Giulio Ambrosi: “You need the right recipe for blending local taste and global scale in every market”

C-Suite Thought Leader Interview

A leading international business executive shares his thoughts on what it takes to be successful in emerging markets.

Giulio Ambrosi is Philip Morris International’s Vice-President for Smoke-Free Products in South and Southeast Asia & Sub-Saharan Africa.  Previously, he was Managing Director, Asia-Pacific and General Manager, China at Arcelik Group.  He has also held various leadership positions at Samsung Electronics and Whirlpool.

Mr. Ambrosi talked with C-Suite from his office in Dubai.

C-Suite: Let’s begin by talking about your experience in China.  It’s fascinating that you worked for two very different companies; first at Whirlpool, an already well-established multinational, and then at Arcelik, an emerging market challenger from Turkey, where you led a very successful turnaround strategy.  Were there major differences in how they approached the market?

Yes, they had completely different approaches for entering China and then growing the business.

Whirlpool’s approach was the quintessential American way of doing business; coming in with a well-oiled global machine and established processes that everyone at headquarters was convinced would work.  But it did not, because of the unique challenges of doing business in China. I needed a lot of patience, and had to do a lot of fine-tuning, to adapt the organization to the requirements of the local context.

With Arcelik, the opposite was true: the company went in with much less structure and processes, as it was still at a much earlier stage in its development as a globally branded manufacturer. When it entered China, it did so with excessively optimistic assumptions.  But, on the favorable side, it also entered with the willingness to learn, adapt, and course-correct when necessary.

Having learned from Whirlpool both good processes and the challenges of doing business in China helped me find the right balance - when at Arcelik - between being nimble locally while also adhering to some global structures. For example, we built strong relationships with local partners, who saw that we were able to adapt to their unique needs. At the same time, headquarters gained confidence through transparent reporting and sound predictions for the business in the short and medium term.

C-Suite: Most Western brands initially enter China by selling premium products in the economically more developed coastal cities, such as Shanghai, but then find it much more difficult to penetrate the mid-market and Chinese interior regions.  Is that something you experienced at Whirlpool as well?

Whirlpool initially also entered from the top, like many other foreign brands. We tried to expand into other markets and price points, but never very successfully, because the costs just didn’t come down enough for the mass market.  Logistics costs were particularly problematic, as they were much higher in the interior regions, away from the coasts.

C-Suite: Did you adopt a different approach at Arcelik?

The key to Arcelik’s successful turnaround was our decision to partner with one key channel only (Suning) and deliberately exit several other channels.  At the time, Suning had a few thousand outlets, many of them in the lower tier cities. We leveraged that channel by partnering more deeply, allowing Arcelik to enter the lower tier cities more favorably, and reach a broader consumer base with a better cost position.  There was a quid pro quo, of course, but it helped Arcelik reach consumers who were seeking more value products or quality at better prices than the traditional foreign players were offering. Gradually it turned into a positive snowball effect, and Arcelik’s business grew substantially as a result.

C-Suite: Were there other aspects that were critical to the successful turnaround at Arcelik?

Assembling a local team with strong capabilities and great working relationships. That gave us a lot of credibility with our trade customers. We were total outsiders in China, but we were able to present our company as one that fully embraced China in a sincere appreciation of its culture and way of doing business. That was a strong signal that we weren’t there just to make money and get out.

C-Suite: In what way is the Chinese business different now than when you were there in the 2010s?

Operating in China is a balancing act. We were able to strike the right balance in 2014, but conditions have, of course, changed a lot in the last 10 years.  I think there is much less space now for foreign companies. Many of the local players have become much stronger, at least in the white goods industry I was involved in. They've learned a lot from the multinationals that came in, and are much stronger, not just financially, but also in terms of product quality, reliability, brand strength, and consumer awareness.

So, the competition faced by the foreign players is far tougher now - not only do they still have to compete with each other, but now also with very strong local players. And the Chinese government is imposing more stringent standards on top of fiscal barriers - It really is much harder than it was just a decade ago.

C-Suite: How would you describe the different challenges of Southeast Asia versus Mainland China?  Are all emerging markets more or less the same?

