In markets where labor costs are relatively low, the target customer may not be the home owner but rather contractors who serve as intermediaries between the store and the home owner. Running an international company may earn you new business, as many consumers and fellow business people enjoy working with small businesses whose reach extends abroad. When they complete this exercise, companies will find that they have three distinct choices: They can adapt their business model to countries while keeping their core value propositions constant, they can try to change the contexts, or they can stay out of countries where adapting strategies may be uneconomical or impractical. Emerging market capital can breathe new life into companies that have maxed out potential for new capital domestically. Spotting Institutional Voids Managers can identify the institutional voids in any country by asking a series of questions. An emerging market is an economy that has not yet developed at the same level as those in the first world. Create new market infrastructures for example, your own in-country supply chain? Small businesses may have opportunities to grow in emerging markets not available to them in domestic markets.
Do they reach all consumers or only wealthy ones? Cultural Risks A disadvantage of trying to do business in emerging economies is the challenge in overcoming cultural risks. And poor countries will fail to benefit from what investors can bring them. If, for example, the local value of a held stock increased by 5%, but the real depreciated by 10%, the investor will experience a in terms of total returns when selling and converting back to U. This has been the case in China, where providers have taken hold more quickly than they have in India, which has only recently allowed multinationals to invest in retailing. China, on the other hand, is notorious for its lax approach to. How strong are the logistics and transportation infrastructures? Being able to creatively address the local challenges mainly accessibility and affordability is essential to gaining a competitive edge in the developing world. Political uncertainty Although less frequently than before, emerging markets are still very much vulnerable to times of high political instability.
But first firms should weigh the benefits against the costs. When you are the market leader — or at least near the top — you can focus on building your brand and making your company more important in the economy that is taking shape. Western companies that want to develop counterstrategies must push deeper into emerging markets, which foster a different genre of innovations than mature markets do. Do independent financial analysts, rating agencies, and the media offer unbiased information on companies? You can create a list of criteria they must meet to help you evaluate their potential. The company created this system when it realized that the market for diagnostic machines was small in most low-income countries.
What is the distribution of power between the central, state, and city governments? Does the market drive exchange rates, or does the government control them? According to the six indices below, Brazil, India, and China share similar markets while Russia, though an outlier on many parameters, is comparable to the other nations. The five contexts framework places a superstructure of key markets on a base of sociopolitical choices. Then, there are the logistical and cultural challenges of doing business far from home. During the next two decades, the total quality management movement spread to other industries in India. We have learned that successful companies work around institutional voids. China, Vietnam, India, Indonesia, and Latin America, esp.
Does the local culture support that movement? Professor Michael Porter is a seminal thinker on developing strategies for competition on a global scale. Or stay away because adapting your business model would be impractical or uneconomical? Are there independent consumer organizations and publications that provide such information? The company also brought in about 50 expatriate managers to teach Russian employees about its service standards, quality measurements, and operating procedures and sent a 23-person team of Russian managers to Canada for a four-month training program. Cultural perspectives, rituals and product usage vary around the world and when new economies emerge, they may have different expectations than ones in which a business is established. Can companies access raw materials and components of good quality? Similarly, openness affects the development of markets. However, the country has spawned many private sector organizations, some of which are globally competitive. 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. Are those restrictions in place to facilitate the growth of domestic companies, to protect state monopolies, or because people are suspicious of multinationals? The overall performance of emerging markets has been — in great part — divorced from the latest global economic crisis.
Accessibility of goods and services is another major issue in the developing world. Stories of rampant corruption, red tape and lack of can make an otherwise attractive market seem too challenging to tackle. Usually, the goal is to build an operation independent of local supply networks or other local business environment which is judged to be less than reliable in terms of quality, just-in-time deliveries or other important aspects of business operation. How much weight do executives give seniority, as opposed to merit, in making promotion decisions? Do they trust goods from local companies? You can, of course, hire interpreters and bilingual staff, but also arm yourself in other ways, like making all your promotional materials, price sheets, business cards and PowerPoint decks in the local language. That changed local conditions in several important ways.
How to mitigate the risks? Some Brazilian companies, such as basic materials company Votorantim and aircraft maker Embraer, have become globally competitive. Furthermore, this is often an ideal place to try out original product features far away from your native competitors. How are the rights of workers protected? Bureaucracy It takes 119 days to. How reliable are sources of information on company performance? Later, as its supply chain became more efficient, it offered customers in China a full range of products. In China, foreign companies compete with state-owned enterprises, which public sector banks usually fund.
So without further adieu: Why do business in emerging markets? 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. Unsaturated Verticals A variety of verticals is yet to be fully penetrated by the rich-world economies. Filled with international case studies and packed with real-life examples from across the world, this text covers all the key topics on an Emerging Markets course in an engaging and accessible way. Are regulators effective at monitoring the banking industry and stock markets? This market imperfection results in higher fees and an increased level of price uncertainty. These challenges increase for smaller companies with fewer employees and resources.
That creates a win-win situation for the country and the company. Access to Capital Access to new capital is what drives many businesses to take on the risks of doing business in emerging markets. In China, however, the Red Bull can looks nothing like its western counterpart. Do citizens trust companies and individuals from some parts of the world more than others? By the end of 2002—according to the Bureau of Economic Analysis, an agency of the U. The attentive reader of this book will, however be perfectly prepared for a most profitable step into the future of growth' - Mesut Yilmaz Former Prime Minister of Turkey 'A very timely book for students and managers related to business opportunities and risks inherent in emerging markets. By establishing its own supply chain and management systems, it now controls 80% of the Russian fast-food market.