How to Redesign the world...

Source: Total Executive

Retailers cannot afford to skip Asia’s youngest market. Here’s why.

 in the 1980s, when the country’s leaders launched doi moi (or “renovation”). It was only after President Clinton lifted the US trade embargo in 1994, though, that multinationals began to pile in. Since then, Vietnam has taken off. In 2007, it joined the World Trade Organization (WTO)—just in time for the global financial crisis. The country weathered the storm well, posting 5 percent growth in 2009. This year should be even better.

For retailers and consumer goods companies, Vietnam is an attractive market: the economy is growing briskly and sustainably, and the population is adding a million people a year. Even more important, the county’s middle class, now 7 million households, is growing fast. Vietnam’s literacy rate is 92.5 percent, and from 2003 to 2008 the number of college and university students nearly doubled. The cities, though mostly small, are expanding rapidly. Six of them—Can Tho, Da Nang, Haiphong, Hanoi, Ho Chi Minh City, and Nha Trang—account for 40 percent of the country’s sales, according to AC Nielsen estimates from 2007 (Exhibit 1).

The Vietnamese government estimates that retail sales reached $39.1 billion in 2009—almost twice as high as five years earlier. And the country has room to grow: per capita retail sales, at $450, are among the lowest in Asia. Setting up shop in Vietnam, however, isn’t easy. The market is fragmented and difficult to reach, and although 100 percent foreign-owned retailers can register for an operating license, they are generally allowed to open only one outlet. To expand further, they must pass an “economic needs test,” in which the government analyzes a new project’s economic impact. The test gives local governments an effective—and sometimes arbitrary—veto over new developments. Such regulations are legal and relatively common under WTO guidelines. Even so, they are more broadly applied in Vietnam than in most other countries, limiting access to the domestic market.

McKinsey has worked in Vietnam with a number of domestic and international companies. In June 2010, we spoke with a dozen executives who do business there. We offer the following observations, based on these interviews and our own experiences, about what it takes to succeed in this dynamic market.

Know your consumers

Vietnamese consumers want the same things others do—good, reliable products that enhance their daily lives (Exhibit 2). What makes Vietnam distinctive, though, is how quickly consumers are moving up the ladder—“leapfrogging,” in the words of Unilever Vietnam’s chairman, Marijn van Tiggelen. In personal care, for example, increasing numbers of people are buying more sophisticated products. Urban Vietnamese women aged 20 to 45, for example, spend 18 percent of their monthly income on apparel, according to the General Statistics Office of Vietnam. The Vietnam Ministry of Industry and Trade forecasts that the market for beauty products will grow 15 percent a year for the foreseeable future. Jean-Yves Romagnani, the chief operating officer of TamSon, a leading luxury-goods distributor in Vietnam, with brands such as Hermès and Kenzo, told us that the market for these products, though small, is growing dramatically. (To hear more from executives discussing Vietnam’s quickly growing consumer market, see the video “Understanding the new Vietnam” or download a PDF of the transcript).

Market the message

In 2009, the General Statistics Office estimated that Vietnam had 5 million Internet subscribers and 18 million Internet users. Those figures are impressive for a country at a relatively early stage of digital development, and other estimates suggest the number is even higher. In Hanoi and Ho Chi Minh City, for instance, up to half of the population is now online, spending more than two hours a day, on average. Expenditures on digital marketing for the country as a whole, however, are still very low: only $15 million, according to Cimigo, a market research firm. As Mai Huong Hoang, the chairwoman of one of Vietnam’s leading advertising agencies, the local branch of Saatchi & Saatchi, noted, “TV is still king in Vietnam, because women are the decision makers in the family and they spend a lot of time watching TV.” However, recent McKinsey research in other emerging markets, such as China, India, and Malaysia, suggests that the pace of digital change can be rapid, especially with younger people. Therefore, businesses—particularly consumer goods companies—shouldn’t ignore digital media in their marketing plans.

Regardless of which media channels companies select, they should know that almost all Vietnamese consumers are literate—and also highly literal. Go into a grocery store and you will probably see shoppers reading the product labels. To build brands, companies had better live up to the claims they make about their products—and the more concrete the claims, the better.

See problems as possibilities

Metro Cash & Carry is a global company that sells food and other consumer goods to stores and wholesalers. Each of its nine stores in Vietnam offers tens of thousands of items, nearly all locally produced, and employs some 250 people. The company’s experience in the country shows how to build a successful business while supporting local suppliers and performing an important social function.

