b8748: doing business in emerging markets (mba) fall 2016 ... · the topics that we covered in...

UpdatedDecember4,2016

B8748:DoingBusinessinEmergingMarkets(MBA)Fall2016(Fall2017UpdatePending)

ContactInformationAmitKhandelwalJeromeA.ChazenProfessorofGlobalBusinessDirector,JeromeA.ChazenInstituteforGlobalBusinessUrisHall,Room606Email:ak2796@columbia.eduOfficehours:ByappointmentTeachingAssistantKaushikKappagantulu(kkappagantulu17@gsb.columbia.edu)

COURSEDESCRIPTION

The global economy is no longer driven solely by the United States. Technological innovations havedramatically lowered the cost of doing business globally. Economic policies have steadily liberalizedeconomies over the past two decades enabling firms to expand beyond their homemarket to seekglobalmarketopportunities,toachieveeconomiesofscaleandtoleveragecostadvantages.TheEarth’seconomiccenterofgravityisshiftingawayfromtheWest.

Yetdespitetheopportunitiesfromglobalization,mostcompaniesdonotexpandinternationally.Ofthesmallsetofcompaniesthatdo,mostconductbusinessinmarketsthatareverysimilartotheirdomesticmarket.Doublingthedistanceofa foreignmarket fromthehomemarketreducestradebyhalf.Eventoday,U.S.exports toColombiaare twice thatof Indonesia,a fastgrowingcountrywithapopulationfive times that of Colombia. In short,many companies are ill-positioned to take advantage of globalopportunities.

Tosucceedindevelopingcountries--whetherseekingnewmarketsforitsownproducts,newsuppliersinitsproductionprocessorhigh-yieldlocalinvestmentopportunities--afirmmustbeabletoassessfactorssuchastherisksposedbyweaklegalsystemsthatlimittheenforceabilityofcontracts,corruptionandpoliticalinstability.

Ourgoalinthiscourseisnottobecomeexpertsonparticularcountriesorregions.Today’sfastgrowingmarkets may not be tomorrow’s. Instead, our goal is to use frameworks and principles that can beappliedacrossmanycountries,marketsandsectors.Theframeworkderivesprimarilyfromthefieldofeconomics,butthesignificantdeparturefromManagerialEconomicsorGlobalEconomicEnvironmentisthe assumption of efficient markets. Developing countries’ economies are characterized in part bysignificantmarket,informationandcontractingfailures,theanalysisofwhichwillplayalargeroleinouranalysis.Indoingsowewillintegratespecificexampleswiththelatestresearchineconomicsandotherrelevantfields.

Someofthetopicswewillcoverinclude:1. Whyareemergingmarketssovolatile?2. Howcanfirmsusequantitativeanalysistoidentifythenextfrontiermarkets?

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3. Whydoverysuccessfulfirmsconsistentlyunderestimatethecostsofenteringemergingmarkets?Whatstrategiesshouldfirmstaketoreducethesecosts?

4. Whyarecompaniesinemergingmarketsorganizeddifferentlyfromthoseindevelopedmarkets?

5. Howcanfirmsprotectintellectualpropertyinmarketswithweakenforcement?WhatstrategiesdofirmshaveifyourJVpartnerhasstolenyourIP?

6. Whatarethedeepdeterminantsofcorruptionacrosscountries,andhowshouldfirmsmanagecorruptionrisk?

REQUIREDCOURSEMATERIAL

The coursewill also draw from lecturenotes, case studies, academic articles andnewspaper reports.ReadingswillbemadeavailableonCanvas.Forthiscourse,IrecommendscanningdailytheFT’sBeyondBRICsblog,andtheWSJ’sFrontierMarketsblog.

REQUIREDPREREQUISITESANDCONNECTIONTOTHECORE

Thedecisionsrequiredfordoingbusinessacrossbordersutilizes,buildsandextendsconceptsfrommanyofyourcorecourses.Forexample,tounderstandwhichmarketstoenter,youwillneedafirmgraspofregressionanalysisfromManagerialStatistics.Onceyoudecidetoenteracountry,youfaceatradeoffonthemodeofentry:exports,jointventuresorgreenfieldFDI.Evaluatingthesetradeoffsbuildsontheanalysisoftradeoffs,diversificationandscopediscussedinStrategyFormulation.Ifthecountryhasweakintellectualpropertyenforcement,youwillneedtoconsiderthehold-upproblemdiscussedinManagerialEconomics.(Youmightalsopausetoquestionwhyintellectualpropertyissoweaktobeginwithandindoingso,willrecognizeconnectionstoeconomicgrowthconceptsfromGEEI).Finally,youhavetomanagethistrickyexchangeratethatyouwereintroducedtoinGEEI.

