This revision presentation provides an overview of the topic of emerging markets. It highlights some examples of how businesses have pursued a growth strategy in emerging markets and also how developed economies have seen investment coming in the opposite direction. A brief overview of the methods and benefits/drawbacks of international expansion is also provided.

1. Emerging
Markets

2. Introduction
Some Examples of
Expansion into Emerging
Markets

3. Starbucks uses joint venture to enter
Indian market
Starbucks Starbucks unveils plans to open its
first outlets in India.
The US coffee giant said the first
coffee shops would open by
September 2012 in a 50-50 joint
venture with Tata Global
Beverages.
Starbucks already operates more
than 17,000 cafes, with about
2012: Starbucks enters Indian
6,000 of them in more than 50
Coffee market using joint nations outside the US.
venture with Tata Group

4. Jaguar Land Rover into India
JLR, owned by India's Tata Group, JLR
opened its first assembly plant in
India in 2011. The plant will initially
assemble car kits shipped from JLR's
plant at Halewood in the UK.
Taxation is a key driver of the
investment. India's federal
government levies a more than
100% tax on fully built imported
vehicles, but those whose engines 2011: Jaguar Land Rover opens
and gear boxes are assembled in manufacturing plant in India
India attract an import tax of 10%,
while those with pre-assembled
engines or gear boxes attract a 30%
import tax.

5. Heinz into Brazil and China
HEINZ “The acquisitions in Brazil and China
put Emerging Markets on track to
generate more than 20% of our
Company's total sales in 2012, up
from 16% in 2011.
The acquisitions are the latest
examples of our successful "buy and
build" strategy in Emerging Markets,
where we have acquired and grown
2010: Heinz expanded in China by
strong local brands and businesses in
acquiring Foodstar, a leading maker of the key markets of China, India,
sauce for $100m Indonesia, Russia, Poland and now
Brazil.”
2011: Heinz bought an 80% stake in
Quero, a leading sauces brand in
Brazil.

6. Samsung invests in Chinese production
Samsung Despite concerns about the leaking or
loss of technology (IP), Samsung still
wants to operate a manufacturing
plant in China.
Global chip market worth almost
£20bn p.a. and Chinese market
expected to be almost half of that in
2012
Chip manufacturing needs to be close
to the end-customer in order to be
competitive
2012: South Korean Govt
approval for Samsung to
manufacture computer chips in
China

7. Diageo’s Chinese Takeover
Diageo Global drinks giant Diageo is
finalising a deal to buy the
Chinese baijiu brand Shui Jing
Fang, as it seeks to expand its
footprint in China.
It's reported that Diageo has
offered $950m (£600m) for the
company, which it would use to
develop the market for Chinese
2012: Diageo expands its white spirits elsewhere in the
footprint in emerging markets world.
with £600m takeover

8. Chinese investment in the West
The investment in emerging Inward Investment
markets isn't just one way traffic.
Chinese multinationals firms like
Haier, Huawei and Mindray, have
entered developed markets like
Europe and the United States.
Chinese companies have two
ways to expand overseas: either
'organically' by scaling their An increasing number of
existing operations, or Chinese firms are investing
'inorganically' by buying foreign through the takeover of firms
rivals. in the developed economies

9. Reckitt’s targets emerging markets
Rakesh Kapoor, took over as Reckitt Benckiser
CEO of Reckitt Benckiser in
2011, hopes half of "core"
sales will come from
emerging markets by 2016,
and is raising £100m to
market its brands.
The maker of consumer
products like Dettol and
Nurofen looks to emerging
markets to sustain growth

10. What is an “emerging market”?
“Emerging market” is
used to describe a
country in the process of
rapid growth and
industrialisation

11. Developed or developing?
Developed
Economic & political stability
Reliable legal infrastructure
Economies
Emerging
Markets
Developing
Economies

12. Features of emerging markets
• Economies making a transition
• Rapid industrialisation (i.e. development of
secondary & tertiary sectors)
• Have potential to become developed economies
• Faster long-term economic growth than most
developed economies
• Many inhabitants still in poverty
• Businesses struggle to access global markets
(e.g. trade barriers)

13. The four classic emerging markets
BRAZIL RUSSIA
INDIA CHINA

14. Rise of the BRICs
• BRICs = Brazil, Russia, India & China
• Research by Jim O’Neill (Goldman
Sachs) 10 years ago highlighted the
prominent rise of four emerging
markets
• Particularly significant for developed
economies – because of their scale
and growth rate

15. Advanced Emerging Markets (AEMs)
Brazil Hungary Mexico
Poland South Taiwan
Africa

16. Secondary Emerging Markets (SEMs)
Argentina Chile China Columbia
Czech Egypt India Indonesia
Republic

17. Secondary Emerging Markets (SEMs)
Malaysia Morocco Pakistan Peru
Philippines Russia Thailand Turkey

18. Threats from emerging markets
• Increasingly large pool of skilled, but
low-cost labour
• Undervalued currencies make their
exports cheaper
• Inadequate protection of brand and
other intellectual property
• State subsidy of industries to make
them more competitive globally

