Globalization & International Strategies - I

Strategies That fit Emerging Markets
 Globalization: Critical Challenge
 Quality of market infrastructure varies widely in developing markets
 Successful companies must work around institutional voids – develop strategies so doing business in emerging markets - different from those they use at home.

Macro factors: degree of openness and the sociopolitical atmosphere

5 contexts framework
1. Political & Social Systems
 Social environment, relationships between ethnic, regional and linguistic groups, power centers (media, bureaucracy), govt system

2. Openness
a. Perceived Openness vs. real Openness to foreign investment (China Vs. India)

3. Product Markets
 Reliable consumer information, consumer research, market research and advertising is unreliable in developing countries, consumer reports which provide reliable, accurate inform on quality of product?

4. Labor markets: skilled workers?
 Skilled, local managers, search firms and recruiting agencies in low-income countries?

5. Capital markets: lack of sophistication. Regulatory systems, credit rating agencies, local debit/equity capital to run businesses?

Institutional intermediaries vs. industry factors
 Industry structures – degree of competition, should influence companies strategies.
 Factors such as scale economies, entry parries and ability to differentiate – are important , but they vary in importance from one market to another.

Spot Institutional Voids by asking the right questions about – each of the 5 instuutional contexts

The 3 Strategy Choices
Compaies tailor stratgies to each countiry’s contexts. They can capitzliza on sthe strnghs of particular locations. In order to do so, they most compare the enbeintts of sodoign wso with additoao coordination costs they’ll incure. Tehre are 3 distinct choices
1. Adapt biz model to countires will keeping their core valuep ropsitions constant (e.g Macdonalds in Russia)
2. Try to change the Institutional contexts (STAR – Asian satellite TV – transformed the Indian market place, and drove a booming TV manufacturing industry, as well as the launch of several other satellite based channels, aimed at the Indian audiences). (Big 4 accounting firms set up offices in Brazil to provide global auality audit services. There by raising the financial reporting and auditing standards in brazil.
3. Stay out of the coutieis where adapting strateis may be uneconmical or imprttcial (or both). Home Depot tired setting up two stores in chille in 1998 and one in argentina. Both were sold at a net loss of $14M. Home Depot switched from a greenfield strategy to an acquisition approach – by buying a home improvmenet retailer in Mexico (total home). The compnaynow has 42 store sin mexico and is exploring the possitibllity fo entiering china, perhaps through an acquisition

Companies can’t use the same straties in all decveloing coutiresa, but they can generate synergies by treating diff markes as pasr o a system. (e.g – GE Healthcare makes parts for diagonstic machines in europe, asia and s/america.