Business in Emerging Markets - Essay Example

Business In Emerging Markets The emerging markets (EMs) are now the world’s booming markets. Emerging markets comprise of 75 percent of the world’s population and more than 20 percent of the world’s Gross Domestic Product (GDP). The emerging markets epitomizes a diverse set of economies and societies and are quite useful and important for testing the existing theories, models and concepts of international business and management. The emerging markets of Brazil, Russia, and South Africa (BRICS) stand out as significantly attractive economies since they are experiencing the most extensive economic, business and socio-political transition in the contemporary world (Cavusgil, Ghauri and Agarwal, 2002). The aim is to analyze the strategies and performance of an US ICT company, Intel Corporation, over the last five years in two different emerging markets in the world, India and Brazil. The Multinational Companies (MNCs) that have experience in working in developed markets have started to drift their interests towards emerging markets such as Latin America, Asia, Africa and the Middle East. This is because they have attained a saturation point in these wealthy developed economies and condensed their profit margins (Arnold and Quelch, 1998). These economies offer a lucrative ground for investments mainly due to their potential client base and a significant prospective for growth in the future. Emerging markets are usually characterized by a record of recession and economic depression and a stagnant economy. These economies exhibit a political scenario of unrest and turbulence, an aging population, low fertility rates and slow growth rates in the industrial sectors. However, these markets provide some of the peak economic growth indicators and give way for the MNCs to step in and expand their markets (Rahman and Bhattacharya, 2003). According to Rahman and Bhattacharya, there are typically three criteria that define a developing nation as an emerging market. The first one is that the nation identified as an emerging market should have a promising potential to return large profits and economic growth in the future. Second, the nation needs to be open to overseas investments and should have economic policies that promote foreign investments. Also, this exposure to foreign investments and the related policies should undergo continuous evolution so as to foster further investments and hence, greater economic growth. The third point is that the nation considered for investments should provide an appropriate institutional infrastructure to facilitate transactions faster and without problems (Rahman and Bhattacharya, 2003). There are different challenges that a foreign company faces while entering an emerging market. The main challenge comes up when the foreign companies have to acquire an in-depth knowledge about these markets. Understanding these markets is vital because without any knowledge about the place where a company plans to operate, it is difficult to establish its popularity. The other challenges come up when the foreign companies attempt to set up new business patterns and newer designs of technological innovation. Another challenge faced by the multinational companies is regarding the competition faced by them from the local companies. These new business schemes call for transferring of resources, vast and in-depth reorganization of cost and structure and restructuring of the development process with respect to products and services. There are basically four elements on the basis of which a multinational ICT company plans its strategies for entering an emerging market. The first one is related with the creation of purchasing power particularly through the use of credit mostly micro lending. The main objective is to acquire the majority of the population and the emerging economies have a vast section of the population that earns a low-to-average income. The second element is related to the innovation of new techniques by using the creativity and research works of the local people. This would help to resolve the problems related to infrastructure and serve the poorest section of the population adequately and profitably. The third strategy involves the use of partnerships to influence the traditional knowledge bases and sustain the production of goods. It mainly focuses on the use of fresh and novel information technologies and new business models to satisfy the specific requirements of the low-income population. The use of fragmented distribution systems to get better access to information is also a part of the strategy. It helps in extending the accessibility of telecommunication services to a greater number of people which also includes people with low-to-average income. The fourth strategy corresponds to the designing of solutions for local markets. This is because the multinational ICTs (and in that case, all the MNCs) need to promote local markets and foster local solutions for creating wealth for the low-income section of the population. They aspire to develop business models by merging the high-end technology together with the complete awareness of local needs so as not to break away from the local traditional way of life and culture (Prahlad and Hammond, 2002). This section will discuss the strategies and performance of Intel Corporation in two emerging markets in the world, Brazil and India and then continue to evaluate their positive and negative aspects. Intel Corporation has also formed its strategies based on the above discussed elements and has gone further with its strategies on their basis for establishing itself better in the market. Intel Corporation is a US based company that runs its operations all throughout the world and also in the emerging economies in Latin America, Asia, Middle East and Africa. It mainly produces ICT goods like processors, motherboards, chipsets, software and other related products (Site map; About Intel, n.d.). The discussion will start with the general strategies followed by Intel in the emerging economies and then concentrate into the critical evaluation of the nation-specific schemes of operation. In 2002, Intel started a new platform strategy which targeted the emerging markets. The main principles guiding the approach of Intel include collaboration, innovation, training, standardization and, Integration and delivery. Intel has in general followed the technology –push strategies for innovation processes in the emerging economies. The main aim was to create business models that would incorporate innovation processes along with high quality, low cost and profitable production processes that can