CoreCourse ConnectionwithCoreStrategyFormulation 1. Trade-offs,value-added,efficiencies

2. DiversificationandscopeManagerialEconomics 1. StrategicinteractionamongfirmsandNashequilibrium

2. Hold-up3. Marketcompetition4. Pricingstrategies5. Adverseselection6. GameTheory

ManagerialStatistics 1. Linearregression2. Casualanalysis

GlobalEconomicEnvironmentI

1. Exchangerates2. Economicdevelopment

Studentswillbeexpectedtohavemasteredtheseconceptsandbeabletoapplytheminthecourse.

METHODOFEVALUATION

Your performance will be evaluated by in-class participation, assignments and a final project. Finalgradeswillbeassignedaccordingtothesedimensions:

1. Classparticipation(30%)

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2. Assignments(20%)3. FinalProject(50%)

Assignments1. Yourteammustselectoneassignmentquestiontodiscuss inclass.Thepurposeistoallowyouto

divedeeperintoonequestionthatinterestsyou.Thequestionsforthatdaywilltrytorelatetothetopicscoveredthatclass.Ifthereisaspecificquestionthatyouwouldliketoanswerthatisnotonthesyllabus,pleaseproposeittome.Youdonotneedtopresentwithslides,butyoumaywishtopass around a graph or two if that helps facilitate conversation. You should aim to answer thequestioninabout5minutes,andwriteitupin(max)2-pagepiecedueonthedaythatyouareaskedtodiscuss.

a. Onlyonememberofthegroupneedstoleadthediscussion.b. EmailtheTAbyMonday11/7withthequestion&classnumber.

FinalProjectThefinalprojectisgiagroupprojectwithamaximumoffivestudents.Thereareseveraloptionsforthefinalproject.Youareaskedtosubmita15(max)page“think”piecethattakesadeeperdiveintoanyofthe topics that we covered in class (ormissed in class). It is a good idea tomention your proposedquestion/ideatomeaheadoftime(eitherbyemail,before/afterclass,orduringofficehours).Therearemanypotentialdirections.ThefinalpaperisdueFriday12/16at11:59pmEST.Anypaperlatewilllose10%ofthegradeforeachhouritislate.Examplesinclude:

1. Analyzeacompany’sinitialentryintoaforeignmarket.Youareencouragedtotalkdirectlywiththe company in order to understand the full set of factors thatwere considered prior to theentry (analyzing failed international expansion efforts are equally and potentially moreilluminating).Whatmodeofentrydidtheytry?Whatshouldtheyhavedonedifferently?

2. Provideananalysisofhowyourcompanyororganizationhasdealtwith thevagariesofbribe

demandsorcontractingdifficulties.

3. What – if anything – could a country like Myanmar, Laos, Ethiopia, Botswana do to attractforeigninvestorstoday?

4. What are the considerations that a “double bottom-line” social enterprise should take intoaccountinasituationinwhichitsprofitandsocialgoalsarenotaligned?

5. Assessthechallengesofprotecting intellectualpropertyfromtheperspectiveofonecompany

of your choice?What stepshave they taken toprotect IP?Are they sufficient?What risksdotheyface?Whatoptionsdotheyhaveshouldinfringementoccur?

CLASSROOMNORMSANDEXPECTATIONS

Attendance ismandatory. Ifyouareunabletoattendaclass,youmustsendmeanemail24hours inadvancewiththereason.Iwillassignashortsetofquestionsforeachcase/reading.Itisexpectedthatyouwill have done the reading and given thought to the questions. Iwill also “cold-call” students inordertofacilitateclassdiscussion,sothisrequiresthatyouwillhavedonethemandatoryreadingandgiventhoughttotheassignedquestions.Laptops,smartphonesandtablesareNOTpermittedinclass.

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HonorCode

Thiscoursewillstrictlyadheretotheacademicconductguidelinesdiscussedindetailathttp://www0.gsb.columbia.edu/honor/resources.html.

ColumbiaBusinessSchool’sHonorCode:

AsalifelongmemberoftheColumbiaBusinessSchoolcommunity,Iadheretotheprinciplesoftruth,integrity,andrespect.Iwillnotlie,cheat,steal,ortoleratethosewhodo.

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TentativeSchedule(*denotesrequiredreadings)

Class1:WhyareEmergingMarketsstill“Emerging”(AMacroPerspective)?

