Module II – MultinationalEnterprises from Emerging

Markets

Dr. Vivek Singh

EMERGING MARKETS -

- Introduced by Antoine W. van Agtmael

- A World Bank Employee

Initially it is called as Third World Countries– It isn’t really inspiring investors. So, to make this more interesting Antoine
introduced this term.

IMF classifies 96 countries as emerging market. They uses the criteria such as:
- How much a country’s citizens earns and how much is the diverse exports are and how sophisticated the
country’s financial system is.
What are Emerging Markets?

• Market that has some characteristics of a developed market, but does not fully
meet its standards.

• This includes markets that may become developed markets in the future

• “Emerging markets” is a term that refers to an economy that experiences

considerable economic growth and possesses some, but not all, characteristics of
a developed economy.

• Emerging markets are countries that are transitioning from the “developing”
phase to the “developed” phase.

• Such countries constitute approximately 80% of the global population and

represent about 70% of the world’s GDP growth
 What are Emerging Markets…..

• Countries whose economies fall into this category of EMEs are usually considered emerging
because of their developments and massive reforms. Sometimes big and small countries are
lumped together as EMEs

• For ex, The Wall Street Journal commented that in India it can take 6-12 weeks to deliver
products from India to the United States while Chinese exports can move from the factory
floor to U.S. stores in as little as 3 weeks

• China invested huge sums in infrastructure development in the late 1990s to improve surface
transport. India has recently started restructuring its physical infrastructure with a national
highway project, airport modernization, and the rebuilding of new ports.
Why Emerging Markets?
Since 2010, economic growth in low- and middle-income
countries has been two to three times faster than in
high-income countries.

The ten economies with the highest projected growth rates

for the next four years are all in Africa or Southeast Asia.

In the coming years, emerging markets in Africa, Asia,

and Latin America will also account for the lion’s share of
global population growth, as well as an unprecedented
expansion of the middle class.
- World Economic Forum
([Link]
l-multinationals-ready-for-emerging-markets/)
[Link]
Markets
\
 Attractiveness of emerging markets
Rapid growth

• The economic growth of countries with an emerging market economy

typically grow by 6% to 7% annually, whereas countries with an
already well-established economy report a growth rates below 3%.

• As a result, the GDP growth rates for emerging market economies

outperform those of developed countries.

• Using their competitive advantage, such countries focus on

exporting low-cost and labour intensive goods to richer
nations, which boosts GDP growth
 Attractiveness of emerging markets

High productivity levels

• Labor is characterized by low costs, which can stimulate production

and increase employment levels.

• Therefore, developed countries establish a preference to build

manufacturing factories and engage in outsourcing to make use of the
low-cost labor.

• As a result, emerging markets can increase their international

presence and improve their exports to foreign countries.
Increase in the middle class

• Economic improvement in a country can lift its people out of poverty,

which shifts them into the middle class.

• As countries increase their productivity levels and make use of

additional streams of income, it provides individuals with a
higher standard of living, as they can get more access to educational
opportunities while enjoying better infrastructure and improved
technology.
Transition from a closed economy to an open economy

• Developing countries run a closed economy, as they mainly focus on

the local agricultural market and protection of domestic firms

• As such countries work towards economic advancement, they will

want to engage in international trade to stimulate economic activity.
Instability and volatility

• Emerging markets are vulnerable to changes, as their economies are

still developing.

• They are especially susceptible to

• changes in value of currency
• interest rates
• inflation
• Political instability
• Supply demand shocks

• In particular, they are impacted by changes in the pricing of commodities.

Attraction of foreign and local investments

• Investing in businesses in emerging markets is riskier than businesses

in developed countries.

• However, higher risk means higher returns, which attracts investors.

The following table lists the GDP (PPP) projections of the 20 largest emerging economies for the
year of 2024 (unless otherwise stated).[46] Members of the G-20 major economies are in bold.
GDP
Rank Country Continent (PPP) (millions
of USD)
1 China India
Asia 35,291,015
2 India Asia 14,594,460
— African Union Africa and Asia 9,490,335

3 Russia Europe and Asia 5,472,880

4 Indonesia Asia and Oceania 4,720,542

5 Brazil South America 4,273,668

6 Turkey Asia and Europe 3,831,533

7 Mexico North America 3,434,224

8 South Korea Asia 3,057,995
9 Saudi Arabia Asia 2,354,392
10 Egypt Africa and Asia 1,898,538
11 Iran Asia 1,854,845
12 Poland Europe 1,800,540
13 Taiwan Asia 1,792,349
14 Thailand Asia 1,644,322
15 Pakistan Asia 1,642,572
16 Bangladesh Asia 1,619,803
17 Vietnam Asia 1,558,898
18 Nigeria Africa 1,443,708
19 Philippines Asia 1,391,800
 China – Biggest Emerging Market

CHINA'S GDP DWARFS THE REST OF EM

Investors have long debated whether
to split their EM allocations into China
and EM ex-China strategies.

Apple has begun moving

manufacturing from China to Vietnam,
where its AirPods Pro 2 are now likely
to be produced.

Two years ago, Samsung moved its

Chinese manufacturing to Vietnam.

Source: International Monetary Fund, World Economic Outlook Database, October 2023. Based on the 24 countries classified as Advanced
Emerging and Secondary Emerging status by FTSE Russell as of 31 December 2023
Challenges

Political Instability

Weak Intellectual Property Protection

Bureaucracy and Lack of Transparency

Poor Physical Infrastructure

Partner Availability and Qualifications

Government Policies
Success Strategies for Emerging Markets

1. Customize Offerings to Unique Emerging Market Needs :

MNCs must set prices appropriate for local conditions.

