International business

Introduction to International Business
With the globalization of the world economy, there has been a concomitant rise in the number of
companies that operate globally. Though international business as a concept has been around
since the time of the East India Company and continued into the early decades of the 20th
century, there was a lull in the international expansion of companies because of the Two World
Wars. After that, there was a hesitant move towards internationalizing the operations of
multinational companies.
What really provided a fillip to the global expansion of companies was the Chicago School of
Economic Thought propelled by the legendary economist, Milton Friedman, which championed
neoliberal globalization. This ideology, which started in the early 1970s gradually, became a
major force to reckon with in the 1980s and became the norm in the 1990s. The result of all this
was the frenzied expansion of global companies across the world.
Thus, international businesses grew in scope and size to the point where at the moment; the
global economy is dominated by multinationals from all countries in the world. What was
primarily a phenomenon of western corporations has now expanded to include companies from
the East (from countries like India and China). This module examines the phenomenon of
international businesses from different aspects like the characteristics of international business,
their effect on the local, target economies, and the ways and means with which they would have
to operate and succeed in the global competition for ideas and profits.
Above all, international businesses have to ensure that they blend the global outlook and the
local adaptation resulting in a “Glocal” phenomenon wherein they would have to think global
and act local. Further, international businesses needto ensure that they do not fall afoul of
local laws and at the same time repatriate profits back to their home countries. Apart from
this, the questions of employability and employment conditions that dictate the operations of
global businesses have to be taken into consideration as well.
Considering the fact that many third world countries are liberalizing and opening up their
economies, there can be no better time than now for international businesses. This is balanced by
the countervailing force of the ongoing economic crisis that has dealt a severe blow to the global
economy. The third force that determines international businesses are that not only is the third
world countries eager to welcome foreign investment, they seek to emulate the international
businesses and become like them. Hence, these aspects would be discussed in detail in the
subsequent articles.
Finally, international businesses have to ensure that they have a set of operating procedures and
norms that are sensitive to the local culture and customs and at the same time, they stick to their
brand that has been developed for global markets. This is the challenge that we discussed earlier
as “Glocal” orientation.
In conclusion, international businesses are facing the best of times and the worst of times at the
same time and hence, the savvy and astute among them would succeed in this “Shift Age”.

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International Business

 International Business - Introduction
 IB and the Ongoing Economic Crisis
 Impact of Global Economic Crisis on IB
 IB and Resistance to its Activities
 Emerging Market Cities
 Emerging Markets: Winning the $30 Trillion Prize
 How Emerging Markets Got Transformed
 Dealing with Duality in Emerging Markets
 Strategy in Emerging Markets
 Risks Faced by International Businesses
 Impact of FDI on Developing Countries
 Is FI Beneficial for Developing Countries ?
 Benefits of Foreign Investment
 Do Reforms drive IB or Vice Versa
 Services that Support IB
 Role of Governments in IB
 Global Policies and Local Regulations
 New Staffing Rules in the United States
 The Fortune 100 Corporations
 The Future Arrived Yesterday for IB
 The Rise of Oligarchies and Monopolies
 Business Strategies for Todays World
 Mobile Wave is the Wave of the Future
 Innovation is the Game Changer
 Innovation in Emerging Markets
 Innovation and Government Spending
 Innovation in the Digital Age: Some Issues and Observations
 Cross Border Mergers and Acquisitions
 Cultural Aspects ofCross Border M & A
 Role of HR Consulting in M&A
 What is Due Diligence, Why it is Important, and How it Works and, What it Does ?
 Due Diligence in Employer-Employee Relationship
 Public Private Partnerships
 The Urbanization of the World
 International Mediation & Arbitration
 Logistics Management for IB
 Why Political Fight Over Budgets in the United States and Elsewhere is Meaningless
 The Falling Fortunes of Global Aviation Industry
 Modern Day Wage Slavery at Wal-Mart
 The Fall of a Giant: Wal-Mart
 Indian Aviation Sector Ready for Takeoff, Turbulence Ahead, can lead to Hard Landing
 Why Cities are the Future and What this Means for Investors and Businesses
 What Businesses,Groups, and Professionals can do when Faced with Stagnation
 Understanding the China-North Korea Trade Equation
 How the Digital Age is Transforming Work, Life, and Business
 World Trade Organization: Success or Failure
 Does The Government Create Monopolies?

