Strategies that Fit Emerging Markets

introduction
Fast-growing economies often provide poor soil for profits.
WHY?

A lack of specialized intermediary firms and regulatory systems on which multinational companies
depend. Successful businesses look for those institutional voids and workaround them.

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.
As a result, MNC are struggling To Develop Successful Strategies in emerging markets.
Emerging Market show deficiency with the Following
1.Specialized intermediaries
2.Regulatory systems,
3.Contract-enforcing mechanisms
Institutional Voids
1- Infra-structural
Companies in developed countries usually take for granted the critical role that “soft” infrastructure plays in the
execution of their business models in their home markets. is often underdeveloped or absent.
2- Human Resource
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. There’s no dearth of examples
3- Logistics
Few end-to-end logistics providers, which allow manufacturers to reduce costs, are available to transport raw
materials and finished products. There’s no dearth of examples
Why Composite Indices Are Inadequate
Anecdotal evidence we have gathered suggests that since the 1990s, American corporations have performed
Better in Their Home Environments than they have in foreign countries, especially in emerging markets. Not
surprisingly, many CEOs are wary (Vigilant) of emerging markets and prefer to invest in developed nations
instead.
HAROLD R. ISAACS, 75, AUTHOR AND M.I.T. PROFESSOR EMERITUS
the reason U.S. companies preferred to do business with China rather than India for decades was probably
because of America’s Romance with China.
Isaacs pointed out that partly as a result of the work missionaries and scholars did in China in the 1800s,
Americans became more familiar with China than with India.
McKinsey Global Survey
Polled 9,750 senior managers on their priorities and decisions to enter New Country
60% 15% 15% 10%
Market Size Political Stability Economic Stability Structural Conditions
Companies that choose new markets Systematically often use tools like country portfolio analysis and
political risk assessment, which chiefly focus on the potential profits from doing business in developing
countries but leave out essential information about the soft infrastructures there…
How Do Companies Estimate A Nation’s Potential?

Executives usually analyze

1- Nation’s GDP
2- per capita income growth rates
3- Nation Population’s composition and its growth rates
4- its exchange rates and purchasing power parity indices (past, present, and projected). To complete the
picture
Managers Consider
 the nation’s standing on the World Economic Forum’s
 Global Competitiveness Index
 the World Bank’s governance indicators
 Transparency International’s corruption rating
 its weight in emerging market funds investments
 Perhaps, forecasts of its next political transition.
Composite Index–Based Analyses of Developing Countries, conceal more than reveal.
In 2003, Brazil, Russia, India, and China appeared similar on several indices.
 Success factors in each of those markets have turned-out to be very different.
 For instance, in China and Russia, multinational retail chains and local retailers have expanded into the
urban and semi-urban areas, whereas in Brazil, only a few global chains have set up shop in key urban
centers.
 In India, the government prohibited foreign direct investment in the retailing and real estate industries
until February 2005, so mom-and-pop retailers dominate.
 Brazil, Russia, India, and China may be big markets for MNC, but executives must design unique
distribution strategies for each market

How to map institutional contexts?

As we helped companies think through their globalization strategies, we came-up with a simple conceptual
device—the five contexts framework—that lets executives map the institutional contexts of any country.
Political and Social Systems
Every Country’s Political System Affects Its Product, Labor, And Capital Markets.
The thorny relationships between ethnic, regional, and linguistic groups in emerging markets also affects
foreign investors.
China, Socialist Societies, workers cannot form independent trade unions in the labor market, which affects
wage levels.
South Africa, the government’s support for the transfer of assets to the historically disenfranchised native
African community—a laudable social objective—has affected the development of the capital market. Such
transfers usually price assets in an arbitrary fashion, which makes it hard for multinationals to figure out the
value of South African companies and affects their assessments of potential partners.
Malaysia for instance, foreign companies should enter joint ventures only after checking if their potential
partners belong to the majority Malay community or the economically dominant Chinese community, so as
not to conflict with the government’s long-standing policy of transferring some assets from Chinese to
Malays.
What Executives and VPs Should do To mitigate Political Issues??
1- well to identify a country’s power centers, such as its bureaucracy, media, and civil society, and figure
out if there are checks and balances in place.
2- must also determine how decentralized the political system is, if the government is subject to
oversight, and whether bureaucrats and politicians are independent from one another. Companies
should gauge the level of actual trust among the populace as opposed to enforced trust.
For instance, if people believe companies won’t vanish with their savings, firms may be able to raise money
locally sooner rather than later.
a series of questions. The answers—or sometimes, the lack of them—will tell companies where they should
adapt their business models to the nation’s institutional context.
Is the judiciary independent?
US/EU:
Political Structure: countries have vibrant democracies with checks and balances. Companies can count on
rule of law and fair enforcement of legal contracts.
Civil Society: a dynamic media acts as a check on abuses by both companies and governments. Powerful non-
governmental organizations (NGOs) influence corporate policies on social and environmental issues.

