Opportunities of Emerging Market Multinational Enterprises - Assignment Example

Opportunities and Challenges of Emerging Market Multinational Enterprises Introduction An emerging market is a country with a high growth rate with an undeveloped industrial foundation and inadequate infrastructure. Emerging markets are characterized by high population growth, low market capitalization and a measure of institutional instability. Emerging markets are found in countries such as China, India, Mexico, South Korea, and Brazil. Emerging Market Multinational Enterprises (EMMEs) are companies that are based in emerging markets with operations in more than one country. EMMEs are characterized by rapid growth and expansion to international markets. EMMEs are usually the first to venture into a particular industry sector in the emerging market but behind multinational corporations in developed countries that have been in that industry for extended periods (Jullens 2013, pp.). In the last few years, EMMEs have experienced exponential growth. EMMEs have achieved this by optimizing their opportunities in home markets and international markets. Despite the growth, EMMEs face various problems in their quest to achieve efficiency and profitability in developed markets. The paper will analyze the opportunities and challenges that EMMEs face when internationalizing into developed markets. Opportunities for EMMEs in Developed Markets There are numerous opportunities in developed markets that can be tapped by EMMEs. The first opportunity that EMMEs have in developed countries is the high number of middle income consumers. Developed markets normally have a large proportion of people in the middle income category as compared to emerging. Middle income consumers comprise of the largest consumer base in developed markets (Tse, Russo, & Haddock, 2011). The middle income earners have a high purchasing power which presents a valuable opportunity for EMMEs in the developed market. Middle income consumers are willing and able to pay high prices for products and services from the EMMEs (Song & Cui, 2009). Middle income consumers are able to drive up the profitability of enterprise. EMMEs can tap into this segment by embracing innovation, branding and implementing effective marketing policies targeted at this category. The EMMEs should be flexible enough to develop product lines that can attract this segment of consumers. The company must carry out market research to identify the product attributes that are desirable in that particular consumer segment and comply accordingly in order to attract more customers (Tse, Russo, & Haddock, 2011). Developed markets present the opportunity of highly advanced technology and equipment. Unlike the home bases in emerging markets, developed markets have more advanced technology and equipment. The lack of technological and machinery advancement in emerging markets puts a strain on the effectiveness and productivity of the EMMEs. In developed markets, the enterprises can integrate the technology into their operations. The advanced technology will improve the service delivery of the companies and present new market opportunities (Jha, 2015). Employing the more sophisticated machinery in production will result in improved productivity and cost-effectiveness which will increase the profits of the EMME. The technology available in developed markets improves communication that can directly benefit EMMEs when utilized in marketing activities and when integrating into global supply chains (Jha, 2015). Improved technology can enable EMMEs to bridge the cultural gap between the emerging market and the developed market. Technology can also help the enterprises in handling, processing and storing data which will significantly improve the overall efficiency of the EMME (Risso 2009, pp.485-487). Developed markets have a deep pool of skilled and professional human resources. Due to the high standards of education and access to knowledge in developed countries, there is a high number of experts in various industry sectors (Dunning 2012, pp.82-83). Developed countries have the expertise and experience because of many years of operations in the sectors that EMMEs have established operations. Emerging markets usually have lower skilled workers due to lower standards of education and less experience in the industry. EMMEs can integrate the skilled workers into their business operations (Ramamurti 2012, pp.41-44). The highly skilled workers are vital in the growth and expansion of the enterprises. The expertise and experience available can be directed towards improving the business processes of the EMME. The experienced employees can also provide a wider perspective on the developed market in that particular country thereby helping the EMME to develop appropriate expansion policies. Skilled labor available will help the EMME to increase its turnover in regards to production (Ramamurti 2012, pp.43-46). Developed markets provide an opportunity for EMMEs to engage in mergers, partnerships, and acquisitions. Developed markets have a high number of established companies in the industry sectors in that EMMEs operate in. Acquisitions and mergers can help the EMMEs to grow a substantial market share in the developed market (Rabbiosi, Elia, & Bertoni 2012, pp.-194-196). Acquisitions and mergers will help the enterprise to access various segments of consumers that would be difficult to penetrate. From partnerships, the EMMEs can have access to a broad range of information about the market thus enabling the company to make informed business decisions. Acquisitions and mergers of companies in the same line of production can help EMMEs to utilize the economies of scale and hence reduce operating costs and increase profits (EC, 2010). Mergers and partnerships enable the EMMEs to compete with established multinationals in the developed country. Acquisitions can provide access to intellectual property and patents which can be utilized to develop new or higher quality products. Increased human and financial resources can help the EMME to strengthen operations and develop a competitive advantage. Acquisitions and mergers with companies in different industry sectors can help the EMMEs in diversification efforts and create new platforms for the company to operate. Combined efforts can help the EMMEs to increase productivity through newly acquired synergy (Rabbiosi, Elia, & Bertoni 2012, pp.197-198). Acquiring domestic companies can also ease the taxation burden due to the tax relief and exemptions bestowed upon local companies. Internationalization into developed markets presents the opportunity to diversify product and service offerings (Frynas & Mellahi, 2015). Developed markets provide a highly developed industry landscape where different industries sectors can thrive. Developed markets have developed many industry sectors through many years of nurturing through sound economic policies. EMMEs that internationalize into developed markets can utilize the opportunity by developing new products outside of the core business operation. The EMMEs can improve the equality of products offered by engaging in research and implementing policies