Competing in Emerging Markets

1. Competing in Emerging Markets

2. Emerging Markets • Markets where institutional voids are a prime source of high transaction costs and operating challenges. • Institutional voids: absence of regulatory institutions and intermediaries that ensure proper functioning of markets

3. Market Intermediaries Third-party certification of claims Collect and analyze information Matchmakers Platforms for exchange

4. Market Intermediaries Courts and arbitrators, union arbitration Resolve disputes Courts and arbitrators Courts and arbitrators Create and enforce rules of games Source: Khanna et al. 2010. Winning in emerging markets. (pp.57-58)

5. Product markets in 2007 • Source: Khanna et al. 2010. Winning in emerging markets. (pp.30-31) Limited foreign retail presence. Government encourages modern retail. Only 5% of retail outlets in Chain. Modern retail is growing but accounts only 3.5% of sales. Highly fragmented, independent grocers constitute two-third of all retail outlets Modernizing but still fragmented retail sector. 100 largest retailers account for 10% of retail sales. Shopping mall building is booming. One credit card for every 110 people in 2004. One credit card for every 42 people in 2006. One credit card for every 56 people in 2006.

6. Exploiting institutional voids as business opportunities • Segmentation for intermediaries: • Blue River Capital • 阿里巴巴 • Moving up the intermediation value chain: • Li & Fung

7. Responding to institutional voids Limited expertise and finance in supplier chain Built McComplex; financed and worked to improve supplier capabilities Limited q standards Instituted training programs for services and quality standards Underdeveloped infrastructure for logistics Establishing own trucking fleet Weak intellectual property right regimes Stock options and other devices to reduce risk of IPR loss through employees Absent market research providers Low retail chain penetration Worked with salons

8. How emerging market firms respond to economic liberalization/globalization in their industries? Managers need to ask two questions: • How strong are the pressures to globalize in your industry? 2. How internationally transferable are your company’s competitive assets?

9. CA customized to home CA transferable abroad High pressure for globalization Dodgers: Contender: Low pressure for globalization Defender: Extender:

10. On Contenders: Lessons from late movers Industry value curve: • The more profitable a segment, the more sophisticated are the capabilities needed to compete in it – in R&D, distribution, or marketing. • The problem for most MNEs from peripheral countries is that they typically enter the global market at the bottom of the value curve, and they stay there.

11. New chemical entity and drug discovery High Over-the-counter and new drug delivery systems Value-added and branded generics Technological and Marketing Complexity Conventional dosage forms Commodity generics Intermediates and bulk substances Low 2%-12% 12%-20% 20%-30% 30%-40% 40%-60% 60%-100% Gross Margin The Pharmaceutical Industry’s Value Curve Source: Going Global: Lessons from Late Movers (HBR)

12. Characteristics of successful late movers Industry value curve: • Use foreign ventures in order to build capabilities to compete in more profitable segments of their industries (e.g.,Ranbaxy) • willing to make commitment • R&D, top managers, etc. (Ranbaxy, Thermax) • Managerial traps (e.g., Samsung)

13. What can the late movers do? • Choose a strategy to enter the global market • exploit niches that the large companies had overlooked (Jollibee) • challenge the rules of the games (BRL Hardy, an Australian wine company) • learning how to learn • Build relationship between domestic and international organizations (Jollibee) • Rapid acquisition does not help learning • Receptive to new knowledge