emerging markets slides
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International Business: Strategy, Management, and the New Realities 1
International Business
Strategy, Management & the New Realities
by
Cavusgil, Knight and Riesenberger
Chapter 9
Understanding EmergingMarkets
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International Business: Strategy, Management, and the New Realities 2
Learning Objectives
1. The distinction between advanced economies,developing economies, and emerging markets
2. What makes emerging markets attractive forinternational business
3. Estimating the true potential of emergingmarkets4. Risks and challenges of doing business in
emerging markets
5. Strategies for doing business in emergingmarkets6. Catering to economic development needs of
emerging markets and developing economies
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Classifying Countries based on
Economic Development
Advanced economies are post-industrial countries characterizedby high per capita income, highly competitive industries, andwell-developed commercial infrastructure.
Examples- worlds richest countries and include Australia,Canada, Japan, New Zealand, the United States, and WesternEuropean countries.
Developing economies are low-income countries characterized bylimited industrialization and stagnant economies. Examples- low-income countries, with limited industrialization
and stagnant economies- e.g. Bangladesh, Nicaragua and Zaire.Emerging market economies are a subset of former developing
economies that have achieved substantial industrialization,
modernization, improved living standards and remarkableeconomic growth.
Examples- some 27 countries in East and South Asia, LatinAmerica, Middle East and Eastern Europe- including Brazil,Russia, India, China (so called BRIC countries).
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Advanced Economies
Mature state of industrial development; transitioned frommanufacturing economies into service-based economies. Home to 14% of the worlds population, and account for half
of world GDP, over half of world trade in products, and three-quarters of world trade in services.
Political systems- democratic, multiparty systems ofgovernment.
Economic systems- typically based on capitalism, withrelatively little government intervention in business.
Serious purchasing power; few restrictions on internationaltrade and investment.
They host the world's largest MNEs. Example- Ireland, which has one of the worlds best
performing economies, with much FDI from foreignmanufacturers in high-tech industries such as Gateway.
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Developing Economies
Low discretionary incomes, limited proportion ofpersonal income spent on purchases other thanfood, clothing, and housing.
In developing economies, 17% live on less than$1 per day; 40% live on less than $2 per day.
The combination of low income and high birthrates tends to perpetuate poverty.
Misnomer-sometimes called underdevelopedcountries orthird-world countries- these termsare imprecise because, despite poor economicconditions, the countries tend to be highlydeveloped in historical and cultural terms.
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Developing Economies
Hindered by high infant mortality, malnutrition, short lifeexpectancy, illiteracy, and poor education systems;correlates with economic development, the vicious cycle ofpoverty.
Productivity is stagnant; living standards deteriorate.
Debt- Governments in developing economies are oftenseverely indebted- countries in Africa, Latin America, andSouth Asia have debt levels close to their annual GDP.
Bureaucracy- much of Africas poverty is the result ofgovernment policies that discourage entrepreneurship,trade, and investment. Example- starting a new business:
In sub-Saharan countries in Africa involves an average of11 different approvals, and takes 62 days to complete.
In advanced economies, takes an average of 6 approvals,and 17 days to complete.
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Emerging Market Economies
Most distinguishing characteristic- countries are enjoyingrapidly improving living standards and a growing middle classwith rising economic aspirations.
Importance in the world economy is increasing as attractivedestinations for exports, FDI, and sourcing.
Emerging market countries are evolving towards wealthynation status.
Examples: Hong Kong, Israel, Saudi Arabia, Singapore,South Korea, and Taiwan have developed beyond theemerging market stage.
2004- emerging markets- the Czech Republic, Hungary, and
Poland, received a boost when they became members of theEuropean Union. By joining the EU, these countries had toadopt stable monetary and trade policies. They leverage theirlow-cost labor to attract investment from Western Europe,thereby boosting their economies.
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Emerging Market Dynamics
Emerging markets account for over 40 percent ofworld GDP. They represent over 30 percent ofexports and receive over 20 percent of FDI.
Mid-2000s, the emerging markets collectively
enjoyed an average annual GDP growth rate ofnearly 7%, a remarkable feat much faster thanadvanced economies
Benefit from: low-cost labor, knowledge workers,government support, low-cost capital, andpowerful, highly networked conglomerates
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The New Global Challengers
(Boston Consulting Group Study)
Some 100 companies from Emerging Markets(called Rapidly Developing Economies in theBCG study) are poised to become important21st-century multinationals.
