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UpdatedDecember4,2016
B8748:DoingBusinessinEmergingMarkets(MBA)Fall2016(Fall2017UpdatePending)
ContactInformationAmitKhandelwalJeromeA.ChazenProfessorofGlobalBusinessDirector,JeromeA.ChazenInstituteforGlobalBusinessUrisHall,Room606Email:[email protected]:ByappointmentTeachingAssistantKaushikKappagantulu([email protected])
COURSEDESCRIPTION
The global economy is no longer driven solely by the United States. Technological innovations havedramatically lowered the cost of doing business globally. Economic policies have steadily liberalizedeconomies over the past two decades enabling firms to expand beyond their homemarket to seekglobalmarketopportunities,toachieveeconomiesofscaleandtoleveragecostadvantages.TheEarth’seconomiccenterofgravityisshiftingawayfromtheWest.
Yetdespitetheopportunitiesfromglobalization,mostcompaniesdonotexpandinternationally.Ofthesmallsetofcompaniesthatdo,mostconductbusinessinmarketsthatareverysimilartotheirdomesticmarket.Doublingthedistanceofa foreignmarket fromthehomemarketreducestradebyhalf.Eventoday,U.S.exports toColombiaare twice thatof Indonesia,a fastgrowingcountrywithapopulationfive times that of Colombia. In short,many companies are ill-positioned to take advantage of globalopportunities.
Tosucceedindevelopingcountries--whetherseekingnewmarketsforitsownproducts,newsuppliersinitsproductionprocessorhigh-yieldlocalinvestmentopportunities--afirmmustbeabletoassessfactorssuchastherisksposedbyweaklegalsystemsthatlimittheenforceabilityofcontracts,corruptionandpoliticalinstability.
Ourgoalinthiscourseisnottobecomeexpertsonparticularcountriesorregions.Today’sfastgrowingmarkets may not be tomorrow’s. Instead, our goal is to use frameworks and principles that can beappliedacrossmanycountries,marketsandsectors.Theframeworkderivesprimarilyfromthefieldofeconomics,butthesignificantdeparturefromManagerialEconomicsorGlobalEconomicEnvironmentisthe assumption of efficient markets. Developing countries’ economies are characterized in part bysignificantmarket,informationandcontractingfailures,theanalysisofwhichwillplayalargeroleinouranalysis.Indoingsowewillintegratespecificexampleswiththelatestresearchineconomicsandotherrelevantfields.
Someofthetopicswewillcoverinclude:1. Whyareemergingmarketssovolatile?2. Howcanfirmsusequantitativeanalysistoidentifythenextfrontiermarkets?
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3. Whydoverysuccessfulfirmsconsistentlyunderestimatethecostsofenteringemergingmarkets?Whatstrategiesshouldfirmstaketoreducethesecosts?
4. Whyarecompaniesinemergingmarketsorganizeddifferentlyfromthoseindevelopedmarkets?
5. Howcanfirmsprotectintellectualpropertyinmarketswithweakenforcement?WhatstrategiesdofirmshaveifyourJVpartnerhasstolenyourIP?
6. Whatarethedeepdeterminantsofcorruptionacrosscountries,andhowshouldfirmsmanagecorruptionrisk?
REQUIREDCOURSEMATERIAL
The coursewill also draw from lecturenotes, case studies, academic articles andnewspaper reports.ReadingswillbemadeavailableonCanvas.Forthiscourse,IrecommendscanningdailytheFT’sBeyondBRICsblog,andtheWSJ’sFrontierMarketsblog.
REQUIREDPREREQUISITESANDCONNECTIONTOTHECORE
Thedecisionsrequiredfordoingbusinessacrossbordersutilizes,buildsandextendsconceptsfrommanyofyourcorecourses.Forexample,tounderstandwhichmarketstoenter,youwillneedafirmgraspofregressionanalysisfromManagerialStatistics.Onceyoudecidetoenteracountry,youfaceatradeoffonthemodeofentry:exports,jointventuresorgreenfieldFDI.Evaluatingthesetradeoffsbuildsontheanalysisoftradeoffs,diversificationandscopediscussedinStrategyFormulation.Ifthecountryhasweakintellectualpropertyenforcement,youwillneedtoconsiderthehold-upproblemdiscussedinManagerialEconomics.(Youmightalsopausetoquestionwhyintellectualpropertyissoweaktobeginwithandindoingso,willrecognizeconnectionstoeconomicgrowthconceptsfromGEEI).Finally,youhavetomanagethistrickyexchangeratethatyouwereintroducedtoinGEEI.
