Emerging Markets

Emerging Markets
Fast growing, Low cost labor, emerging middle
class
Emerging Competitors- both at country level &
Firm level
Headaches of doing business in product,
finance and labor markets
 Emerging Markets
Lacks mechanisms that help buyers and sellers
to come together
What is required to ensure that the buyers and
sellers come together?
Physical Infrastructure
Soft Infrastructure Market Intermediaries
 Why Intermediaries?
To facilitate buyers and sellers come together to
do business
Find information about each other
Access each other a place to meet and trade
Mechanism to settle dispute
 Institutional Voids
Some mechanisms do exist but inadequate
some are accessible only to few (VC & Bank)
Creates many issues
Unreliable market information
Uncertain regulatory environment
Inefficient judicial system
 How does it affect the Market
Institutional Voids increases the cost of
transaction
Traveller example
 Impact of Institutional Voids
Lemon Car Example
What are the problems
Information asymmetries
Incentive conflict between buyers and sellers
May lead to breakdown of markets
How to overcome the problem
- Intermediaries
 Institutional Intermediaries
Developed markets have many such
intermediaries to provide
Disclosure of high quality information
Enforce contracts reliably with support of
aggregators
Regulate markets fairly
Creation of such intermediaries will affect the
lemon sellers will resist
 Product Market Intermediaries
Information provide news -directly through
established media 3rd party sources to
authenticate information reviewers
Aggregators - Retailers analyze consumer
preferences and screen products that meet the
requirements and display them
Contract between every player is enforceable
credit
Regulate false advt credit card companies from
sharing info
 Capital Market Intermediaries
Information- Financial reporting facilities
auditors, analysts and rating agencies
Aggregators -VCs, Banks, FI help investors to
channel their funds to attractive investment
opportunities facilitate fund access to
businessmen
Stock market provide liquidity
Regulation regulators and law
Taxonomy of Intermediaries
Taxonomy of Intermediaries
Taxonomy of Intermediaries
 MNC from developed countries vs
Emerging Markets
MNC from developed countries have an edge in
the global market
Well known brand name, efficient innovation
processes & management systems and sophisticated
technologies
Capital to the established financial markets
Access vast reservoirs of proven talent where it is easy
to hire
MNCs from emerging market miss most of the
above - Can they win over the former?
 MNC from developed countries vs
Emerging Markets
Emerging Markets have institutional voids
It creates an advantage for home grown
companies who knows to manage the
institutional voids
Market Structure in Emerging markets
Market Structure in Emerging markets
This segmentation is applicable to all the three
markets (Product, Finance and Labour) in both
input and output side
 MNCs and Emerging Markets
How MNCs from developed market can win
over emerging markets ?
How home grown firms can win over the
MNCs in the emerging markets?
How the firms from emerging markets can win
over the developed market?
Developed Market MNCs in Emerging
Markets
MNCs from developed countries are
accustomed to operate in markets with
limited institutional voids
How can they compete in emerging markets
with institutional voids ?
 Developed Market MNCs in Emerging
Markets
MNCs face a series of strategic choices in
emerging markets tied to the market segments
Replicate or Adapt ?
If adapt, how?
Compete alone or collaborate?
then
Accept or attempt to change the market conditions?
What if it is difficult accept or change
Enter, wait or exit
 MNCs in Emerging Markets
First strategic choice to be made
Replicate or Adapt ?
Replicate Use the same business model,
exploiting relative advantages of global brand,
credibility, Know-how, talent, finance and
other factor inputs
 MNCs in Emerging Markets Replicate
General Motors in China
LOreal in India
 GM in China replicate
Entry in 1997- Buick models no change in
design target the Premium Global segment
 LOreal in India
Try to adopt in the local market initially
Failed and then decided to replicate
 MNCs in Emerging Markets Adapt
Required to target the Glocal and Local segments
Identify the segments difficult as segmentation
not based on income
MNCs can adapt to the local needs and preferences
- means lowering the prices and customizing the
products to meet the local requirements both
difficult
Too much adaption can lead to the erosion of MNC
advantage it may also create problems in strategic
control
 MNCs in Emerging Markets Compete
alone or Collaborate
Presence of Institutional voids and the lack of
knowledge about them may force the MNCs to
decide whether to compete alone or collaborate
with a local partner.
However identifying the right partner may also
be difficult due to institutional voids
 MNCs in Emerging Markets- Collaborate
Microsoft in China managing piracy-
localized version of Windows- multiple small
local partners
GE Healthcare in India- BEL & Wipro
MNCs in Emerging Markets- Alone
Now the question is
whether to accept Institutional voids and operate
accordingly (accommodate it for their own operations)
or
Attempt to Change by filling the institutional voids
Identifying what institutional voids to accept and
what to change is a challenge
MNCs in Emerging Markets- Alone
Accept Institutional voids and operate
accordingly
McDonalds in Russia
Attempt to Change by filling the institutional
voids
Monsanto in Brazil
 MNCs in Emerging Markets- Enter, Wait or Exit
When it is difficult to fill the institutional voids
on its own or unable to adapt
Whether to wait till the market matures or
enter quickly to establish first mover
advantage even with losses
What about indirect engagements till entry
If already in the market and unable to manage
whether to keep waiting till the market
matures (absorb losses) or to exit
 MNCs in Emerging Markets- Wait or Exit
Home Depot in emerging markets
Tetra Pak in Argentina
Emerging Giants-How to Compete
Exploit Understanding of Product markets
Build on familiarity with Resources market
Treat Institutional Voids as business
opportunities
 Exploit Understanding of Product
markets
Product Markets are Unique
Customer Requirements are different
Emerging markets can design customized
products
 Exploit Understanding of Product
markets
They can exploit similar nearby markets
Can cater to the need of diaspora in
developed market
Haier China
ICICI Bank - India
 Build on familiarity of resources
market
Capitalize on their knowledge about local factors
of production like talent and capital markets-
Indian IT companies
Local Engineers with low salaries
MNCs cannot identify the right talent- knowhow to
tap talent from 2nd tier cities
 Build on familiarity resources market
Build on knowledge about the local supply chain
& other factors of production -Inventec & Bunge
Business built around raw material are global
from the beginning
How to go Global - Build on familiarity
of resources market
Global market that can be served from home
base
As factor market get saturated they move to
similar developing market
TCS in Latin America
Move up in value chain selling branded
products in niche segments Inventec
 Treat Institutional voids as business
voids
Some of the institutional voids can be filled by Government
Others can be filled by private players
By filling institutional voids facilitate the flow of information,
or enhance the credibility of the claims the sellers make, or
analyze information and advise buyers and sellers
They also facilitate transactions by aggregating and
distributing goods and services or by creating forums where
buyers and sellers can conduct their own transactions
Here again MNCs have an advantage as they have experience
Emerging Giants can overcome it for 3 reasons
 Treat Institutional voids as business
voids
Intermediaries are people intensive requires
lot of familiarity with local language and
culture
Intermediaries are information intensive
local expertise to access info and
understanding to analyze data of variable
quantity
Government considers such institutions to of
national importance and requires local players
 Treat Institutional voids as business
voids
MNCs are suited to serve as intermediaries in
Global tier (MNC Bank serving MNC client)
Old Mutual in South Africa- Emerging Logistics
in China
Exploiting Institutional voids does not create a
launch pad for globalization but provide
learning opportunities
BRIC countries are big enough to be market on
their own