International Firms Doing Business in Emerging Markets - Example

THE IMPLICATIONS FOR INTERNATIONAL FIRMS DOING BUSINESS WITHIN AN EMERGING/DEVELOPED MARKETS Data International Firms Doing Business in Emerging Markets International firms have the pleasure and all it takes to venture into multinational investments. While they put their subsidiaries in various countries, emerging markets usually are of many interests to them for various reasons. There are a lot of untapped opportunities, virgin markets and minimal competition in the emerging markets. The domestic firms in these markets also do not have enough resources, technology and innovation to advance their businesses to the best extent that can cover the requirement of the country. However, there are also various barriers to business and problems that are associated with the emerging markets. Some emerging markets are consumed by the effects of their cultures to an extent that they do not buy from the new cultures, or their purchases are controlled by cultural influences. Political, legal and economic factors may also be unfavorable in these markets for the international firms doing business here. According to the Economist article on "Developing markets: The clamor for glamour," published on 13th December, 2014, consumers from emerging markets such as Nigeria have a penchant for the European luxury (The Economist, 2014). There is inadequate infrastructure with a few decent shopping malls. Nigerians have been doing and will in the foreseeable future, do their shopping in shopping places in London such as Harrods. It shows that, international firms that produce luxurious products from London can find a better opportunity to exploit in the Nigerian markets. Lifestyle and economic factors in the country provide a humble business opportunity for the international markets especially those from London. As Nigeria becomes more prosperous as an emerging market, it becomes more important for the international firms dealing in luxury products. These firms find more opportunities in some areas such as in the consumption of luxury beauty products and womens wear. These firms concentrate on the main cities of the countries with the emerging markets. At least in such cities, there are the various social classes of people who are can provide the required consumers with the disposable income to purchase such luxury goods. The main categories of social classes in these markets include those of the high class and the medium class people. Each social class has their categories of luxury products designed with special consideration on price and quality. In such case, those from each social class can find at least products of different quality and prices to associate with. In another article of The Economist, about "The dodgiest duo in the suspect six" printed on 8th November, 2014, were told how the investors in the emerging markets know exactly how things can turn out sour (The Economit, 2014). Indonesia and Thailand were known as the "Asian Tigers." This was not long, after they suffered the currency crises and were only bailed out by the International Monetary Fund (IMF). This depicts the kind of challenges that the international funds meat as they involve in their businesses in the emerging markets. The differences in the political, legal, economic, and cultural settings in the home countries and the host countries become very important for the prosperity of the international firms. Cultural Difference Terpstra (1994) defined culture as the sum of the learned behavioral traits shared by members of a society (Terpstra, 1994). Cultural environment is one of the most challenging areas when it comes to international marketplaces. Understanding cultural differences between the host and home countries usually has an importance in understanding and influencing the needs and wants of the consumers. There are various cultural phenomena that can be observed cultural factors have been discovered to have important influences on the flow of international business (Czinkota, 2007). The different elements of culture that affect the flow of business are manifested through language: both verbal and non-verbal, religion, values and attitudes, manners and customs, social institutions, aesthetics, material elements and education. Cultural analysis is, therefore, considered to be the most important issue that the international firms need to carry out on their host countries. The analysis should include the important information that will help the firms staff to make and take certain planning decisions. Apart from just collecting the facts, cultural analysis must involve more than just analyzing these facts to interpret them in a proper manner. Emerging markets are always based on such countries that have great opportunities for business. However, such countries are always faced with a myriad of cultural challenges. As we know, most of these countries are the developing countries, especially in Africa and Asia, where in one country, there are various cultures that attract people to learn and explore the core of this vibrant environment. Such countries are subdivided into various ethnic groups, like Kenya with 42 ethnic groups, which then translate to different cultural perspectives. For an international market to meet and influence the demands of these consumers with different cultural stands, it will have to do a lot research to produce only the products that do not in any way violate their cultural beliefs (Brooks, 2008). Sometimes, this cultural diversity is seen as an opportunity that an international firm can explore. It gives the firms the opportunity to reposition their products thus increasing their life cycles. Economic Difference When an international form is thinking of taking its business to an emerging market, it is very important for this firm to understand the economic environment of the host country. The difference in the economic environments between the host and the home countries normally are used as determinants whether the firm can explore the business opportunities on the host country or not. Some basic economic factors that should be analyzed in this case include the level of its economic development as well as the value of its currency (Karen, 2014). Such factors will influence highly on the viability of investing in these markets as well as the profits levels that will be expected. The economic development of the country is related to its standard of living, measured by the countrys Gross National Income (GNI) per capita. The international firms normally come from the countries with strong economic development statuses due to the high values in their GNI per capita. However, in the emerging markets, the GNI per capita in these countries is always very low, indicating low levels of economic development. The international firms, therefore, require understanding the economic differences that result in such differences in order to succeed in putting up businesses in such emerging markets (David, 1999). In most cases, the international firms do take advantage of the low economic development levels to introduce businesses that will be welcomed by the host countries as the steps to raising the levels of their economies. Political Difference It has been determined