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Competing in Emerging Markets. 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.

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emerging markets
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
market intermediaries
Market Intermediaries

Third-party certification of claims

Collect and analyze information

Matchmakers

Platforms for exchange

market intermediaries1
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)

product markets in 2007
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.

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

how emerging market firms respond to economic liberalization globalization in their industries
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?

slide9

CA customized to home

CA transferable abroad

High pressure for globalization

Dodgers:

Contender:

Low pressure for globalization

Defender:

Extender:

slide10

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.
slide11

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)

slide12

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)
slide13

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