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Global Business EconomicsAssignment :

International Aspirations of an Emerging Market Firm

EPGDIB 04 : Group No. 13Abhishek JainNilesh KothariAloke SharmaAmrita Tripathy

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CONTENTS

• Concepts

• Company Profile

• Case Background

• Case Questions

• Case Answers

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CONCEPTS• ADVANCED ECONOMIES

Post-industrial countries characterized by high per-capita income, highly competitive industries, and well-developed commercial infrastructure.

•DEVELOPING ECONOMIESLow-income countries that have not yet industrialized. They have low buying power, limited appeal to foreign firms, and limited participation in international business.

• EMERGING ECONOMIESFormer developing countries that develop their economies more dynamics. EM is transforming into market-driven by liberalizing trade and investment. More participation in international business and regional economic integration.

USA , Western Europe, Japan, Canada, Australia, New Zealand

Africa

Asia , Latin America

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CONCEPTS• CORPORATE SOCIAL RESPONSIBLITY

Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well of the local community and society at large.

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CONCEPTS Following the World Bank’s current definition of a Developing Country, the company defines emerging markets as countries that have a gross national income (GNI) of $11,456 or less per capita.

Emerging markets are distinguished between three sub-groups according to market size (population) and economic attractiveness (GNI per capita in purchasing power parity terms).

• Strategic Opportunity Markets are the largest and most economically attractive for a multinational corporation that is looking to grow its customer base. These markets have a population over 40 million, and strong real GDP growth. These markets also have a GNI per capita over $2,000 per year in purchasing power parity (PPP).

• Niche Opportunity Markets are countries with a population under 40 million that have average incomes over $2,000 in PPP terms and strong real GDP growth. These markets provide multinational companies with opportunities to grow their markets on a smaller scale, or they may be “gateways” to larger nearby markets.

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CONCEPTSLong-term Opportunity Markets are the least attractive markets to a multinational corporation. These markets exhibit a low standard of living with a GNI per capita under $2,000 per year in PPP terms. In these countries, persistent poverty, corruption and political instability may be hampering economic growth. These countries may be viable markets in the long term with consistent political and economic reform.

Over 140 countries, representing 84% of the world’s population, meet these criteria. The proportion of worldwide technology expenditures by emerging-market countries is steadily increasing relative to mature markets. The ten largest emerging markets are expected to spend $558 billion on IT and telecommunications in 2009. By 2015, the combined GDP of emerging-market nations will surpass that of the top 20 developed economies. Page 1 Mature Emerging: Strategic Emerging: Niche Emerging: Long-term

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EMERGING MARKETSMarket Sub-segments

Countries (Listed in order of population size)

Characteristics

Strategic Opportunity Markets (16)

EA&P: China, Indonesia, Viet Nam, Philippines, Thailand

The largest and most economically attractive developing-country markets.

EE&CA: Russian Federation, Turkey, Ukraine Population over 40 millionLA&C: Brazil, Mexico, Colombia Strong real GDP growthME&NA: Egypt, Iran GNI per capita over $2000 in PPPSouth Asia: India, Pakistan Rapidly integrating ICTSSA: South Africa Improving standard of living

Niche Opportunity Markets (48)

EA&P: Malaysia Smaller, growing economiesEE&CA: Poland, Uzbekistan, Romania, Kazakhstan, Belarus, Azerbaijan, Serbia and Montenegro, Bulgaria, Turkmenistan, Croatia, Georgia, Moldova, Bosnia and Herzegovina, Lithuania, Albania, Armenia

Population under 40 millionGNI per capita over $2000 in PPPStrong real GDP growth

LA&C: Argentina, Peru, Venezuela, Chile, Guatemala, Ecuador, Cuba, Dominican Republic, Bolivia, Honduras, El Salvador, Paraguay, Nicaragua, Costa Rica, Panama Uruguay

Rapidly integrating ICTSome risk from political or economic instability

ME&NA: Algeria, Morocco, Iraq, Yemen, Syrian Arab Republic, Tunisia, Libya, Jordan, Lebanon, Occupied Palestinian TerritoriesSouth Asia: Sri LankaSSA: Cameroon, Angola, Congo, Mauritania

Long-term Opportunity Markets (38)

EA&P: Myanmar, Cambodia, Papua New Guinea, Lao People's Dem. Rep.

GNI per capita under $2000 in PPP

EE&CA: Tajikistan, Kyrgyzstan Very low ICT integrationLA&C: Haiti Low income and standard of livingSouth Asia: Bangladesh, Afghanistan, Nepal High riskSSA: Nigeria, Ethiopia, Congo Dem. Rep., Tanzania, Sudan, Kenya, Uganda, Ghana, Mozambique, Madagascar, Côte d'Ivoire, Burkina Faso, Niger, Malawi, Zimbabwe, Senegal, Mali, ,Zambia, Chad, Rwanda, Guinea, Benin, Burundi, Togo, Sierra Leone, Eritrea, Central African Republic, Liberia

 

Origins

Establishment

Ownership

Business Line

Product

Market Area

Subsidiaries

KOC Group [Family Business Conglomerate]

Appliance Manufacturer [White Goods Business]

> 100 products

AC, Dishwasher, Washing Machines, Cooking Appliances, and Refrigerator

Brands Beko, Altus, and Arcelik

Turkey, Europe (UK, Italy, Czech, Spain, Germany, Romania, Hungary)

Blomberg, Grundig, Elektra Bregenz, Tirolia, Leisure, Flavel, and Arctic

COMPANY PROFILE

Focus Area Arcelik aspire to expand its network in emerging markets and developing economies.

