Global Business

EMERGING MARKETS: How Firms from Emerging Economies Fight Back

Market opening throughout emerging economies often means the arrival of multinational enterprises (MNEs) from developed economies. While MNEs put an enormous amount of pressure on local firms, MNEs also serve a useful purpose of demonstrating what is possible and motivating local firms to try harder. Since the best defense is offense, trying harder—in addition mounting a rigorous defense— usually means to get out of local firms’ increasingly crowded home markets. How do firms from emerging economies fight back? Specifically, how do they enter foreign markets?

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At least four strategic patterns have emerged. The first is to follow the well-known Japanese and Korean strategies of first establishing a beachhead by exporting something good enough and then raising quality, perception, and price. By following these steps, Pearl River of China has dethroned Yamaha to become the largest piano maker in the world. It has also significantly improved quality so that the market leader Steinway, after first rejecting Pearl River for an alliance proposal, more recently approached Pearl River to become Steinway’s original equipment manufacturer for its low-end models. Likewise, Mahindra & Mahindra of India solidly established itself in the American heartland and ended up becoming the world’s largest tractor maker by volume. For more details visit https://en.wikipedia.org/wiki/International_business

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A second path is to follow diasporas. To bring Bollywood hits to the diaspora, Reliance Media of India launched the BIG Cinemas chain in the United States. King of fast food in the Philippines, Jollibee chased the diaspora by expanding to Hong Kong, Dubai, and southern California. But joining the mainstream has been hard for companies focusing on the diaspora. More interesting is a “reverse diaspora” strategy: Corona beer of Mexico, after giving American customers a happy time when visiting Mexico, successfully chased such customers back to their home country. Corona is now one of the most frequently served beers in American bars and restaurants that do not have anything to do with Mexico or Mexican food. In short, Corona has “gone native” to become a local beer in the US.

 

Third, some emerging multinationals simply buy Western companies or brands off the shelf. Before Lenovo purchased the PC division from IBM in 2004, most people in the world, including a lot of gurus, asked: “IBM PC was purchased by whom?” Now most readers of this book already knew Lenovo before opening the book. Likewise, Tata Motors of India bought Jaguar Land Rover, and Geely of China acquired Volvo. Such high-profile acquisitions significantly enhanced the global profile and brand awareness of these ambitious firms from emerging economies.

 

Fourth, firms from emerging economies have to overcome enormous institution-based barriers, some formal and some informal. Although Huawei of China successfully exported telecom equipment to 45 of the world’s top 50 telecom operators, it had a hard time penetrating the remaining five, all of which are in the United States. A major reason is blatant discrimination by the US Congress, which labeled Huawei a “national security threat” in the absence of hard evidence. Undeterred, Huawei became an emerging contender in smartphones, in addition to strengthening its excellence in telecom equipment. In addition to formal barriers, how to overcome informal consumer perceptions that typically associate emerging economies with poor quality is another challenge. For example, cosmetics users in the world do not think of Brazil highly—or do not think of Brazil at all. Natura of Brazil has no precedents to follow, because no Brazilian consumer products brands have succeeded outside Latin America. Highlighting its natural ingredients from the Amazon rainforest, Natura endeavored to tap into Brazil’s positive country-of-origin image of biodiversity. This reigning queen of cosmetics in Brazil was trying hard to show its charm overseas. Sometimes, governments helped. In an effort to help their firms climb mountains, in the Western media the Indian government ran the “Incredible India” campaign and the Taiwanese government the “innovalue” campaign.

 

In summary, facing an onslaught of MNEs from developed economies, many firms from emerging economies are determined to fight back by turning up the competitive heat in developed economies as well as numerous other markets. Many will fail, but some will succeed. How rivals from developed economies interact with them by competing with, collaborating with, and/or ignoring them will shape a large part of the future of global competition.

 

Critical Thinking Questions:

1. Why are firms from emerging economies so eager to expand from their home markets?

2. What distinguishes firm-specific resources and capabilities of some of the winning firms from emerging economies?

3. ON ETHICS: Are the institution-based barriers in some developed economies fair or unfair?

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