Brazil:
Political Structure: the democracy is vibrant. Bureaucracy is rampant. There are pockets of corruption in
federal and state governments.
Civil Structure: influential local media serves as a watchdog. The influence of local NGOs is marginal.
Openness
The more open a country’s economy, the more likely it is that global intermediaries will be allowed to operate
there.
Multinationals will find it easier to function in markets that are more open because they can use the services
of both the global and local intermediaries.
However, openness can be a double-edged sword. A government that allows local companies to access the
global capital market neutralizes one of foreign companies’ key advantages.
CHINA INDIA
 executives believe that China is an open economy because the government welcomes foreign
investment,
 but that India is a relatively closed economy because of the lukewarm reception the Indian government
gives multinationals.
 However, India has been open to ideas from the West, and people have always been able to travel
freely in and out of the country.
 whereas for decades, the Chinese government didn’t allow its citizens to travel abroad freely, and it
still doesn’t allow many ideas to cross its borders.
 Capital markets are more open to direct Foreign Industries in India, So, financial intermediaries will
become more sophisticated
What restrictions does the government place on foreign investment?
How long does it take to start a new venture in the country?
US/EU
Modes of entry: open to all forms of foreign investment except when governments have concerns about
potential monopolies or national security issues.
BRAZIL
Modes of entry: Both greenfield investments and acquisitions are possible entry strategies. Companies team
up with local partners to gain local expertise.
Product Market
Developing countries have opened their markets and grown rapidly during the past decade, but companies still
struggle to get reliable information about consumers, especially those with low incomes.

