Download Emerging Market Economies

5. Understanding
International market
FM : FM : Anis Gunawan, MBA,MM,SP
Anisg @pmbs.ac.id
Copyright © 2014 Pearson Education
International business
5. Functional Area excellence
4. Entering and operating in
International Markets.
5. Understanding
International market
3.Strategy and opportunity
assessment
2. The environment of International Business
1. Foundation concepts of
International
business
International Business:
Strategy,
Management, and the New Realities
The New Global Challengers
• Some 100 companies from emerging markets are poised to become
important 21st-century multinationals. Examples:
Brazil: Embraer, Sadia & Perdiago, Natura Mexico: America Movil,
Grupo Modelo
India: Ranbaxy, Infosys, Tata Tea, WIPRO
Tata
Lenovo
China: Galanz, Haier, Chunlan Group Corp., Lenovo, Pearl River
Piano
Turkey: Koc Holding, Vestel & Sisecam
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New Global Challengers (cont’d)
The New Global Challengers benefit from
emerging markets:
Rapidly growing markets, some of which are large
Low-cost labor
China
Training grounds for competing with global incumbents
Complex operating environments, which produce some very
capable firms
China Product
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Key Concepts
1. Advanced economies: Post-industrial countries with high
per capita income, competitive industries, and developed
commercial infrastructure. Typically the richest countries,
including Australia, Canada, Japan, U.S., and nations of
Western Europe.
2. Developing economies: Low-income countries
characterized by limited industrialization and stagnant
economies. E.g. Bangladesh, Bolivia, Zaire.
3. Emerging market economies: Former developing
economies that achieved substantial industrialization,
modernization, and remarkable economic growth. E.g.,
Indonesia, Mexico, Poland, Turkey.
Indonesia
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What are the “BRIC” countries?
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The ‘BRIC’ Countries
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Advanced Economies, Developing Economies, and Emerging Markets
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Emerging Market Economies
• About 40 countries with rising economic aspirations
that enjoy rapidly growing standards of living
• Evolving towards wealthy nation status
• Importance in the world economy is increasing as they
become attractive destinations for exports, FDI, and
sourcing.
• Examples: Hong Kong, Israel, Saudi Arabia,
Singapore, South Korea, and Taiwan have
developed beyond the emerging market stage.
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Hongkong
China: Growing Role in
International Business
1.
2.
3.
4.
5.
China stay
6.
Huge population; rapidly growing economy; big
importer
Began pursuing market reforms in the late 1970s
Achieved explosive economic growth, quadrupling its
GDP during the succeeding 30 years
China is already the world’s second-largest economy
but has poor business infrastructure.
Among commodities, China buys one-third of the
world’s coal, cotton, fish, rice, and cigarettes. It buys
one-quarter of the world’s steel and one-half its pork.
China endures serious problems of air, water, and land
pollution and has 8 of the world’s top 10 polluted cities.
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China
What Makes Emerging Markets Attractive?
1. Emerging Markets as Target Markets
• Many have huge middle classes with significant income for
buying electronics, cars, health care services, and
countless other products.
• Many exhibit high economic growth rates.
2. Emerging Markets as Manufacturing Bases
• Home to low-wage, high-quality labor for manufacturing
and assembly operations
• Large reserves of raw materials and natural resources as
in South Africa, Brazil, Russia
South Africa
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What Makes Emerging Markets Attractive? (cont’d)
3. Emerging Markets as Sourcing Destinations
1. MNEs have established numerous call centers in
Eastern Europe, India, the Philippines, and
elsewhere.
2. Dell and IBM outsource certain technological
functions to knowledge workers in India.
3. Intel and Microsoft have much of their
programming activities performed in Bangalore,
India.
4. Investments from abroad benefit emerging markets
as they lead to new jobs, production capacity,
transfer of technology. and linkages to the global
marketplace.
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Estimating the Potential of
Emerging Markets
1.
2.
3.
4.
Estimations are challenging because of
peculiar economic and social environments in
these countries.
Limited availability and reliability of data
Market research can be very costly and less
precise, as compared to the advanced
economies.
Market potential indicators include: GDP
growth rate, income distribution,
commercial infrastructure, unemployment rate,
and consumer expenditures for discretionary
items.
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Purchasing Power Parity (PPP)
Adjustment to per capita GDP
1.
In relying on per capita GDP for comparison of
different countries, one should use PPP exchange
rates, rather than the market exchange rates.
2.
PPP adjustment provides a more realistic indicator
of purchasing power of consumers in emerging and
developing economies.
3.
PPP adjusted per capita GDP represents the
amount of products that consumers can buy in a
given country, using their own currency and
consistent with their own standard of living.
