Emerging Markets Business Strategies - Coursework Example

Emerging Markets Business Strategies Name: Institution: Course Code: Date: Introduction Emerging markets is a topic that is widely discussed in various literatures. The literature focuses on emerging markets progress and development (Meyer 2004, p.255). Emerging markets have become increasingly the primary drivers of the world economy. However, they cope with various challenges that obstruct or slow down their progress. These challenges need to be confronted so as to ensure that their economic expansion is sustainable and successful. In this paper, the term emerging markets is used in describing a list of higher and income economist amongst countries that are developing. The countries that are currently termed as emerging markets were recognized as being poor in 1950s. The term poor is conceived as being politically incorrect thus the term lesser developed replaced it and currently, they are referred to as developing countries (Pillania 2009, p.89). In the Cold war period, the aforementioned countries were recognized as Third World and afterwards, they were known as non-aligned nations. Presently, they are recognized as emerging markets. Examples of emerging markets are found in Southeast Asia, China, Middle East, East Asia, Latin America, and Central and Eastern Europe (Jimenez 1997, p.103). Studying of emerging market is significant in order to comprehend their demographic features. Emerging markets are homes to more than eighty five percent (85%) of all the population in the world. Equally, their rate of growth is higher in comparison to countries that are already developed. Emerging markets significance is also linked to the role they play in ensuring world trade growth sustainability and the increased transformations amongst organizations conducting businesses. The challenges faced by emerging markets are capable of influencing the sustainability and progress of various organizations’ operations in these markets. A sustainable business enhances market and social continuity as well as promoting the development of communities. Some of the challenges that confront emerging markets include high expansion rates, increased competition levels, lack of democratic and stable political systems, high degrees of central regulation and control over economic activities. Others are vast extremes of both poverty and wealth, business environments that are unstable, scarcity of human capabilities, skills and resources (Marotta 1995, p.393). In reference to the above challenges, this paper analyzes types of strategic approaches that firms can apply when doing business in emerging markets. Multinationals and Emerging Markets Multinational companies exhibit the ability of testing waters and establishing footholds in emerging markets. This is achieved by exploiting emerging markets natural endowments in absence of any modifications. For multinationals to access resources and talents as well as reach customers in the emerging local, middle class and segments in the bottom market, they have to adapt their organizational structures, business processes and product offerings in accordance with the institutional voids (Pangestu 2010, p.17). In emerging markets, it is extremely difficult for a multinational firm to adapt because of various reasons. In order to access customers in various segments in the market, the companies need to figure out the difficulties that exist in differentiating the market segments based on income. Therefore, local knowledge plays a significant role in targeting a market segment effectively. This will call for an exclusive market research to make sure accurate information is acquired. Following the identification of segments, local knowledge is vital for multinationals to tailor their products and services to satisfy the needs of the local people. This means that multinationals have to decide on elements that need to be eliminated from the products in order to meet price points that are lower than those of the home market companies. Accomplishing low price point can be stressful for the internal operation of multinational companies as they have to house new structures cost (Leojonhufvud 2007, p. 182). Apart from marketing and product development, it is necessary for multinationals to adapt their business distribution approaches to reach clients in remote areas without third-parties or retail chains and logistics providers. Multinationals in talent markets have to conduct their operations in absence of certification intermediaries and information in order to motivate, sort, and attract employees. Prior to the adoption of standard approaches with an aim of targeting emerging markets, organizations are advised to make a comparison between the gains of the adaptation and the incurred additional coordination costs. Multinationals that are extremely localized in markets that are emerging undermines their branding and advantages of scale whilst creating complexity in their operations. Each emerging market requires distinct types of localization. It is upon the multinationals to determine business models that operate well in emerging markets and do some modifications to them (Khanna, Palepu and Bullock 2010, p.90). Emerging Market Challenges to Multinationals As discussed previously, examples of emerging markets economies are in the Middle East, Latin America, Africa, Southeast Asia, and economies that are on transition such as the former Soviet Union, Central and Eastern Europe, and China. Firms are offered numerous growth opportunities by emerging markets. However, they also impose challenges on competitive behavior of firms as a result of their institutional infrastructure that is weaker. Sawalha and Anchor (2012, p.327) points out that a weaker institutional infrastructure increases firms’ economic and political risk. Emerging markets have distinct attributes with reference to their institution stability, cultural context, and economic growth maturity. Some of the markets that are emerging are economically mature and their institutional environments are very stable. As a result, emerging markets foreign entrants are required to make use of distinct learning approaches given the institutional context. Luis (2008, p.88) states that, in institutionally stable and mature emerging markets, the focus of foreign entrants should be on the exploration