Examples: Brazil: Embraer, Sadia & Perdiago, Natura
Mexico: America Movil, Groupo Modelo
India: Ranbaxy, Infosys, Tata Tea, WIPROChina: Galanz, Haier, Chunlan Group Corp.,Lenovo, Pearl River Piano
Turkey: Koc Holding, Vestel & Sisecam
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The New Global Challengers
RDEs have rapidly growing markets,some of which are very large
RDEs have low-cost resources
Difficult operating environments athome produce some highly capablecompanies
RDEs are training grounds forcompeting with global incumbents
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Six Strategic Globalization Patterns of the
New Global Challengers from EMs
1. Taking RDE brands global (Chinas Hisense, takingconsumer electronics to Africa)
2. Turning RDE engineering into global innovation (IndiasWipro)
3. Assuming global category leadership (Hong Kongs Johnson
Electric)4. Monetizing RDE natural resources (Brazilian food
processors Sadia and Perdiago)
5. Rolling out new business models to multiple markets
(Mexicos cement conglomerate Cemexs global acquisitionstrategy)
6. Acquiring natural resources (Shanghai Baosteel groupexpanding globally to secure stable iron-ore supplies)
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Developing Economies Evolving into
Emerging Markets
European countries of Estonia, Latvia, Lithuania,Slovakia. Latin American countries of Costa Rica, Panama, and
Uruguay. Kazakhstan, Nigeria, Vietnam, and the United Arab
Emirates. Economic prosperity varies within emerging markets-there are usually two sets of economies those in urbanareas (more developed economic infrastructure) andthose in rural areas (less discretionary income).
Transition economies = Privatization of former stateenterprises- since 1989 after transition from centrallyplanned economies into liberalized markets: CzechRepublic, Hungary, and Poland; also China and Russia.
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Transition Economies
Transition economies engaged in large-scale privatizationof state-owned enterprises. Excessive regulation and entrenched government
bureaucracy, now are introducing legal frameworks toprotect business and consumer interests and ensureintellectual private property rights.
Russia endured high inflation with annual price increasesreaching 100%, hindering foreign investment and economicdevelopment.
Shaking off the Soviet legacy required the country torestructure not just firms and institutions, but also adopt
new values about private ownership, profits, intellectualproperty, etc. Initially, western companies doing business in Russia found
it difficult to recruit managers who understand modernmanagement practices.
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Intense Market Liberalization in Transition Economies
Transition economies liberalized their markets- manyforeign companies initiated trade and investmentrelationships with them.
Privatization provided many opportunities for foreignfirms to enter these markets by purchasing former state
enterprises. In Eastern Europe, Western companies areleveraging inexpensive labor and other advantages inthe region to manufacture products bound for exportmarkets.
Hungary, Poland, the Czech Republic, and other formerEast Bloc countries have made great strides in politicaland economic restructuring. These countries are well ontheir way to more advanced stages of economicdevelopment.
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Opportunities for Foreign Firms in China
Ample opportunities for firms marketing technologies andenvironmental protection equipment Foreign firms can profit from Chinas low-cost labor and
growing affluence, numerous foreign companies set up salesoffices and manufacturing facilities, but success is slow.
Wal-Mart sourced over $30 billion of merchandise from Chinain 2007- saves immensely.
A sizeable consumer segment: 250 million middle-classresidents.
Success requires deep understanding of the market and long-term commitment: Coca-Cola, General Motors, McDonald's,Motorola, Airbus, and Volkswagen.
Challenges: Disparate rates of development between thecoastal areas vs. West; poverty; environmental degradation.
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What Makes Emerging Markets Attractive?
Emerging markets are attractive as target markets,manufacturing bases, and sourcing destinations.1. Emerging Markets as Target Markets
Growing middle class - emerging markets have becomeimportantrepresent substantial demand for electronics
and automobiles and health care services. The largest emerging markets have doubled their shareof world imports in the last few years.
Emerging markets are excellent targets for manufacturedproducts, technology, and sophisticated technology:
Textile machinery industry in India is huge Oil and gas exploration plays a vital role in Russia Agriculture is a major sector in China.
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Emerging Markets can Serve as Niche Markets
Lockheed Aircraft, whose Hercules turboprop is apopular airliner in poorer countries, has developedtransport planes that carry bulk commodities at relativelylow costs.
Novartis and Pfizer are pharmaceutical firms that reapbig profits from selling vaccines and medicines that canbe stored without refrigeration when shipped to distantmarkets.
