Non-Market Factors Crucial in Emerging Markets - Essay Example

Non market factors crucial in emerging markets Market strategy planning is one of the most crucial aspects of a firm. In the cut throat business, theright planning followed by successful implementation makes the big difference in the success of the firm or the product in question. The strategy is planned around two core areas. The first one focuses on the competencies of the product/ company and the second one prepares a facilitating background environment within which it operates. The first one defines the market factors and basically involves intermediate markets, private agreement, economic transactions and exchange of goods. This is an interaction between the prospective customers and business partners which include forging alliances with the local production units. The second core area constitutes the non market factors which have direct and indirect impact on the overall performance and operation of the firm. ‘These are characterised by 4Is: issues, institutions, interests and information’1 (Baron, p2). Broadly they are the socio-political environment within which the firm has to operate and would be discussed later. The role of government regulations and the legalities involved, play a very important part in establishing a firm specially if it is foreign company. Political dynamics combined with the media, public opinion and stakeholders are few other institutions that make up non market factors. These are behind the scene elements that become very hot issues if not dealt judiciously and sensitively with foresight. Non market factors, in emerging markets become all the more crucial because of the sensitive nature of the new market potential and the volatility of the market forces. Emerging markets can be defined as the new area with high income and where the demand for the product can be created with relative success. Cases of developing economies can be cited as example. We would be analysing these factors for their role and impact on the company’s marketing policies and strategies in such market conditions because market strategies need to be tailored according to the environmental conditions of the place. In the strategy planning, relevance of 4Is is due to the fact that they form the four pillars of market strategy for non market factors. Issues, which might clash with the operations and performance of the company, must be addressed urgently. The institutions are defined as bodies which are affected by the issues, which may be local or national in character. Interests are the personal stake of the individual or groups, in the issues. Lastly the information relates to the various facts and fictions of the issues and the actions taken thereon. It must be emphasised that interactions of the firm with the non market factors may be voluntary or involuntary. Interaction is voluntary when the firm develops good relationship with the government officials and others by adopting their policies and programmes in their strategic planning. But when government enacts special laws and regulation or the local activists organize boycott of their products, it is called involuntary interaction. Involuntary associations need concerted efforts from the firm to overcome the obstacles. One must take Taking cognizance of the social values and customs while evolving its strategy is one of the major initiatives taken by the firm to make a success of the marketing strategy. The socio-religious culture of the community has strong impact on the attitude and consumer behaviour of the public, which has direct affect on economic transactions of the company. It is therefore vital that needs and concerns of the community, within which the firm intends to operate, be studied in detail so that sensitive public issues are not violated. ‘A case in point is KFC (Kentucky Fried Chicken), an American fast food chain that entered Indian market in 1995. It was embroiled in the controversy surrounding the levels of MSG (monosodium glutamate) in its products which led to protests from farmers’ group and animal rights’ activists. Regulatory authorities found that Kentucky chickens contained 3 times more MSG than allowed which is extremely harmful. The company was involved in two ethical issues. First one was legal action that it had to face and the second important issue was the socio-political rally against the company for violating the animal rights. The local animal rights group combined with the vested interests of the local politicians ultimately forced the company to close down all but one outlet in the country’2( newspaper). The role of 4Is: issues related to legal and animal rights’, the institutes that became involved were primarily legal authorities and animal rights groups like PETA3 and the vested interests of the local groups and political parties resulted in a lot misinformation that can be clearly seen in the KFC case. The company has recently re entered the Indian market with renewed fervour after extensive re-evaluation of the socio-cultural environment. It has now expanded its core business by making available vegetarian burgers and other such vegetarian dishes in all its fast food chain outlets in India. Then again, government laws and regulations of the place are external factors that are of paramount importance and need to be complied and followed. If the firm is proposing to launch its branch in another country, one must be aware of the various legalities involved so that it can enter that market. Sometimes, government laws that favour local businesses need to tactfully and sometimes indirectly bypassed. Entry of French giant supermarket retailers in the Chinese market is a fit example for this case. China, with its fast developing economy, is a strong emerging market that has tremendous scope for the multinational companies. In China, the laws protect domestic retailers. The laws are also complex and non transparent. Carrefour, a French retail giant was attracted towards China mainly because of its huge population with high income and the fact that there was huge scope for the market. The company entered the Chinese market by getting into partnership with the local agents and covertly strengthened its foothold in Chinese market. Carrefour took advantage of the local governments who were interested in foreign retailers basically because it would boost employment and revenue. Carrefour also remodelled their business strategy to suit the local conditions and indigenised their product lines to suit them. The other non market factors that the company faced pertains to converting the seasonal demands into a year long venture which ultimately resulted in long-term international trade pact with the local entrepreneurs thereby asserting that ‘since many non market issues arise from the market activity, one approach is to view non market strategy as complements to market strategies4’ (Porter). The Carrefour retail giants, after 2001 WTO pact, have firmly established themselves in China. They have stores in more than 22 cities with Shanghai as headquarter in China. The have formed alliances with local entrepreneurs for the local supermarkets. “Every time when we enter into a new city, we not only foster a large number of local talents, but also help our partners improve their operation and stop making loss." (Shereau5) The company has supported Chinese government’s bid to host Olympics, Shanghai’s bid to host World Expo. It is also involved in many local welfare campaigns like opening Hope Primary Schools, donation to disaster hit areas and also providing masks during SARS outbreak. Active participation of the company in non market factors has resulted in Carrefour becoming leader in retail business in China with strong market presence. It is also true that non market strategy can offset competitive advantages as in the case of Carrefour which can be turned into a win-win situation for both the parties. The small Chinese entrepreneurs benefited with their association with the multinational Carrefour because their tie-up took their products to the larger markets. At the same, time some non market issues require collective actions as they may serve the interest of a group of companies and that is why they are represented by the Industrial Associations. Law suits serving common objectives are often more economic when they are represented through Associations and groups. ‘Calgene6, for example, worked through the Industrial Biotechnology Association to provide support for agricultural biotechnology’ (Baron). Access to legislation is another important feature of non marketing strategy. Companies encourage healthy relationships to develop with the government officials so that contentious issues can be sorted out amicably before they can harm the credibility of the firm. Perhaps the most important factor that has direct implications on non market issues is the modus-operandi of the company with regard to its stand to the issues and the way it is handled by them. The projection of its image to the public has strong influence on these factors. The credibility and its positive image are big non market assets and can be adversely affected by irresponsible actions. Non market factors necessitate formations and incorporations of management strategies that go beyond the realm of individual company’s concern and interests. The globalization has made the role of such factors, an integral part of broader management strategy which encompasses planning for distinctive competencies along with considerations for wider ramifications of the socio political environment of the place. Reference Baron, David E. Business and its Environment. Eaglewood Cliffs, NJ, Prentice-Hall Inc. 1993. Baron, David E. Integrated Strategy: Market and Non Market components. California Management Review. Vol.37 N. 2, 1995. Porter, Michael E. Competitive Strategy. NY. Free Press. 1985 Internet. Available . 22 July, 2007. Shereau. Available: < http://english.peopledaily.com.cn/200403/31/eng20040331_139035.shtml> 30 July, 2007. Read More