Readings:• *MarketFailures(HarvardBusinessReview,700127)• *Divergence,BigTime(JournalofEconomicPerspectives,11(3),1997)• *AfricaUnleashed(ForeignAffairs,Nov/Dec2011)• *Democracy,DiversificationandGrowthReversals(VoxEU2009.08.15)• It'saFlatWorldAfterAll(NYT2005.04.03)• Jones&Olken,“TheAnatomyofStartStopGrowth,”ReviewofEconomicsandStatistics,2008DiscussionQuestions1. Whatarethemainforcesofglobalization?2. Doyouagree/disagreewithTomFriedman’scharacterizationthattheworldisflat?

a. Ifyouagree,whyandcanyouprovidefurtherevidenceinsupportofyourarguments?b. Ifyoudisagree,whyandcanyouprovidefurtherevidenceinsupportofyour

arguments?Doyouhaveanalternativemetaphor?3. Thinkofyourfavorite“emerging”market:Whatarethethreebiggestchallengesthatcountry

faces?

Class2:WhyareEmergingMarketsstill“Emerging”(AMicroPerspective)?Readings• *ManagementPracticesandProductivity:WhytheyMatter(McKinsey2007)• *KhannaandYafeh(2007),“BusinessGroupsinEmergingMarkets:ParagonsorParasites?”

JournalofEconomicLiteratureXLV:331-372(June),sections1–3• *“Parallelplayers”,TheEconomist,June23,2012• *“TheMasalaMittelstand”,TheEconomist,August11,2012• WhyFocusedStrategiesMaybeWrongforEmergingMarkets(HBR97404)• Bloom,Genakos,vanReenenandSadun,“Managementpracticesacrossfirmsandcountries”,

AcademyofManagementPerspectives,2012DiscussionQuestions:1. Whyarefirmsinemergingmarketssopoorlyrunrelativetofirmsindevelopingcountries?2. WhyarefirmsinemergingmarketsmorehierarchicalthanfirmsintheU.S.?3. Whydoweoftenobservebusinessconglomeratesforminginthesecountries?Student-LedDiscussionTopics:1. WhyhasEthiopiagrownsorapidlyinthepast10years?2. Ifyouareanapparelcompany,whichfrontiermarketslookattractiveaspotentialsourcing

options?3. IfyouareaU.S.multinationalconsideringaninvestmentprojectinVietnam,whatprovisionsof

theTransPacificPartnershipappealtoyou?4. YouareanadvisortotheGhanaNationalCompetitivenesscouncil.Whatspecificsectorswould

youadvisethemtofocusonastheydeveloptheirdevelopmentgrowthstrategy?5. ExplainMohammedbinSalman’sstrategytodiversifytheSaudiArabianeconomy.

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Class3:MarketSelectionandEntryIReadings• *Hermitage’sRussianQuandry(A,B)(HBS9-711-054)• *MetroCashandCarry(HBS707505)• *SpottingInstitutionalVoidsinEmergingMarkets(HBS9-106-014)• DistanceStillMatters(HBRR0108K)• RetailDoesn’tCrossBorders:Here’sWhyandWhattodoaboutit(HBRR1204G)HermitageQuestions:1. WhatwastheHermitagestrategy,andhowwellwasitworking?2. WhatshouldBrowderdonow?

MetroCashandCarryDiscussionQuestions:1. WhathavebeenMCC’skeycompetitiveadvantagesasithasmovedintoemergingmarkets?2. WhatroledidinstitutionalcontextplayinchallengingMCC’seffortstoprovethevalue

propositionofitsuniquewholesalingformatandestablishitselfasanacceptedcorporatecitizeninRussia,ChinaandIndia?

3. Howwouldyoure-thinkMCC’sapproachtostrategicexpansionandpublicrelationsinIndiagoingforward?

Student-LedDiscussionTopics:1. WhydidUberfailinChina?2. WillAmazonsucceedinIndia?3. WhichsectorscouldseelargeincreasesinFDIifsanctionsonIranareliftedfully?Isthereany

onecompanyinparticularthatwouldparticularlybenefitfromtheremovalofsanctions?4. IndonesiaisTwitter’s5thlargestuserbase.Whyhasitbeensosuccessfulinthatmarket?

Class4:MarketSelectionandEntryII

GravityAssignmentDueReadings• *NgheAnTate&LyleSugarCompany(Vietnam)(HBS9-202-054)• *Haier’sU.S.RefrigeratorStrategy(HBS711-473)NgheAnTate&LyleSugarCompany(Vietnam)DiscussionQuestions:1. WhatispotentiallyattractiveaboutthisinvestmentforTate&Lyle?2. WhatarethemajorrisksforTate&Lytleinthisproject?3. CarefullyidentifythekeypartiestothesuccessoftheNATLproject

a. Whatdoeseachpartywant?b. Whatrolesmusteachpartyplayfortheprojecttosucceed?c. Ifyouwereafarmer,wouldyouadoptsugarcane?Whyorwhynot?d. Whatabouttheotherparties—willtheydowhatNATLneedsthemtodo?

