The world that we live in today is changing at a fast pace. Never in the history of the mankind, we moved so fast and the pace is accelerating with each passing day. The change is driven by the knowledge that we have acquired since ages and the resulting huge advancement in information technology, communication and the infrastructure of transportation. Now, we live in a world that is highly interconnected politically, socially and economically. We call this process of integration ‘Globalisation”. Though national boundaries, political and ideological barriers still exist but their significance has started declining in this highly globalized world. They are not as powerful as they use to be. It the era of real-time global communication and shrinking world the sites of power and subject of power may be continent apart.
The countries of the world can largely be put into three blocks: –
– The first world which is highly developed such as The USA, Europe, Australia, Canada, Japan and a few other East Asian Countries.
– Those who are developing at a fast rate. China, India, South Africa, Brazil, Indonesia, Vietnam, Egypt, Mexico, Turkey etc are a few of this block.
– The underdeveloped which are mostly in Sub Sahara Africa.
In the last decade or two, the developing economies have taken the lead in driving the world growth. Seeing their success, the terms such as BRICs, E20 were coined. These economies are integrating with rest of the world with a fast pace and the flow of resources such as human, technology, financial, etc is happening both ways. These economies are not only absorbing the exiting multinationals but there are many emerging from these economies as well.
An emerging market multinational (EMM) is a company or business based in an emerging economy but has engaged in business operations in international markets. As a new generation of multinational firms emerging on the stage of international business, EMMs have already made a big impact.
The emerging economies have gained ground in wealth and influence over the past two decades, bringing about radical changes in the global economic landscape. The 20% of global outward investment flows today are accounted for by E20 economies. Similarly, about 30% of the firms in the Fortune Global 500 list (based on revenues) are enterprises from emerging markets; less than 10% of their value, ten years ago. The new players come mainly from China, Korea, India, Brazil, Russia, Mexico and Indonesia. China is second only to the USA with 98listing in compassion to USA’s 128 in fy 2015.
We have Alibaba, Tencent, TCS, Infosys, TATA etc all originated from emerging economies and are giants to reckon with.
The overseas expansion of emerging market multinationals has disrupted the global competitive landscape. These firms have been deploying themselves not only in their natural markets – mostly other emerging economies– but also more recently and quite effectively in developed markets, conquering in the process industry leadership positions.
The competition from these new leaders has become acuter both in developed and emerging markets however to achieve this success the businesses in emerging economies need to conquer quite a few challenges.
1. Going up in the Value Chain
The problem facing many EMMs is that they entered as OEM the global marketplace at the bottom of the value curve and stuck there, because of lack of brand equity. The biggest challenge for EMMs as a latecomer is how to create new competitive advantages in the market. Organization learning is crucial for them to fulfil a successful catch up strategy. The learning process is likely to be long and expensive, especially where the technology continues to advance rapidly and competition from the incumbent firms remains fierce. The EMMs must be good at learning and accumulating new knowledge and expertise in order to move from cost-based competencies and location-based advantages to ownership or firm-specific advantages.
The key to the success of EMMs has been the ability to treat global competition as an opportunity to build capabilities, to go beyond being OEM to become primary suppliers and move up into more profitable industry segments and adopt strategies that turn latecomer status into a source of competitive advantage.
The populist surge in Europe and the US over the past year has encouraged protectionist economic policies in both continents. The British vote to leave the European Union and the election of Donald Trump in the US have shown that a sizable proportion of citizens in developed nations are ready to oppose free trade and economic globalization. Populist leaders and their parties garnered a broader support base and made considerable inroads into European parliaments throughout 2016.
Recently, the Italian Five Star Movement (M5S) demonstrated its political influence by motivating people to vote against the constitutional referendum proposed by former Prime Minister Matteo Renzi. If M5S became the ruling party in Europe’s third-largest economy, they too could hold a referendum to decide whether or not to leave the EU.
On the other side of the Atlantic, President-elect Donald Trump has threatened to cancel NAFTA and it seems likely that he will not favour new FTAs. Deemed a form of “economic malpractice” by IMF Managing Director Christine Lagarde, protectionism in developed nations threatens to hinder economic growth in emerging economies over the course of 2017.
3. Investment Challenges
The investment challenges can be broadly put into two buckets
a. first being the limited availability of capital in comparison the counterparts from developed world for overseas expansion.
b. the poor exchange rates which again poses a strong challenge for exploiting the business potential across the globe. The home currencies are weak which makes it difficult for them in the initial face of business when investing overseas.
4. Cultural Barriers
Consumer attitudes and behaviors are highly influenced by culture. When a company moves into a new market, business models should be modified to reflect local preferences, customs, and habits. For example, changes should be made to product and service offerings, pricing, and marketing. Unless local cultures drive business models, foreign businesses have a high risk of failure. The costs associated with failure in a foreign market can be significant.
The “one-size-fits-all” approach to international business is flawed. International success requires a glocal mind-set. Glocalisation refers to the interface of globalization and localization. Whereas globalization involves standardized worldwide processes, products, and services, localization involves processes and product offerings tailored to meet specific local markets. The hybrid of standardization and adaptation is glocalization, which involves the integration of local features and global ideas, products,