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4. International Business
5. Emerging Markets and International Business
Emerging Markets and International
Business
International Businesses and the Opening up of Emerging Economies
The previous articles in this module have discussed the contours of international business and the
key drivers of the phenomenon. This article discusses how international businesses are
affected by the rise of the emerging markets especially the BRICS (Brazil, Russia, India,
China, and South Africa) and the next “Breakout Nations” from the second tier of the
emerging markets. The point to note is that ever since the emerging markets opened up their
economies and liberalized their procedures, international businesses have found a readymade
market for themselves in which they can operate in, make, and sell goods. Often, it is the case
that emerging markets provide the international businesses with the right opportunities to expand
and grow further. When considered against the backdrop of falling growth rates in the West, the
western multinationals could not have asked for more with countries like China and India
opening up like never before. For instance, the recent decision by the government to push for
FDI (Foreign Direct Investment) in most sectors is a step in the direction of benefit to western
multinationals.
Growth of International Businesses in the Opening Decades of this
Century

Though globalization picked up in the 1990s and gathered steam subsequently, the recession
following the dotcom bust proved to be a setback to international businesses. Further, the 911
attacks proved to be another obstacle to the expansion of international businesses. The closing
years of the first decade witnesses the 2008 Great Recession, which dealt a decisive blow to
international businesses. In this gloomy scenario, the growth in the emerging markets was the
silver lining for the international businesses, which was captured well by experts like Ruchir
Sharma in his book, The Breakout Nations, who pointed out that western capital had no choice
but to migrate to countries like India and China.
The Future Prospects of International Businesses in the Emerging
Markets
If we look into the future (though predicting the future is hazardous in these fast changing times)
we find, the next frontier for international businesses is the tier two emerging economies like
Vietnam, Ireland, and African countries. Without being too optimistic, it is clear that the growth
in these markets would drive the expansion plans of international businesses. it is also clear that
international businesses can leverage on the demographic dividend that these countries. To
explain the term, the higher proportion of young people in the country’s population is called the
dividend that these countries get because of their demography. Hence, with so many young
people joining the workforce, it is apparent that the emerging economies offer the best possible
means of growth for the international businesses.
Closing Thoughts
Finally, western multinationals have to contend with the international ambitions of emerging
market companies as well. in recent years, there has been a trend wherein companies from India
and China as well as Brazil and Russia have started to make rapid strides in their expansion plans
overseas. Hence, it cannot be said that the flow of capital is unidirectional alone. In many ways,
it can be said that the global economy is now at a stage where it is anybody’s game and hence,
the world is indeed flat for those with the innovative edge, hard work, and sustainable business
models.
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5. International Business: The Resource Wars
International Business: The Resource
Wars
Finite Resources and Infinite Consumption
We live in a world of finite resources many of which are consumed at an alarming pace. Given
the fact that the emerging markets like the BRICS (Brazil, Russia, India, China, and South
Africa) are joining the developed countries of the west both in terms of living standards and in
terms of economic development, it is inevitable that the voracious appetites for consumption in
these countries would lead to protracted and bitter wars over resources.
A trend that has been observed lately among international businesses is that the
proliferation of companies that are scouring the world for resources is leading to a winner
take all grab for the world’s resources. For instance, both the Indian and Chinese governments
are actively engaged in the Middle East and Africa buying up assets and land, which they believe
can be used to sustain the consumption of their citizens in the years ahead.
China’s Winner Take All Resource Grab
Further, the Chinese government has taken a lead over other countries as far as the battle for
resources is concerned. It has invested heavily in the MENA (Middle East and Northern Africa)
region for everything from oil and minerals to metals and agricultural products. This has
provoked hostile reactions from the Americans and Europeans who see in this land grab and
resource grab a blatant attempt by the Chinese to steal a march over them in the years ahead.
With the Chinese government having large dollar reserves, it is easy for it to give generous aid
and other forms of inducement not to mention the money needed to buy up large tracts of land,
acquire rights over oil deposits, and metals and minerals.
Global Resource Grab and Implications
The implications of these resource wars are being felt in the capitals of the developed and the
emerging world with alarm and trepidation as this race to the bottom can easily turn into armed
conflict and be met with resistance from the local populations in those countries. After all, who
would like to see the resources that belong to a native country being carted away to some foreign
land? This was the crux of the resource wars in earlier times and this is the bottom line of the
now accelerating wars for the remaining resources of the world. It is significant that many

international businesses are now active partners with their governments in this global grab for
resources.
Cooperation instead of Competition
The other implications of this resource grab lies in the fact that unless there is a concerted action
by the governments of the world, it is but natural that the fight would get nasty. This is because
resources are needed by everyone and hence, it is human nature to fight for the share of the
resources. In this context, there is a need for a global gathering of likeminded people to evolve
common strategies instead of resource wars. Cooperation should be the key instead of
competition.
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5. Why Companies Engage in International Business

