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Emerging Giants

Building world class companies in Developing Countries Group 3: Devotso Maulik Dhara Mehta Dhilon Dash Dipti Dhanuka Divya Singh

2012106 2012107 2012108 2012109 2012110

Emerging giants-Indian companies

Discussion points
Strategies to overcome the obstacles faced in home environment. Why and how to establish the firm internationally?

Solution
1. Market Structures in developing countries 2. Blunting the multinationals edge 3. Exploit understanding of product markets 4. Build on familiarity with resource markets 5. Treat Institutional Voids as Business Opportunities 6. The Importance of Execution and Governance

1. Market structure in developing countries

Blunting the Multinationals Edge


At first glance,Western, Japanese, and South Korean companies appear to hold near-insurmountable advantages
They can raise large sums of money at a low cost because of their well-established financial markets. They can hire talent easily because the labor markets on both continents work well Because of institutional voids, corporations in emerging markets cannot access capital or talent as easily or as inexpensively as European and American corporations can and investment in R&D becomes difficult.

How to overcome the disadvantages


First, when multinational companies from the developed world explore business opportunities in emerging markets

They must confront the same institutional voids that local companies face
Western organizations, for instance, rely on data from market research firms. They also count on supply chain partners to make and deliver products to customers inexpensively.

Local companies can, for instance, raise money from the local stock market by trading on their reputations.

Second, when companies from emerging markets have demonstrated a degree of success, they, too, can tap capital and talent markets in developed countries. They can raise money by, say, listing themselves on the New York Stock Exchange or on Nasdaq. In the talent market, intermediaries from developed countries that are trying to fill the gaps in the soft infrastructure in emerging markets help local businesses become more competitive. This has allowed emerging-market companies to retrain their existing managers and to hire people with the same skills that executives in multinational companies possess.

Third and this is often downplayed by executives

They find it costly and cumbersome to modify their products, services, and communications to suit local tastes, especially since the opportunities in developing countries tend to be relatively small and risky Local companies dont suffer from those constraints, particularly since they operate in just a few geographic markets.

Exploit Understanding of Product Markets


Emerging Market Companies become World Class businesses by capitalizing on their knowledge of local markets by judiciously adapting to the special characteristics of customers and business ecosystems at home
Why and How does this Happen?

Product markets often turn out to be unique because customers needs and tastes are idiosyncratic.

Local companies are the first to realize that and to build businesses around distinctive national characteristics

Advantage Haier
Haier became a leader in Chinas white goods market in the teeth of competition from GE, Electrolux, and Whirlpool, mainly because it was able to develop products tailored to the needs of Chinese consumers.
How?

Haier discovered that customers in rural China were using the companys washing machines to clean vegetables like sweet potatoes The company modified its product designs to accommodate that need. The humid weather in Chinese cities such as Shanghai and Shenzhen requires people to change clothes frequently so Haier created a tiny washing machine that cleans a single set of clothes. Because the model uses less electricity and water than a regular washing machine does, it has become an instant hit in Chinas coastal cities.

The Four-Tiered Structure of Markets

Exploiting resources from local markets


competitive advantage by exploiting their knowledge about local factors of production. Indian information technology majors such as Tata Consultancy Services, Infosys technologies, Wipro, and Satyam Computer Services, all of which have excelled in recent years were able to explore the resources from the local market.

Inventec
Worlds largest manufacturers of notebook computers, PCs, and servers. Inventecs customers benet from the low costs of manufacturing products in China without having to invest in factories.

A good supply chain management is the key of Inventecs success.

Bunge
Bunge, the worlds largest processor of oilseeds. when to buy oil-seeds; when and where to crush them; and when and where to transport oil and oil meal for consumer, agricultural, and industrial use. Infrastructure allows Bunge respond quickly to changes in customer requirements and helps it cope with logistics problems.

Treat Institutional Voids as Business Opportunities


Institutional Voids
Coined by Tarun Khanna and Krishna Palepu Helps companies to explain the market ecosystem they are dependent on Types:
Labor Market Product Market Capital Market

Companies that took advantage of institutional voids


Blue River Capital
Differentiated itself by targeting middle market businesses which was underserved Entered the sectors which were considered mundane in developed economies

Coca-cola
Beverages sold warm in India Challenge was to keep their drinks cool Responded by building a solar powered cooler

Companies that took advantage of institutional voids (contd.)


Tata Motors
Dominated commercial vehicle sales at 60% market share Competition from Volvo and other Japanese Manufacturers Designed a mini truck that was safe, environmentally sound, could make U-turns on the tight streets, and carry loads that suit the needs of local commerce

The Importance of Execution and Governance


Effective utilization of scarce resources

Good governance allows an organization to acquire a reputation that is invaluable in its dealings with constituents