 Developing a consumer finance business is tough, for example, because the data sources and credit
histories that firms draw on in the West don’t exist in emerging markets.
 Market research and advertising are in their infancy in developing countries, and it’s difficult to find
the deep databases on consumption patterns that allow companies to segment consumers in more-
developed markets.
 There are few government bodies or independent publications, like Consumer Reports in the United
States, that provide expert advice on the features and quality of products. Because of a lack of
consumer courts and advocacy groups in developing nations, many people feel they are at the mercy of
big companies.
Can consumers easily obtain unbiased information on the quality of the goods and services they want to buy?
US/EU
Product development and intellectual property: sophisticated product design capabilities are available.
Governments enforce IPR and protect trademarks, so R& D investments yield competitive advantage.
Supplier base and logistics: co. use national and international suppliers. Firms outsource and move
manufacturing and services offshore instead of integrating vertically. A highly developed infrastructure is in
place, but urban areas are saturated.
BRAZIL
Product development and intellectual property: local design capabilities exists. IPR disputes with the United
States exist in some sectors.
Supplier base and logistics: suppliers are available in the Mercosur region. A good network of highways,
airports, and ports exists.
Labor Markets
Despite emerging markets’ large populations, multinationals have trouble recruiting managers and other
skilled workers because the quality of talent is hard to ascertain.
There are relatively few search firms and recruiting agencies in low-income countries. The high-quality firms
that do exist focus on top-level searches, so companies must scramble to identify middle-level managers,
engineers, or floor supervisors.
Can employees move easily from one company to another?
US/EU
Market for managers: a large varied pool of well-talented management talent exists.
Workers Market: the level of unionization varies among countriies. Industrial actions take place in Europe,
especially in the mannufacturing and public sectos, but not in the united states.
BRAZIL
Market for managers: the large pool of management talent has varying degrees of proficiency in english. Both
local and expariarate mangers hold senior managemnt jobs.
Workers market: trade unions are strong and pragmatic, which means that companies can sign agreements
with them.
Capital Market
capital and financial markets in developing countries are remarkable for their lack of sophistication.
 Apart from a few stock exchanges and government-appointed regulators, there aren’t many reliable
intermediaries like credit-rating agencies, investment analysts, merchant bankers, or venture capital
firms.
Multinationals can’t count on raising debt or equity capital locally to finance their operations
 Several CEOs have asked us why we emphasize the role of institutional intermediaries and ignore
industry factors.
Profitability is the Key Subject Now Can Control Business in Emerging Market , the attractiveness of an
industry varied widely from country to country.
 An attractive industry in your home market may turn out to be unattractive in another country.
Companies should analyze industry structures—always a useful exercise—only after they understand a
country’s institutional context.
 How effective are the country’s banks, insurance companies, and mutual funds at collecting savings
and channeling them into investments?
 Are financial institutions managed well? Is their decision making transparent? Do noneconomic
considerations, such as family ties, influence their investment decisions?
 Can companies raise large amounts of equity capital in the stock market? Is there a market for
corporate debt?
 Does a venture capital industry exist? If so, does it allow individuals with good ideas to raise funds?
 How reliable are sources of information on company performance? Do the accounting standards and
disclosure regulations permit investors and creditors to monitor company management?
 Do independent financial analysts, rating agencies, and the media offer unbiased information on
companies?
How well do the courts deal with fraud?
US/EU
Debt and equity: companies can easily get bank loans. The corporate bond market is well developed. The
integration of stock exchanges gives companies access to a deep pool of investors.
Venture capital: is generally available in urban areas or for specific industry clusters. VC is not as readily
available in southern Europe.
Accountability standards: apart from off-balance-sheet items, a high level of transparency exists. In the
European union, accounting practices should become more uniform after 2005 because of new norms.
Financial distress: efficient bankruptcy processes tend to favor certain stakeholders (creditors, labor force, or
shareholders) in certain countries.
BRAZIL
Debt and equity: a good banking system exists, and there is a healthy market for initial public offerings.
Wealthy individuals can invest to offshore accounts.
Venture capital: a few private equity players are active locally.
Accountability standards: the financial-reporting system is based on a common-law system and functions
well.
Financial distress: processes allow companies to stay in business rather than go out of business. Bankruptcy
processes exist but are inefficient.
The 3 Strategy Choice
When companies tailor strategies to each country’s contexts, they can capitalize on the strengths of locations.
Before adapting their approaches, however, firms must compare the benefits of doing so with the additional
coordination costs they’ll incur. When they complete this exercise, companies will find that they have three
distinct choices:
1) They can adapt their business model to countries while keeping their core value propositions constant
2) they can try to Change the contexts
3) they can stay out of countries where adapting strategies may be uneconomical or impractical.
1- Adapt your strategies
To succeed, multinationals must modify their business models for each nation
Adapt To The Voids In A Country’s Product Markets
Adapt To Its Input Markets
Adapt Both Of Them
But companies must retain their core business propositions even as they adapt their business models. If they
make shifts that are too radical, these firms will lose their advantages of global scale and global branding.
2 Change the contexts

Many multinationals are powerful enough to alter the contexts in which they operate. The products or services
these companies offer can force dramatic changes in local markets.
The entry of foreign companies transforms quality standards in local product markets, which can have far-
reaching consequences.

Companies can change contexts in factor markets, too. Consider the capital market in Brazil.
As multinationals set up subsidiaries in those countries, they needed global-quality audit services.