Why Companies Engage in
To Expand Sales
The first and foremost reason is that western multinationals would like to expand their sales and
acquire newer markets so that they can record impressive growth rates. Considering the fact that
the developing countries are peopled with consumers who have aspirations to western lifestyles,
it is, but natural that the western companies would like to target this need and hence, expand into
these markets. Moreover, with declining sales in one region, the western companies hope to
recoup the losses by expanding into other markets. Further, the attractive rates of return in the
emerging markets are another reason as well.
Acquire Resources
This is one of the most important reasons for companies to expand internationally. Because the
developing and emerging countries have large deposits of minerals, metals and land for
agricultural production, the western multinationals eye these markets in order to get access to the
resources. This is the reason why many international businesses operate in Africa and South Asia
where the humungous deposits of minerals and metals are attractive for the profits that these
multinationals can make. Many emerging markets and developing countries do not have the
expertise or the resources needed to tap their reserves of these minerals and metals. Hence, they
welcome the multinationals with open arms as it gives them royalties and other payments to
grow their economies. As can be seen from the expansion of Vedanta and the South Korean steel
company (POSCO) into India, the eagerness to tap the resources is one of the most important
reasons for expansion.
Minimize Risk
Often, businesses expand internationally to offset the risk of stagnating growth in their home
country as well as in other countries where they are operating. For instance, ever since the
Western countries saw their growth rates slip to below 3% (in cases recording negative growth
i.e. depression), the Western multinationals have made a beeline to the emerging markets that are
growing in excess of 5%. Since firms exist to make profits and grow their bottom lines, it is but
natural for them to expand internationally into countries that have better growth rates than their
home country. Further, by operating in a basket of countries as opposed to a few, they are able to
manage political, economic, and societal risks better. We had discussed the characteristics of
these risks in earlier articles. Because they vary from country to country, it makes sense to spread
risk across countries and diversify the portfolio rather than placing all eggs in one basket.
Closing Thoughts
Though this article has concentrated on western companies alone, it is the fact that many Chinese
companies are aggressively expanding into African and Asian markets. In the same way in which
Japanese companies conquered Western markets with superior quality, low cost, and exemplary

customer service, the Chinese companies hope to target the emerging and developed markets
with the same vigor and passion that has made China the factory of the world. These themes
would be explored in detail in subsequent articles and this article has given the bare bones
reasons why businesses expand internationally.
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5. Criticisms of Globalization: Threats to National Sovereignty
Criticisms of Globalization: Threats to
National Sovereignty
It is not only about Profits
Of the many criticisms of globalization, the prominent critique relates to the fact that
globalization erodes national sovereignty and takes away the power of governments. By
allowing international corporations and multinational businesses to set the economic (and
often, the political agenda), critics argue that the nation state becomes irrelevant. The point
to be noted is that if global corporations can set the agenda, there is nothing inherently wrong
about that. Just that capitalism runs on the profit motive to the exclusion of everything else and
hence, businesses simply cannot be allowed to set the terms of the political and economic
discourse because the nation state is answerable to all citizens and not just to the wealthy and
privileged. It needs to be mentioned that nation states exist for welfare of the citizens and not for
making profits alone. By usurping the powers of the nation state, the corporations reduce
everything to money and profits and this has a corrosive effect on the welfare of the citizens.

One World Market
Ever since the 1990s, it has become fashionable for corporations to demand global rules of doing
business that are uniform across the world. In other words, international businesses want the
same set of rules and procedures in all countries i.e. the right to repatriate profits, the right to
exploit natural resources, uniform taxes, and tax structures, the removal of barriers on entry and
exit, among other things. This means that the notion of a global marketplace that is consistent
across nations and one that is friendly to the corporations is the aim of this endeavor. This is
definitely a plan to take away the power of the governments to set the rules and though there are
many experts who point to the enabling features of globalization especially where lifting billions
of people out of poverty is concerned, critics are aghast that the poor and underprivileged who
are already suffering would be hit by a double whammy.
National Sovereignty vs. Supranational Corporations
Given the fact that some multinationals have more revenues than some countries entire economic
output, the power of these companies is indeed deep and wide. Hence, the temptation to override
national governments and instead, set supranational rules to be followed results in the ceding of
sovereignty by the governments. As has been discussed in the previous sections, this results in
the notion of profits before people and does away with the basic humanitarian impulse that is
behind the modern concept of democratic states.
The supranational economic order does not have allegiance to nations or nationalities but to
super elite whose interests span across countries and whose loyalties lie to the economic
principles that are devoid of humane and social objectives.
Concluding Thoughts
Finally, global corporations have grown in power in recent decades and this trend while
contributing to global growth has also produced sharp inequalities and led to exacerbation of
ethnic and social tensions between the haves and the have-nots. Hence, there needs to be a
moderation in the way global corporations are allowed to usurp the power of national
governments and the way in which national sovereignty is ceded to the international businesses.
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5. Criticisms of Globalization: Growing Income Inequality
Criticisms of Globalization: Growing
Income Inequality
More Losers than Winners
The previous articles in this module covered the topic of globalization in depth. Some of the
points of discussion were about how globalization has succeeded in lifting millions of people out
of poverty. While accepting this fact, it is also the case that globalization has created income
inequality which when coupled with inflation and falling living standards has resulted in a class
of people who are losing out more than gaining from the process of globalization. If we take each
of these factors into consideration, it becomes clear that globalization leads to worsening income
gaps and the transfer of wealth from the bottom to the top.
In the words of some critics, globalization is a process where the poor end up subsidizing
the lifestyles of the rich. This is certainly not desired or desirable in a world where social justice
and equity have to prevail.
Increase in Social Tensions
Globalization by virtue of being a process that benefits elites and the educated more has
contributed to social tensions where the native populace without the benefit of English speaking
skills or the necessary attributes to partake of the fruits of globalization end up resenting the
success of the class that benefits from globalization. This has resulted in social tensions wherein
those left out of the process of globalization envy those who have benefited from it and this leads
to periods of unrest and fights at the slightest provocation. Indeed, as one of the experts on
globalization, Amy Chua puts it, the world is on fire because of these inequalities, and it is high
time the policymaking elite in all the countries did something to alleviate and redress the gross
imbalances resulting from globalization.
Lack of Class Mobility
The ongoing global economic crisis has brought home the fact that youth born into a certain class
are likely to remain in that socio-economic class without hopes of social mobility or progress.
This is because globalization has skewed the game in favor of those with the required skills and
attributes and has restricted the upward movement of people along the social ladder. Though this
is just one reason, the other reason of class stratification and lack of opportunities are equally
pernicious as far as the limitation of social mobility is concerned. Therefore, it is high time for