be sustained. Technology-push is one of the business models that are avidly adopted by Intel in the emerging markets. In this process, innovations arise from scientific progress and it ultimately results in a flow of new products in the market (Prahalad and Liberthal, 1998). However, after the exhaustion of the technology-push model, Intel has turned towards the adoption of the strategy of Platform Approach. The platform approach is considered to be a successful strategy that cold be employed for producing wide-ranging products with an efficient use of resources. This strategy mainly deals with the identification and investigation of pints that are common to the products and services offered by the company, the target markets and the production and delivery procedure of the product (Halman, Hofer, Van Vuuren, 2003). For following the platform concept, Intel had to work on the following tasks. It had to identify the needs of the end users and consequently develop technologies to meet those requirements. Moreover Intel always tests and authenticates each of the components (hardware and software) and interacts with the other companies which are related to it like the equipment manufacturers, service providers and the system integrators. This interaction is considered crucial for Intel because it believes that through this interaction it would attain the right alignment that would guarantee interoperability of the solutions worked out and offer more desirable experiences to the end users. Following this strategy, Intel has shifted its technology focus from a mere provision of independent gadget and components to that of a perception of understanding and solving the kinds of daily-life problems relevant to the customers through the use of their technology and innovation. Intel follows an in-between process having the components of both horizontal and vertical business model. The platform is an integrated strategy which tries to add value to the products and also benefit from the economies of scale. While value addition is a part of the vertical business model, economies of scale correspond to the horizontal model. The Intel Platform is described as an integrated set of components which, when put together sums up to a greater value than the sum of the individual parts. The Intel platform has five vital components which are hardware, software, technologies, Standards and Initiatives and, Services. The market strategy followed by Intel with respect to the emerging economies started with the launching of four Platform Definition Centers (PDCs) in the major hubs of the emerging markets, namely, Sao Paulo (Brazil), Bangalore (India), Shanghai (China) and Cairo (Egypt). These hubs were set up to find out the local cultural, geographical and socio-economic parameters of those regions so as to develop an understanding of the needs and specifications of a nation or locality and then build up a solution through its technologies to meet the requirements. These centers were developed to work for and attend to the markets of Latin America, Middle East, Asia and Africa respectively. The emerging markets of Brazil and India, like other emerging economies are exposed to the problems of low literacy rates, lack of access to technology, lack of infrastructure and poor environmental conditions. Due to the low access to technologies, these economies had a very low incidence of owning personal computers. One of the main objectives of Intel was to promote the acquirement of personal computers by the people in these economies and also all over the world. Concentrating on Brazil and India, the hubs started their function by concentrating and comprehending the needs of the local people and in-depth research to understand the potential benefits that could arise from a major growth in the access to computer technology. It mainly focused on the expansion of the infrastructure to spread out the reach of the internet so as to bring a greater number of people under the influence of communications and digital technology, provision for training centers for the training of teachers with an access to the necessary technological devices and apparatus. It also focused on working together with the governments of the respective countries to broaden the use of technology for providing public services more efficiently. These centers work independently or through cooperation. Collaborative work is one of the operative characteristics of the Intel hubs. For instance, the PC conectado project is collaboration between Brazil and India. The concept (platform) of Community PC was introduced in India in the early 2006 keeping the rural areas in mind. Most of the rural India is characterized by low quality power supply conditions. This is one of the major factors that significantly hinder PC operation in such geographies. The Intel-powered Community PC has manufactured a special motherboard that addresses the issue of frequently interrupted, poor power supply in particular. The other features of the community PCs are its ability to endure extreme temperature differences and to function in the absence of thermal power by using alternative power sources like a truck or car battery. It also provides with technologies that would help the computers to adjust to the environmental adversities like heat, dust and humidity. Intel has worked with local IT companies like Wipro and HCL to make these services available (Perton, 2006). Along with its community PCs platform, Intel has also targeted India as a prospective ground for its investments. Intel Capital, the venture capital section of Intel, has planned strategies to invest in businesses that create attentiveness and demand for technology among the people and which in turn are expected to steer the demand for Intels PC and mobile internet devices (MID) technologies. One97 Communications is one of the three companies in which Intel has invested. This company is a supplier of telecommunications value added services which targets carriers, customers, and enterprises. Intel has invested in IndiaMART.com as well, which is an online shop that links up Indian sellers with domestic and international purchasers. The third company in which Intel has invested is Global Talent Track. This company attends to the gap in the demand and supply of trained workforce in the current stage, offering short and long term courses in several vocational fields. It also operates closely with universities and businesses to devise career oriented learning substance, and provide the technology platform suitable to host the substance and administer the learning delivery process. In India, Intel is concentrated on