Question

4) List and discuss three strategy options for competing in emerging markets.

Answer 1

Perhaps the most important of these is the first pillar, business. This combines macroeconomic stability, the middle class, the scale and growth of the consumer market, and transparency. These elements are central considerations of any strategy for the emerging market. Is the nation big enough and stable enough to do business in? Are customers well enough to purchase goods and services? Is the possible market growth rates high enough to outweigh any risk? And are the international business conditions OK?

Macroeconomic stability is one fundamental problem. Performance in fragile economies is not impossible but it is much more difficult and the risk appetite of a business has to be significant. Many factors, ranging from economic growth and market increases to external and internal imbalances, can and should be tackled. The ideal is steady growth with multiple engines, underpinned by sound monetary and fiscal policies. For example, a nation that runs a persistent current account deficit financed primarily by easily reversible portfolio inflows, such as Turkey, is at risk because such funds can be quickly withdrawn as sentiment shifts.

Inadequate infrastructure in many developing markets raises major costs for doing business. Roads, ports, highways, airports, telecommunications, and providing electricity allow companies and the economy to operate efficiently. Nonetheless, companies can and can tackle inadequate infrastructure and can also provide new business opportunities. Electricity is a key problem, because if they want to purchase electrical goods, they need reliable electricity to operate factories, shops and homes for customers. Urbanization, rising middle-class and economic growth in India have all put a strain on electricity infrastructure. Many companies have their own generators installed to battle regular power outages

Emerging markets are no different from the US or Western Europe in this way. For order to remain competitive over the long term, global consumer goods firms must create leading or powerful No. 2 positions for their target categories. Furthermore, it is crucial to achieve critical mass, despite the considerable minimum investment required in brand building and infrastructure for advertising, distribution, and development. Scale and evidence of long-term commitment often establish an enticing climate for limited talent in local management. Within these markets, dabblers will either get serious, or get out.

Extreme volatility and unorthodox business practices in emerging markets require management skills different from those needed in established Western markets. Raging inflation, currency fluctuations, new taxes, ever-changing business rules and interest-rate volatility are all part of the usual macroeconomic climate for emerging market managers. For example, the Brazilian governments have introduced seven major economic packages in the past twelve years (as well as many minor packages), or more than one new package every two years. The effect of these fluctuations appears to lead to excessive consumer demand reactions, since a large proportion of demand is powered by the marginal consumers