the elites to address these problems because ultimately the rising tide should lift all boats and not
only those that belong to the privileged class.
Final Thoughts
In concluding this article, it is worthwhile to remember that any economic growth must be
equitable and environmentally and socially responsible. Growth without equity and
consumption without justice are likely to lead to chaos and unrest and if the events of the Arab
Spring are anything to go by, the first shots in the war between the haves, and the have-nots are
are being fired. Therefore, the fact that globalization has worsened the income equalities and has
contributed to social tensions and unrest means that despite the heady and giddy promises of the
process, the fact remains that virtually nothing on the ground has changed.
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5. The International Businesses and the Ongoing Economic Crisis

The International Businesses and the
Ongoing Economic Crisis
The previous articles in this module discussed the various facets and aspects of the international
businesses and the norms and rules with which they have to operate in the global economy. This
article looks at the ongoing economic crisis and its impact on the operations of the
international businesses. Market experts and investors gauge the health of global trade and the
growth of international businesses by a measure known as Baltic Shipping Index. This measure
is a basket number of the size of global trade as measured in the shipping activity.
In the aftermath of the global economic crisis, this measure took a dip and is currently in the
lower end of the scale. This is an indication that international businesses are having it tough in
the global economy. Apart from this measure, there is the other index, which is known as the
Purchasing Managers’ Index or PMI. This measures the inventory position and the number of
new orders that have been placed for goods and services.
Both these measures indicate that international trade is down and the manufacturing, retail, and
services activity is on the lower end. Hence, it can be said that international businesses are
having a hard time in the global economy. Added to this is the prognostication of some
commentators who have likened the ongoing global economic crisis as having a dealt a death
blow to globalization and have proclaimed the “The Collapse of Globalism”. Taken together,
these indicators are sobering for any investor and hence, international businesses have to
consider all options and look carefully before they leap.
However, we argue in this module, that globalization is far from over and that the future of
international business would depend on the BRICS (Brazil, Russia, India, China, and South
Africa) and the next “Breakout Nations” that would form the tier two of the emerging markets.
Further, the fact that globalization has integrated the world to such an extent that the ongoing
global economic crisis is just a blip on international businesses and that the phenomenon would
go on after this lapse has to be considered as well.
What this means are those international businesses had to innovate to grow and expand further to
succeed. They would be well advised to look for opportunities in the next rung of the emerging
markets like Vietnam, African countries, and Latin American countries. Of course, the fact that
the ongoing economic crisis has dented the confidence of international businesses cannot be
denied. The moot point here is that instead of unfettered globalization, a trend wherein
international expansion is done after doing due diligence would be the driving force for the
future. Apart from this, the future would also belong to those international businesses that can
thrive in the chaotic global economy that is the present state.
Finally, the ongoing global economic crisis has laid bare the stresses, strains of systemic
risk, and has exposedthe fragile nature of the global economy. Hence, the future of
international businesses would be in the realm of guarded growth and better business practices as
opposed to unrestrained expansion and dubious business practices.

