AFTER THE ENTRY:

COMPETING IN THE
LONG TERM
Emerging markets
Fall 2019
Jakob Arnoldi
LEARNING GOALS
 Understand some basic strategic changes made by MNCs in China (and many other emerging
markets)
 Get a more detailed understanding of the continuing role of government in emerging markets where
state capitalist models seem deeply embedded.
MATURE EMERGING MARKETS
 MNCs by now have long history of operating in BRICs and other emerging markets in Asia, South America and
Africa.
 In many cases the outcome has been less successful than expected.
 Especially China has been a brutal experience for many MNCs.
 China good example of two core characteristics of mature emerging markets:
› Increased domestic competition;
› and continuous strong government market presence.


A SMALL CASE:
 https://pandaily.com/the-coffee-chain-that-came-out-of-nowhere-with-the-potential-to-beat-starbuc
ks-in-china/

 https://www.cnbc.com/video/2019/05/17/chinese-coffee-start-up-luckin-starbucks-cfo-ipo.html
THREE TYPES OF MNCS (EXAMPLE:
CHINA)
 Those that have given up (Best Buy, Home Depot)
 Those that are waiting for market conditions to improve (Unilever)
 Those that are successful (BMW, L’Oréal)

But even those that have been successful might today be feeling competitive pressure and changing
customer attitudes

Brand value declining

New traditionalist (and nationalist) cultural tendencies
MORE, NOT LESS POLITICAL PRESSURE
 Many MNCs falsely believed that all emerging markets would develop on a path towards standard
Western institutional frameworks with separation between state and market.
 Instead a more developed state capitalist system has emerged (in China, Malaysia, Singapore,
Russia, India, also to some degree in Brazil and South Africa).

Two key lessons:

1) Institutions and institutional differences matter – many mature emerging markets need to
be understood in terms of institutional differences and not institutional voids.
2) Those with good political stakeholder strategies and strong political connections are in favourable
positions.
DEVELOPING PRODUCTS CATERING FOR
LOCAL NEEDS
 Unilever – India and Africa
 Nestlé – Africa
 L’Orèal – China
EXAMPLES OF POLITICAL ALIGNMENT

 FL Smith: Partnering up with Chinese firms through JV aiming at solving waste management crisis.
 GE: Helping government with political objectives: Health care development
 General Motors: Massive investments in Maharashtra as part of the ‘Make in India’ scheme.
SPECIFIC STEPS TAKEN BY MNCS IN
EMERGING MARKETS
 Continuing innovation and product differentiation.
› More sophisticated products and process innovations can retain competitiveness.
 National integration as opposed to parent integration.
› Increasingly, large scale MNCs derive competitiveness not only from HQ coordination
but through coordination between different units within an EM.
 Focus on value chain localization (as opposed to production relocation.
› Related to above, presence across value chains means efficiency and local adaption but
also requires national coordination. SAB Miller for example uses corn for brewing in
Nigeria.
OTHER STEPS TAKEN BY MNCS IN
EMERGING MARKETS (02)

 Focus on (local) competence development as opposed to competence transfer.

› Using the generics competencies not enough in order to achieve adaptive
differentiation (see next).
 Focus on adaptive differentiation as opposed to repetition.
 Focus on alliance restructuring (to some degree reducing JVs).
› JVs, especially those where EM partner was supposed to ensure distribution and
marketing, have in many cases failed.
 Focus on coopetition (as opposed to competition).
› Creating synergies in/through partnerships rather than solely competing.
THE CHALLENGE FOR MULTINATIONALS
 Exploiting ownership advantages across countries
› Coordination between HQ and subsidiary.
› Repetition and scale effects.
› Competence transfers from HQ to subsidiary.
 But local responsiveness also required
› Subsidiary autonomy.
› Decentralization.
› Local scope effects
SUMMATION
 MNCs in emerging markets are facing challenges due to domestic competition and government
regulation.
 MNCs which innovate with the aim of adaptive differentiation, align with political stakeholders
and have presence at multiple places in the value chain likely to be most successful.