1955

TURKEY

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Annual Turnover US$ 4BN per annum

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• Turkey is an emerging market• Relatively low saturation level• Purchasing power is low (outside big 4 cities)• 50% are younger population (<25 y.o.)

internally

externally

• Turkey is applying EU membership• Trade barriers declined in 1980-90 (Turkish market was opened for outside competitors)• Arcelik’s market share was threatened.

Arcelik Launched

Aggressive International Expansion

CASE BACKGROUND

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CASE BACKGROUND

In ADVANCE ECONOMIES, household appliance industry is mature and saturated.

In EMERGING MARKETS, household appliance industry is difficult to charge premium

prices and increase profit margin.

a. Innovation is costly

- Frequent change production methods

-Regular re-training factory workers.

b. Low spending power of buyer

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CASE BACKGROUND

B S H

Electrolux

G E

Haier

National

Whirlpool

Merger & Acquisition is the strategy to be Worldwide in current scenario.

It caused: only 5 companies control >70% market in Europe (from 400 companies).

ARCELIK: Acquired more than 7 companies in EUROPE.

Dishwasher

Refrigerators and Vacuum Cleaners

China (Low Price)

High Technology Involvement

Home Laundry

National

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CASE BACKGROUND

Standardization the material, parts, and components1

Automated manufacturing process 2

Build manufacturing plant outside original state3

Arcelik: Build plant in Russia and Western Europe.

Whirlpool: Build plant in China

Arcelik is categorized as HIGH TECHNICAL COMPLEXITY firms. It is operated in fully

automated machine and programmed in advance.

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CASE BACKGROUND

Home appliances are commodities

Product life-span is 10 – 15 years the lifecycle is slow

Value lower prices create lower profit margin

In advance economies country, market are saturated

Different market, different country, different culture

in INDIA: Low Price

in CHINA + LATIN AMERICA: Ample Features but Low Spending Power

in EUROPE: Strict Environmental Rules

Difficult to suit the local market

Difficult to charge average price in every country

“Hard Factors” tooling, factory layout, procurement, and design do not provide long-term competitive edge

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Arcelik: International Aspirations to become Global Player

Produce product in lower-income countries

- Manufacturing plant in Turkey and Eastern Europe (Russia)

- Arcelik’s produce appliances less expensively than other

Modernize the operations and Double the capacity

- Additional investment to build factory in Russia and adapt new production system technology

- Established sales subsidiaries in Czech, Hungary, and Italy

Establish Distribution Centers throughout Europe3

- 1.700 unparalleled distribution network (Beko) and 1.700 non-exclusively agents - 530 authorized service shops

Cooperated with IT Companies to build World IT System4

- CISCO builds Virtual Networked Organization Online

- Establish after-sales service network

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SUCCESS FACTORS

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Arcelik’s brands are largely unknown outside Europe1

Brand becomes barrier to entry and threats for short-term success

Merger and Acquisition

Global Distribution Network

- Tailor the meet customer needs in respective country

THREATS

Arcelik: International Aspirations to become Global Player

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Case Questions

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CASE QUESTIONArcelik has been very active in Western Europe,

Do you expect Arcelik’s prospect to be better in EM & DE than Advanced Economies ?1 -

In what ways, are EM and DE attractive to Arcelik?-

How can firm reap benefits from such market in order to maximize performance?-

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CASE QUESTION (Number 1)Ans

Do you expect Arcelik’s prospect to be better in EM & DE than Advanced Economies ?-

Prospect Arcelik : As per the data given below future prospects for Arcelik are more in emerging markets and developing economies than in advanced markets.

DIMENSION Advanced Market Emerging Market Developing MarketPopulation (% of the word) 14 62 24

Approximate average per capita income (US dollars; PPP basis)

33.750 13.250 6.450

Trade volume High Low High

Education level High Moderate Low

Trade barriers Minimal Rapidly liberalizing Moderate to high

Industry Highly developed Rapidly improving Poor

Inward FDI High Moderate to high Low

Economic or political system Capitalist Rapidly transitioning to

capitalismAuthoritarian, socialist, or

communist

Country risk Low Variable Moderate to high

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- In what ways, are EM and DE attractive to Arcelik?

Emerging Markets and Developing Economies are attractive for Arcelik than Advanced Economies due to following reasons :

High population. Fast-growing markets. Low competition. Urbanization is increasing. Low-cost labor due to which these are ideal bases for locating

manufacturing facilities. Rapidly increasing Industrialization. With increase in development activities more opportunities for

business will arise.