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5. Impact of Global Economic Crisis on International Businesses
Impact of Global Economic Crisis on
International Businesses
Impact of the Global Economic Crisis on International Businesses
As the global economic crisis rocked the world in the autumn of 2008, there very few sectors and
industries that were not affected by the crisis. In particular, the global economic crisis affected
the international businesses or the global multinationals as they were unable to match the growth
of the period from 2001-08 in the countries in which they were operating after the crisis struck.
Indeed, the situation was so bad that many international businesses put on hold the expansion
plans and their forays into other markets. Since international businesses rely on global trade to
sustain themselves the shrinking of the global economy with exports falling and imports replaced
by domestic consumption meant that the international businesses were left in the lurch. The
Global Baltic Dry Index, which measures shipping activity, went into the negative territory,
which means that shipping (a measure of growth of trade between countries) actually decreased
and shrank when compared to the previous years.
Double Whammy of Stagnant Growth Back Home and Protectionism in
Emerging Markets

The other aspect of the global economic crisis was that many international businesses were faced
with the double whammy of stagnant growth in the emerging markets and a negative statistic of
growth in their home countries. This meant that they could not make up for the lack of growth in
their home countries by expanding into emerging markets. Further, the international businesses
had to contend with protectionism and raising of the tariff barriers in many countries, which goes
counter to the spirit of globalization. In other words, when economies decide to restrict imports
by raising tariffs and when they place more importance to domestic industry as opposed to
foreign businesses, then the implication is that the international businesses are no longer
welcome.
Some Strategies employed by International Businesses to beat the
Downturn
To combat these negative trends, international businesses used their accumulated cash reserves
to acquire local companies so that they would control the economy indirectly. Since they were
not as welcome as earlier in many emerging markets, they bought stakes in domestic companies
so that they would still get returns in the process. Examples of this are the Chinese companies
buying stakes in African and Middle Eastern companies and Western Multinationals acquiring
leading companies in Europe and elsewhere. Even the recent moves of the foreign airlines to
acquire stakes in Indian airlines are a move in the direction of entering the domestic market by
proxy. What this means is that having adequate cash reserves is the key to surviving an economic
downturn.
Closing Thoughts
Finally, as things are looking up after three gloomy years, those international businesses that kept
their heads down and focused on their core competencies are faring better than those that hastily
pulled out of emerging economies or those who resorted to fire sales of their operations. This
also means that eventually when the economies and the markets pick up, those companies that
had solid fundamentals are the ones who would survive the downturn.
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5. International Businesses and Resistance to their Activities
International Businesses and
Resistance to their Activities
Global Capital, Local Resistance
The previous articles in this module discussed how international businesses expand into overseas
markets both for selling their products as well as to extract the resources in mineral rich
countries. We discussed how the international expansion of these businesses has to equitable and
follow the rules of justice. What happens when these businesses ride roughshod over local
populations and insist on carting away the resources to their native lands? The result is that the
local populations would be outraged against the exploitative practices of these multinationals.
This has been the case with Shell in Nigeria, Vedanta in India, BHP in Africa, and other
businesses in Latin America. The reason for this resistance is that the communities and the
people surrounding the locations where these businesses have plants feel that they are
being cheated of their resources and are not being adequately compensated. Indeed, if
anything can be said about global capital, the local resistance is the phenomenon that has
emerged consistently across the world in the recent past. The latest of the resistances is about the
POSCO steel plant in Odisha, India where the native people are protesting against land
acquisition, which they allege has been done forcibly.
International Businesses have to think Global and Act Local
While not advocating that the local communities are not within their rights to protest, the point
needs to be made that the international businesses can help them with in a more equitable manner
by sharing some part of their profits. Without getting into the debate as to whether resources
must belong to the native country and not to a foreign country, the fact that all countries gain
because of the Ricardian theory of competitive advantage wherein a country with resources can
export them and import something that is not available in it. The bone of contention here is that
the price at which the resources are being exploited is not just and fair and hence, there are calls
for proportional pricing and compensatory royalties. The multinationals respond to this criticism
saying that the native countries do not have the expertise in extracting and developing the
resources and hence, these companies are actually helping them. Therefore, it follows from this
that the best way to deal with the global capital meeting local resistance is through dialogue and
the evolution of an international mechanism to deal with such cases.
Final Thoughts
The protests against global businesses are growing by the day and hence, there is an urgent need
to tackle this issue before the very stakeholders in these businesses start to lose out. There is an

active role for governments in this case as they are the ones who set the rules for engagement.
Therefore, along the lines of what the Supreme Court in India has done which is to throw open
the question about pricing of resources (all kinds including spectrum) and how they must be
managed. This is the way ahead for other countries to follow and it remains to be seen how India
deals with this issue so that other countries can replicate its experience.
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5. Next Wave of International Business Investing: Emerging Market Cities
Next Wave of International Business
Investing: Emerging Market Cities
Emerging Market Cities and their Growth Potential
Studies have shown that the number of cities in emerging markets is growing. Now, there are
nearly 700 emerging market cities with populations of more than half a million and this
number is expectedto grow in the years ahead. The proliferation of Tier II cities alongside the
megacities is perhaps the biggest noticeable trend in recent years. It has been estimated that
nearly 1.2 million people move to the cities every week. This means that over the next twenty
years, there would be a net migration of around 1.4 Billion to the cities in the emerging markets.
Since the megacities would not be able to hold all these people, most of the growth would come
from the next rung of cities or the Tier II cities where the rapidly urbanizing populations would
aspire to western standards of living and hence, their consumption patterns would be lucrative
for multinationals and international businesses seeking to enter these markets.

