International Business Strategy

LON301BUS

Understanding Emerging Markets

Unit: 10 Knowledgecast: 1

Module Learning Outcomes• Communicate an in-depth understanding of the

complexity of the environment and its applications on decision-making process

• Assess current developments in the organisational environment and alternative responses related to strategy

Classifying Countries based on Economic Development

• Advanced economies: post-industrial countries characterized by;

high per-capita income, highly competitive industries, and well- developed commercial infrastructure. E.g., Australia, Canada, Japan, United States, and Western European countries.

Classifying Countries based on Economic Development

• Developing economies: low-income countries

characterized by limited industrialization and stagnant economies. E.g., most low income countries in Africa, Latin America, and Asia, such

as Bangladesh, Nicaragua and Zaire.

Classifying Countries based on Economic Development

Emerging market economies: a subset of former developing economies that have achieved substantial industrialization, modernization, improved living standards, and remarkableeconomic growth.

They are some 27 countries in East and South Asia, Latin America, Middle East and Eastern Europe.

Examples: Brazil, Russia, India, China.

Key Differences

Emerging Markets

• Most distinguishing characteristic: countries are enjoying rapidly improving living standards and a growing middle class with rising economic aspirations. Evolving towards wealthy nation status.

• Importance in the world economy is increasing as attractive destinations for exports, FDI, and sourcing.

• Account for over 40% of world GDP, over 30% of exports, and receive over 20% of FDI.

• In mid-2000s, collectively had average annual GDP growth rate of nearly 7%, much faster than advanced economies

• Benefit from low-cost labour, knowledge workers, low-cost capital, government support, and powerful conglomerates

Why Emerging Markets Matter….

Challenges of Doing Business in Emerging Markets

Political stability• Absence of reliable government authorities

increases business costs and risks, and reduces ability to forecast business conditions.

• Corruption and weak legal frameworks• E.g., Argentina, Indonesia, Russia, and

Venezuela experience substantial corruption.

Challenges of Doing Business in Emerging Markets

Weak intellectual property protection• Even if they exist, laws that safeguard intellectual

property rights may not be enforced, or the judicial process may be painfully slow.

• E.g., in China, Indonesia and Russia, counterfeiting is common, especially of software, DVDs, CDs. In India, weak patent laws discourage investment by foreign firms.

Challenges of Doing Business in Emerging Markets

Bureaucracy and lack of transparency• Burdensome administrative rules, as well as

excessive requirements for licenses, approvals, and paperwork, delay business activities.

• Lack of transparency implies that legal and political systems are not open and accountable. Lack of transparency is associated with corruption.

Challenges of Doing Business in Emerging Markets

Partner availability and qualifications• Alliances with local partners helps gain access to

local markets, supplier and distributor networks, and key government contacts. May be critical in complex markets.

• But qualified business partners are not readily available.

Challenges of Doing Business in Emerging Markets

Dominance of family conglomerates• Large, highly diversified, privately-owned firms that

control much economic activity and jobs in emerging markets. Enjoy government support, extensive networks, access to capital, market knowledge.

• South Korea – chaebols; the top 30 FCs account for nearly half the assets and industry revenues in the Korean economy. Samsung, the most famous Korean FC, has annual revenues of $140 billion.

• India – business houses• Latin America – grupos

• Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process

Emerging markets are increasingly important to MNEs but prove challenging to analyse and manage due to lack of valid, reliable information

• Assess current developments in the organisational environment and alternative responses related to strategy

Emerging markets typically require an export or joint venture entry strategy

Knowledgecast Summary

Unilever’s Emerging Markets Strategy

Having ‘toured’ Unilever earlier in the module and understood itsstrategic position and the influence of its stakeholders; now considerthe role of emerging markets in Unilever’s current strategy.

1. In which emerging markets is Unilever currently operating?2. How do the emerging markets contribute to Unilever’s corporate

strategy?3. Can you find examples of the nature of Unilever’s market entry

strategies?

Seminar

Module ReviewIn this session you will be required to give feedback on the module viathe usual course evaluation mechanisms. This may include aconsideration of the following questions.

1. Which of the units of the module have been most interesting to you?

2. How will your study of international business strategy affect your future business practice?

3. What do you consider to be the challenges for those involved in international business strategy?

Group Activity