Emerging giants


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This is a summarized presentation of the article on Emerging Giants-Building World Class Companies in Developing Countries. It's about the research carried out by Mr. Tarun Khanna and Mr. Krishna G. Palepu in which they studied the strategies, business models and stock market performances of selected 134 companies in some emerging markets viz. Argentina, Brazil, Chile, China, India, Indonesia, Mexico, Poland, South Africa and Turkey.

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Emerging giants

  2. 2. Introduction• Liberalization made developing countries to open up to foreign competition and loosen up their protectionist barriers.• By the storming in of companies from N. America, W. Europe, Japan and S. Korea, most of the local companies lost market share and sold off businesses.• But some fought back and worked to built world-class companies giving some MNCs a run for their money. For ex, M&M’s SUV Scorpio.• The authors identified 134 major companies in 10 emerging markets viz. Argentina, Brazil, Chile, China, India, Indonesia, Mexico, Poland, S. Africa and Turkey, and studied their strategies, business models, stock market performance, etc. for 6 years.
  3. 3. Blunting the Multinationals’ Edge• MNCs from developed countries have a host of superior aspects like well-known brand names, efficient innovation processes and management systems, sophisticated technologies and access to vast reservoirs of finance and talent.• But, emerging markets have certain advantages over these MNCs which if utilized effectively can prove fruitful.i) Managers at local companies know how to work around the institutional voids which is difficult for the MNCs. For ex, India’s Tata Group, Philippines’ Ayala Group. They have created mechanisms for raising capital and developing talent.
  4. 4. ii) If the countries get themselves listed on NYSE or Nasdaq after demonstrating a degree of success, it becomes easy for them to sell equity shares or bonds as they then become the investors’ favorites. Also the intermediaries from developed countries who want to fill the gaps help these local businesses to become more competitive. For ex, American and European business schools.iii) MNCs are reluctant to tailor their strategies, products, services and communications for every developing market as it’s costly, cumbersome and risky. Their organizational processes and cost structures makes it difficult for them to sell their products and services at optimal prices.
  5. 5. Market Structures in Developing Countries• Market structures in developing countries consist of 4 tiers viz. Global, Glocal, Local and Bottom.• MNCs find it difficult to serve anything other than the Global tier because of the institutional voids, insufficient knowledge about the customers’ tastes and of the local talent pool.• The emerging giants overcome these difficulties and also adapt their strategies to the local markets and hence gain an edge over their foreign competitors.• They do so by adopting any 3 of these strategies:-
  6. 6. Exploit Understanding of Product Markets• The emerging companies capitalize on their knowledge of the local product markets and by wisely adapting to the special characteristics of the customers at home.• They also exploit the similarities in the geographically nearer countries.• They even use their understanding of local preferences to cater to the tastes of the Diaspora from their home markets.• For ex, Jollibee Foods of Philippines, S. Africa’s Nandos, China’s Haier
  7. 7. Building on Familiarity with Resource Markets• They capitalize on their knowledge about local factors of production like talent and capital markets. For ex, Indian IT majors TCS, Infosys, Wipro, Satyam Computer Services ahead of MNC software services providers like Accenture.• Some capitalize their knowledge about the supply chains. For ex, Taiwan-based Inventec, Bunge.• Businesses built around raw materials are global from their inception either because they serve customers in advanced markets or they are a part of a global value chain.
  8. 8. Treat Institutional Voids as Business Opportunities• By filling institutional voids as they facilitate the flow of information, or enhance the credibility of the claims the sellers make, or analyze information and advise buyers and sellers.• They also facilitate transactions by aggregating and distributing goods and services or by creating forums where buyers and sellers can conduct their own transactions.• For ex, China’s Emerge Logistics• MNCs enjoy an edge in the intermediaries business as they possess expertise, credibility and experience.• But emerging companies can overcome this for 3 reasons:-
  9. 9. i) Intermediaries are people-intensive which requires familiarity with the local language and culture.ii) Intermediaries are information-intensive which requires local expertise to access scattered information and analyze data of variable quality.iii)Government prohibit MNCs to from setting up some institutions like media and banking as they are of national importance.• In countries like Brazil, India, China and Russia, institutional businesses can become large even if they focus only on the home market.• In smaller emerging markets, they can grow by exploiting adjacent opportunities in filling institutional voids. For ex, a bank can diversify into asset management and investment banking.
  10. 10. Importance of Execution and Governance• Execution and governance is as important as the identifying the right growth strategy.• The research suggests that excellent execution and good governance are specially important in newly industrializing countries.• The manner of achieving good governance varies in different emerging markets.• The companies who earnestly protect the interests of shareholders and employees and ensure that they both get the worthy return on investment become emerging giants.
  11. 11. Conclusion• The research indicates that there are many ways of achieving success for emerging companies.• Some compete in several countries. For ex, China’s Baosteel, Lenovo Groups, Huawei Technologies, India’s Dr. Reddy’s Laboratories, Infosys, Wipro, NIIT, Tata Group, etc.• Some operate mainly at home. For ex, China’s Wahaha Group, India’s Bharti Tele-Ventures, ITC Ltd.• The research shows that financial performance of world-class companies is not any superior than those who haven’t diversified across countries.• Thus, emerging giants can be successful even if they don’t have global footprints.
  12. 12. Source : HBR on Emerging Markets