In the face of the persisting economic difficulties in advanced Western/Eurozone economies, emerging markets have increasingly taken centre stage as lands of opportunities and favourite destinations for the 21st century ‘gold rush’. This explains why governments, business groups, supranational organisations, major global consulting bodies are all encouraging businesses to look toward emerging markets in their search for new revenue streams. This is why political leaders are keen to support the effort of local businesses in key emerging markets, by, among other things, leading trade delegations to these key target economies.

Introduction

My name is Kevin Ibeh

Professor of Marketing and International Business and Head of Department of Marketing at the University of

Strathclyde Business School, Glasgow, UK

Doing Business in Emerging Markets

Presentation to the Management Development Programme, Strathclyde Business School

This talk aims to accomplish three main objectives

•  One, to define emerging markets and explain why they are increasingly important and sought after

•  Two, to briefly discuss how firms might undertake business activities successfully in emerging markets

•  Three, to outline some of the challenges typically associated with doing business in emerging markets

DEFINING EMERGING MARKETS

The term Emerging Markets is widely used to describe economies widely considered as frontiers of market opportunities owing to their rapid economic growth, rising disposable income, expanding middle class, vast new markets for consumer products and services, infrastructure and increased supply of and access to global capital, technology, and talent. Such markets also tend to be dogged by higher transaction costs, lack of institutional maturity, or the so-called institutional voids, i.e. shortcomings in a range of institutions that typically facilitate the functioning of markets.

Defining Emerging Markets

CLASSIFYING EMERGING MARKETS

Emerging or Growth markets are typically divided into two groups: the BRIC and the non-BRIC growth markets The BRIC acronym was coined by Goldman Sachs to describe the four most prominent emerging economies with enormous growth potential, huge populations, and vast natural resources, Brazil, Russia, India, and China. Figures suggests that the BRIC collectively account for 42% of the world’s population and 23% of the world’s total output of goods and services. The non-BRIC Growth Markets include South Korea, Turkey, Indonesia, Mexico, South Africa, Poland, Saudi Arabia, Taiwan, Iran, Argentina, Thailand.

Classifying Emerging Markets

Emerging Markets are growing fastest:

The IMF predicts annual GDP growth to 2016 to average 9.4% and 8.0% in China and India respectively

Chinese economy has grown four fold in 10 years and now boasts 300 million in the middle class and 267 billionaires

Seven emerging economies—China, India, Brazil, Mexico, Russia, Turkey, and Indonesia—are expected to contribute about 45% of global GDP growth in the coming decade (McKinsey

2011) In 15 years’ time, 57% of the nearly one billion households with earnings greater than $20,000 a year will live in the developing world (McKinsey 2011).

Emerging markets will represent an even larger share of the growth in product categories, such as automobiles, that are highly mature in developed economies (McKinsey 2011). See also Goldman Sachs’ forecast of the size of GNP of major world economies in 2050 – next slide

Why emerging markets?

GLOBAL OPPORTUNITY MAP

Emerging markets thus offer increasingly significant and attractive growth opportunities; a major avenue for mitigating the effects of the current recessionary pressures Evidence also points to a link between investing in emerging markets and corporate financial success A recent Economist Unit survey reported as follows:

Among surveyed companies from developed countries that derive less than 5% of their revenue from activities in emerging markets, only 24% reported their financial performance as being better than their peers. By contrast, for developed country companies that derived more than 5% of their revenue from emerging markets, the share reporting better performance than their peers was just under 40%.

Why emerging markets?

How might firms undertake

business activities successfully in emerging markets?

Doing Business in Emerging Markets

•  Do your home work; research thoroughly and target well •  Have a committed international outlook and show long-

term commitment; •  Go with your ‘A’ game, as big EMs tend to be competitive

battlegrounds; leverage your capabilities and brand equity, country and corporate;

•  Build close, long-lasting relationships; these relationships are often critical;

•  Respect, adapt to and learn from EMs; reverse innovation is increasingly important

•  Demonstrate good Corporate Citizenship •  Anticipate and manage difficulties –EMs tend to be more

difficult to do business in

Do your home work, research thoroughly

and target well

This entails, among other things, researching target markets thoroughly and undertaking appropriate strategic analysis This may assist you in identifying the most attractive market opportunities, niches, key clusters or most vibrant centres (MVCs). For example, recent reports by McKinsey and CBI/Ernst and Young suggest that focusing a strategy on cities rather than countries can pay dividends in high growth markets undergoing significant urbanisation

Have a committed international outlook and long-term commitment

As Ernst & Young (2011) suggested in a recent report, companies entering high-growth markets should do so with a clear long-term strategy to fully exploit opportunities, recognising also that costs, time and risks of entering can be higher than expected They also highlighted the importance of senior management support, thus:

successful international firms tend to have senior decision-makers that make regular visits to new international markets in order to establish strong networks and gain a better understanding of the opportunities and risks.

