Our company does a lot of consulting and design work for both location-based entertainment (LBE) and mall projects in emerging market countries throughout the world. We find that there is a widespread belief with pioneer developers of LBEs and malls in those emerging markets that the first-to-market project to be developed will have a first-mover advantage. The fallacy of first-to-market conventional wisdom is the misguided belief that being first gives you a competitive advantage. It will for a limited period of time. However, being first-to-market does not ensure that you will dominate the market long term. Often it only means paving the way for new competitors who will offer a better project.
In the LBE and shopping center industries, what we often see in emerging markets is that all the first-mover project does is create awareness that there is a market for LBEs and malls, which inspires new malls or LBEs to be developed that are superior and that take the business away from the first projects. The reason this occurs is two-fold. The first-to-market developer thinks that being the only game in town doesn’t require quality or a critical mass sized project, as they will own the market. Secondly, the first-to-market developer doesn’t look to more developed countries to learn about more advanced concepts and designs that evolved over time there, so instead starts at the bottom of the learning curve without industry knowledge. They don’t know what they don’t know. We have seen LBE projects in many emerging markets that are designed like the now failed models that evolved in the early days of the FEC industry’s two decades in the United States and retail/mall projects not much different than shopping center concepts from the 1950s.
The other phenomena we have observed in some markets are that the second and third projects only imitate the first with a few improvements under the misguided belief that the first is the basic model to follow. Then along comes the killer project, the one that gets it all right based on the evolved models in both the West and other developed areas of the world, and the first ones all go dark.
The evolution of both LBEs and malls happens much faster in emerging markets than it did in Western countries. So what took a little over two decades to evolve from the earliest concepts in the FEC industry or half a century to evolve in the shopping center/mall industry in the United States only takes a few years to occur in emerging markets. Why? Because the smart entrepreneurs, either as first-movers or following first-movers, look to developed countries for the most evolved and proven concepts and bring in experts from those areas of the world to design and adapt those proven project concepts to the local culture in that country. We often tell our clients in these emerging markets that we come from their future; we can produce a project for them today based on what future projects in their country will be.
We are currently working in a number of emerging market countries in Africa. In Cairo, Egypt, our client is following the first-to-market projects that by Western standards could be called crude. Our client’s ladies club and children’s play & discovery (edutainment) center will be state-of-art in the FEC industry and well adapted for Egyptian culture. The days of the first-to-market projects will be numbered when it opens.
In Luanda, Angola, our client will be first-to-market with its family entertainment center project. But instead of skimping on quality or size, the project is being designed as state-of-art by Western standards and assumes that there will be future competition, which there is sure to be once entrepreneurs in Angola see the project in operation. Even if you don’t have competition, you have to develop today to counter the competition you will have in the future, which will probably come faster than you would like. We have a similar situation with the adult entertainment center we are producing for a client in Lagos, Nigeria. It will be the first project of its type, yet will be designed little different than as if it were in a highly competitive market in the West, other than for some minor adjustments to assure it will be culturally appropriate.
We have been approached by another client in Nigeria to design of a mixed-use retail and entertainment project. They sent us their project’s original design prepared by a local architect with no experience with retail or entertainment design. Our evaluation was that the design was seriously flawed, so much so that even if the space were originally leased, poor sales would result in the tenants’ failures within a few years. Additionally, the cinema auditoriums lacked the required ceiling height and had no projection booths. This is situation we often see in emerging markets, the desire to hire local architects to design project types that either don’t yet exist in the country, or if they do exist, they are poorly designed. Being the only model the architect knows, they just copy the designs.
Back in the mid-1990s we say the same first-mover mindset in operation with projects in some of the then emerging Latin American markets and again around a decade ago in the early phases of the growth of malls and LBEs in the Middle East. Need we tell you that the ones who chose to start at the bottom of the learning curve thinking they had a first-mover advantage were some of the first to fail when new and better projects were developed.
We occasionally find first-mover thinking still taking place in the United States in markets that don’t yet have family entertainment center type projects. The thinking seems to be, “Since I am the first and only, I don’t need to spend as much money, have as high quality or as large a center as in other areas of the U.S. and I can use a local architect to design my center.” Most centers developed with this approach end up as roadkill in several years, or at best break even with no return on investment. What this approach fails to understand is that consumers have expectations set by other location-based businesses they visit, whether in that town or on trips. And if you don’t at least meet those expectations, consumers just choose not to come. The other issue is that the local architect has no expertise in what is a very specialized type of business. Architects are necessary for structural and other design issues that deal with building codes and regulations, but most know nothing about the FEC/LBE business and how to design a successful facility. Fortunately, the shopping center industry has higher barriers to entry and is more institutionalized than the LBE industry, so rarely will you find a new shopping center or mall in the United States that doesn’t have good design and meet the highest standards of development.