Demand is growing fastest in emerging markets- Black &Decker and Robert Bosch, the fastest-growing marketsare in Asia, Latin America, Africa, and the Middle East
Governments and state enterprises are targets for saleof infrastructure-related products/services- machinery,power transmission equipment, transportationequipment, high-technology products, etc.
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Emerging Markets As Manufacturing Bases
2. Emerging markets as manufactur ing bases Home to low-wage, high-quality labor for manufacturingand assembly operations.
Large reserves of raw materials and natural resources. South Africa is a key source for industrial diamonds.
Brazil long has been a center for mining bauxite, themain ingredient in aluminum.
Thailand has become an important manufacturinglocation for Japanese MNEs such as Sony, Sharp, andMitsubishi.
Malaysia and Taiwan- Motorola, Intel, and Philipsmanufacture semiconductors there.
Mexico and China- platforms for consumer electronicsand auto assembly.
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Emerging Markets As Sourcing Destinations
Outsourcing - procurement of selected value-adding activities, including production ofintermediate goods or finished products, fromindependent, external suppliers. Helps foreignfirms become more efficient, concentrate on
their core competences, and obtain competitiveadvantage.
Offshoring - when sourcing involves foreignsuppliers or production bases.
Global sourcing - refers to the procurement ofproducts and services from foreign locations.Procurement can be from either independentsuppliers or company-owned subsidiaries.
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Emerging Markets As Sourcing Destinations
3. Emerging markets as sourc ing dest inations MNEs have established call centers in Eastern
Europe, India, and the Philippines. Dell and IBM outsource certain technological
functions to knowledge workers in India. Intel and Microsoft have much of theirprogramming activities performed in Bangalore,India.
Investments from abroad benefit emergingmarkets as they lead to new jobs and productioncapacity, transfer of technology and linkages tothe global marketplace.
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Estimating the Potential of Emerging Markets
Estimating the true potential of emerging marketdemand is challenging. The economic and socialenvironments in these countries are highly peculiar.
Limited availability of data sources or reliability of
information. Market research may be more costly and lessprecise than in advanced economies
Market potential indicators include: GDP growth
rate, income distribution, commercial infrastructure,the rate of urbanization, consumer expenditures fordiscretionary items and unemployment rate.
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Market Potential Indicators
Three practical approaches firms employ inassessing market potential of individualcountries are: per-capita income
size of middle-class, and
A mix of market potential indicators
Market potential may be assessed withaggregate country data, such as gross national
income (GNI) or per-capita GDP, expressed interms of a reference currency, such as the U.S.dollar.
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Purchasing Power Parity
Adjustment to per capita GDP
In relying on per capita GDP for comparison ofdifferent countries, one should use purchasingpower parity exchange rates, rather than themarket exchange rates.
Purchasing power parity adjustment provides amore realistic indicator of purchasing power ofconsumers in emerging and developingeconomies.
PPP adjusted per capita GDP more accurately
represents the amount of products thatconsumers can buy in a given country, usingtheir own currencyand consistent with their ownstandard of living.
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B ig Mac Index(The Economist)
B ig Mac Index- another way to illustrate the PPPconcept is to examine the Big Mac Indexavailableat globalEDGE and developed by the Economist(www.economist.com).
The Economist's Big Mac index is based on thetheory of purchasing-power parity (PPP), accordingto which exchange rates should adjust to equalisethe price of a basket of goods and services around
the world. The Economist publication selects asingle product for the basket of goods: aMcDonalds Big Mac.
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What the B ig Mac IndexSuggests
The Big Mac Index first gathers information on the priceof hamburgers at McDonalds restaurants worldwide. Itthen compares the prices based on actual exchangerates to those based on the PPP price of Big Macs tosee whether a nations currency is under-valued (most
developing economies or emerging markets) or over-valued (most European countries).
The index is supposed to serve as a guide to thedirection in which currencies should, in theory, head inthe long run.
In its most current version, the big Mac index suggeststhat the Japanese yen is 28% undervalued against thedollar, and the euro is 19% overvalued.