Go with your ‘A’ game and leverage your capabilities, brand equity, country and corporate

This entails identifying and capitalising upon your firm-

specific advantages, and crafting a distinctive positioning based on appropriate capabilities. For example, leveraging and innovating around and adapting your existing products to reflect local tastes might be a good starting. Also a strong favourable brand identity can be a crucial advantage, a difficult–to-imitate element.

Favourable country-of-origin advantages should also be leveraged where they exist.

Build close, long-lasting relationships. Relationships can be critically important;

Strategic relationships are particularly important in international markets. In many cases, it is a waste of time trying to succeed without appropriate and strong relationships.

Identifying important partners in international markets - agents/distributors, JV or alliance partners, suppliers, employees, competitors, media, government etc – and developing and maintaining appropriate collaborative relationships are critical to winning in international markets.

Respect, adapt to and learn from Emerging Markets

•  Becoming a culturally fluent organisation with a glocal perspective and developing appropriate tacit knowledge of and respect for local cultures and sensitivities can be the difference between success and failure in international markets.

•  As Ira Kalish of PricewaterhouseCoopers noted: You have to be culturally sensitive in the selection of merchandise in order to succeed in any foreign market.

Other helpful tips to firms include:

take a flexible approach to market entry and tailor their business model to the local business environment (Ernst & Young, 2011)

Attract high-quality employees with cultural awareness and relevant language skills (Ernst & Young, 2011) Seek out and appoint suitably qualified local managerial talent to front up and manage operations in emerging markets.

Demonstrate good Corporate Citizenship

•  As Kotler and Kartajaya (2011) noted in their recent work, Marketing 3.0:

Companies need to show that they share the same concerns as customers and are acting on these concerns. Marketers need to replace their vertical perspective of the customer with a horizontal perspective where they see the customer’s full humanity ……

companies that care about the planet are likely to win a larger following. Companies that ignore broad social concerns will invite criticism from bloggers and social media users

Anticipate and manage the challenges of doing business in emerging markets

Typical challenges include:

•  Intellectual property rights are insecure. •  Navigating government bureaucracies can be thorny. •  Local talent may be insufficient to staff operations. •  Sorting through investment opportunities or performing due

diligence on potential partners is often a guessing game. •  Reliably assessing customer credit can be difficult. •  Overcoming impediments to distribution can be frustrating. •  Corruption tends to be more prevalent in emerging markets • 

Conclusion

•  Developing an Emerging market strategy is increasingly viewed as imperative

•  This does not mean, however, that firms should abandon their tried and trusted markets – EMs may not be for everybody

Resources

•  The Growth Markets (Jim O’Neill, Goldman Sachs) http://www.youtube.com/watch?v=qh-a8suwFfs&feature=fvwrel (first 10 mins)

•  Emerging Markets & Global Econ Trends (Dominic Barton, McKinsey & Co)

•  http://www.youtube.com/watch?feature=player_embedded&v=dGAwvipE0HY

•  PepsiCo CEO names 10 emerging markets critical to its future http://www.youtube.com/watch?v=PNkxu68oWdM&feature=player_embedded

Further Reading •  Ibeh, K (2011), Winning in International Markets, talk presented to the

British Business Group, Dubai, May 19.

•  Khanna T. and Palepu, K.G. (2010), Winning in Emerging Markets: A Road Map for Strategy and Execution, Harvard Business Press, 2010

•  Atsmon, Y. Kertesz, A. and Vittal, I. (2011), Is your emerging-market strategy local enough?, McKinsey Quarterly, April.

•  CBI/ Ernst and Young (2011), Winning overseas: boosting business export performance http://www.cbi.org.uk/campaigns/increasing-exports/

•  http://www.youtube.com/watch?v=qh-a8suwFfs&feature=fvwrel