4. Howimportantaretariffstothisbusinessstrategy,andhowwouldyouassesswhetherthecurrenttariffenvironmentisstable?

5. WhyisNATLwillingtopaywageswellabovethelocalaverage?6. ShouldIFCparticipate?

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HaierDiscussionQuestions:1. HowdidHaierachieveitssuccess?2. HowdoesHaieradaptfromsellingwithinitshomemarkettosellingintheUSmarket?What

alternativestrategiescouldithavetried?Evaluatethecompany’sstrategy.3. WhatcanwelearnfromHaier’sstrategyaboutfuturecompetitionfromcompaniesfrom

emergingmarkets?

Student-LedDiscussionTopics:1. WhatisoneinnovationoccurringinChina’stechnologyscenethatcoulddisrupttheU.S.

market?2. Assessoneprivate-sectoreducationcompany’sstrategyinacountryofyourchoice.3. MobilebankingrevolutionizedpaymentstructuresinKenya.Howmightblockchain

technologydothesameinthatcountry?Whatriskswoulditimpose?

Class5:ManagingIntellectualPropertyInEmergingMarketsReadings:

• *ALocalFirm'sBafflingTripThroughChina'sArbitrationSystem(LATimes,2003.12.26)• *HollywoodinIndia:ProtectingIntellectualProperty(HBS711017)• *DanoneVWahaha(A):WhoisHavingtheLastLaugh?(HKU-766)• “Low-CostDrugsinPoorNationsGetaLiftinIndianCourt”,NewYorkTimes,April12013]• VolkswagenProbesChinesePartner(WSJ2012.07.27)• Djankov,LaPorta,Lopez-de-Silanes,andShleifer,“Courts”,QuarterlyJournalofEconomics,

February2002HollywoodDiscussionQuestions:1. Howcanweidentifyplagiarisminamovie?Howaboutinsoftware,imagesandbooks?2. Howcanamoviestudiopreventplagiarism?3. WhatstrategiesshouldFoxStaradopttocompactpotentialpiracyofMyNameisKhan?Danone-WahahaDiscussionQuestions:

1. IdentifythefactorsthatcontributedtoDanone'sdecisiontoformJVswithWahaha2. HowarecontrolrightsdividedbetweenDanoneandWahahaintheirJVsinChina?Howare

revenuessharedbetweenthetwoparties?Howmanythesehaveledtotheirdispute?3. WhathasgonewrongintermsofcontractualenforcementbetweenDanoneandWahaha?

HowcouldWahaha'sallegedbreachofitsJBcontractwithDanonehavebeenavoided?4. IsformallegalprocedurethebestoptionforDanone?HowaboutWahaha?What

alternativesdothetwocompanieshave?Student-LedDiscussionTopics:1. Pickamajordrugthatiscurrentlyunderpatent.ShouldacountrylikeBrazilbeallowedto

produceagenericversionofthatspecificdrug?2. Pickacompanyofyourchoicethathasenteredanemergingmarket.Presumablyitusedalaw-

firmtohelpestablishitslocaloperations.Didituseaforeignlawfirmoradomesticlawfirm,andassesstheirdecision?

3. Pickasectorandcountryofyourchoice.Inthepast5years,whatarethetrendsinforeigndirectinvestmentintermsofjoint-venturesvswholly-ownedsubsidiaries?

Class6:Corruption&Wrap

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Readings• *CorruptionatSiemans(HBS108033)• *TheRoadtoHellisUnpaved(Economist2002.12.19)• *OlkenandPande,“CorruptioninDevelopingCountries”,forthcominginAnnualReviewof

Economics,section2(pp.13–21).(http://economics.mit.edu/files/7589)DiscussionQuestions:1. Whatiscorruption?Whatistherootcause(s)ofcorruptionaroundtheglobe?Cananythingbe

donetochangeacountry’slevelofcorruption?2. HowdidSiemensfinditselfinthissituation?3. WhatproblemsdoesthecorruptioninvestigationposeforSiemens?Whatactionsneedtobe

takentoaddresstheseproblems?Student-LedDiscussionTopics1. Giveanexampleofonecountry’sstrategytoraiseincometaxcollection?2. WhyisWalmartunderanFCPAinvestigation?3. Howeffectivehasananti-corruptionbureaubeeninacountryofyourchoice?