CASE QUESTION (Number 1)

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- How can firm reap benefits from such market in order to maximize performance?

Reap benefits from such markets

Parameter Advance Market Emerging and Developing Market

Population

• Well educate• Income per capita high

can gain a high profit margin

• Low-labor cost• Income per capita rapidly

increase should be adjusting price and cost little gain profit margin

Industry • Saturated• Opening up to growth as

well as technology improvement

CASE QUESTION (Number 1)Ans

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CASE QUESTION

Arcelik is keen on entering EM and DE,

What type of risk that they challenge in EM?2 -

What management do to identify the most promising market?-

How should firm adapt the product?-

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CASE QUESTION (number 2)

- What type of risk that they challenge in EM?

Political Instability• Corruption, Collusion, Nepotism• Week Legal Framework

Week Intellectual Property Protection

• No laws enforcement Bureaucracy, Red Tape, and Lack or Transparency

• Burdensome Administrative rules• Excessive requirements for license

Partner Availability and Qualifications• Characterized by inadequate legal & political framework

Dominance of Family Conglomerates• Highly diversified• Control the majority of economic activities (half the revenue in

Korea)• Government protection and support• Superior market knowledge

Less Reliable (business environment.)

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- What management do to identify the most promising market?

Partnering with Family Conglomerates• Reduce the risk, time, and capital requirement• good relationship with government and other key local player• target market opportunities more rapidly and effective• overcome infrastructure-related hurdles • leverage FC’s resources and local contact

Marketing to Governments in Emerging Market• government buy enormous quantities of product• usually emerging country have economic development plan (need to build or improve national infrastructure)

Skillfully Challenge Emerging Market Competitors

CASE QUESTION (Number 2)

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Per-Capita Income as an Indicator of Market Potential

Middle Class as an Indicator of Market Potential

Use of a Comprehensive Index to measure market potential

GDP are indicator of purchasing power of customer

Size and growth rate of middle class serve a signal of dynamic market economy

-Market Size (all population) -Commercial Infrastructure-Market growth rate (GDP) -Economic Freedom-Market intensity -Market Receptivity-Market consumption capacity -Country Risk

What management do to identify the most promising market?

CASE QUESTION (Number 2)

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- How should firm adapt the product?

Merge and acquisition with other company in emerging market

Collaboration technology, knowledge (product and market), share distribution channels, etc.

Produce potential product base on customer wants

Purchasing power in emerging market is relative low

CASE QUESTION (Number 2)

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CASE QUESTION

Arcelik may be better poised to cater economic development of EM and DE,

In what ways Arcelik skillfully fulfill its Corporate Social Responsibility in such countries?3 -Suggest specific approaches that may include: developing simpler, less expensive appliances; arranging for multiple installment purchases; encouraging the development of local suppliers; and designing products that conserve water and energy.

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CATERING TO ECONOMIC DEVELOPMENT NEEDS OF EMERGING MARKETS AND DEVELOPING ECONOMIES :

• Leading firms display good corporate social responsibility by engaging in

activities that facilitate economic development in emerging market and

developing economies.

• There are 2 (two) trends as form of CSR:

– Fostering Economic Development with Profitable Project.

– Microfinance to Facilitate Entrepreneurship.

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CASE QUESTION (Number 3)

- In what ways Arcelik skillfully fulfill its CSR?

FOSTERING ECONOMIC DEVELOPMENT WITH PROFITABLE PROJECTS

• Firms serve low income countries with

inexpensive, specifically-designed

products and services and community

involvement.

IN OTHER WAYS…

• Firms create jobs and contribute to

development.

• Investments generates tax to improve

living standard.

• Transferring technology and know how.

• Develop community-oriented social

programs.

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- In what ways Arcelik skillfully fulfill its CSR?

Microfinance to Facilitate Entrepreneurship

• Microfinance, emerging of financial institutions that serve emerging market

entrepreneurs with small scale loans.

• By providing small loans, can help pull them out of poverty.

• Various organizations now offer other forms of small scale financial

services, including insurance and mortgage lending.

CASE QUESTION (Number 3)

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- Suggest specific approaches of CSR

ARCELIK’S CORPORATE SOCIAL RESPONSIBILITY IN EMERGING MARKET

FOSTERING ECONOMIC DEVELOPMENT W/ PROFITABLE PROJECTS• Firm creates innovative & quality product that meets local demand with

lower price.• Firms create jobs and contribute to development.• Firm enter the market and establish manufacturing/assembly plant.• Firm establish distribution centres throughout country.• Firm boasts a strong after-sales service network.• Firm performs the company's operations with full compliance to laws, moral

standards and human rights.• Firm organizes training programs for employees to raise awareness of the

environment and conducts projects with government organizations and with NGOs.

MICROFINANCE TO FACILITATE ENTREPRENEURSHIP

• Firm offer financial services that provide installment purchase for its

customer.

CASE QUESTION (Number 3)

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THANK YOU

EPGDIB 04 : Group No. 13Abhishek JainNilesh KothariAloke SharmaAmrita Tripathy