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The Big Mac Index
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Key Criteria for Assessing the Attractiveness
of Emerging Markets and Developing Economies
1. Market Size: the country’s population, especially those living in
urban areas
2. Market Growth Rate: the country’s real GDP growth rate
3. Market Consumption Capacity: income of the middle class
4. Commercial Infrastructure: density of telephone lines, number
of personal computers, density of paved roads, population per
retail outlet, and other such characteristics
5. Economic Freedom: the degree to which government
intervenes in business activities
6. Country Risk: degree of political risk
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Challenges of Doing Business in Emerging Markets
1. Political instability – corruption, weak legal systems, and
unreliable government authorities increase business risks and
costs and hinder forecasting
2. Weak intellectual property protection – discourages producing or
selling goods that entail valuable assets
3. Bureaucracy, red tape, and lack of transparency -- burdensome
rules, excessive requirements for licenses, approvals, and
paperwork; not accountable legal and political systems. E.g., it
may take years, or many bribes, to obtain permissions to do
business. China, India, and Russia are particularly problematic.
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Challenges in Emerging Markets (cont’d)
• Poor physical infrastructure – Basic infrastructure – such as –
high-quality roads, drainage systems, sewers, and electrical
utilities – are often sorely lacking in emerging markets.
• Partner availability and qualifications – given emerging market
challenges, foreign firms may seek local partners, who provide
access to markets, supplier and distributor networks, and key
government contacts. But qualified partners are often hard to
find or require much assistance to upgrade their abilities.
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Challenges in Emerging Markets (cont’d)
• Dominance of family conglomerates – economies are
often dominated by privately-owned, local companies
that are highly diversified and control supplies and
employment. They are common in South Korea
(chaebols), India (business houses), Latin
America (grupos), and Turkey (holding
companies).
Chaebol
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Strategies for Doing Business
in Emerging Markets
• Customize Offerings to Unique Emerging Market Needs. Successful
firms develop a deep understanding of the distinctive characteristics of
buyers, local suppliers, and distribution channels in emerging
markets, and customize offerings and business models accordingly.
• Partner with a family conglomerate – FCs can provide various
advantages, including financing, bank services, local suppliers, and
distribution channels. FCs can help reduce risks, time, and capital
requirements; develop relationships with governments and other key
players; and overcome infrastructure hurdles.
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Strategies for Emerging Markets (cont’d)
• Target governments, which buy enormous quantities of products,
such as computers, furniture, office supplies, and motor vehicles,
as well as services. State enterprises operate in areas such as
railways, airlines, banking, oil, chemicals, and steel.
• Skillfully Challenge Emerging Market Competitors. New global
challengers and other emerging market firms possess various
advantages that require skillful strategies and due diligence to
overcome.
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Strategies for Emerging Markets (cont’d)
Low-cost labor, skilled workforce, government support,
and family conglomerates give emerging market firms
various advantages. Advanced economy firms must:
Conduct research to understand target markets and the
indigenous challengers;
Acquire new capabilities that build competitive advantage
(e.g., develop new products, new ways of doing
business, local alliances);
Leverage the same advantages in emerging markets
enjoyed by local firms (e.g., low-cost labor, skilled
workforce, cheap capital, key partnerships).
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Foreign Firms Support
Local Economic Development
Walmart
1. Wal-Mart and Home Depot have created new, cost-effective
distribution channels in Mexico.
2. Unilever and P&G sell shampoo in India for less than $0.02 per minisachet.
3. Cemex provides low-cost building materials to millions of poor people.
4. Narayana Hrudayalaya sells health insurance for less than $0.20 per
person per month in India.
5. Various cell-phone and telecom firms have substantially increased
telecommunications infrastructure in Africa.
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China in International Business
Quiz 5.
1.
2.
3.
4.
5.
Huge population; rapidly growing economy;
……………..
Achieved ………………………….growth, quadrupling
its GDP during the succeeding 30 years
China is already the world’s second-largest economy
but has poor ………………………………….
Among commodities, China buys one-third of the
world’s ………………………………... It buys onequarter of the world’s steel and one-half its pork.
China endures serious problems of air, water, and land
pollution and has 8 of the world’s top 10 ……………….
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China Role in
International Business
Quiz 5.
1.
2.
3.
4.
5.
Huge population; rapidly growing economy;
……………..
Achieved …………………..growth, quadrupling its GDP
during the succeeding 30 years
China is already the world’s ……………………..but
has poor business infrastructure.
Among commodities, China buys one-third of the
world’s coal, cotton, fish, rice, and cigarettes. It buys
……………. of the world’s steel and one-half its pork.
China endures ………………of air, water, and land
pollution and has 8 of the world’s top 10 polluted cities.
Copyright © 2014 Pearson Education Inc.