CoreCourse ConnectionwithCoreStrategyFormulation 1. Trade-offs,value-added,efficiencies
2. DiversificationandscopeManagerialEconomics 1. StrategicinteractionamongfirmsandNashequilibrium
2. Hold-up3. Marketcompetition4. Pricingstrategies5. Adverseselection6. GameTheory
ManagerialStatistics 1. Linearregression2. Casualanalysis
GlobalEconomicEnvironmentI
1. Exchangerates2. Economicdevelopment
Studentswillbeexpectedtohavemasteredtheseconceptsandbeabletoapplytheminthecourse.
METHODOFEVALUATION
Your performance will be evaluated by in-class participation, assignments and a final project. Finalgradeswillbeassignedaccordingtothesedimensions:
1. Classparticipation(30%)
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2. Assignments(20%)3. FinalProject(50%)
Assignments1. Yourteammustselectoneassignmentquestiontodiscuss inclass.Thepurposeistoallowyouto
divedeeperintoonequestionthatinterestsyou.Thequestionsforthatdaywilltrytorelatetothetopicscoveredthatclass.Ifthereisaspecificquestionthatyouwouldliketoanswerthatisnotonthesyllabus,pleaseproposeittome.Youdonotneedtopresentwithslides,butyoumaywishtopass around a graph or two if that helps facilitate conversation. You should aim to answer thequestioninabout5minutes,andwriteitupin(max)2-pagepiecedueonthedaythatyouareaskedtodiscuss.
a. Onlyonememberofthegroupneedstoleadthediscussion.b. EmailtheTAbyMonday11/7withthequestion&classnumber.
FinalProjectThefinalprojectisgiagroupprojectwithamaximumoffivestudents.Thereareseveraloptionsforthefinalproject.Youareaskedtosubmita15(max)page“think”piecethattakesadeeperdiveintoanyofthe topics that we covered in class (ormissed in class). It is a good idea tomention your proposedquestion/ideatomeaheadoftime(eitherbyemail,before/afterclass,orduringofficehours).Therearemanypotentialdirections.ThefinalpaperisdueFriday12/16at11:59pmEST.Anypaperlatewilllose10%ofthegradeforeachhouritislate.Examplesinclude:
1. Analyzeacompany’sinitialentryintoaforeignmarket.Youareencouragedtotalkdirectlywiththe company in order to understand the full set of factors thatwere considered prior to theentry (analyzing failed international expansion efforts are equally and potentially moreilluminating).Whatmodeofentrydidtheytry?Whatshouldtheyhavedonedifferently?
2. Provideananalysisofhowyourcompanyororganizationhasdealtwith thevagariesofbribe
demandsorcontractingdifficulties.
3. What – if anything – could a country like Myanmar, Laos, Ethiopia, Botswana do to attractforeigninvestorstoday?
4. What are the considerations that a “double bottom-line” social enterprise should take intoaccountinasituationinwhichitsprofitandsocialgoalsarenotaligned?
5. Assessthechallengesofprotecting intellectualpropertyfromtheperspectiveofonecompany
of your choice?What stepshave they taken toprotect IP?Are they sufficient?What risksdotheyface?Whatoptionsdotheyhaveshouldinfringementoccur?
CLASSROOMNORMSANDEXPECTATIONS
Attendance ismandatory. Ifyouareunabletoattendaclass,youmustsendmeanemail24hours inadvancewiththereason.Iwillassignashortsetofquestionsforeachcase/reading.Itisexpectedthatyouwill have done the reading and given thought to the questions. Iwill also “cold-call” students inordertofacilitateclassdiscussion,sothisrequiresthatyouwillhavedonethemandatoryreadingandgiventhoughttotheassignedquestions.Laptops,smartphonesandtablesareNOTpermittedinclass.
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HonorCode
Thiscoursewillstrictlyadheretotheacademicconductguidelinesdiscussedindetailathttp://www0.gsb.columbia.edu/honor/resources.html.
ColumbiaBusinessSchool’sHonorCode:
AsalifelongmemberoftheColumbiaBusinessSchoolcommunity,Iadheretotheprinciplesoftruth,integrity,andrespect.Iwillnotlie,cheat,steal,ortoleratethosewhodo.
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TentativeSchedule(*denotesrequiredreadings)
Class1:WhyareEmergingMarketsstill“Emerging”(AMacroPerspective)?