Indeed, as firms change contexts, they must help countries fully develop their potential.
That creates a win-win situation for the country and the company.
3. Stay away (Home Depot, home services, let us do it for you)
it may be impractical or uneconomical for some firms to adapt their business models to emerging markets.
Home Depot, the successful do-it-yourself U.S. retailer, has been cautious about entering developing
countries. The company offers a specific value proposition to customers: low prices, great service, and good
quality. To pull that off, it relies on a variety of U.S.-specific institutions. It depends on the U.S. highways and
logistical management systems to minimize the amount of inventory it has to carry in its large, warehouse-
style stores. It relies on employee stock ownership to motivate shop-level workers to render top-notch service.
And its value proposition takes advantage of the fact that high labor costs in the United States encourage
homeowners to engage in do- it-yourself projects.

Strategies in Emerging Markets

(EEs) are defined as low-income rapid growth countries using economic liberalization as their primary engine
of growth. are characterized by limited resources, including international experience and access to relevant
information, which are essential for developing sustainable international marketing strategy.
Porter (1996) pointed out that the root cause of the problem seems to be the failure of management to
distinguish between operational effectiveness and strategy because management tools have taken the place
of strategy. To avoid confusion, Porter (1996) made a distinction among operational effectiveness and
strategy. Porter further defined operational effectiveness as performing similar activities better than rivals
perform them and strategy as performing different activities from rival’s or performing similar activities in
different ways. Mintzberg (1979) defines strategy as follows: A strategy is a plan of action designed to
achieve a specific goal.
The authors of Exploring “Corporate Strategy,” claimed that strategy determines the direction and scope of
an organization over the long term, and they further argued it determines how resources should be configured
to meet the needs of markets and stakeholders.
The authors view corporate strategic decision in two ways—as a matter of economic analysis and planning,
and as a matter of organizational decision making within a social, political, and cultural process.
EEs, i.e., transition economies, are subject to continuous transformation, change, and development which
make it necessary to develop and to implement dynamic strategies which can be applied and adjusted to
different markets and environmental conditions.
In another source, it is argued that EEs are becoming the new battle ground for international business
(IB) (Peng, 2001). This is a consequence of the EEs past history and their orientation toward the changes and
developments of the future which is very much influenced by their relationships (networks, trade, and
investments) with foreign actors.
It is argued that it is probably impossible to identify a single set of EMs characteristics that affect EM
characteristics that affects multinational corporation (MNC) strategy. Hansen et al. (2010) further argued that
the distinctiveness of formulating and implementing strategy in EMs is related to at least four
dimensions: the nature of markets, the nature of resources bases, the nature of institutions, and the nature of
competition.
Competitive Strategies in the International Market
An organization pursues a separate marketing strategy in each of its foreign markets and considers
competitive activity on an independent market basis in a multi-domestic strategy.
as an adaptive orientation. It is a standardized approach that a global competitive strategy represents.
In implementing the standardized approach, the assumption of organizations is that the world is one large
(global) market and as a result, they can sell the same proposition in the same way throughout the world, and
that they ignore local, regional, and national differences.
Market Entry Strategies in the International Market
According to the same source, the choice of foreign market entry strategy is likely to have a major impact on a
company’s performance overseas.

Methods of Entry to International Markets

Developing Marketing Strategy
Marketing strategy is about matching market opportunities to an organization’s resources. When a firm
decides or makes a choice as to which marketing strategy to develop and implement, the product-market
matrix known as Ansoff’s (1957) matrix is a first and an important step. The matrix provides a useful basis
for considering the relationship between strategic direction and market opportunities (Fig. 3.3).
Porter’s Competitive Strategies
Lower cost strategy—the ability of a company or a business unit to design, produce, and market a comparable
product more efficiently than its competitors.

