Strategies That Fit Emerging Markets

By:Group 2Vatsal SrivastavaAmit yadavPushpak kumarRashi kakarGeetanksha chawla

Background CEOs and top management teams of large

corporations, particularly in North America, Europe, and Japan, acknowledge that globalization is the most critical challenge they face today. They are also keenly aware that it has become tougher during the past decade to identify internationalization strategies and to choose which countries to do business with.

In the context of globalization the absence of specialized intermediaries, regulatory systems, and contract-enforcing mechanisms for foreign entrants in emerging markets ,is known as "institutional voids"

What is an Institutional Void

Examples of Institutional Voids

1. Companies can't find skilled market research firms to inform them reliably about customer preferences so they can tailor products to specific needs and increase people's willingness to pay.

2. Few end-to-end logistics providers, which allow manufacturers to reduce costs, are available to transport raw materials and finished products.

3. Before recruiting employees, corporations have to screen large numbers of candidates themselves because there aren't many HR search firms/recruiters that can do the job for them.

Successful companies develop strategies for doing business in emerging markets that are different from those they use at home and often find novel ways of implementing them, too.

It took decades to fill institutional voids in the West

How can institutional void be filled?

Since the early 1990s, developing countries have been the fastest-growing market in the world for most products and services. Companies can lower costs by setting up manufacturing facilities and service centers in those areas, where skilled labor and trained managers are relatively inexpensive, these markets have been given the name of emerging markets.

What do we mean by Emerging Markets?

Many companies often target the wrong countries because:

1. They deploy inappropriate globalization strategies.

2. Many corporations enter new lands because of senior managers' personal experiences, family ties, gut feelings, or anecdotal evidence.

3. Others follow key customers or rivals into emerging markets.

4. Biases, too, foreign investments.

Why companies often target wrong countries?

Companies that choose new market systematically often use tools like

1. Country Portfolio Analysis 2. Political Risk Assessment3. Market Size Growth4. GDP & Per Capita Income5. Population Composition & Growth6. Exchange Rates7. Purchasing Power Indices8. World Economic Forum's Global

Competitiveness Index9. Its weight in emerging market funds

investments

Tools for Choosing New Markets

All these indices chiefly focus on the potential profits from doing business in developing countries and the political stability of the country

but leave out essential information about

1.Growth competitiveness Index ranking2.Business Competitiveness Index ranking3.Governance indicators(Political stability,

Government effectiveness, Control of corruption)4.Corruption Perceptions Index ranking5.Composite Country Risk Points6.Weight in Emerging Markets Index

Trouble with composite Index

Some of emerging markets identified by U.S.A. are:

1. Brazil 2. Russia3. India 4. China

Emerging Markets Identified by U.S.A & West

Companies often base their globalization strategies on country rankings, but on most lists, it is impossible to tell developing countries apart. According to the six indices above, Brazil, India, and China share similar markets while Russia, though an outlier on many parameters, is comparable to the other nations. Contrary to what these rankings suggest, however, the market infrastructure in each of these countries varies widely, and companies need to deploy very different strategies to succeed.

Five Context Institutional Framework

1. Political & Social Systems2. Openness3. Product Markets 4. Labour Markets5. Capital Markets

Proposed Framework to MapInstitutional Contexts

The five contexts (below) can help companies spot the institutional voids in any country. An application of the framework to the four fastest-growing markets in the world reveals how different those countries are from developed nations and, more important, from one another.

Mapping Contexts in Brazil, Russia, India, and China

Political structureU.S./ EU Brazil Russia India China

Vibrant democracy, fair and enforced laws

Vibrant democracy, corruption in federal and states governments

Centralized government with some regional freedom.Existence of corruption

Vibrant democracy. Corruption in state and local government

Communist party maintains monopoly.Officials may abuse power

openness

U.S./EU Brazil Russia India China

Open to all forms of foreign investment except govt have concerns about potential monopolies

Entry for Greenfield investment and acquisition

Both Greenfield and acquisition are possible but difficult

Restrictions in some sectors makes joint ventures necessary

Permits Greenfield investment and acquisition,Acquired companies are most likely to be state owned.

Products market

U.S./EU Brazil Russia India China

Availability of sophisticated product design.Protection of trademarks and IPR

Existence of local design capabilities.IPR disputes with U.S.

Strong local design capability but enforcement of IPR is patchy

Some local design is available. Regulatory bodies monitor product quality and fraud.

Limitation and piracy abound and punishment varies by level of corruption

Highly developed infrastructure

Good network of highways and ports

Descent logistics network but trans-ural-Russia is not developed

Poor conditioned roads , ports and airports are also under developed

Road network is well developed and excellent port networks.

Labor markets

U.S./EU Brazil Russia India China

Well trained talent exist

Large pool of management talent.

Large pool of management talent.

Highly liquid pool of English speaking management talent

Small and static market for managers.

Capital market

Easy availability of loans.Well developed corporate bond market.

Good banking system with healthy market for IPO.

State owned banks.Growing consumer credit market and IPO.

Well developed local banking system. MNC can rely for their needs.

Local banking systems are under developed.

Companies should go for Particular strategies in order to capture emerging markets.

1.Adapt Your Strategies2.Change the contexts3.Stay away

For example General Electric has captured two emerging markets like China & India by adopting two altogether different strategies.

Concluding Remarks

Thank You