Challenges Specific to Emerging Market Cities
It has been estimated that about 125 Million Households would enter the middle class in
emerging market cities between 2010 and 2025. This means that international businesses ought
to be prepared to deal with these consumers. As a recent book put it, the $10 Trillion Prize that is
up for grabs in the emerging markets means that the opportunities are there for the asking for
international businesses. However, the challenge before international businesses is that they
would have to completely redraw their business models and rework their strategies because of
the complexity of the consumer base that is emerging in these markets. For instance, a recent
survey has revealed that only 13 percent of international businesses are ready for the growth in
the emerging market cities whereas a large number of them (around 73 percent) say that they are
cognizant of the growth potential in these emerging markets.
Localization as a Driver of Strategy
Companies like Yum! Foods which is the owner of the KFC and Pizza Hut Brands has adapted
itself to the Chinese market and has tripled its market share by targeting the local consumers and
offering them menu choices that are more palatable to their tastes. Further, international
businesses must be cognizant of the logistical and distributional challenges that are
peculiar to emerging markets apart from their branding and marketing activities. Apart
from this, the international businesses have to contend with smaller players who are nimble and
agile and what are known as “mom and pop” stores. For instance, the Chinese and the Indian
markets are dominated by the Kirana and the local groceries and international businesses should
price their products and reorient their strategies accordingly. The point here is that the hybrid
consumer and business landscape ought to be targeted accordingly and the complexity of the
strategy must reflect this aspect.
In conclusion, emerging markets represent an opportunity that is there for the taking and hence,
the international businesses must seize this chance to expand their operations and grab a share of
the large pie that is available.
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5. Emerging Markets: Winning the $30 Trillion Prize
Emerging Markets: Winning the $30
Trillion Prize
In the last couple of years, with the advent of the ongoing global economic crisis, many investors
have been looking for newer markets to invest to derive higher returns or maintain their current
returns on investment. Concomitant with this trend, marketers are looking beyond the developed
Western countries that are saturated for newer growth opportunities. In this context, much
attention has been directed towards the BRICS (Brazil, Russia, India, China, and South Africa)
and the other emerging markets like Indonesia, Vietnam, and African countries. Already, some
African countries have been identified as the next growth stories and the fact that investors have
divided the emerging markets into BRICS and beyond portends an interesting fact. That fact is to
do with the size of the consumer base in these countries, which is expected to mimic the western
consumers in consumption. Imagine the impact of a Billion Chinese and a Billion Indians who
would ramp up their consumption on the world’s marketers. No wonder the $30 Trillion Prize by
2025 or the $10 Trillion market by 2015 is making the marketers of the west salivate at the
prospect of humungous returns.
Of course, the rising consumption in India and China is not without perils as the carrying
capacity of the planet is already strained because of rampant consumerism and depletion of
resources. The fact that our world of finite resources is unable to keep up with the unrestrained
consumption means that the addition of Chinese and Indian consumers to the kitty would make
matters worse. This aspect is not lost on the Western companies as they try to devise sustainable
business practices to be followed in the BRICS and beyond. The moot point here is that if the
marketers get their act right, they would be able to not only tap into the growing market but
would also ensure that consumption can be done in a sustainable manner.
Returning to the main point, the marketers in the West have realized that marketing in the west
and marketing in the east are two different things. Hence, they have adopted a mix of strategies
that can be called “Glocal” or the merging of Global selling with local conditions. In this
manner, the marketers in the west hope to capitalize on the burgeoning middle class in these
countries that wants to have lifestyles comparable with the West. The other aspect that needs to
be pointed out is that these countries have been opening up at an accelerated pace and given the
recent actions by the Chinese and Indians to liberalize their economies further, the doors for
foreign investors have been throw open and a red carpet laid out for them.
Finally, whichever way one looks at it, the aspiration levels of the Chinese and Indian
consumers’ means that the $30 Trillion consumption pie that is up for grabs between now and
2025 would definitely attract the attention of the western companies that have realized that their
domestic markets have been saturated.

