This document discusses emerging markets and strategies used by emerging giants to gain success on a global scale. It defines emerging markets as economies with high GDP growth and relatively low per capita GDP. Emerging giants like Samsung, Lenovo, and Haier circumvented institutional voids in their home countries and tailored strategies to local markets better than Western multinationals. Key to their success were a focus on quality, design, branding, and adapting quickly to market trends. The document also examines emerging giants in consumption like China and India that will drive future global growth.

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DOING BUSINESS IN
EMERGING MARKETS
Lecture #1
Fabio Cassia

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Why “emerging markets”?
 Antoine van Agtmael (2007): “The emerging markets century”
1981: “Third World Equity suggested stagnation, Emerging
Markets suggested progress, uplift, and dynamism”
 Several conflicting definitions and a lot of confusion about the
meaning of “Emerging markets”
 United Nations: developed economies, developing economies,
and economies in transition
 World Bank: high, (lower- and upper-) middle and low income
countries
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Why “emerging markets”?
 Emerging markets are characterized by:
- a high GDP growth
- a (relatively) low per capita GDP
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Source: IMF, World Economic Outlook s (2011-2016).
Is it a linear
process?

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Why “emerging markets”?
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Why “emerging markets”?
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A different definition of
“emerging markets”
 Most analysts define an emerging market according to such
characteristics as size, growth rate, or how it has opened up to
the global economy
 According to Khanna and Palepu, the most important criterion
is how well an economy provides institutions that help buyers
and sellers come together. In this sense emerging markets are
characterized by some institutional voids:
-information problems
-fragmented distribution system
-inefficient judicial system
-…
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Business opportunities

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Emerging-market potential:
the “emerging giants”
 In the last 10-15 years several companies from emerging
markets have become world class companies
 They have been defined “Emerging giants” by Khanna and
Palepu
 What can we learn from their experience?
 What strategies did they apply to gain success?
 “100 global challengers”: e.g. Embraer, Haier, Lenovo, Tata Motors, Concha y
Toro, MTN Group, etc.
 BCG Global Challengers:
https://www.bcgperspectives.com/content/articles/globalization_growth_meet_2014
_global_challengers//
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Khanna, T., & Palepu, K. (2013). Winning in emerging markets: A road map for strategy and execution. Harvard Business Press.

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Emerging giants vs.
Western multinational firms
 Because of the institutional voids in emerging countries,
Western multinational companies find it difficult to serve
anything but the market’s global tier
 Their organizational and cost structures make it difficult for
them to sell products and services at optimal price points in
emerging markets; they often end up occupying small, super-
premium niches
 On the contrary “emerging giants” both circumvent
institutional voids and tailor their strategies to local markets
better than Western multinational companies
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Samsung
 1969: Samsung Electronics is established (an example of
Korean conglomerates)
 1998: Samsung come close to collapse (Asian crisis)
 Since 1998: turnaround based on the change from being a
supplier to being a producer of high-end electronics
 In 2005 Samsung had reached a market capitalization of $107
billion, Sony of $ 46.4 billion (and ROE was 20% vs 4%)
 Focus on quality, design, investments in R&D, brand building
 2015: more than 20% of share of the smartphone market
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Lenovo
 1984: NTD is established; it then changes its name to Legend
and in a few years it becomes the leader of the Chinese market
 1995: Legend is the third Pc manufacturer worldwide
 2003: Legend changes its brand name to “Lenovo” (Le” =
Legend + Novo)
 2005: Legend decides to purchase IBM’s Pc business and to
expand globally, leveraging also on the brand IBM Thinkpad
 2008: the rebranding process is completed, “IBM Thinkpad” is
eliminated, Lenovo is already a global brand
 2014: Lenovo acquired Motorola B2C division
 Now, 2016: leader (number of units) of the PC market
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Haier
 1984: Haier is founded as Qingdao Refrigerator Co.
 1991: Haier is the largest producer of refrigerators in China
(competitors: Electrolux, Whirpool, ..)
 1995: it enters the U.S. market
 2005: it gains a 26% market share in the U.S. market
 Strategic guidelines: build a strong brand, innovate products,
invest on design
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The old logo was replaced in
2004 by the new one Source: Omar
et al. (2009). “Global brand market-entry
strategy to manage corporate reputation”,
Journal of Product & Brand Management,
18(3).

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Haier
 “Haier became a leader in China’s white goods market, in the
teeth of competition from GE, Electrolux, and Whirlpool, mainly
because it was able to develop products tailored to the needs of
Chinese consumers.
The humid weather in Chinese cities such as Shanghai and
Shenzhen requires people to change clothes frequently, so Haier
created a tiny washing machine that cleans a single set of clothes.
Because the model uses less electricity and water than a regular
washing machine does, it has become an instant hit in China’s
coastal cities” (Khanna and Palepu, 2006)
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Emerging giants: a rapid growth
Mature markets Emerging markets
Companies Earnings
1996 (Bill.
USD)
Earnings
2015 (Bill.
USD)
Companies Earnings
1996 (Bill.
USD)
Earnings
2015 (Bill.
USD)
Intel 5.1 11.4 Samsung El. 0.137 27.6
Nokia 0.711 1.68 TSMC 0.707 5.45
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Source: Van Agtmael, A. (2007), p. 36 ; 2015 annual reports.
 Why?

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Strategic lessons
from emerging giants
 Factors other than price or cost have been the prime
determinants of their climb to world-class status:
-focus on quality and design
-brand building
-being ahead of competitors in adapting to changing market trends
-clever niche strategies
-unconventional thinking (e.g. lateral thinking*)
-logistics
* Suggested reading on this topic: “6 thinking hats” by E. De Bono
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Natura Brasil
 Natura Brasil produces goods for the personal care and beauty,
based on natural ingredients
 The company was founded in 1969 and its success has
traditionally been based on door-to-door sales; products cannot
be found in shops
 When entering international markets, Natura changed its logo
 To enter the French market (2005) it opened a real shop
 High level of isomorphism
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Brand
 2015 ranking of the 100 world’s most valuable brands: 6
brands from emerging markets
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Interbrand ranking 2015 (Mil. US$)
Position Brand Country of origin Value
7 Samsung South Korea 45,297
39 Hyundai South Korea 11,293
74 Kia South Korea 5,666
88 Huawei China 4,952
93 Corona Mexico 4,456
100 Lenovo China 4,114
Source: www.interbrand.com
What factors are able to explain the performance of these brands?

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Emerging giants in production,
emerging giants in consumption
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Giants in
production
Giants in
consumptionSource:
Goldman
Sachs

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Emerging giants in consumption
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Source: Goldman Sachs, “Dreaming
with BRICs: The Path to 2050”,
Global Economics paper n. 99, p. 5.
Next 11:
Bangladesh, Egypt,
Indonesia, Iran,
Korea, Mexico,
Nigeria, Pakistan,
Philippines, Turkey,
Vietnam
BRICs: Brazil,
Russia, India, China

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Reading
 Fabio Cassia , Francesca Magno , (2015) "Marketing issues
for business-to-business firms entering emerging markets:
An investigation among Italian companies in Eastern
Europe", International Journal of Emerging Markets, Vol. 10
Iss: 1, pp.141 – 155, available at:
https://www.academia.edu/10107563/Marketing_issues_for_busin
ess-to-
business_firms_entering_emerging_markets_an_investigation_am
ong_Italian_companies_in_Eastern_Europe
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