strategy used at home country. On the contrary, in emerging markets characterized with institutional environments that are weak, the appropriate strategy is the home based cooperative strategy for exploitation. Emerging markets operates differently. For instance, some informal institutions are of great significance in comparison to formal institutions. In such situations, foreign entrants seek local partners help because of their in-depth knowledge of the country’s culture and its linkage with customers. Additionally, local partners comprehend the available distribution networks and exhibit links with significant government entities. Firms investing in emerging markets have to take part in exploratory and cooperative learning (Pillania 2009, p.100). The major reason for their engagement is that, emerging markets significantly differ from markets that are already developed in terms of the way they conduct business and infrastructure. It is challenging for foreign entrants to adapt or transfer their advanced technologies in the emerging market. Developed markets embrace new internet and computing technologies. These technologies diffusion in emerging markets is much slower because of poor education levels and high poverty levels. This means that foreign entrants have to come up with new technologies that satisfy emerging markets idiosyncratic demands through exploitative and exploratory learning. Managing Foreign Governments Relations It is important for foreign businesses to manage their relationship with foreign governments. This is because minor changes in the trade policy of the foreign government results in tremendous effect on the operations of the firm. An example is the Coca-Cola Company in India. Janata Party in India came to authority in 1977. Being a new government, Coca-Cola company was demanded to reveal its soft drink secret formula if it wanted to continue conducting its business in India (Cavusgil, Ghauri, and Akcal 2012, p.320). Instead of yielding to this demand, the company decided to vacate from India and only returned in 1992. This is the year when the government policy was more attractive and reliable to foreign investment. It is important for foreign entrants to identify a fit between the needs of the foreign government and what it can offer to its population. The needs for foreign government ranges from development, economic, and political programs whilst foreign investors can offer new jobs, development of infrastructures, technology, and capital. Emerging market government and foreign firm priorities might clash. In such instances, the following strategies can be utilized by foreign firms in order to control their relationship with the foreign government. To start with, the firm can make use of its bargaining power to persuade the government in altering its policy, its instruments or any other significant action. Additionally, strategic moves can be made by the foreign firm to bypass government’s action impacts or risks. Equally, the foreign firm can make some adjustments to its operations in order to comply with the requirements of the government. Lastly, the foreign firm can shield itself from the associated risks by developing alliances that are strategic (Aybar & Thirunavukkarasu 2005, p.321). Conclusion From the discussion above, it is evident that various strategies can be used by firms conducting their business in emerging markets. The strategies are essential in letting them overcome the challenges associated with emerging markets. The most significant approach in comprehending world strategy in markets that are emerging is the utilization of institution-based approach. This approach helps managers in understanding the rules of operating a business in resurfacing markets characterized with distinct economies. Institutions can either be informal or formal and they govern the social-political transactions. These include business group role in emerging economies, business dealings transparency and corruption, legal transactions such as regulatory regimes plus social norms, and what ethical behavior means in conducting business. Segal-Horn and Faulkner (2008, p.23) explains that by understanding developing markets economies and institutional context, foreign firms are able to adhere to the rules of conducting markets in such economies. Multinationals operating and entering emerging markets relates their organizations and business models with those of their competitors and other stakeholders. In partnering with local companies, they apprehend local language which is valuable in their business operations. Additionally, the partnership acts as a substitute for missing intermediaries in the market because they are made aware of the preferences of the customers. By collaboration, multinationals gain rewards as well as faces various risks. Former partners can become competitors for multinational cooperation’s after technology transfer agreements. References Aybar, B & Thirunavukkarasu, A 2005, Emerging market multinationals: An analysis of performance and risk characteristics. Journal of Asia-Pacific Business, 6(2), pp. 5–39. Cavusgil, S, Ghauri, P & Akcal, A 2012, Doing business in emerging markets, Georgia State University, Atlanta, GA. Jimenez, J 1997, The emerging market revolution. Journal of Financial Planning, 10(6), pp. 76–83. Khanna, T, Palepu, K & Bullock, R 2010, winning in emerging markets: a road map for strategy and execution, Harvard Business Press, Boston Mass. Leijonhufvud, C 2007, Financial globalization and emerging markets volatility. The World Economy, 30(12), pp. 1817–1842 Luis, G 2008, Global Compensation: Foundations and Perspectives, Routledge, New York. Marotta, G 1995, The emerging market countries. Vital Speeches of the Day, 61(13), pp. 392–395. Meyer, K 2004, Perspectives on multinational enterprises in emerging economies. Journal of International Business Studies, 35(4), pp. 59–276. Pangestu, M 2010, New market opportunities in emerging markets. International Trade Forum, 4(3), pp. 17. Pillania, R 2009, Multinationals and emerging markets. Business Strategy Series, 10(2), pp. 100–103. Sawalha, I & Anchor, J 2012, Business continuity management in emerging markets: The case of Jordan. Journal of Business Continuity & Emergency Planning, 5(4), pp. 327-337. Segal-Horn, S & Faulkner, D 2008, International strategy, Thomson Learning, London. Read More