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Big Mac IndexSource: The Economist, July 2007
Big Mac prices
Implied PPP of theActual dollar
exchange rate July2007
Under (-)/over (+)valuation against the
dollar, %In local currency In U.S. dollars
The EURO- 3.06 4.17 1.12 1.36 +22
British Pound 1.99 4.01 1.71 2.01 +18
Japanese Yen 280 2.29 82.1 122 -33
Chinese yuan 11 1.45 3.23 7.60 -58
Norwegian kroner kr 40.0 6.88 11.7 5.81 +102
Swiss francs CHF 6.30 5.20 1.85 1.21 +53
South African rand R 15.5 2.22 4.55 6.97 -35
Russian ruble 52.0 2.03 15.2 25.6 -41
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Limitations to the Use of Per Capita GDP
1. Managers must adjust the numbers for the existence of anin formal economyeconomic transactions that are notofficially recorded and therefore left out of governmentcalculations of a nation's GDP, e.g. barter exchanges.
2. The great majority of the population is on the low end of theincome scale in emerging markets (and developing
economies), mean or average does not accuratelyrepresent a non-normal distribution; often, the median orthe modal income would yield a better understanding.
3. Household income is several times larger than per-capitaincome because ofmultiple wage earners in these
countries.4. Governments in these countries may under-report nationalincome so they can qualify for low-interest loans and grantsfrom international aid agencies and development banks.
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Middle Class as an Indicator of Market Potential
The middle class represents the proportion ofpeople in between the wealthy and the poor, haseconomic independence and consume manydiscretionary items, including electronics,furniture, automobiles, recreation, and education.
In emerging markets, the size and growth rate ofthe middle class serve as signals of a dynamicmarket economy
Demographic trends indicate that, in the coming
two decades, the proportion of middle-classhouseholds in emerging markets will becomemuch bigger, with enormous spending power.
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P f E i M k t i
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Progress of Emerging Markets in
Building Their Middle Classes
While India and Indonesia feature large middle-class populations in absolute terms, per-capitaGDP in these countries is rather modest,especially when compared to South Korea,China, Russia, and Mexico - although income is
relatively high at 49 and 48%, respectively. Brazil- middle class citizens control only about
35% of national income. In relative terms, South Korea has made the
most progress towards building a sizable middleclass; its middle-class accounts for about 55% ofnational income.
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Emergin g Market Potential Index (EMPI)
The EMPIcombines factors that provide firms with a realisticmeasure of export market potential:
Market Size: the countrys population, especially urbanpopulation
Market Grow th Rate:the countrys real GDP growth rate Market Intens ity: private consumption and GNI represent
discretionary expenditures of citizens Market Consumpt ion Capaci ty: The percentage share of
income held by the countrys middle class Commercial Infrastructure: characteristicssuch as number of
mobile phone subscribers, density of telephone lines, number of
PCs, density of paved roads, and population per retail outlet Econom ic Freedom: the degree of government intervention Market Receptivit y: the particular countrys inclination to trade
with the exporters country as estimated by the volume of imports Country Risk: the degree of political risk
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Managers can use EMPIin Many Ways
1. Rankings can provide an objective method forprioritizing emerging markets in the course ofplanning international expansion.
2. On-line EMPIrankings are interactive, so users canrank markets on the basis on any of the eight
dimensions making up the overall Index (see theEMPI at globalEDGE).3. Managers can modify the assigned weights to fit the
unique characteristics of their own industry.4. Managers may add additional indicators that are not
currently included in the EMPIas a way of refining thetool for greater precision, or they may add additionalcountries beyond the emerging markets alreadyrepresented in the Index.
Challenges of Doing Business in EMs:
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Challenges of Doing Business in EMs:
Political Stability
The absence of reliable government authoritiesadds to business costs, increases risks, andreduces managers ability to forecast businessconditions.
Political instability is associated with corruptionand weak legal frameworks that discourageinvestment.
Example- Russia- Bureaucratic practices favorwell-connected, home-grown firms threaten the
business activities of foreign firms, i.e. denyingaccess to Russias energy resources- harmingforeign investor confidence.
Challenges of Doing Business in EMs:
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Challenges of Doing Business in EMs:
Weak Intellectual Property Protection
Even if they exist, laws that safeguard intellectualproperty rights may not be enforced, or the judicialprocess may be painfully slow.
Argentina- enforcement of copyrights on recorded
music, videos, books, and computer software isinconsistent- laws against Internet piracy are weakand ineffective.
China Indonesia, and Russia - counterfeiting is
common, especially with software, DVDs, andCDs.
India- weak patent laws discourage investment byforeign firms.
Challenges of Doing Business in EMs:
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Challenges of Doing Business in EMs:
Bureaucracy and Lack of Transparency
Burdensome administrative rules, as well as excessiverequirements for licenses, approvals, and paperwork,delay business activities.