Differentiation strategy—the ability of a company or a business unit to provide a unique or superior value to
the buyer in terms of product quality, special features, or after sale service. a differentiation strategy requires
that all value chain activities are geared to the creation of offerings that are valued by, and satisfy, the needs
of particular brands.
Cost focus strategy—low-cost competitive strategy that focuses on a particular buyer group or geographic
market and attempts to serve only this niche to the exclusion of others. is used by organizations to seek gaps
in broad market segments or in competitor’s ranges. it helps to seek out unfulfilled market needs.
Differentiation focus strategy—concentrates on a particular buyer group, product line segment, or geographic
market to serve the needs of a narrow strategic market more effectively than its competitors.
Emerging Markets Strategies
Determinants of the Degree of Standardization in Marketing Programs and Processes
They argued that the extent of marketing standardization is dependent on three sets of variables which are host
country environment, product-related factors, and subsidiary-related factors. Host country environment
includes infrastructure which incorporates retail structure, marketing legislation and nature of competition,
and existing legal practice for foreign capital and MNCs. Product-related marketing factors include local
versus international branding, product life-cycle stage, and target customers. Subsidiary-related factors
include centralization versus decentralization of decision making, industry, ownership structure, nationality of
the percentage, and sales volume. the transition of the ECE toward a market economy affords new
opportunities but also new risks to international marketers. Thus, successful international marketing requires
the development and implementation of marketing strategies responsive to different environments.
The ECE economic region is characterized by growing differences between countries with regard to their
political, economic, legal, social, and institutional conditions.
Marketing Strategy Alternatives for Eastern and Central Europe
the first strategic dimension being focus on competitive advantage; The second strategic dimension being
market entry timing; The third strategic dimension being market entry modes; The fourth strategic dimension
being scope of strategy variation; The fifth strategic dimension being product-market combinations;

They further claim that emerging countries fall into two groups: developing countries in Asia, Latin America,
Africa, and the Middle East and transition economies in the former Soviet Union and China.
One of their finding is that the results demonstrated the crucial importance of understanding the institutional
context in researching EEs. The findings also suggest that attention needs to be devoted to examining the
barriers to the emergence of market-based strategies in enterprises in EM economies. Furthermore, the “EEs”
concept suggests a process that takes place over a considerable period of time. Enterprises in different markets
and in different countries may be expected to adopt market-based strategies at different times and rates
because institutional factors are also changing in different times and rates. On top of that, the development of
market base strategies is unlikely to be monotonic; enterprises can be expected to engaged in extensive
experimentation and search, and learning is likely to be imperfect.
Reinventing Strategies for Emerging Markets
business strategies that rely on leveraging the strengths of the existing market environment outperform those
that focus on overcoming weaknesses. Among others, the strategies for achieving success include developing
relationships with non-traditional partners, co-inventing custom solutions, and building local capacity. All in
all, these successful strategies suggest the importance of MNCs developing a global capability in social
embeddedness. most companies have stuck standardized approaches to new markets while sometimes
experimenting with a few local twists. The authors further believe that part of the problem is the absence of
specialized intermediaries, regulatory systems, and contract enforcing mechanisms in EMs— “institutional
voids.” The first choice to succeed, multinationals must modify their business models for each nation. They
may have to adapt to the voids in a country’s product markets, its input markets, or both. However, firms must
retain their core business propositions even as they adapt their business models. However, firms will lose their
advantage of global scale and global branding, if they make shifts that are too radical. The second choice for
MNCs is to change the contexts. Several MNCs are powerful enough to alter the contexts in which they
operate. The offerings of those companies in terms of products or services can force dramatic changes in local
markets. Quality standards in local markets, which can have far-reaching consequences, can be transformed
by the entry of foreign companies. The third and last choice for MNCs is to stay away from a certain market.
For some firms to adapt their business models to EMs may not be economically justifiable or it might be fully
impractical. The successful do-it yourself US retailer, Home Depot, has been cautious about entering
developing countries.
Greenfield, acquisition, and JV—are the alternative modes of entry—that allow firms to overcome different
kinds of market inefficiencies related to both characteristics of the resources and to the institutional context.
integration between institution-based and resource-based perspectives in EEs. made three theoretical,
empirical, and methodological contributions. They theoretically argued that (a) the level of development of an
EE’s market supporting institutions directly influences multinational enterprises’ (MNEs) entry strategies by
facilitating entry by Greenfield and acquisition, and that (b) institutions-based considerations complement
resource-based considerations when crafting entry strategies.
dynamic capabilities theory provides an insightful approach to understanding the internationalization of EM
multinationals and their strategic choice.
Why Pure Strategies May Be Wrong for Transition
Economy Firms
The benefits of a pure strategy are diminished when the institutional environment has a low degree of market
orientation but are increased when the institutional environment is more market-oriented. These authors
developed a conceptual framework which identifies four strategic alternatives for marketing in EMs which are
market up-graduation strategy, volume expansion strategy, market expansion strategy, and demand fulfillment
strategy. Conclusively, they proposed that marketers need to choose an appropriate mix of strategies aimed at
primary and selective demand creation in EMs, instead of recommending any generic marketing strategy.
Considering the differences among developing, emerging, and developed markets, Sheth et al. (2016)
developed eight breaking out strategies for Ems under their 4A approach. The 4A approach includes
acceptability, affordability, accessibility, and awareness. Not only that there are differences among developed
and emerging countries, but depending on the pace of adaptation, different strategies have to be applied for
success in those countries and on top of that those strategies have to be developed and modified continuously
if they are going to be meaningful and to help the achievement of the objectives of the firms in question and
their stakeholders. Bang, Joshi and Singh (2016) contends that Ems according to Miller (1998) exhibit three
categories of common characteristics such as physical characteristic in terms of inadequate commercial
infrastructure; unique sociopolitical and economic characteristics in terms of political stability, inadequate
legal framework, weak social discipline, unique cultural characteristics, and limited personal income besides
influential role of government.
Linking Emerging Markets Characteristics
Three important characteristics of EMs as low incomes, infrastructural variability, and the unique trade-offs
created by the substitution of labor for capital. The five characteristics identified by Sheth (2011) are market
heterogeneity, relatively high influence of sociopolitical institutions, high level of unbranded competition,
chronic shortage of resources, and inadequate infrastructure that differentiate EMs from developed markets.
The Uppsala Model of Internationalization
the business environment is viewed as a web of relationships, a network, rather than as a neoclassical market
with many independent suppliers and customers. the change mechanisms added trust building and knowledge
creation. Few years later Vahlne and Johansson (2013) attempted to develop a model on the evolution of the
multinational business enterprises (MBEs). Their aim was to develop an alternative to the eclectic paradigm,
the widely applied theoretical tool in the studies of the MNE and foreign direct investment.

