Doing business in emerging markets#1

https://univr.academia.edu/FabioCassia https://twitter.com/fabiocassia1

DOING BUSINESS IN EMERGING MARKETS

Lecture #1

Fabio Cassia

https://univr.academia.edu/FabioCassia

https://twitter.com/fabiocassia1


Why “emerging markets”?

Antoine van Agtmael (2007): “The emerging markets century”

1981: “Third World Equity suggested stagnation, Emerging

Markets suggested progress, uplift, and dynamism”

Several conflicting definitions and a lot of confusion about the

meaning of “Emerging markets”

United Nations: developed economies, developing economies,

and economies in transition

World Bank: high, (lower- and upper-) middle and low income

countries

2





Emerging markets are characterized by:

- a high GDP growth

- a (relatively) low per capita GDP

3

Source: IMF, World Economic Outlook s (2011-2016).

Is it a linear

process?





4





5




A different definition of “emerging markets”

Most analysts define an emerging market according to such

characteristics as size, growth rate, or how it has opened up to

the global economy

According to Khanna and Palepu, the most important criterion

is how well an economy provides institutions that help buyers

and sellers come together. In this sense emerging markets are

characterized by some institutional voids:

-information problems

-fragmented distribution system

-inefficient judicial system

-…

6

Business opportunities




Emerging-market potential:the “emerging giants”

In the last 10-15 years several companies from emerging

markets have become world class companies

They have been defined “Emerging giants” by Khanna and

Palepu

What can we learn from their experience?

What strategies did they apply to gain success?

“100 global challengers”: e.g. Embraer, Haier, Lenovo, Tata Motors, Concha y

Toro, MTN Group, etc.

BCG Global Challengers:

https://www.bcgperspectives.com/content/articles/globalization_growth_meet_2014

_global_challengers//

7

Khanna, T., & Palepu, K. (2013). Winning in emerging markets: A road map for strategy and execution. Harvard Business Press.




Emerging giants vs. Western multinational firms

Because of the institutional voids in emerging countries,

Western multinational companies find it difficult to serve

anything but the market’s global tier

Their organizational and cost structures make it difficult for

them to sell products and services at optimal price points in

emerging markets; they often end up occupying small, super-

premium niches

On the contrary “emerging giants” both circumvent

institutional voids and tailor their strategies to local markets

better than Western multinational companies

8




Samsung

1969: Samsung Electronics is established (an example of

Korean conglomerates)

1998: Samsung come close to collapse (Asian crisis)

Since 1998: turnaround based on the change from being a

supplier to being a producer of high-end electronics

In 2005 Samsung had reached a market capitalization of $107

billion, Sony of $ 46.4 billion (and ROE was 20% vs 4%)

Focus on quality, design, investments in R&D, brand building

2015: more than 20% of share of the smartphone market

9



http://en.wikipedia.org/wiki/Image:Samsung_Logo.svg


Lenovo

1984: NTD is established; it then changes its name to Legend

and in a few years it becomes the leader of the Chinese market

1995: Legend is the third Pc manufacturer worldwide

2003: Legend changes its brand name to “Lenovo” (Le” =

Legend + Novo)

2005: Legend decides to purchase IBM’s Pc business and to

expand globally, leveraging also on the brand IBM Thinkpad

2008: the rebranding process is completed, “IBM Thinkpad” is

eliminated, Lenovo is already a global brand

2014: Lenovo acquired Motorola B2C division

Now, 2016: leader (number of units) of the PC market

10




Haier

1984: Haier is founded as Qingdao Refrigerator Co.

1991: Haier is the largest producer of refrigerators in China

(competitors: Electrolux, Whirpool, ..)

1995: it enters the U.S. market

2005: it gains a 26% market share in the U.S. market

Strategic guidelines: build a strong brand, innovate products,

invest on design

11

The old logo was replaced in

2004 by the new one Source: Omar

et al. (2009). “Global brand market-entry

strategy to manage corporate reputation”,

Journal of Product & Brand Management,

18(3).



http://www.portblue.de/blog/images/shanghai2008/haier_brothers/haier_brothers.gif


Haier

“Haier became a leader in China’s white goods market, in the

teeth of competition from GE, Electrolux, and Whirlpool, mainly

because it was able to develop products tailored to the needs of

Chinese consumers.

The humid weather in Chinese cities such as Shanghai and

Shenzhen requires people to change clothes frequently, so Haier

created a tiny washing machine that cleans a single set of clothes.

Because the model uses less electricity and water than a regular

washing machine does, it has become an instant hit in China’s

coastal cities” (Khanna and Palepu, 2006)

12




Emerging giants: a rapid growth

Mature markets Emerging markets

Companies Earnings

1996 (Bill.

USD)

Earnings

2015 (Bill.

USD)

Companies Earnings

1996 (Bill.

USD)

Earnings

2015 (Bill.

USD)

Intel 5.1 11.4 Samsung El. 0.137 27.6

Nokia 0.711 1.68 TSMC 0.707 5.45

13

Source: Van Agtmael, A. (2007), p. 36 ; 2015 annual reports.

Why?




Strategic lessons from emerging giants

Factors other than price or cost have been the prime

determinants of their climb to world-class status:

-focus on quality and design

-brand building

-being ahead of competitors in adapting to changing market trends

-clever niche strategies

-unconventional thinking (e.g. lateral thinking*)

-logistics

* Suggested reading on this topic: “6 thinking hats” by E. De Bono

14




Natura Brasil

Natura Brasil produces goods for the personal care and beauty,

based on natural ingredients

The company was founded in 1969 and its success has

traditionally been based on door-to-door sales; products cannot

be found in shops

When entering international markets, Natura changed its logo

To enter the French market (2005) it opened a real shop

High level of isomorphism15




Brand

2015 ranking of the 100 world’s most valuable brands: 6

brands from emerging markets

16

Interbrand ranking 2015 (Mil. US$)

Position Brand Country of origin Value

7 Samsung South Korea 45,297

39 Hyundai South Korea 11,293

74 Kia South Korea 5,666

88 Huawei China 4,952

93 Corona Mexico 4,456

100 Lenovo China 4,114Source: www.interbrand.com

What factors are able to explain the performance of these brands?



http://en.wikipedia.org/wiki/Image:Hyundai_logo.svg

http://en.wikipedia.org/wiki/Image:Samsung_Logo.svg

http://it.wikipedia.org/wiki/File:Corona_Extra.JPG

http://en.wikipedia.org/wiki/File:KIA_motors.png


Emerging giants in production, emerging giants in consumption

17

Giants in

production

Giants in

consumptionSource:

Goldman

Sachs




Emerging giants in consumption

18

Source: Goldman Sachs, “Dreaming

with BRICs: The Path to 2050”,

Global Economics paper n. 99, p. 5.

Next 11:

Bangladesh, Egypt,

Indonesia, Iran,

Korea, Mexico,

Nigeria, Pakistan,

Philippines, Turkey,

Vietnam

BRICs: Brazil,

Russia, India, China




Reading

Fabio Cassia , Francesca Magno , (2015) "Marketing issues

for business-to-business firms entering emerging markets:

An investigation among Italian companies in Eastern

Europe", International Journal of Emerging Markets, Vol. 10

Iss: 1, pp.141 – 155, available at:

https://www.academia.edu/10107563/Marketing_issues_for_busin

ess-to-

business_firms_entering_emerging_markets_an_investigation_am

ong_Italian_companies_in_Eastern_Europe

19



https://www.academia.edu/10107563/Marketing_issues_for_business-to-business_firms_entering_emerging_markets_an_investigation_among_Italian_companies_in_Eastern_Europe