Definitely not! For our refrigerators and cooking appliances, the differences in cuisine from country to country – or even within a country like Indonesia, for example – was a massive challenge. It is staggering how different consumer habits are from one island to the next, and ultimately those habits turn into needs for different products that satisfy their different living conditions and their different diets, their different ways of storing food. The never-ending challenge was to find the right balance between trying to adapt the product to local consumer needs with still getting the necessary economies of scale or synergies.  And that’s the big difference with China.  In China, the numbers are invariably huge even when there is diversity. In Southeast Asia, the moment you start spreading thin, the numbers become much harder to make work for your investments.

C-Suite: So, how do you make that work?

I wish I had the one perfect recipe!  It’s really all about creating the right blend of local taste and global scale in every market, again and again.  I haven't seen any dramatic examples of success. Instead, it’s just a continuous learning process and it takes a lot of patience.  In addition, governments impose limits, with the understandable objective of protecting local players.  The trouble is that it ultimately becomes a double-edged sword because these limits inhibit innovation, development, and growth even for the local players themselves. 

C-Suite: Samsung exemplifies an emerging market challenger that successfully became a global leader.  How did they pull it off?

It was crucial that the appliance business within Samsung is part of the consumer electronics vertical.  That means that appliances in Samsung are designed and treated like consumer electronics products, where advanced electronics enabling displays and interfaces are critical.  The appliance is built around the electronics instead of the other way around. This is very different from other players. It allowed Samsung to offer products that look and behave in a more innovative, modern way and proved a very strong competitive advantage for Samsung.

But I think the culture was even more important.  I really believe that a large part of the explanation is the culture. Samsung has an extremely strong, passionate, “never take no for an answer” culture that has driven so much focus across the organization and so much alignment around these very ambitious objectives.  It enabled the company to break barriers that seemed insurmountable. And Samsung’s success over time only served to strengthen the will of the leadership and folks at all levels.  In Korea, where the company now produces a very large percentage of the country’s GDP, the pride of being a Samsung employee is second to none. People who manage to enter the company in Korea work very hard and tend to stay there for life.

C-Suite: Are there any downsides to having such a distinct culture?

Of course. Companies invariably face challenges when entering large markets that demand a local structure with senior leaders capable of making independent decisions. The Korean culture just doesn't speak that language; it is very top down - command and control - so friction increases. But, so far at least, the company has been able to overcome those challenges by hiring top talent, paying very well, and dealing with the undesirable high turnover.

C-Suite: What happens when a company with a strong, well-established, culture is forced to cannibalize its own core business, maybe like smokeless tobacco products at Philip Morris?

It’s a real challenge! At Philip Morris, our CEO realized that the cigarette business was only going to be facing more difficulty in ensuring a sustained stream of profits.  But moving to smokeless entails making big investments. I think only Philip Morris could make that bet; a new entrant wanting to start the smokeless business from scratch would have needed extremely deep pockets to bear the costs of the required R&D and marketing. You also need to convince smokers and guide them to a better alternative. That is something that a company who already sells cigarettes can do more directly than a new entrant.

C-Suite: How did starting the smokeless business change the organization?

We made that bold and strategic decision approximately 10 years ago and it transformed Philip Morris from a B2B manufacturer, operating a highly regulated environment, into a consumer technology company. There were two cultures within the company, creating friction, but in developed markets like Japan, Italy, and Germany the transformation was successful quite rapidly. There was a snowball effect after having reached the early adopters. Then it became an early majority, and now they are everywhere.

C-Suite: Are there differences between marketing smokeless products in developed and emerging markets?

Yes. We started smokeless in developed markets that are more open to the health benefits. The goal was to build the brand as well as invest in R&D and people with the right know-how. 

The challenges in low- and middle-income countries are very different, because people don't necessarily feel the need for an alternative to cigarettes, and they certainly don't put long-term life expectancy at the forefront of their daily thoughts.

Also, affordability of the product itself is an issue when even 50 euros is a sizeable portion of a consumer’s disposable income. And these products cannot be given away for free, because otherwise there is no commitment from somebody who uses them - they might try them once, put them in a drawer and possibly even discourage their friends if their first experience was not ideal, perhaps due to poor information on how to use the device. There are also regulatory issues, because governments in developing countries are often highly dependent on cigarette taxes and may not value the long-term benefits of lower health care costs, particularly when they’re facing short term budgetary constraints.

So, it will take financial means, patience, and vision, but we will ultimately succeed in this quest.