Example- American International Group (AIG) formed ajoint venture with the giant Indian conglomerate Tata, toenter India's underserved $8 billion insurance market, andit still took six years before the Indian government granted
AIG permission to sell property and life insurance. Excessive bureaucracy means lack of transparency, i.e.
legal and political systems are not open and accountable.Where anti-corruption laws are weak, bribery, kickbacks
and extortion are common. In Transparency Internationals rankings, emerging
markets such as Argentina, Indonesia, and Venezuelaexperience substantial corruption.
Challenges of Doing Business in EMs:
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Challenges of Doing Business in EMs:
Partner Availability and Qualifications
Foreign firms need to seek alliances with localpartners in countries characterized byinadequate legal and political frameworks-gaining access to local market knowledge,supplier and distributor networks, and key
government contacts. Qualified business partners in emerging markets
are not readily available. Often in emergingmarkets, one has to contend with second-best or
third-best partner candidate, and provide muchtechnical and managerial assistance to upgradethe partners capacity.
Challenges of Doing Business in EMs:
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Challenges of Doing Business in EMs:
Dominance of Family Conglomerates
Many emerging market economies are dominated byfamily-owned rather than publicly-owned businesses. Family conglomerate (FC) is a large, privately-owned
company that is highly diversified, and control economicactivity and employment in emerging markets.
South Korea, where they are called chaebols - the top 30FCs account for nearly half the assets and industryrevenues in the Korean economy. Samsung, the mostfamous Korean FC, has annual revenues of $140 billion.
India where they are called business houses Latin America where they are called grupos
Turkey where they are called holding companies - the KocGroup accounts for about 20 percent of trading on theIstanbul Stock Exchange, and Sabanci provides over fivepercent of Turkeys national tax revenue.
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Characteristics of Family Conglomerates
A typical FC may hold the largest market share in each ofseveral industries in its home country. FCs enjoy various competitive advantages in their home
countries, such as government protection and support,extensive networks in various industries, superior marketknowledge, and access to capital, e.g. Hyundais
advantages were overwhelming to foreign automakers. The origin and growth of FCs are partly attributable to
governments, which protect FCs by providing subsidies,loans, tax incentives, and market entry barriers tocompetitors.
FCs provide huge tax revenues and facilitate nationaleconomic development. FC dominance in emerging markets suggests that they will
be formidable competitors or capable partners.
Managerial Strategies:
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Managerial Strategies:
Partnering with Family Conglomerates
Most major FCs in Korea; Koc and Sabanci in Turkey;Vitro in Mexico; Astra in Indonesia are highly diversified;own their own financing operations, banks, anddistribution channels. FCs make valuable venturepartners in emerging markets. They can:
1. reduce risks, time, and capital requirements for newmarket entry
2. develop relationships with governments and otherkey, local players
3. target market opportunities more rapidly andeffectively
4. overcome infrastructure-related hurdles
5. leverage FCs resources and local contacts.
Examples of Partnering with
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Examples of Partnering with
Family Conglomerates
Ford partnered with Kia to introduce the Sable line ofcars in South Korea-Kia's strong distribution and after-service network.
Digital Equipment Corporation (DEC) designated Tatung,a Taiwanese FC, as the main distributor of itsworkstations and client-server products in Taiwan-
Tatung's local experience and distribution network. In Turkey, Sabanci entered a joint venture with Danone,
the French yogurt producer and owner of the Evianbrand of bottled water. Danone brought ample technicalknowledge in packaging and bottling, and a reputation
for healthy and environmentally friendly products, but itlacked information on the local market. As the Turkishmarket leader, Sabanci knows the market, retailers, anddistributors- resulting in making Danone the bottledwater market leader in the first year.
Managerial Strategies:
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Managerial Strategies:
Marketing to Governments
In EMs, government agencies and state-ownedenterprises are important customer groups: Governments buy enormous quantities of products
(such as computers, furniture, office supplies, andmotor vehicles) and services (such as
architectural, legal, and consulting services). State enterprises operate in areas such as
railways, airlines, banking, oil, chemicals andsteel, and buy goods and services from foreigncompanies.
Public sector influences the procurement activitiesof various private or semi-private corporations.
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Aspects of Marketing to Governments
Request for proposals(RFPs) ortenders- government agencies(buyer) seeking bids from suppliers to procure bulk commodities,equipment, and technology or to build power plants, highways,dams, and public housing.
Governments prefer dealing with vendors that offer complete salesand service packages -- in addition to financing (e.g., low-interestloans).