Many firms devise innovative products and packaging to keep prices low.
In India, for example, General Electric developed a lightweight electrocardiograph machine that sells for
just $1,500, far cheaper than similar machines in advanced economies. Low pricing means that doctors and
clinics in poor areas can purchase the machine and offer health care for a fraction of the cost required by
earlier technologies
Success Strategies for Emerging Markets
2. Partner with Family Conglomerates : For foreign firms wanting to do business in emerging
markets, FCs can make valuable venture partners. By collaborating with an FC, the foreign firm can:

- Reduce the risks, time, and capital requirements of entering the market.
- Develop helpful relationships with governments and other key local players.
- Target market opportunities more rapidly and effectively.
- Leverage FC resources and local contacts
3. Target Governments in Emerging Markets:
In emerging markets and developing economies, government agencies and state-owned
enterprises are an important customer group for three reasons:
1. Governments buy enormous quantities of products (such as computers, furniture, office
supplies, and motor vehicles) and services (such as architectural, legal, and consulting
services).
2. State enterprises in areas such as railways, airlines, banking, oil, chemicals, and steel buy
goods and services from foreign companies.
3. The public sector influences the procurement activities of various private or semiprivate
corporations. In India, the government works directly in planning housing projects.
Construction firms lobby the government to gain access to promising deals to build
apartments and houses for local dwellers.
4. Skillfully Challenge Emerging Market Competitors :
Advanced-economy firms can counter in various ways. Initially, managers must conduct research to
develop an understanding of the new challengers. It is vital to analyze the advantages and strategies
of the emergent firms, which often enjoy superior advantages in the industry in the target market.
The next step is to acquire new capabilities that improve the firm’s competitive advantages. For
example, many incumbents are boosting their R&D to invent new, superior products. Others are
partnering with competitors to pool resources against emerging market rivals. Incumbent firms can
also match global challengers at their own game by leveraging low-cost labor and skilled workers in
locations such as China, Mexico, and Eastern Europe. Many advanced economy firms partner with
family conglomerates and others in emerging markets on critical value-chain activities such as R&D,
manufacturing, and technical support.
Emerging market – Africa (strategy of long term commitment)

In Africa, General Electric has similarly continued to make bold,

long-term investments to sustain its success. GE entered South Africa in
1898 and has been in a number of other African markets since the 1960s
and ’70s. The company has long-term partnerships in Tunisia, Egypt,
Kenya, Tanzania, South Africa, and Nigeria in power generation, aviation,
and health care. It recently began collaborating with Angolan and
Nigerian government agencies to help achieve national development
goals in energy and health. In Morocco, it has partnered with the
government to meet the country’s renewable-energy goals, and in Kenya,
GE Healthcare was selected by the Ministry of Health to provide radiology
infrastructure.
Successful Businesses That Capitalized on
Emerging Markets
Case 1 - Uber: Disrupting the Transportation Industry
Uber is a prime example of a company that successfully capitalized on an
emerging market opportunity. Identifying the inefficiencies and frustrations
associated with traditional taxi services, Uber's founders developed a
technology-driven, on-demand ride-hailing platform that revolutionized the
transportation industry.
• By leveraging the growing ubiquity of smartphones and the increasing
demand for convenient transportation options, Uber quickly gained market
share of emerging markets
• Today, Uber is valued at billions of dollars and has disrupted the
transportation industry worldwide, inspiring numerous other ride-hailing
and sharing economy platforms.
 Emerging market - China

Emerging Market China – Case let of Starbucks

HOW INNOVATIVE MARKETING HELPED STARBUCKS EXPAND IN CHINA

Almost immediately after Starbucks brought high-end, handcrafted beverages to tea-drinking China by opening a
Beijing store in 1999, the copycat coffee shops began to appear. But in contrast to many multinationals that have
pioneered industries in China, Starbucks was not deterred. Today, it has nearly 3,200 stores across China.
Among the keys to Starbucks’ success has been an innovative marketing and brand-building campaign based on
the company’s intimate understanding of Chinese consumers. Another has been a smart expansion strategy that
gave Starbucks better control over its business.

Starbucks positioned itself squarely as a premium coffeehouse experience in China and invested heavily to
establish its brand as a status symbol in order to differentiate itself from other coffeehouse chains. Its bet was well
placed: between 2007 and 2012, for example, sales at Starbucks coffeehouses in China surged by around 200%.
The company envisions no slowdown. It plans to have more than 5,000 stores in China by 2021. In 2016, Belinda
Wong, the head of Starbucks’ China operations, told Hong Kong’s South China Morning Post that the company is
still in “the early chapter of our China growth.”
Case 2- Amazon: Dominating the E-commerce
Landscape
• Amazon is another prime example of a company that successfully
capitalized on an emerging market opportunity. By leveraging the
growing popularity of online shopping, investing in innovative
technologies, and focusing on customer-centric strategies, Amazon
has become a dominant force in the e-commerce landscape in
emerging market like India.
Benefits of investing in emerging markets

• Growth. The biggest advantage of emerging market investments is the potential for
high growth.

• Diversification. International investments can be a good diversifier for your investment

portfolio because economic downturns in one country or region, including the U.S., can
be offset by growth in another.
Risks of investing in emerging markets

• Political risk. Emerging markets may have unstable, even volatile,

governments. Political unrest can cause serious consequences to the
economy and investors.
• Economic risk. These markets may often suffer from insufficient labor
and raw materials, high inflation or deflation, unregulated markets and
unsound monetary policies. All of these factors can present
challenges to investors.
• Currency risk. The value of emerging market currencies compared to
the dollar can be extremely volatile. Any investment gains can be
potentially lessened if a currency is devalued or drops significantly.
Class Discussion – Upcoming Emerging
markets