to surpass pre-established industry standards. Diversifying can help the EMMEs to tap into higher value customer segments thus increasing profits (Jullens 2013, pp.5). Diversification can help the EMME to compete with established multinationals across many price joints. Diversifying efforts help to increase the company’s presence in the developed which may in turn help in growing market share (Johnston, 2015). Diversifying into different market sectors can also cushion the EMME from the unpredictability of international markets. Challenges for EMMEs in Developed Markets Despite the opportunities prevalent in developed markets, EMMEs face numerous challenges due to internationalization into such economies. The first challenge faced by the EMMEs that venture into developed markets is the unfamiliarity with the company’s products. Local consumers usually have very little knowledge of products that are manufactured in other countries (Griffin & Pustay 2005, pp.114). Therefore, when EMMEs introduce their products into such markets, consumers have very little information about the product. Such a situation results in low sales for the company. Consumers may also have the perception that goods produced in emerging markets are of lower quality than goods produced in their country. Inadequate information about the product offerings of the EMME leads to increasing costs of marketing. Consumers may also reject the product due to a cultural gap between the developed country and emerging market (Goh & Sullivan, 2010). EMMEs need to carry out extensive market research before establishing operations in developed markets. The enterprise should also set aside adequate resources for marketing purposes. EMMEs entering developed markets face competition from already established multinationals. In most cases, the domestic multinationals have operated in that particular industry for a long period and have extensive information about the industry. The established multinationals usually have a large market share in that industry which inhibits the growth of EMMEs in the market. Such multinationals usually command high levels of customer loyalty from consumers around the country (ChinaDaily, 2009). Another advantage that established multinationals have is that they have access to intellectual property and patents that give them a competitive edge over EMMEs. In such markets, EMMEs find it hard to pry customers from the established multinational. The companies can also stifle the competition from EMMEs by considerably lowering prices thereby overwhelming new entrants into the market. Established corporations usually have a competitive advantage due to higher control over industry factors which may place the EMMEs at a disadvantage (Rugman & Collinson 2009, 63-65). Intense competition may require the EMME to adjust its expansion policies and pricing strategies. EMMEs face the challenge of industry regulations and government policies in the developed market. Industry standards and regulations vary between the emerging markets that EMMEs are based in and the developed markets because of differences in business culture (Griffin & Pustay 2005, pp.112-114). Industry standards in developed markets are higher than those of the EMME’s home market which poses a challenge to the companies. Most of the products manufactured by the EMMEs could fall below the established standards. EMMEs are necessitated to upgrade or alter their business operations in order to meet these requirements. This can impose a huge financial burden on EMME and thereby derail expansion activities. Government policies and legislations could impede the operations of the EMME in the developed market. Taxation laws in developed countries could affect EMMEs that are accustomed to lower taxes in emerging markets (Gammeltoft, Pradhan, & Goldstein 2010, pp.256-258). Government policies regarding labor could pose a challenge to EMMEs. Environmental legislations and policies in developed markets would also require EMMEs to modify their operations considerably. EMMEs venturing into developed markets face the challenge of high operating costs. The costs of operating businesses are comparably higher in developed markets than in emerging markets (Gammeltoft, Pradhan, & Goldstein 2010, pp.254). When EMMEs set up operations in such markets, they have to contend with the high operation costs prevalent in the market. The fixed costs such as rent are high in developed markets because of the highly advanced real estate sector. The cost of labor in developed markets is relatively higher than in emerging markets. The costs of hiring professional labor are exceptionally high. The salary scales for the same type of job responsibilities are higher thereby forcing EMMEs to spend more on remuneration than it was necessary in the domestic market. Developed markets are characterized by high costs of energy which places further financial strain on the EMME. The cost of acquiring and integrating machinery is also high. The high operating costs increase the expenditure of EMMEs and reduce the profits of the business (Gammeltoft, Pradhan, & Goldstein 2010, pp.255-258). EMMEs should implement cost-effective strategies in order to overcome the challenge of high operating costs. Developed markets pose the challenge of slow market growth. The slow market growth in developed is caused by a drop in aggregate demand (Spence, 2014). The slow market growth is facilitated by the decrease in population growth in the developed countries. Slow market growth can also be caused by a decline in overall economic growth of developed country (Talley, 2015). In such a market, there is intense rivalry between companies to acquire higher market share. EMMEs find themselves in intense competition with established companies over the stagnant number of consumers (Dunning 2012, pp.84-86). Slow market growth results in low sales volumes for EMMEs. Slow market growth can also derail the expansion projects of the companies. EMMEs can overcome this challenge by embracing differentiation and through acquisitions. Conclusion EMMEs are companies that are based in emerging markets with operations in more than one country. EMMEs have achieved success utilizing their opportunities in home markets and international markets. Emerging markets are characterized by high population growth, low market capitalization and a measure of institutional instability. The opportunities that EMMEs can exploit in developed markets are a high population of middle income earners and advanced technology. Other opportunities are the opportunity to diversify; mergers, acquisitions and partnerships; and skilled labor. The challenges faced by EMMEs in developed markets are lack of familiarity with the company’s products; high operating costs; intense competition, and slow market growth. Other obstacles include high industry standards, differences in business culture, and government policies. EMMEs should maximize on the opportunities and implement innovative strategies to overcome the challenges. Bibliography ChinaDaily, 2009. Chinese companies face challenges when entering US market. China Daily. 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