Governments are attracted by deals that create local jobs, employlocal resources, reduce import dependence, and provide othercountry-level advantages.
Examples- Bechtel, Siemens, General Electric, Hitachi, KBRregularly participate in bidding for global tenders from emerging
market governments. Three Gorges Dam on the Yangtze River in China, will be fullyoperational in 2009, following 16 years of construction- will cost $25billion, will be the largest hydroelectric dam in the world- globalcontractors involved- ABB, Kvaerner, Voith, Siemens, and GE.
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Major International Contractors
Managerial Strategies:
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Managerial Strategies:
Skillfully Challenging EM Competitors
Advantages such as low-cost labor, skilled workforce,government support, and FCs, are fostering the rise offirms that are capturing market share from incumbentinternational players.
Example- Indias Mahindra & Mahindra (farm equipmentindustry) has been grabbing market share from JohnDeere and Komatsu, with brands such as the Mahindra5500, a powerful, high-quality tractor that sells for farless than competing models.
Advanced economy firms must: Conduct research to understand the indigenous
challengers Acquire new capabilities that build competitive
advantages (R&D investment, partnering withcompetitors, leveraging low-cost labor).
Catering to Economic Development
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Catering to Economic Development
Needs of EMs
Internationalizing firms are more involved in fosteringeconomic development in Ems -- a form of corporatesocial responsibility because they help developingeconomies grow- most cases they also make goodbusiness sense.
Economic development through profitable modernizationprojects
Entrepreneurship through small-scale loans
Fostering economic development with profitable projects
Historically few firms targeted poor countries- however- Iffirms market appropriate products and employ suitablestrategies, doing business in EMS and developingeconomies can be profitable.
Innovative Solutions to
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Local Economic Development
Unilever and P&G sell Sunsilk andPantene shampoo in India for less than$0.02 per mini-sachet.
Narayana Hrudayalaya sells healthinsurance for less than $0.20 per personper month in India.
Amul, one of Indias largest processedfood companies, sells a wide range of foodproducts to millions of poor people.
Ericssons Experience with Local Economic
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Development
Ericsson, the Swedish telecom modernized the telecominfrastructure in rural parts of Tanzania, and other parts ofAfrica. Between 1998 and 2004, the number of mobile-phoneusers in Africa grew to 81 million the fastest growth worldwide.
The emergence of a significant cell phone market in Africa led tothe development of related industries and the launch of local
firms that produce accessories, such as devices for rechargingcell phone batteries. Ericssons experiences suggest thatmarket-based solutions not only contribute to social andeconomic transformation, but can be profitable as well.
Ericsson also modernized much of Russias antiquated phonesystems; installed Hungarys digital telephone system (in
partnership with local government); was instrumental inexpanding Vietnams telecommunications network, andmanufactured optical fiber cables in partnership with the BirlaGroup in India- one of the largest family conglomerates.
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Partnering with State-Owned Enterprises
Partnering with state-owned enterprises buildscompetitive advantages in EMs.
Development of infrastructure in transportation,communications, and energy systems
Job creation and contribute to regional and sector
development. Investment generates local tax revenues, which can
be spent to improve living standards among the poor.
Technology transfer promotes local innovation and
enterprise. Corporate citizenship- community-oriented social
programs that foster economic and socialdevelopment.
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Microfinance to Facilitate Entrepreneurship
Microfinance refers to providing small-scale financialservices, such as microcredit and microloans, thatassist entrepreneurs in poor countries-providing smallloans, frequently less than $100, small-scaleentrepreneurs (primarily women) accumulate sufficient
capital to launch businesses that help pull them out ofpoverty.
This concept led economics professor MuhammadYunus to found the Grameen Bank in Bangladesh in1974- now has over 2,100 branches- with 17
microfinance organizations in China- and has helpedmillions of Grameen borrowers in Bangladesh rise out ofacute poverty.
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Experience with Microfinance Projects
World Bank estimates there are more than 7,000microfinance institutions, serving some 16 million poorpeople in developing economies.
Thanks to the success of microfinance, Yunus wasawarded the 2006 Nobel Peace Prize.
Similar efforts have been inspired in dozens of poor
countries worldwide, often sponsored by philanthropicorganizations such as the Bill and Melinda GatesFoundation.
Proponents point to how a small amount of money canhave a dynamic, ripple effect on many lives in a village.
Microfinance has gained credibility in the mainstreambanking industry- with other forms of small-scale financialservices offered in poor countries worldwide, includinginsurance and mortgage lending.