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5. How Emerging Markets Transformed Themselves Over the Last Few Decades
How Emerging Markets Transformed
Themselves Over the Last Few
Decades
From Backwaters to Powerhouses
At the start of the 1970s a widely held belief in the United States and in Europe was about how
there were no markets outside of their regions. The implication was that the Third World
countries were not worthy of foreign investment as they were steeped in backwardness,
immersed in poverty, and unable to produce anything of value. The realization that these third
world countries were now transforming themselves into emerging markets started in the 1980s,
which began to attract the attention of a few interested investors like George Soros and Warren
Buffett.
This trickle of foreign investment into the emerging markets turned into a flow by the time the
1980s ended and indeed, by the end of the millennium, it had turned into a flood. There are many
reasons why the emerging markets attracted a lot of attention and some of them would be
discussed here.

The Transformation of Domestic Companies into Global Superstars
The first and foremost reason why the emerging market companies attracted foreign capital was
because these companies focused on competing globally instead of only locally. Unlike the
western companies that primarily started out as local based ones and then to tap the raw materials
turned into foreign conquerors, the emerging market companies from the very outset set their
sights on the global stage. Next, these emerging market companies ensured that they diversified
into as many markets as they could by bolstering their presence there and remaining among the
top three market gainers in those countries. The key lesson for western companies here is that
these emerging market companies focused on the big picture and on entering as many markets as
they could without inhibitions.
Investment in Human Capital Pays Off
The third reason why emerging markets transformed themselves is that they had the advantage of
demography. In other words, as many of their workers were young and educated, they could
create as many jobs as they could and still have workers vying for employment. Next, the
emerging markets opened up their economies to foreign capital in a way that ensured that foreign
investors would flock to these countries in droves. Moreover, the emerging markets grew at a
fast pace and the scorching rates of growth contrasted favorably with the growth rates of the
stagnant west that was saturated. The most important reason why emerging markets transformed
themselves from backwaters of the global economy to the front-runners was that they invested in
human capital by making rapid strides in education, healthcare, and social services.
Final Thoughts
Finally, the current slowdown has not affected the emerging markets largely as they followed a
judicious mix of openness and protection from headwinds and hence, were able to insulate
themselves from the vagaries of the global economy. This has added another dimension to the
success of the emerging markets as they are now not only fully integrated into the global
economy but also able to withstand the shocks and downturns better than the developed
countries.
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5. From Oxcart to Wal-Mart: Dealing with Duality in Emerging Markets
From Oxcart to Wal-Mart: Dealing with
Duality in Emerging Markets
From Oxcart to Wal-Mart
As more and more international retailers make a beeline for emerging markets like India, China,
Nigeria, Mexico, and other markets, it is important for these retailers to embrace the chaos and
duality that is inherent to these markets. For instance, in India, more than 95% of the retail
market is dominated by Kirana stores or what are called as “mom and pop” stores in the United
States. Similarly, in Nigeria and Mexico, the retail space is characterized by the coexistence of
small retailers alongside big multinationals like Wal-Mart.
The phrase “Oxcart to Wal-Mart” sums up the situation in many emerging markets where the
prevalence of earlier century ways of doing business along with the 21st century business models
is a way of life. In this situation, it would be better for international retailers like Wal-Mart to
segment and conquer wherein they would have to pick the segments that they would like to
target and then market to those segments accordingly. The data for segmentation can come from
the census figures and other statistics provided by market research firms.
Tackle the Logistics
As has been discussed briefly in previous articles, the key aspect of doing business in emerging
markets is the management of the supply chain and the logistical and infrastructural issues that
need to be tackled. Many emerging markets do not have world-class ports, airports, and roads yet
and hence, international retailers must devise appropriate strategies to address these challenges.
This means that they would have to forego the logistical mechanisms that work in their native
countries and instead, adapt to the local situation.
Coca-Cola in India prefers direct delivery in many countries but in Kenya, it uses a combination
of last mile connectors who can navigate areas where there are no proper roads. Similarly,
Unilever is another international business that uses the direct delivery method but in Indonesia,
because of the presence of so many archipelagos, it often relies on third party transport
companies to deliver its products. The implication of this is clear: adapt and devise local
strategies wherever possible.
Equip the Frontline with Skills and Technology

The source of competitive advantage in many emerging markets lies in the frontline staff and the
execution of a point of sale strategy. Rather than price, quality, or brand image, the convenience
of home delivery and a staff who knows people personally often make the difference for the
small retailers. International retailers can gain competitive advantage by use of technology that is
superior to those used by the local retailers. By speeding up the point of sale process and by
having adequate car parking and transport mechanism, international retailers can hope to tackle
the local retailers on their home turf. Since technology needs money to establish, the
international retailers with their deep pockets can ensure that by use of software and hardware
that is cutting edge, they gain competitive advantage. Finally, the challenge of local familiarity
can be met by hiring staff that are adept at western selling practices but at the same time are
conversant and comfortable with the local mores.
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5. Strategy in Emerging Markets
Strategy in Emerging Markets
Enter Low and Middle End Segments of the Market