Food safety in Vietnam is a significant issue, with an estimated 3 million cases of food poisoning a year. People have good reason to worry about poor food hygiene and refrigeration among street vendors and wet markets. Earlier this year, the government’s food safety agency announced that 2,000 teams had inspected 47,000 businesses and found 13,000 violations during the Tet holiday alone.

Metro has made food safety a core part of its mission. The company’s focus on supply chain management and quality assurance also benefits local producers. Since 2002, Metro has trained almost 19,000 Vietnamese farmers and fisherman in food safety methods as part of its “farm to fork” quality-management system. Producers who meet these standards not only have a reliable buyer in Metro but also get access to foreign markets. Metro has done very well in Vietnam and plans to increase its operations there substantially.

Think creatively about distribution

Running about 1,000 miles from north to south, Vietnam is predominantly rural, and its infrastructure presents challenges. Only three cities (Haiphong, Hanoi, and Ho Chi Minh City) have more than one million people. Modern trade—larger self-service stores, typically belonging to chains, as opposed to wet markets or “mom and pop” shops—is growing, with more than 400 locations. Even so, this segment accounts for only about 10 percent of total retail sales (but closer to 80 to 90 percent in Ho Chi Minh City). Companies that wait for modern trade to mature could miss a chance to win consumer loyalty and market share. So how can retailers reach consumers in this dispersed and fragmented market?

Unilever has developed a network of independent and exclusive distributors that sell and distribute its goods in every nook and cranny of the country’s 63 cities and provinces. “If you want to be a successful consumer goods player in Vietnam, study Unilever,” advises Anh Tu Do, CEO of Diana, one of Vietnam’s leading consumer products companies. “We studied the way Unilever gets its products to market throughout the country, and in our company we use exactly the same model as they do.” Much of Unilever’s success comes from the degree to which it trains and monitors its distributors, giving them responsibility for managing their own operations. Of course, Unilever’s system won’t work for all businesses; the point is to approach Vietnam on its own terms.

Vietnam is one of the world’s fastest-growing economies, and there’s no reason to believe it will slow down. Its infrastructure is improving, and modern trade has made significant inroads. Asia’s youngest population and the rapid adoption of modern technology make Vietnam an exciting market. But it is by no means an easy one.

Source: Total Executive

Many companies throw financial incentives at senior executives and star performers during times of change. There is a better and less costly solution...

 approach the retention of key employees during disruptive periods of organizational change by throwing financial incentives at senior executives, star performers, or other “rainmakers.” The money is rarely well spent. In our experience, many of the recipients would have stayed put anyway; others have concerns that money alone can’t address. Moreover, by focusing exclusively on high fliers, companies often overlook those “normal” performers who are nonetheless critical for the success of any change effort.

Our work with companies in many sectors (among them, energy, financial services, health care, pharmaceuticals, and retailing) suggests there is a better and less costly approach to employee retention—and one that will serve companies well as they merge, restructure, and reorganize to seize strategic opportunities as the economy picks up. It starts with identifying all key players, but targeting only those who are most critical and most at risk of leaving. These people are then offered a mix of financial and nonfinancial incentives tailored to their aspirations and concerns. A European industrial company applied this approach during a recent reorganization and found that it required only 25 percent of the budget that had previously been spent on a broad, cash-based scheme. What follows are three suggestions for companies with similar hopes of keeping their top talent without breaking the bank.

1. Find the “hidden gems”

HR and line managers need to work together during times of major organizational change to identify people whose retention is critical. Yet too often companies simply round up the usual suspects—high-potential employees and senior executives in roles that are critical for business success. Few look in less obvious places for more average performers whose skills or social networks may be critical—both in keeping the lights on during the change effort itself as well as in delivering against its longer-term business objectives.

These “hidden gems” might be found anywhere in the company: for example, the product-development manager in an acquired company’s R&D function who is nearing retirement age and no longer on the company’s list of “high potentials”—yet who is crucial to ensuring a healthy product pipeline; or the key financial accountant responsible for consolidating the acquired company’s next financial report. Even if the employees’ performance and career potential are unexceptional, their institutional knowledge, direct relationships, or technical expertise can make their retention critical. In one merger we recently observed, certain sales support personnel who filled orders and took inventory turned out to be just as important as the star salespeople.

Once HR and line managers have generated a thoughtful and more inclusive list of key players (usually 30 to 45 percent of all employees), they can begin to prioritize groups and individuals for targeted retention measures—in our experience, 5 to 10 percent of the workforce. The key is to view each employee through two lenses: first, the impact his or her departure would have on the business, given the focus of the change effort and his or her role in it; and second, the probability that the employee in question might leave.

