Understanding Emerging Markets (Ems) : Dr. Ilke Kardes Busa 3000

BUSA 3000
10. Understanding Emerging

Markets (EMs)
Asst. Prof. Dr. Ilke Kardes

Dr. Ilke Kardes BUSA 3000 Spring 2016
Read chapter 10
Dr. Ilke Kardes BUSA 3000

Learning Objectives
1. Emerging markets, developing economies,

advanced economies
2. Attractiveness of emerging markets for
international business
3. Assessing the true potential of emerging
markets
4. Risks and challenges of emerging markets
5. Strategies for emerging markets
6. Corporate social responsibility in emerging markets and
developing economies
3

Agenda
Key Concepts
Potential of Emerging Markets (EMs)
Challenges of Doing Business in EMs
Strategies for Doing Business in EMs

Video: The Amazing Rise of Emerging Markets

Agenda
Key Concepts
Potential of Emerging Markets (EMs)


Advanced Economies
• Post-industrial countries
• High per capita income
• Competitive industries
• Developed commercial
infrastructure
Emerging Markets
• Former developing economies
• Substantial industrialization
• Modernization
• Remarkable economic growth
Developing Economies
• Low-income countries
• Limited industrialization
• Stagnant economies Video: What are EMs? 7

Major Development in EMs

High Growth in Emerging Countries
International Business: The New Realities 10-9

Mass Middle Class Size, 2015 (latest data)
Data from Euromonitor International 2016

Source: “Mongolia -The luxury frontier”. The Wall Street
Journal, June 2011. Photograph by Fazzari, A.
Agenda
Key Concepts
Potential of Emerging Markets

12

13

What Makes Emerging Markets Attractive?
Emerging Markets as Target Markets
o Many have huge middle classes, with significant income for buying electronics,
cars, health care services, and countless other products.
o Many exhibit high economic growth rates.
Emerging Markets as Manufacturing Bases

o Home to low-wage, high-quality labor for manufacturing and assembly.
o Large reserves of raw materials and natural resources.
Emerging Markets as Sourcing Destinations

o MNEs have established numerous call centers in Eastern Europe, India, the Philippines,
and elsewhere.
o Dell and IBM outsource certain technological functions to knowledge workers in
India.
o Intel and Microsoft have much of their programming activities performed in Bangalore,
India.
 Investments from abroad benefit emerging markets as they lead to new

jobs and production capacity, transfer of technology and linkages to the
14
global marketplace.
Source: Wall Street Journal 2014, Jul 10 EMs as
Target
Markets
Source: Bloomberg 2014, Nov 19
15
More on https://www.pinterest.com/drkardes/ch-10-emerging-markets/
EMs as Manufacturing Bases
Resource wealth in Sub-Saharan Africa
Source: ATKearney 2015, “Beyond the New Mediocre?” January.
16
EMs as
Destinations
Sourcing
Global Talent Index

2015 by EIU
More on
https://www.pinterest.com/drkardes/c
h-10-emerging-markets/
17

Video: Multilingual Indian Kid
18

Agenda
Key Concepts
Potential of Emerging Markets
19

1) Political instability
2) Weak intellectual property protection
3) Bureaucracy, red tape, and lack of transparency
4) Poor physical infrastructure
5) Partner availability and qualifications
6) Dominance of family conglomerates
7) EM companies: New global challengers
20

(1) Political Instability: Video
On the surface, it’s easy to see why regions that are less
economically
and socially developed are so attractive to investors.
Often growth is faster and many of these areas do not face the
developed world’s problem of an ageing population.
But it’s important not to discount the effect of any regional

political
instability on the value of your investments.
Source: The Telegraph 2015, „The impact of regional political instability on investment,“ Apr 24
21
(2) Intellectual Property
Intellectual property: Ideas or works created by individuals or firms and includes
a variety of proprietary, intangible assets: discoveries and inventions; artistic,
musical, and literary works; and words, phrases, symbols, and designs.
Intellectual property rights: The legal claim through which proprietary assets
are protected from unauthorized use by other parties, via trademarks, copyrights,
and patents.
Trademark Patent
Symbol, word or thing used to Protects an invention of a
identify a product made by or scientific nature
marketed by a particular firm
Trade Secret Copyright

Know-how that is kept secret Offers protection against
within a particular business unauthorized copying by others
22

