Globalization & International Strategies - II

Emerging Giants

Key Objective: Focus on the role that strategies and business models have played in creating global companies – from emerging markets

Competing in International markets, examples include
1. Brazil’s: AmBev – (merged with Interbrew to form INBev
2. Chile’s SACI
3. China’s Baosteel, Lenovo
4. India: Tata, Wipro, Infosys
5. Israel: Teva Pharmaceuticals
6. Mexico: CEMEX

The advantage which western, Japanese and s/Korean companies seem to have, in emerging markets include: (well known brand names, efficient innovation processes and management systems and sophisticated technologies. Also – they have vast reservoirs of financing and leadership/mgt talent.

Institutional voids, absence of specialized intermediaries, regulatory systems and contract-enforcing mechanism, corporations in emerging markets cannot access capital or talent as readily as more established companies from eh west or developed Asian markets. However, these factors are also distinct advantages for indigenous companies who are used to operating without well developed institutional infrastructure. Local companies understand the business terrain and are adept at working through the 4 institutional contexts (Openness, Products markets, socio political systems, labor markets and capital markets). The structure of markets in developing countries helps local companies counter their multinational rivals.

Emerging giants create systems and mechanisms for raising capital and developing talent. They know where to go to get strong mgt talent and how to train employees to be successful in navigating the peculiar challenges which each developing market presents. Once they’ve achieved a certain level of success, emerging giants can start to tap international talent from the West and other developed countries. They can raise capital by listing themselves on the New York Stock exchange or Nasdaq

Multinationals are reluctant to tailor their strategies to every developing market in which they operate. The find it costly and cumbersome to modify their products, services and communications to suit local tastes – especially in cases where the opportunities in the developing market, are small or risky

Market Structures In Developing Countries – 4 Distinct Tiers
1. A global tier - customer segment – wants product of global quality with global quality features and attributes
2. A Glocal segment which demands product so global quality but with local features
3. A local segment, which wants local products with local features at local prices
4. Bottom-of-the-pyramid segment – for folks who can afford to buy only the most inexpensive products.

Multinationals can only service the global tier segment – but emerging giants are capable of servicing all 4 segments. Over time, the Glocal tier becomes competitive for multinationals and emerging giants.

Nando’s provides special cooked chicken for south Africans
Haier thrives over GE, Electrolux and Whirlpool in China, because it provides products tailored to the needs of Chinese consumers (custom machines for 1 set of clothes, cleaning vegetables). Distribution & service network for semi-urban and rural china – is a competitive advantage.
Haier demonstrated a structured and patient approach to International expansion first in Asia, Europe and finally in the U.S. It took time to establish relationships and partnerships with American retailers such as Best Buy, Home Depot and Wal-Mart. As of ’05, Haier had 26% of the U.S market for compact refrigerators and 50% of the market for low end wine cellars.


Key Characteristics of Emerging Giants – Expanding Into Large Intl. Markets
1. Emerging giants generally start off by expanding into other developing markets
2. Leverage their knowledge of products, cost bases in smaller markets
3. Enter advanced markets by attacking niche opportunities which allow them to capitalize on their strengths. They don’t attack established players, head on
4. Haier’s experience in Europe and Asia, prepared it well for the U.S and will serve the company well as western retailers enter its home market, in china.

Advantages For Emerging Giants – they treat institutional voids as business opportunities.
1. Recruit local talent – it’s hard for multi-nationals to identify and recruit local talent.
2. In many cases – institutional voids are sources of competitive advantage for indigenous firms, and help them become emerging giants. This is one reason why multinationals sometimes choose to acquire local giants or align with them, through partnerships.
3. Note: Execution and Governance determine whether companies in emerging markets can realize their potential. This is especially critical in emerging markets.
 Good Governance: laws differ across nations.

Note: what is important is whether global scope results in competitive advantage – rather than being the result of advantage derived in some other fashion.

Emerging giants can be successful without leaving their local markets & companies, same goes for companies in developed markets.