beyond reasonable doubt that government politics plays a very important role in regulating international business (Shawn, 2014). There exists a set of political factors and activities that usually work by either hindering or facilitating the ability of international firms to do business in the emerging markets. Several such factors take into play including the host countrys economic system, trade agreements, government systems, formal and informal trade barriers. A country that is considered to be an emerging market can use its political influences to allow or decline an international firms request to carry out business with it. Similarly, it is the same political factors that a country can use to raise or remove the barriers that usually take into play whenever an international firm would like to do business in an emerging market. For instance, a country, through its political system, might decide to allow an international firm to carry out its businesses through issuance of licenses and reduction of taxes. A country also gets into various trade agreements through political influence. Such agreements will determine which international countries can or cannot do business with them. It is, therefore, important for the international firms to understand the various political factors and influences in various emerging markets before settling on which ones to trade with. Legal Difference It is important to acknowledge the fact that various countries are sovereign, and their sovereignty is founded on their constitutions. In these constitutions, there are laws that govern various systems of the government including how to carry out international business. Most of these laws govern the tax rates, barriers, intellectual property rights, environmental conservation, and commercial environment (Cateora, et al., 2009). Such laws are normally influenced politically by the political government systems. They, however, provide the regulatory conditions within which the international forms will carry out their businesses. Such laws can also be used to deny such firms chances to operate within certain emerging markets. While operating within these markets, the international firms will have to abide by the laws and regulations in the host country, which might be different from such laws in their home country. It is, therefore, important for the international firms to study such laws carefully and determine whether or not they favor the operation of their businesses in such countries. Macro-economic Factor (Currency Valuations and Exchange Rates) For the international firms to settle on a particular emerging market to take their business there, it is important that the firm evaluates certain macroeconomic conditions in the host country. In my opinion, the most important such conditions are how the host countrys currency and exchange rates are valued in the international market (Michael, 2008). If it were possible that all the nations use one and the same international currency, it would be a lot easier to carry out businesses among countries. However, a lot of differences exist in the world valuation of currencies used and owned by various countries. Some currencies are more powerful than the others since they are highly valued in the foreign exchange market. Due to such differences in the currency values, there are a lot of economic differences that come along to affect the value of an international firm doing business in an emerging market. For instance, lets say you are an international firm from Australia, and you want to sell watches in Kenya, Africa. You will have to value the watches in pounds and sell them in Kenya Shillings. You therefore need to know how much one watch will cost in Kenya Shillings such that, when compared to its value in pounds, the firm will be able to set its favorable market price that will enable it to make the required profits. Probably, one would begin by finding out the exchange rate between Kenya Shillings and pounds. These rates will tell how much one currency is worth relative to another (Econedlink, 2013). The exchange rates however frequently change. Therefore, an international firm should take its time to monitor such changes over a long period to know the rate of fluctuation (WU, 2013). If the foreign currency goes up relative to the Kenya Shillings, the Kenyan people must pay more for the watches that are manufactured or purchased in Australia. On the other hand, the Kenyan consumers of watches will have to pay less for the watches bought in Australia when the currency value for the pound goes down in the foreign exchange market. From this small analysis, we can see that there are times when the international firm can benefit when the value of the currency in which they are paid for their goods goes up relative to the value of their home currency. International firms have the advantage that the values of their currencies are usually higher than the currency values of the countries that host the emerging markets. It is for this reason that such firms find it easy to accumulate the capital requirement to startup businesses in such countries. The amount of starting up businesses in the host country might be too high when the host currency is considered, but this amount, when converted into the foreign currency, it is reduced. Therefore, the international firm will find it cheaper to start up a business ion the host country that it is for the domestic firms. Currency valuations and exchange rates, therefore, is a very important macroeconomic factor when an international firm is thinking of internationalizing in an emerging market. Bibliography Brooks, B., 2008. The natural selection of organizational and safety culture within a small to medium sized enterprise (SME). Journal of Safety Research , 39(1), pp. 73-85. Cateora, P. R., Mary, C. G. & Graham, J. L., 2009. International marketing. 14th ed. New York: Mcgraw-Hill Irwin. Czinkota, M. R. I., 2007. International Marketing. 8th ed. USA: Thomson,. David, R., 1999. Blunders in International Business. Malden, MA.: Blackwell. Econedlink, 2013. Exchange Rates and Exchange: How Money Affects Trade. Economics and Personal Finance Resources for K-12, pp. 1-3. Karen, C., 2014. Exploring Business: The Global Business Environment. New York: Flat World Education. Michael, J. W., 2008. Global Markets: Currency Valuation and the Outlook for the U.S Dollar. Journal of International Business Law, 7(1), pp. 3-9. Shawn, G., 2014. Political Environment on International Business: Definition, Factors and Impact. Education Portal, pp. 1-3. Terpstra, V., 1994. International Marketing. USA: The Dryden Press. The Economist, 2014. Developing Markets: The Clamour for glamour. The Economist, p. 1. The Economit, 2014. Emerging markets: The dodgiest duo in the suspect six. The Economist, pp. 1-3. WU, 2013. The Risk of Currency Value Fluctuation. Western Union, pp. 1-2. Appendix Use the following links to find the appendices: 1. http://www.economist.com/news/special-report/21635766-china-not-only-growth-story-clamour-glamour?zid=295&ah=0bca374e65f2354d553956ea65f756e0 2. http://www.economist.com/news/finance-and-economics/21631134-emerging-economies-hit-hard-times-brazil-and-russia-look-particularly-weak?zid=295&ah=0bca374e65f2354d553956ea65f756e0 Read More