investing in firms working in the field of green IT, customer Internet, WiMax services and education (Ribeiro, 2009). In case of Brazil, the problems were different than that of India and hence, called for a somewhat different approach. Unlike India, the country is quite developed with a comparatively greater extent of accessibility to technology. However, the local communities are relatively underprivileged and are exposed to an immense lack of information and resources. Also the application of virtual technology was found to be quite negligible in the public schools. The schools, along with the teachers, students and management did not virtually have any access to computer and information technology to employ in the classrooms. Intel worked together with the State Government of Brazil to work out these discrepancies. In a joint venture with the state government, Intel started its first program in Brazil in 2004. The program came to be known as Escolas em Rede, which meant Networked Schools in English. This program made arrangements to set up computers in the libraries, laboratories and administrative offices in more than 4000 public schools across Brazil. It targeted to cover all the public schools through its program by the end of 2006. Intel’s solution strategies included the development of software and hardware technologies that would attend to the specific problems related with education in the classrooms and effectiveness of the subjects taught in the class. The solution also tried to achieve reduces costs with respect to acquisition and management. PC Conectado (or, Connected PC), the program launched by the Brazil Government, was designed to help the massive Brazilian low-income population to purchase their first personal computers (Benson, 2005). Intel Brazil which is a wing of the Worldwide Intel Corporate University provides training for the corporate employees in its Brazilian ancillary through the use of mobile tools like tablet PCs, laptops, smart phones and PDAs. The company has used these devices to heighten their mobile-learning (m-learning) courses. Intel considers the use of m-learning through these devices as an effective part of their training strategy (Guy, 2009, p. 109). These programs have been able to achieve Intel’s target and made way for a firmer and wider establishment in India and Brazil, along with the other emerging markets. The reason for its success lies mainly in its formulation of differentiated business strategies according to the area specific needs. The fact that it understood that these emerging markets lack in accessing technology along with a population that is mostly living on low-to-average earning, led it to formulate strategies and programs that would be accessible by this majority of people. It mainly focused on the base of the pyramid and constructed its business on that strong foundation. This understanding has directed them to launch training and learning programs for tutors and students and also efforts to impart basic computer skills to the rural population. Intel has understood the need for better education and ICT infrastructure in these developing economies as the first step towards establishing any IT business. The PDCs (Platform Definition Centers) and product platforms have been exclusively used to resolve the issues related to virtual technology and make new innovations respectively in the emerging markets. Although, the main focus of Intel’s platform in India was based on the difficulties faced by the adverse local and environmental conditions like, heat, humidity and power cut, however, the platform basis in Brazil was mainly on client education. However, the reach of Intel in the economically weaker regions of these countries has been limited because of their comparatively higher prices and the financial weakness of the developing regions. Although the programs were designed according to the local backgrounds, yet certain ideas such as business cards and stamps did not work with these EMs because of their unfamiliarity and irrelevancy with the local culture. These kinds of challenges were observed in the Brazilian Native Indian populations for operations relating to stamps, addresses and street signs (Michalchik, et. al, 2007, p. 10). There have been other prevalent problems regarding translation, localization and implementation of these learning programs. The foremost one is the fact that the learners do not have adequate time in certain circumstances to probe deeply into or carry out the recommended activities. Language has posed a critical barrier to the implementation and expansion of these strategies, especially in the learning programs. The staffs inform that the learners do not have adequate mathematical skills, access to information and technology to enhance their understanding as well as to increase the success of Intel’s strategies. The access to skill books in the EMs has been limited due to the aforesaid reasons. However, the CD versions of the learning resources have been quite a success in Brazil in spite of the sluggishness with which the matter opened. The creativity of learners is limited and the staffs’ understanding, implementation and skills to function are incompetent. Intel has not yet been completely successful in breaking the traditional form of education through its learning strategies (Michalchik, et. al, 2007, p. 10-15). These reports show that a lot needs to be done in breaking the barriers that often characterize an emerging economy. These include poverty and orphanage in India and a huge native populace in Brazil along with problems of accessibility to technology and low incomes. Most learners originate from blue-collar or poor backgrounds and attend schools with hardly any resources. A few have seen or used a computer (Michalchik, et. al, 2007, p. 20). Thus, these programs, although with advantageous intentions, need to extend their operations into the interiors of the society. Further strategic alterations and better implementation is required to achieve its goals and gain a firmer ground in these economies. References 1. Prahalad, C.K.and Hammond, A, 2002, “ What Works: Serving the Poor Profitably”, World Resource Institute and Markle Foundation 2. Rahman, Zillur and Bhattacharyya, S. K., 2003 “Sources of first mover advantages in emerging markets  an Indian perspective” European Business Review, Vol. 15 No. 6 3. Arnold, D. J. and Quelch, J. A., 1998, New Strategies in Emerging Markets, Sloan Management Review. 4. Prahalad, C.K.and Liberthal, K, 1998, “The End of Corporate Imperialism”, Harvard Business Review, Vol. 76, No. 4, p.68-79 5. 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