International Business Strategy 301REN Unit: 4 Knowledgecast: 2 The Strategic Environment International Environment, Economies and Markets II

Demonstrate a sound appreciation of current strategic management concepts Assess current developments in the organisational environment and alternative responses related to strategy Module Learning Outcomes

The New Global Challengers Some 100 companies from emerging markets are poised to become important 21st-century multinationals. Examples include:  Brazil: Embraer, Sadia & Perdiago, Natura  Mexico: America Movil, Grupo Modelo  India: Ranbaxy, Infosys, Tata Tea, WIPRO  China: Galanz, Haier, Chunlan Group Corp., Lenovo, Pearl River Piano  Turkey: Koc Holding, Vestel & Sisecam Key Drivers of Challenge are benefit from emerging markets: Rapidly growing markets, some of which are large Low-cost labor Training grounds for competing with global incumbents Complex operating environments, which produce some very capable firms

Key Concepts Advanced economies: Post-industrial countries with high per capita income, competitive industries, and developed commercial infrastructure; typically the richest countries, including Australia, Canada, Japan, the United States, and nations of Western Europe Developing economies: Low-income countries characterized by limited industrialization and stagnant economies; e.g., Bangladesh, Bolivia, and Zaire Emerging market economies : Former developing economies that achieved substantial industrialization, modernization, and remarkable economic growth; e.g., Indonesia, Mexico, Poland, and Turkey

What are the “BRIC” countries?

Advanced Economies, Developing Economies, and Emerging Markets

The “BRIC” Countries

Advanced Economies, Developing Economies, and Emerging Markets

Emerging Market Economies About 27 countries with rising economic aspirations that enjoy rapidly growing standards of living Evolving towards wealthy nation status Importance in the world economy is increasing as attractive destinations for exports, FDI, and sourcing Examples: Hong Kong, Israel, Saudi Arabia, Singapore, South Korea, and Taiwan have developed beyond the emerging market stage

Key Differences Among the Three Major Country Groups 10-11

Emerging Markets as a Percent of World Total

GDP Growth Rates in Advanced Economies and Emerging Markets

What Makes Emerging Markets Attractive? Emerging markets as target markets Many have huge middle classes, with significant income for buying electronics, cars, health care services, and countless other products. Many exhibit high economic growth rates. Emerging markets as manufacturing bases Many are home to low-wage, high-quality labor for manufacturing and assembly operations. Many have large reserves of raw materials and natural resources, e.g., South Africa, Brazil, Russia.

What Makes Emerging Markets Attractive? (cont.) Emerging markets as sourcing destinations MNEs have established numerous call centers in Eastern Europe, India, the Philippines, and elsewhere. Dell and IBM outsource certain technological functions to knowledge workers in India. Intel and Microsoft have much of their programming activity performed in Bangalore, India. Investments from abroad benefit emerging markets: They lead to new jobs and production capacity, transfer of technology, and linkages to the global marketplace.

Assessing the Attractiveness of Emerging Markets and Developing Economies Market size: The country’s population, especially the population of urban areas Market growth rate: The country’s real GDP growth rate Market consumption capacity: Income of the middle class Commercial infrastructure: Density of telephone lines and paved roads, number of personal computers, population per retail outlet, and other such characteristics Economic freedom: The degree to which government intervenes in business activities Country risk: The degree of political risk

Challenges of Doing Business in Emerging Markets Political stability: Corruption, weak legal systems, and unreliable government authorities increase business risks and costs and hinder forecasting. Weak intellectual property protection: Discourages producing or selling goods that entail valuable assets. Bureaucracy, red tape, and lack of transparency: Burdensome rules, excessive requirements for licenses, approvals, and paperwork; legal and political systems without accountability. For example, it may take years, or many bribes, to obtain permissions to do business. China, India, and Russia are particularly problematic.

Challenges of Doing Business in Emerging Markets (cont.) Poor physical infrastructure: Basic elements of infrastructure, such as high-quality roads, drainage systems, sewers, and electrical utilities, are often sorely lacking in emerging markets. Partner availability and qualifications: Given emerging market challenges, foreign firms might seek local partners to provide access to markets, supplier and distributor networks, and key government contacts. However, qualified partners are often difficult to find or require much assistance to upgrade their abilities.

Challenges of Doing Business in Emerging Markets (cont.) Dominance of family conglomerates: Economies are often dominated by privately owned local companies that are highly diversified and control supplies and employment. These are common in South Korea ( chaebols ), India ( business houses ), Latin America ( grupos ), and Turkey ( holding companies ) Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Strategies for Doing Business in Emerging Markets Customize offerings to unique emerging market needs. Successful firms develop a deep understanding of the distinctive characteristics of buyers, local suppliers, and distribution channels in emerging markets, and customize offerings and business models accordingly. Partner with a family conglomerate. FCs can provide various advantages, including financing, bank services, local suppliers, and distribution channels. FCs can help reduce risk, time, and capital requirements; develop relationships with governments and other key players; and overcome infrastructure hurdles.

Target governments. Governments buy enormous quantities of products, such as computers, furniture, office supplies, and motor vehicles, as well as services. State enterprises operate in areas such as railways, airlines, banking, oil, chemicals, and steel. Skillfully challenge emerging market competitors. New global challengers and other emerging market firms possess various advantages that require skillful strategies and due diligence to overcome. Strategies for Emerging Markets (cont.)

Low-cost labor, skilled workforce, government support, and family conglomerates give emerging market firms various advantages. Advanced economy firms must: Conduct research to understand target markets and the indigenous challengers Acquire new capabilities that build competitive advantage (e.g., develop new products, new ways of doing business, and local alliances) Leverage the same advantages enjoyed by local firms in emerging markets (e.g., low-cost labor, skilled workforce, cheap capital, and key partnerships)

Demonstrate a sound appreciation of current strategic management concepts Assess current developments in the organisational environment and alternative responses related to strategy Knowledgecast Summary

Seminar Environmental Audit – In this seminar, we will continue to explore environmental analysis using the Mini case study (INSIDE DYSON: a distinctive company?) found on page 115 of one of your recommended reading text –Exploring corporate strategy by Johnson and Scholes 9 th edition Be prepared to present your answers to the questions that follow in a power point presentation as a group and be ready to answer questions from your colleagues and Tutor. Each group will have 7 minutes presentation time and 3 minutes Q&A.

Group Activity Preparation for Regular Assignment In this group activity, you will continue to work in your consultancy groups to research and gather information on your main case study in preparation for your regular assignment (group presentation) It will also serve as an opportunity to seek clarification and ask for support from your tutor on all aspects of the assignment including scope and rubric.