Readings:• *MarketFailures(HarvardBusinessReview,700127)• *Divergence,BigTime(JournalofEconomicPerspectives,11(3),1997)• *AfricaUnleashed(ForeignAffairs,Nov/Dec2011)• *Democracy,DiversificationandGrowthReversals(VoxEU2009.08.15)• It'saFlatWorldAfterAll(NYT2005.04.03)• Jones&Olken,“TheAnatomyofStartStopGrowth,”ReviewofEconomicsandStatistics,2008DiscussionQuestions1. Whatarethemainforcesofglobalization?2. Doyouagree/disagreewithTomFriedman’scharacterizationthattheworldisflat?
a. Ifyouagree,whyandcanyouprovidefurtherevidenceinsupportofyourarguments?b. Ifyoudisagree,whyandcanyouprovidefurtherevidenceinsupportofyour
arguments?Doyouhaveanalternativemetaphor?3. Thinkofyourfavorite“emerging”market:Whatarethethreebiggestchallengesthatcountry
faces?
Class2:WhyareEmergingMarketsstill“Emerging”(AMicroPerspective)?Readings• *ManagementPracticesandProductivity:WhytheyMatter(McKinsey2007)• *KhannaandYafeh(2007),“BusinessGroupsinEmergingMarkets:ParagonsorParasites?”
JournalofEconomicLiteratureXLV:331-372(June),sections1–3• *“Parallelplayers”,TheEconomist,June23,2012• *“TheMasalaMittelstand”,TheEconomist,August11,2012• WhyFocusedStrategiesMaybeWrongforEmergingMarkets(HBR97404)• Bloom,Genakos,vanReenenandSadun,“Managementpracticesacrossfirmsandcountries”,
AcademyofManagementPerspectives,2012DiscussionQuestions:1. Whyarefirmsinemergingmarketssopoorlyrunrelativetofirmsindevelopingcountries?2. WhyarefirmsinemergingmarketsmorehierarchicalthanfirmsintheU.S.?3. Whydoweoftenobservebusinessconglomeratesforminginthesecountries?Student-LedDiscussionTopics:1. WhyhasEthiopiagrownsorapidlyinthepast10years?2. Ifyouareanapparelcompany,whichfrontiermarketslookattractiveaspotentialsourcing
options?3. IfyouareaU.S.multinationalconsideringaninvestmentprojectinVietnam,whatprovisionsof
theTransPacificPartnershipappealtoyou?4. YouareanadvisortotheGhanaNationalCompetitivenesscouncil.Whatspecificsectorswould
youadvisethemtofocusonastheydeveloptheirdevelopmentgrowthstrategy?5. ExplainMohammedbinSalman’sstrategytodiversifytheSaudiArabianeconomy.
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Class3:MarketSelectionandEntryIReadings• *Hermitage’sRussianQuandry(A,B)(HBS9-711-054)• *MetroCashandCarry(HBS707505)• *SpottingInstitutionalVoidsinEmergingMarkets(HBS9-106-014)• DistanceStillMatters(HBRR0108K)• RetailDoesn’tCrossBorders:Here’sWhyandWhattodoaboutit(HBRR1204G)HermitageQuestions:1. WhatwastheHermitagestrategy,andhowwellwasitworking?2. WhatshouldBrowderdonow?
MetroCashandCarryDiscussionQuestions:1. WhathavebeenMCC’skeycompetitiveadvantagesasithasmovedintoemergingmarkets?2. WhatroledidinstitutionalcontextplayinchallengingMCC’seffortstoprovethevalue
propositionofitsuniquewholesalingformatandestablishitselfasanacceptedcorporatecitizeninRussia,ChinaandIndia?
3. Howwouldyoure-thinkMCC’sapproachtostrategicexpansionandpublicrelationsinIndiagoingforward?
Student-LedDiscussionTopics:1. WhydidUberfailinChina?2. WillAmazonsucceedinIndia?3. WhichsectorscouldseelargeincreasesinFDIifsanctionsonIranareliftedfully?Isthereany
onecompanyinparticularthatwouldparticularlybenefitfromtheremovalofsanctions?4. IndonesiaisTwitter’s5thlargestuserbase.Whyhasitbeensosuccessfulinthatmarket?
Class4:MarketSelectionandEntryII
GravityAssignmentDueReadings• *NgheAnTate&LyleSugarCompany(Vietnam)(HBS9-202-054)• *Haier’sU.S.RefrigeratorStrategy(HBS711-473)NgheAnTate&LyleSugarCompany(Vietnam)DiscussionQuestions:1. WhatispotentiallyattractiveaboutthisinvestmentforTate&Lyle?2. WhatarethemajorrisksforTate&Lytleinthisproject?3. CarefullyidentifythekeypartiestothesuccessoftheNATLproject
a. Whatdoeseachpartywant?b. Whatrolesmusteachpartyplayfortheprojecttosucceed?c. Ifyouwereafarmer,wouldyouadoptsugarcane?Whyorwhynot?d. Whatabouttheotherparties—willtheydowhatNATLneedsthemtodo?