Drivers of Success and Failure When Competing in International Markets

companies exist in a ―flat world‖ because economies across the globe are converging on a single integrated
global system. The framework is formally known as ―the determinants of national advantage, but it is often
referred to more simply as ―the diamond model‖ because of its shape.
According to the model, the ability of the firms in an industry whose origin is in a particular country (e.g.,
South Korean automakers or Italian shoemakers) to be successful in the international arena is shaped by four
factors: (1) their home country’s demand conditions,
(2) their home country’s factor conditions,
(3) related and supporting industries within their home country, and
(4) strategy, structure, and rivalry among their domestic competitors.
Demand conditions refer to the nature and volume of domestic customers firms benefit when their domestic
customers have high expectations.
Factor conditions refer to the nature of raw material and other inputs, including qualified labor, that firms
need to create goods and services (Figure 7.17 ―Factor Conditions). Examples include land, labor, capital
markets, and infrastructure. Firms benefit when they have good access to factor conditions and face
challenges when they do not.
In some cases, overcoming disadvantages in factor conditions leads companies to develop unique skills. Japan
is a relatively small island nation with little room to spare. This situation has led Japanese firms to be pioneers
in the efficient use of warehouse space through systems such as just-in-time inventory management (JIT).
The concept of related and supporting industries refers to the extent to which firms’ domestic suppliers
and other complementary industries are developed and helpful.
The concept of firm strategy, structure, and rivalry refers to how challenging it is to survive domestic
competition. The Olympics offer a good analogy for illustrating the positive aspects of very challenging
domestic situations. If the competition to make a national team in gymnastics is fierce, the gymnasts who
make the team will have been pushed to stretch their abilities and performance.
Companies that have survived intense rivalry within their home markets are likely to have developed
strategies and structures that will facilitate their success when they compete in international markets.
However, the lack of being pushed by rivals will likely mean that the firm struggles to reach its full potential
in creativity and innovation.