Emerging Markets

Emerging Markets
• Fast growing, Low cost labor, emerging middle
class
• Emerging Competitors- both at country level &
Firm level
• Headaches of doing business in product,
finance and labor markets
 Emerging Markets
Lacks mechanisms that help buyers and sellers
to come together
What is required to ensure that the buyers and
sellers come together?
Physical Infrastructure
Soft Infrastructure – Market Intermediaries
 Why Intermediaries?
To facilitate buyers and sellers come together to
do business
– Find information about each other
– Access each other – a place to meet and trade
– Mechanism to settle dispute
 Institutional Voids
• Some mechanisms do exist – but inadequate –
some are accessible only to few (VC & Bank)
• Creates many issues
– Unreliable market information
– Uncertain regulatory environment
– Inefficient judicial system
 How does it affect the Market
• Institutional Voids increases the cost of
transaction
• Traveller example
 Impact of Institutional Voids
What are the problems
• Information asymmetries
• Incentive conflict between buyers and sellers
May lead to breakdown of markets
How to overcome the problem
- Intermediaries
 Institutional Intermediaries
• Developed markets have many such
intermediaries to provide
– Disclosure of high quality information
– Enforce contracts reliably – with support of
aggregators
– Regulate markets fairly
• Creation of such intermediaries will affect the
lemon sellers – will resist
 Product Market Intermediaries
Information – provide news -directly through
established media – 3rd party sources to
authenticate information – reviewers
Aggregators - Retailers – analyze consumer
preferences and screen products that meet the
requirements and display them
Contract between every player is enforceable –
credit
Regulate – false advt credit card companies from
sharing info
 Capital Market Intermediaries
• Information- Financial reporting facilities –
auditors, analysts and rating agencies
• Aggregators -VCs, Banks, FI – help investors to
channel their funds to attractive investment
opportunities –facilitate fund access to
businessmen
• Stock market provide liquidity
• Regulation – regulators and law
Taxonomy of Intermediaries
Taxonomy of Intermediaries
Taxonomy of Intermediaries
 MNC from developed countries vs
Emerging Markets
• MNC from developed countries have an edge in
the global market
– Well known brand name, efficient innovation
processes & management systems and sophisticated
technologies
– Capital to the established financial markets
– Access vast reservoirs of proven talent where it is easy
to hire
• MNCs from emerging market miss most of the
above - Can they win over the former?
 MNC from developed countries vs
Emerging Markets
• Emerging Markets have institutional voids
• It creates an advantage for home grown
companies who knows to manage the
institutional voids
Market Structure in Emerging markets
Market Structure in Emerging markets
• This segmentation is applicable to all the three
markets (Product, Capital and Labour) in both
input and output side
 MNCs and Emerging Markets
• How MNCs from developed market can win
over emerging markets ?
• How home grown firms can win over the
MNCs in the emerging markets?
• How the firms from emerging markets can win
over the developed market?
Developed Market MNCs in Emerging
Markets
• MNCs from developed countries are
accustomed to operate in markets with
limited institutional voids
• How can they compete in emerging markets
with institutional voids ?
 Developed Market MNCs in Emerging
Markets
• MNCs face a series of strategic choices in
emerging markets – tied to the market segments
– Replicate or Adapt ?
• If adapt, how?
– Compete alone or collaborate?
• then
– Accept or attempt to change the market conditions?
• What if it is difficult accept or change
– Enter, wait or exit
 MNCs in Emerging Markets
• First strategic choice to be made
– Replicate or Adapt ?
• Replicate – Use the same business model,
exploiting relative advantages of global brand,
credibility, Know-how, talent, finance and
other factor inputs
 MNCs in Emerging Markets – Adapt
• Required to target the Glocal and Local segments
• Identify the segments – difficult as segmentation
not based on income
• MNCs can adapt to the local needs and preferences
- means lowering the prices and customizing the
products to meet the local requirements – both
difficult
• Too much adaption can lead to the erosion of MNC
advantage – it may also create problems in strategic
control
 MNCs in Emerging Markets – Compete
alone or Collaborate
• Presence of Institutional voids and the lack of
knowledge about them may force the MNCs to
decide whether to compete alone or collaborate
with a local partner.
• However identifying the right partner may also
be difficult due to institutional voids
MNCs in Emerging Markets- Alone
Now the question is
whether to accept Institutional voids and operate
accordingly (accommodate it for their own operations)
or
Attempt to Change by filling the institutional voids
Identifying what institutional voids to accept and
what to change is a challenge
MNCs in Emerging Markets- Alone
• Accept Institutional voids and operate
accordingly
• Attempt to Change by filling the institutional
voids
 MNCs in Emerging Markets- Enter, Wait or Exit
• When it is difficult to fill the institutional voids
on its own or unable to adapt
• Whether to wait till the market matures or
enter quickly to establish first mover
advantage even with losses
– What about indirect engagements till entry
• If already in the market and unable to manage
–whether to keep waiting till the market
matures (absorb losses) or to exit
Emerging Giants-How to Compete
• Exploit Understanding of Product markets
• Build on familiarity with Resources market
• Treat Institutional Voids as business
opportunities
 Exploit Understanding of Product
markets
• Product Markets are Unique
• Customer Requirements are different
• Emerging markets can design customized
products
 Exploit Understanding of Product
markets
• They can exploit similar nearby markets
• Can cater to the need of diaspora in
developed market
 Build on familiarity of resources
market
Capitalize on their knowledge about local factors
of production like talent and capital markets-
Indian IT companies
– Local Engineers with low salaries
– MNCs cannot identify the right talent- knowhow to
tap talent from 2nd tier cities
 Build on familiarity resources market
Build on knowledge about the local supply chain
& other factors of production -
Business built around raw material are global
from the beginning
How to go Global - Build on familiarity
of resources market
Global market that can be served from home
base
As factor market get saturated they move to
similar developing market
Move up in value chain – selling branded
products in niche segments
 Treat Institutional voids as business
voids
• Some of the institutional voids can be filled by Government
• Others can be filled by private players
• By filling institutional voids facilitate the flow of information,
or enhance the credibility of the claims the sellers make, or
analyze information and advise buyers and sellers
• They also facilitate transactions by aggregating and
distributing goods and services or by creating forums where
buyers and sellers can conduct their own transactions
Here again MNCs have an advantage as they have experience
Emerging Giants can overcome it for 3 reasons
 Treat Institutional voids as business
voids
• Intermediaries are people intensive – requires
lot of familiarity with local language and
culture
• Intermediaries are information intensive –
local expertise to access info and
understanding to analyze data of variable
quantity
• Government considers such institutions to of
national importance and requires local players
 Treat Institutional voids as business
voids
• MNCs are suited to serve as intermediaries in
‘Global’ tier (MNC Bank serving MNC client)
• Exploiting Institutional voids does not create a
launch pad for globalization – but provide
learning opportunities –
• BRIC countries are big enough to be market on
their own