. This means that no single digital platform can serve the needs of customers in all markets around the world. For some it will be too slow to navigate, and for others not engaging or innovative.

The most formidable challenge involves payments. Companies use a variety of methods to collect payments, ranging from credit or debit cards to digital payment services (Paypal, Venmo, etc.) and digital cash. Security is also often an issue. Regulatory concerns are perhaps the most important constraint when it comes to using a common payment platform across markets.

In sum, digital technologies offer emerging multinationals an array of new tools to develop, produce, and market goods and services. While the challenges are daunting, they are likely to provide them with new opportunities to unsettle established rivals and generate value for customers on a worldwide basis.