Video: An imitation IKEA outlet
An imitation IKEA outlet called 11 Furniture Store in Kunming, China.
The knockoff store is mirroring IKEA’s store marketing strategy –

everything from its blue-and-yellow colors and in-store room displays to special
golf pencils and crinkling plastic bags.
23
GIPC International IP Index 2016
Source: Global Intellectual Property Center, U.S. Chamber of Commerce (April 2016)
a
s
r
I
o
n
d
P
a
l
Ca
na
da
Taiwan
Malaysia
Mexico
Colombi
Russia
Chile
Peru
UA
Turkey
Chin
S. Africa
Ukraine
E
Brunei
Brazil
a
Nigeri
a
Indonesia
Algeria
Argentina
Ecuador
Vietnam
Thailand
India
a
Venezuela
24
Source: World Bank 2015, http://www.doingbusiness.org/rankings
3) Bureaucracy
Starting a business in BRAZIL
Procedure Time to Complete
(1) Check company name with JUCESP Less than one day (online)
(2) Pay registration fees 1 day
(3) Register at JUCESP to obtain CNPJ, INSS and NIRE and register with ICMS 7 days
(4) Register with the Municipal Taxpayers’ Registry of the City of São Paulo 1 day
(5) Apply and obtain digital certification (token) for the use of e-invoice 2 days
(6) Apply to the municipality for an operations permit 90 days
(7) Register and pay TFE to the Municipal Taxpayers’ Registry 1 day -simultaneous with (6)
(8) Register the employees in the social integration program 1 day -simultaneous with (7)
(9) Open a special fund for unemployment (FGTS) in bank 1 day -simultaneous with (7)
(10) Notify the Ministry of Labor 1 day -simultaneous with (7)
(11) Registration with the Patronal Union and with the Employees Union. 5 days -simultaneous with (7)
Total number of days to start a business 101.5 days
Starting a business in the U.S.
Procedure Time to Complete
1) Reserve the company's business name (optional), file the company's articles of organization and adopt the
Less than one day (online)
company's operating agreement
2) Apply for federal identification number (EIN) for tax and employer purposes Less than one day (online)
3) Register to collect state sales tax Less than one day (online)
4) Register as an employer with the Unemployment Insurance Division at the State Labor Dept. Less than one day (online)
5) Arrange for workers' compensation and disability insurance 1 day
6) Arrange for publication and submit certificate and affidavits of publication 1 day
Total number of days to start a business 4 days
25
4) Poor physical infrastructure
The Streets of „Old Delhi“ in
India
A farmer caused chaos in busy traffic when he walked his ducks almost
Video: India car driving 1.5km (1 mile) from his farm to a pond in a quest for food. (Taizhou/China,
2012)
More on
https://www.pinterest.com/drkardes/ch-10-
emerging-markets/ Dr. Ilke Kardes 26
(5) Partner Availability and Qualifications
Foreign firms may seek local partners, who provide access to

markets, supplier and distributor networks, and key
government contacts.
But qualified business partners in emerging markets are

not readily available.
Often in emerging markets, one has to contend with second-best

or third-best partner candidate, and provide much technical and
managerial assistance to upgrade the partner’s capacity.
27

6) Dominance of family conglomerates
EMs are often dominated by privately-owned local

companies that are highly diversified, and control supplies
and employment.
Common in South Korea (chaebols), India (business houses),

Latin America (grupos), and Turkey (holding companies).
India
Turkey Mexico
28

7) EM Companies: New Global Challengers
Brand Acquirer Country Year
Yıldız Holding Turkey 2008
In-Bev Brazil 2008
3G Capital Brazil 2010
Lenovo China 2005

Tata India 2008
Arçelik Turkey 2009

The New Global Challengers benefit from Emerging Markets:
• Rapidly growing markets, some of which are large
• Low-cost labor
• Training grounds for competing with global incumbents
• Complex operating environments, which produce some very capable firms 29

Agenda
Key Concepts
Potential of Emerging Markets Challenges
of Doing Business in EMs
Strategies for Doing Business in

EMs
30

Managerial Guidelines for Multinationals
Customize business models
Understand distinctive characteristics of buyers, local Yakult
suppliers, and distribution channels Ladies’
of Indonesia
FCs can help

Partner with family - reduce risks, time, and capital;
conglomerates (FCs) - develop networks;
- overcome infrastructure hurdles.
Government as a buyer and as an influencer!! Support

Target governments
local economic development
Skillfully challenge - Understand local challengers

