What are emerging markets? Outline three key features of emerging markets and discuss the implications of each feature for multinationals operating in emerging markets. Illustrate with examples, Singapore

Discuss the following question:

What are emerging markets? Outline three key features of emerging markets and discuss the implications of each feature for multinationals operating in emerging markets. Illustrate with examples.

For further information about this assignment, see ‘Assignment 1 guidance’ document uploaded to Moodle.

Assignment 1

• Define ‘emerging markets’ rigorously
• Identify three key features of emerging markets
• Discuss managerial implications for each key feature
• Use examples from various firms and industries to illustrate your key features or managerial implications

Assignment 1 – Structure

• Introduction (≈ 200 words): Map-scope the study, set the boundary, and provide an essay outline.
• Main body (≈ 1,100 words): Discuss at least 3 key features of emerging markets, their implications for multinationals, and provide examples. Include 3 sub-sections, either with implications and examples or with one sub-section dedicated to key features and another for implications for multinationals.
• Conclusion (≈ 200 words): Provide a short synthesis, with no new elements introduced.
• Bibliography: Follow the Harvard referencing style and list references in alphabetical order.

Assignment 1 – Further Guidance

• Key features: These should be common across emerging markets, different from other developing and advanced markets.
• Implications: For each key feature, discuss what managers can do to circumvent or succeed (e.g., in terms of strategy, marketing, public relations, finance, HR, etc.).
• Examples: Find corporate or country examples related to each implication and back up your arguments with credible references, sound data, and figures.

Read the ‘Assignment 1 guidance’ for further details (Moodle > “Assessment” box).

Agenda (continued)

1. Assignment 1 brief
2. Review of assignment 1-related topics
3. Assignment 2 brief

Developing vs. Emerging Markets

Developing Countries

• Historically associated with high risks for local and foreign businesses
• Technological and economic backwardness
• Low consumer purchasing power
• Limited business opportunities
• Unpredictable growth patterns

Emerging Markets

• Offer manageable risks
• Technologically competitive
• Increasing purchasing power
• Low production costs
• Improving skills and infrastructure
• Faster and more sustained growth
• Rising literacy and education levels

Key Dimensions of Emerging Markets

The definition of emerging markets varies according to different perspectives:

• Marketing
• Financial
• International Business
• Institutional Perspective

“Not too rich, not too poor”

• Steady economic growth
• Economic reforms, structural changes, and integration into the global economy
• Institutional voids

Limitations and Problems with the Term “Emerging Markets”

Many experts argue that the use of the term “emerging economies” is problematic and increasingly outdated. We must explore the limitations and problems associated with the term “emerging markets.”

The Political Economy of Emerging Markets

The role of the state in emerging markets is significant. Historical lessons indicate the state’s key role in starting economic development and industrialization. Policies vary from leading economies, and the state has been the most influential actor in overcoming institutional voids.

Institutional Voids (Khanna & Palepu, 2010)

Institutional voids refer to the absence of (or poor functioning of) institutions that serve as market intermediaries. Emerging markets are characterized by institutional voids in the following domains:

• Political and Social System: Lack of checks and balances, civil society, weak enforcement of property rights, quality of bureaucrats, corruption levels
• Openness: Restrictions on foreign investment, lack of access to foreign intermediaries
• Product Markets: Lack of soft and hard infrastructures
• Capital Markets: Lack of financial intermediaries, issues with accounting standards
• Labour Markets: Lack of educational institutions, placement agencies, employment regulations

Strategies for Multinationals in Emerging Markets

1) Adapt the strategy/business model to local conditions

Multinationals may have to adapt their business models to address voids in product and input markets (e.g., Dell in China, McDonald’s in Russia).

2) Change the context / shape or alter these conditions

Some multinationals are powerful enough to alter the contexts in which they operate, such as regulation changes, product quality, auditing standards, and education levels (e.g., STAR in India, Suzuki in India, Big 4 in Brazil, Knauf in Russia).

3) Stay away / avoid operating in this environment altogether

It may be impractical or uneconomical for some firms to adapt their business models to emerging markets (e.g., Home Depot in South America).

Three Broad Strategies in Emerging Markets (Khanna et al., 2005)

The BOP Proposition (Prahalad, 2004)

“To be profitable, firms cannot simply edge down market fine-tuning the products they already sell to rich customers. Instead, they must thoroughly re-engineer products to reflect the very different economics of BOP.”

Additional Notes About Emerging Markets

• Strong influence of socio-political institutions, e.g., religion, government, local communities
• State-owned and operated enterprises with monopoly powers
• Dominant business groups with access to and influence on government
• High economic inequalities
• Market mechanisms can be inchoate, with failings in infrastructure, high transaction costs, and diseconomies of scale
• Resource improvisation