NON-CONSUMPTION IS YOUR FIERCEST COMPETITION—AND IT IS WINNING
MAKING THE CASE FOR MARKET-CREATING INNOVATIONS:
A LOOK AT TOLARAM INDUSTRIES
In 1988, Tolaram Industries, maker of Indomie Instant Noodles and a myriad of other products, decided to target non-consumption in
the food industry in Nigeria. Today, as was the case in the 1980s, the average Nigerian makes less than $2 a day and spends more than
50% of their income on food. Typical modes of segmentation would have deemed this market unviable. But, Tolaram Industries, a company
founded in Indonesia and now headquartered in Singapore, was committed to figuring out a viable business model to sell their product to
the Nigerian masses for roughly ten US cents.
In order to target this market, Tolaram has had to integrate backwards and forwards. For instance, in a recent speech, the company’s
Nigeria CEO, Deepak Singhal, said “I am in the food business, but sometimes I think I am in the transportation business”. Because of
the lack of adequate logistics in Nigeria, Tolaram has had to build networks of trucks, vans, and staff in order to fill this void. The company
also provides power in its plant so it does not have to depend on unpredictable power supply from the grid.
From logistics to energy, by taking ownership of other links in the value chain, Tolaram was able to access swathes of Nigerian consumers
who had previously been out of reach. The company’s business model facilitated the creation of an affordable product for the average Nigerian,
as well as the channels to deliver it directly to them. In doing so, Tolaram leveraged the opportunities presented by non-consumption and
developed innovative strategies to create a whole new market in the process.
While difficult, Tolaram’s commitment to non-consumption in Nigeria is paying off. It began importing noodles into Nigeria 28 years ago,
but today produces 92% of its raw materials in-house. To get there, it has invested more than $350 million in manufacturing facilities
in the country. Tolaram now sells more than 4.5 billion packets of Indomie Instant Noodles yearly, grosses more than $600 million
in revenue and has created more than 10,000 direct jobs along with hundreds of thousands of indirect jobs. In addition to all that, the
company provides upwards of $100 million in tax revenues to the Nigerian government each year.
As government officials
in
emerging
markets
think about infrastructure
development, it is important
that they also think about
market-creating
innova‑
tions that are targeted at
the vast non-consumption
in their countries. These
innovations, if executed
properly, can provide much
needed tax revenues.
The question of support is also
important. Businesses that
target non-consumption are
typically unpopular because
they are usually lower mar‑
gin and require capital. These
sorts of businesses therefore
require support from the CEO
or someone high up in the ex‑
ecutive team. As for job crea‑
tion, the forces of efficiency act
on every business in order to
keep them competitive. Mar‑
ket-creating innovations are
distinct in their ability to create
jobs because of their relentless
focus on non-consumption. For
interdependent architecture,
due to the underdevelopment
of many sectors, companies
will have to vertically integrate
in order to predictably develop
and distribute their products.
40 Emerging Markets Business Summer 2016 • Issue No. 1