- Acquire new capabilities
competitors from EMs
- Leverage the same advantages enjoyed by local firms
31
Target Governments:
Support Local Economic
Company Development
Support Target market
Wal-Mart and Cost-effective distribution
Mexico
Home Depot channels
Unilever and Shampoo for less than
India
P&G $0.02 per mini-sachet
Low-cost building
Cemex Poor people
materials
Health insurance for less than
Narayana
$0.20 per person per month India
Hrudayalaya
Cell-phone and Telecommunications

Africa
telecom firms infrastructure
32

Skillfully Challenge Competitors from EMs
Western cosmetics brands are:
o tapping new sources of inspiration from the Far East: Bamboo grass,
mushrooms and snails.
o increasingly reaching into South Korea and China to find products
with global potential.
In 2014, acquisition of
Clinique brand: a lotion with rice bran extract and China-based Magic
pomegranate inspired by beauty rituals from Asia. Holdings International Ltd.
and its line of facial masks
MAC brand: lipstick shades inspired by the pinks and corals
incorporating ingredients
favored by South Korea.
such as snail essence and
Bobbi Brown brand: a skin foundation with bamboo grass, roasted brown rice, which
lychee extract and cordyceps mushroom, ingredients often are popular in China.
used in traditional Chinese medicine to increase energy and
boost health.
Source: WSJ 2015, “Cosmetics Industry Applies Asian Trends to West,” May 5
33
Key Takeaways: CH 10
Country clusters Opportunities in EMs
• Developed markets • EMs as…

• Advanced economies • Target markets
• Emerging markets (growth markets) • Manufacturing bases
• Developing economies (frontier markets) • Sourcing destinations
Challenges of doing
business in EMs
Management strategies
• Political instability
• Weak intellectual property protection • Customize business models
• Bureaucracy, red tape, and lack of • Partner with family conglomerates
transparency • Target governments
• Poor physical infrastructure • Skillfully challenge EM competitors
• Partner availability and qualifications
• Dominance of family conglomerates 34


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BUSA 3000

10. Understanding Emerging

Asst. Prof. Dr. Ilke Kardes

Dr. Ilke Kardes BUSA 3000

1. Emerging markets, developing economies,

Dr. Ilke Kardes BUSA 3000

Potential of Emerging Markets (EMs)

Challenges of Doing Business in EMs

Strategies for Doing Business in EMs

Dr. Ilke Kardes BUSA 3000

Dr. Ilke Kardes BUSA 3000

Potential of Emerging Markets (EMs)

Dr. Ilke Kardes BUSA 3000

Dr. Ilke Kardes BUSA 3000

Dr. Ilke Kardes BUSA 3000

International Business: The New Realities 10-9

Data from Euromonitor International 2016

Dr. Ilke Kardes BUSA 3000

Potential of Emerging Markets

Challenges of Doing Business in EMs

Dr. Ilke Kardes BUSA 3000

Dr. Ilke Kardes BUSA 3000

Emerging Markets as Manufacturing Bases

Emerging Markets as Sourcing Destinations

 Investments from abroad benefit emerging markets as they lead to new

Source: Bloomberg 2014, Nov 19

Resource wealth in Sub-Saharan Africa

Source: ATKearney 2015, “Beyond the New Mediocre?” January.

Global Talent Index

Dr. Ilke Kardes BUSA 3000

Dr. Ilke Kardes BUSA 3000

Challenges of Doing Business in EMs

Strategies for Doing Business in EMs

Dr. Ilke Kardes BUSA 3000

2) Weak intellectual property protection

3) Bureaucracy, red tape, and lack of transparency

4) Poor physical infrastructure

5) Partner availability and qualifications

6) Dominance of family conglomerates

7) EM companies: New global challengers

Dr. Ilke Kardes BUSA 3000

But it’s important not to discount the effect of any regional

Trade Secret Copyright

Dr. Ilke Kardes BUSA 3000

An imitation IKEA outlet called 11 Furniture Store in Kunming, China.

The knockoff store is mirroring IKEA’s store marketing strategy –

Foreign firms may seek local partners, who provide access to

But qualified business partners in emerging markets are

Often in emerging markets, one has to contend with second-best

Dr. Ilke Kardes BUSA 3000

EMs are often dominated by privately-owned local

Common in South Korea (chaebols), India (business houses),

Dr. Ilke Kardes BUSA 3000

Yıldız Holding Turkey 2008

In-Bev Brazil 2008

3G Capital Brazil 2010

Lenovo China 2005

Arçelik Turkey 2009

Dr. Ilke Kardes BUSA 3000

Strategies for Doing Business in

Dr. Ilke Kardes BUSA 3000

FCs can help

Government as a buyer and as an influencer!! Support