19. Opportunities in emerging markets
• Growing numbers of educated middle class
consumers - = growing consumer spending
• Cultural shifts – e.g. higher demand for personal
products, private education & healthcare
• Demand for infrastructure and other products &
services from developed economies
• Source of high-skilled but low-cost labour
(outsourcing / offshoring)
• Great potential for joint ventures and
acquisitions

20. Key risks and threat of emerging markets
• Political instability
• Cultural differences / sensitivities
• Variable approaches to financial & legal
dealings (e.g. contractual law)
• Corruption and bureaucracy still an issue
• Emerging markets becoming major exporters
• Low-cost production makes developed
economies uncompetitive in some markets

21. Example – Indian IT “exports”
India now
dominates the
global market
for offshoring of
IT-enabled
services

22. Example – the impact of lower costs
"This is another
shameless example
of British workers
being dumped in
favour of low-wage
exploitation in
Poland," said Jeff
Morland, Unite
regional officer
http://www.guardian.co.uk/business/2007/dec/14/manufacturing.ireland

23. Emerging Markets as part
of a strategy of
International Expansion

24. Reasons why business increasingly operate
overseas
• To grow revenues directly (exporting)
• Cross-border acquisitions and joint ventures (e.g.
a UK business buys a competitor in India)
• Organic growth overseas (e.g. Tesco opening
superstores in Poland, Malaysia & Thailand)
• Moving production overseas – to enable faster
lead times to customers and/or reduce costs (e.g.
Dyson relocating production to Malaysia)
• Increasing use of offshoring (e.g. using financial
call centres in India)

25. Attraction of international markets
• Stronger economic growth in emerging economies
such as China, India, Brazil and Russia
• Market saturation and maturity (slow or declining
sales) in domestic markets
• Easier to reach international customers using e-
commerce
• Greater government support for businesses wishing to
expand overseas (exports seen as a source of economic
growth)
• Shareholder pressure to grow revenues and profits
through international expansion

26. Emerging Markets & Ansoff

27. Emerging markets provide an opportunity
to enter new markets
• Market development = taking existing
products, brands & services and reaching
relevant customers in international
markets
• Diversification = developing new
products for new geographical areas
• Most investment in emerging markets by
UK firms has been in the form of market
development

28. Global brands have led the stampede into
emerging markets
• The most important reason for
expansion into emerging markets
• Global brands need to operate globally
• By definition they need to be active in
fast-growing emerging markets as well
as having established market shares in
developed economies

29. Methods of reaching emerging markets
Exporting direct The UK business takes orders from international customers and
to customers ships them to the customer destination
Selling via A distribution or agency contract is made with one or more
overseas agents intermediaries
or distributors Distributors & agents may buy stock to service local demand
The customer is owned by the distributor or agent
Opening an Involves physically setting up one or more business locations in
operation the target markets
overseas Initially may just be a sales office – potentially leading onto
production facilities (depends on product)
Joint venture or The business acquires or invests in an existing business that
buying a business operates in the target market
overseas

30. Key international risk factors
• Cultural differences
– A business needs to understand local cultural influences in order to
sell its products effectively. For example, a product may be viewed as
a basic commodity at home, but not in the target overseas market.
The sales and marketing approach will need to reflect this.
• Language issues
– Although the common business language worldwide is now English,
there could still be language issues. Can the business market its
product effectively in the local language? Will it have access to
professional translators and marketing agencies?
• Legislation
– Legislation varies widely in overseas markets and will affect how to
sell into them. A business must make sure it adheres to local laws. It
will also need to consider how to find and select partners in overseas
countries, as well as how to investigate the freight and
communications options available.

31. Option: Exporting Direct
Advantages Disadvantages
Uses existing systems – e.g. e- Potentially bureaucratic
commerce No direct physical contact with
Online promotion makes this cost- customer
effective Risk of non-payment
Can choose which orders to accept Customer service processes may
Direct customer relationship need to be extended (e.g. after-sales
established care in foreign languages)
Entire profit margin remains with
the business
Can choose basis of payment – e.g.
terms, currency, delivery options etc

32. Option: Sell Via Agents / Distributors
Advantages Disadvantages
Agent of distributor should have Lost profit margin
specialist market knowledge and Unlikely to be an exclusive
existing customers arrangement – question mark over
Fewer transactions to handle agent and distributor commitment
Can be cost effective – commission & effort
or distributor margin is a variable Harder to manage quality of
cost, not fixed customer service
Agent / distributor keeps the
customer relationship

33. Option: Open Overseas Operation
Advantages Disadvantages
Local contact with customers & Significant cost & investment of
suppliers management time
Quickly gain detailed insights Need to understand and
into market needs comply with local legal and tax
Direct control over quality and issues
customer service Higher risk
Avoids tariff barriers

34. Option: Joint Venture or Acquisition
Advantages Disadvantages
Popular way of entering Joint ventures often go wrong
emerging markets – difficult to exit too
Reduced risk – shared with Risk of buying the wrong
joint venture partner business or paying too much
Buying into existing expertise for the business
and market presence Competitor response may be
strong

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