When a European industrial company conducted this exercise, it mapped the outputs on a risk matrix. The results were sobering. The company had been launching a new centralized trading unit—requiring almost all traders and their support staff to relocate, with half of them heading to another country—and was steadily losing people. The risk matrix revealed that another 104 people were likely to leave. Among them were 44 employees who were critical for the success of the trading unit. To be sure, some were traders but most were IT, finance, and administrative staff with unique knowledge of the unit’s systems.

2. Mind-sets matter

One-size-fits-all retention packages are usually unsuccessful in persuading a diverse group of key employees to stay. Instead, companies should tailor retention approaches to the mind-sets and motivations of specific employees (as well as to the express nature of the changes involved).

When executives at the European industrial company looked beyond their standard retention package (bonuses plus compensation for the costs of the move) and focused instead on the needs of individual employees, they found a more nuanced situation than they had anticipated. Among the key people at risk were two main groups with two different mind-sets.¹ One consisted of individuals who were worried about relocating because it would uproot their families. The people in the other, more career-driven group didn’t mind living and working abroad but wondered, as they faced change in any event, whether staying or searching for another employer would best further their careers.

In one-on-one conversations with the people in the family-oriented group, managers explored specific concerns and discussed how the company could add to the measures already in place to increase the likelihood of retaining these individuals. On the menu of incentives: an increase in base pay, assistance in finding schools and kindergartens for their children, career counseling for their spouses, language training, and alternative work arrangements so employees could work at home or commute instead of relocating.

Meanwhile, in the conversations with the career-driven people, managers offered them a cash bonus but focused primarily on the organizational chart of the new, centralized unit, which had been designed from scratch. For people who had held senior roles in their local organization, it was essential, for example, to learn about their new responsibilities and how many direct reports they would have; for many of the more junior people a key question was who their bosses would be. Also high on the agenda was a dialogue with each individual about his or her future career and leadership opportunities in the context of the unit’s new strategy.

This targeted approach, which cost just one-quarter as much as the broad financial incentives plan the company had previously applied, succeeded in stabilizing the new unit. One year after its launch, some 80 percent of the staff who received special attention had started to work in the new location—a significantly higher share than for the group that didn’t receive this attention. Since its founding, the unit has increased its sales by more than 30 percent and its earnings before interest and taxes (EBIT) by more than 90 percent.

3. Retention is about more than money

As the European industrial company’s experience suggests, financial incentives play an important role in retention—but money alone won’t do the trick. Praise from one’s manager, attention from leaders, frequent promotions, opportunities to lead projects, and chances to join fast-track management programs are often more effective than cash. Indeed, a 2009 McKinsey Quarterlysurvey found that executives, managers, and employees rate these five nonfinancial incentives among the six most effective motivators when the main objective of the exercise is retaining people.²

One financial services firm undertaking a recent cost-cutting initiative elected to use onlynonfinancial measures—including leadership-development programs—to retain the pivotal players it had identified as being at risk of departure. One year later, none of those players had quit.

Leadership opportunities are a powerful incentive in any sector. In a pharmaceuticals merger aimed at building the North American acquirer’s presence in Europe, some 50 middle managers from the acquired company accepted invitations to join trans-Atlantic teams with key roles in integrating the two organizations and developing business strategy. The chance to network with the acquirer’s senior people and develop leadership skills during the two-year program signaled to these high-potential employees—in many cases, people who had been slated for promotion before the merger was announced—that they had a promising future in the new organization. For the acquirer’s senior executives, one benefit was the opportunity to assess first hand a potential next wave of top management talent. The program was one part of a carefully designed communication and engagement plan that made it possible to sustain the energy of the 50,000-person strong workforce during the merger. The company ultimately needed to offer only 750 targeted employees a financial incentive.

When financial incentives are required, it is important to design them appropriately and use them in a targeted way. For example, one-third of the retention bonus during a merger might be paid to pivotal staff even before the deal is closed, with the remaining two-thirds to be paid out a year later—dependent in part on the recipients meeting defined performance criteria such as the successful transfer of systems from the acquired company.

Targeting retention measures at the right people using a tailored mix of financial and nonfinancial incentives is crucial for managing organizational transitions that achieve long-term business success; it’s also likely to save money.

Still, executives mustn’t view employee retention as a one-off exercise where it’s sufficient to get the incentives packages right. Rather, best-practice approaches build on continuous attention and timely communication every step of the way to help employees make sense of the uncertainty inherent in organizational change. Ultimately, what many employees want most of all is clarity about their future with the company. Creating that clarity requires significant hands-on effort from managers, including the ongoing work of tracking progress so that companies can quickly intervene when problems arise.