4. Howimportantaretariffstothisbusinessstrategy,andhowwouldyouassesswhetherthecurrenttariffenvironmentisstable?
5. WhyisNATLwillingtopaywageswellabovethelocalaverage?6. ShouldIFCparticipate?
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HaierDiscussionQuestions:1. HowdidHaierachieveitssuccess?2. HowdoesHaieradaptfromsellingwithinitshomemarkettosellingintheUSmarket?What
alternativestrategiescouldithavetried?Evaluatethecompany’sstrategy.3. WhatcanwelearnfromHaier’sstrategyaboutfuturecompetitionfromcompaniesfrom
emergingmarkets?
Student-LedDiscussionTopics:1. WhatisoneinnovationoccurringinChina’stechnologyscenethatcoulddisrupttheU.S.
market?2. Assessoneprivate-sectoreducationcompany’sstrategyinacountryofyourchoice.3. MobilebankingrevolutionizedpaymentstructuresinKenya.Howmightblockchain
technologydothesameinthatcountry?Whatriskswoulditimpose?
Class5:ManagingIntellectualPropertyInEmergingMarketsReadings:
• *ALocalFirm'sBafflingTripThroughChina'sArbitrationSystem(LATimes,2003.12.26)• *HollywoodinIndia:ProtectingIntellectualProperty(HBS711017)• *DanoneVWahaha(A):WhoisHavingtheLastLaugh?(HKU-766)• “Low-CostDrugsinPoorNationsGetaLiftinIndianCourt”,NewYorkTimes,April12013]• VolkswagenProbesChinesePartner(WSJ2012.07.27)• Djankov,LaPorta,Lopez-de-Silanes,andShleifer,“Courts”,QuarterlyJournalofEconomics,
February2002HollywoodDiscussionQuestions:1. Howcanweidentifyplagiarisminamovie?Howaboutinsoftware,imagesandbooks?2. Howcanamoviestudiopreventplagiarism?3. WhatstrategiesshouldFoxStaradopttocompactpotentialpiracyofMyNameisKhan?Danone-WahahaDiscussionQuestions:
1. IdentifythefactorsthatcontributedtoDanone'sdecisiontoformJVswithWahaha2. HowarecontrolrightsdividedbetweenDanoneandWahahaintheirJVsinChina?Howare
revenuessharedbetweenthetwoparties?Howmanythesehaveledtotheirdispute?3. WhathasgonewrongintermsofcontractualenforcementbetweenDanoneandWahaha?
HowcouldWahaha'sallegedbreachofitsJBcontractwithDanonehavebeenavoided?4. IsformallegalprocedurethebestoptionforDanone?HowaboutWahaha?What
alternativesdothetwocompanieshave?Student-LedDiscussionTopics:1. Pickamajordrugthatiscurrentlyunderpatent.ShouldacountrylikeBrazilbeallowedto
produceagenericversionofthatspecificdrug?2. Pickacompanyofyourchoicethathasenteredanemergingmarket.Presumablyitusedalaw-
firmtohelpestablishitslocaloperations.Didituseaforeignlawfirmoradomesticlawfirm,andassesstheirdecision?
3. Pickasectorandcountryofyourchoice.Inthepast5years,whatarethetrendsinforeigndirectinvestmentintermsofjoint-venturesvswholly-ownedsubsidiaries?
Class6:Corruption&Wrap
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Readings• *CorruptionatSiemans(HBS108033)• *TheRoadtoHellisUnpaved(Economist2002.12.19)• *OlkenandPande,“CorruptioninDevelopingCountries”,forthcominginAnnualReviewof
Economics,section2(pp.13–21).(http://economics.mit.edu/files/7589)DiscussionQuestions:1. Whatiscorruption?Whatistherootcause(s)ofcorruptionaroundtheglobe?Cananythingbe
donetochangeacountry’slevelofcorruption?2. HowdidSiemensfinditselfinthissituation?3. WhatproblemsdoesthecorruptioninvestigationposeforSiemens?Whatactionsneedtobe
takentoaddresstheseproblems?Student-LedDiscussionTopics1. Giveanexampleofonecountry’sstrategytoraiseincometaxcollection?2. WhyisWalmartunderanFCPAinvestigation?3. Howeffectivehasananti-corruptionbureaubeeninacountryofyourchoice?