It has been found that many multinationals find their sweet spot in emerging markets when they
cater to the lower and the middle end of the market segments. In other words contrary to popular
perception, multinationals find that selling to these segments is much better than focusing on the
top segment alone. The experience of Japanese companies which focused on the top segment in
many emerging markets and which found that they were not succeeding is a case in point. This
led to the Japanese auto majors to target the lower and middle end of the market segments in
many Asian countries including India where the Japanese carmakers have targeted these
segments with good results.
Take the Merger and Acquisition Route
Western multinationals are put off by the rigid bureaucracy and political interference in many
emerging markets, which makes them reluctant to expand their operations. In this case, they can
tie up with the local companies and enter into mergers or acquire local businesses. This makes
sense because the senior management from the local companies would be conversant with the
local bureaucracy and hence, their familiarity and knowledge can be tapped to deal with policy
paralysis and the logjam that many emerging markets are going through in recent years. Another
advantage of this strategy is that the multinationals can grow inorganically when organic growth
is no longer possible or feasible.
Display Commitment and Send Senior Talent
Often it is the case that many multinationals do not take the emerging markets as seriously as
they would take the developed countries. This means that they do not send high performers and
senior executives to head their operations in these countries. The net result is that they face a lack
of talent to steer their operations in these countries. Of course, the fact that working and living in
emerging markets like India, Brazil, and Russia is difficult for many expatriates from the West.
However, this should not deter them from displaying commitment. Talking about commitment,
many multinationals lose interest in emerging markets within a couple of years especially when
the returns are not up to their expectations. With political risk and societal barriers impeding
their growth, many western multinationals pull out or sell their stakes. The key aspect here is that
since the western multinationals have deep pockets, it makes sense to the stay the course for at
least five years and hence the commitment apart from sending top-notch talent has to be
actualized.
Closing Thoughts
Multinationals do not have a choice but to expand into emerging markets since growth in the
developed world has crawled to around 2% whereas even the most underperforming emerging
markets are reporting 5% growth. Hence, the strategies to be followed by multinationals include
the combination of the strategies discussed above along with more focus on the next “Breakout
Nations” like Vietnam, Algeria, and Mexico. It remains to be seen as to how well the western
multinationals adapt to the local conditions in these countries.

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5. Risks Faced by International Businesses in Developing Countries
Risks Faced by International
Businesses in Developing Countries
Political Instability
The recent case involving GMR Group in Maldives wherein the new government cancelled the
license of the company for the Male Airport illustrates the biggest risk that international
businesses face when they operate in developing countries. It is often the case that the change in
government leads to a reevaluation of the contracts with the result that some of them are
scrapped. This kind of approach must be avoided as international businesses operate under the
assumption that the contractual obligations that they have entered with a particular government
have to be honored by subsequent governments.
Added to this is the political instability in many developing countries like Nigeria where the
continuous churn in the political landscape makes the operation of international businesses
difficult. In other words, the policy paralysis and the bureaucratic logjam because of political
instability pose the biggest risk to international businesses.
Economic Risk
The second category of risk that international businesses face is the prevailing economic
structures in developing countries. For instance, many multinationals flocked to countries like
Indonesia, Thailand, and Malaysia with great expectations. However, the Asian financial crisis of
1998 put paid to their economic activities because of the impact of the crisis on the economic

structure of the country. Indeed, prudent economic management is the key aspect here. In these
countries, due to the mismanagement of the economy, the economic crisis ensued and this led to
capital flight from these countries.
The key point here is that international businesses must be prepared to sudden changes in the
economic situation in developing countries since the economies of these countries are not as
deep and resilient like those in the West. Of course, the recent global economic crisis affected the
resilience of the West as well but that is another topic altogether.
Societal Risk
The third type of risk is societal which is to with the prevailing social situation in the developing
countries. Because a certain section of the populace has benefited from the international
businesses, the other sections feel left out and marginalized and they resort to pressurizing the
government to include them in the developmental process. As some authors have put it, the
world is on fire because of ethnic hostility to the operations of the international businesses. This
was the case in many countries in Africa and East Asia where the minorities who lost out from
the opening up of their economies resorted to social unrest and societal pressure to jeopardize the
operations of the international businesses.
Moreover, this risk has metamorphosed into outright rejection of international businesses in
many countries. The spree of nationalization and taking over the operations of international
businesses in many countries across the world has made life difficult for international businesses
in those countries.
Closing Thoughts
International businesses face many risks when they operate in developing countries and
this article has discussed a few of those risks. The subsequent articles would go into detail
about each of these risks. It would suffice to state here that astute management and business
friendly policies are needed from the governments of the developing countries if they are to
attract foreign capital.
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