Business & Emerging Markets


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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.

Published in: Business, Technology
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  • Quite a resourceful presentation. You could also add some more slides indicating the impact of direct FDI on the local SMEs and IB community in India as recently announced by the Indian government. For e.g., Tata had joined hands with Starbucks, will the FDI gateway allow Starbucks to operate independently. Please also see if you could kindly add up the red tape issues in China, India and Russia.
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Business & Emerging Markets

  1. 1. EmergingMarkets
  2. 2. Introduction Some Examples ofExpansion into Emerging Markets
  3. 3. Starbucks uses joint venture to enter Indian marketStarbucks 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 about2012: Starbucks enters Indian 6,000 of them in more than 50 Coffee market using joint nations outside the US. venture with Tata Group
  4. 4. Jaguar Land Rover into IndiaJLR, owned by Indias Tata Group, JLRopened its first assembly plant inIndia in 2011. The plant will initiallyassemble car kits shipped from JLRsplant at Halewood in the UK.Taxation is a key driver of theinvestment. Indias federalgovernment levies a more than100% tax on fully built importedvehicles, but those whose engines 2011: Jaguar Land Rover opensand gear boxes are assembled in manufacturing plant in IndiaIndia attract an import tax of 10%,while those with pre-assembledengines or gear boxes attract a 30%import tax.
  5. 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 Companys 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 grown2010: Heinz expanded in China by strong local brands and businesses inacquiring 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 inQuero, a leading sauces brand inBrazil.
  6. 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 tomanufacture computer chips in China
  7. 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. Its 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 thefootprint in emerging markets world. with £600m takeover
  8. 8. Chinese investment in the WestThe investment in emerging Inward Investmentmarkets isnt just one way traffic.Chinese multinationals firms likeHaier, Huawei and Mindray, haveentered developed markets likeEurope and the United States.Chinese companies have twoways to expand overseas: eitherorganically by scaling their An increasing number ofexisting operations, or Chinese firms are investinginorganically by buying foreign through the takeover of firmsrivals. in the developed economies
  9. 9. Reckitt’s targets emerging marketsRakesh Kapoor, took over as Reckitt BenckiserCEO of Reckitt Benckiser in2011, hopes half of "core"sales will come fromemerging markets by 2016,and is raising £100m tomarket its brands. The maker of consumer products like Dettol and Nurofen looks to emerging markets to sustain growth
  10. 10. What is an “emerging market”? “Emerging market” is used to describe acountry in the process of rapid growth and industrialisation
  11. 11. Developed or developing?Developed Economic & political stability Reliable legal infrastructureEconomiesEmergingMarketsDevelopingEconomies
  12. 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. 13. The four classic emerging markets BRAZIL RUSSIA INDIA CHINA
  14. 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. 15. Advanced Emerging Markets (AEMs) Brazil Hungary Mexico Poland South Taiwan Africa
  16. 16. Secondary Emerging Markets (SEMs)Argentina Chile China Columbia Czech Egypt India Indonesia Republic
  17. 17. Secondary Emerging Markets (SEMs) Malaysia Morocco Pakistan PeruPhilippines Russia Thailand Turkey
  18. 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. 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. 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. 21. Example – Indian IT “exports” India now dominates the global market for offshoring of IT-enabled services
  22. 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
  23. 23. Emerging Markets as part of a strategy of International Expansion
  24. 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. 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. 26. Emerging Markets & Ansoff
  27. 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. 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. 29. Methods of reaching emerging marketsExporting direct The UK business takes orders from international customers andto customers ships them to the customer destinationSelling via A distribution or agency contract is made with one or moreoverseas agents intermediariesor distributors Distributors & agents may buy stock to service local demand The customer is owned by the distributor or agentOpening an Involves physically setting up one or more business locations inoperation the target marketsoverseas 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 thatbuying a business operates in the target marketoverseas
  30. 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. 31. Option: Exporting DirectAdvantages DisadvantagesUses existing systems – e.g. e- Potentially bureaucraticcommerce No direct physical contact withOnline promotion makes this cost- customereffective Risk of non-paymentCan choose which orders to accept Customer service processes mayDirect customer relationship need to be extended (e.g. after-salesestablished care in foreign languages)Entire profit margin remains withthe businessCan choose basis of payment – e.g.terms, currency, delivery options etc
  32. 32. Option: Sell Via Agents / DistributorsAdvantages DisadvantagesAgent of distributor should have Lost profit marginspecialist market knowledge and Unlikely to be an exclusiveexisting customers arrangement – question mark overFewer transactions to handle agent and distributor commitmentCan be cost effective – commission & effortor distributor margin is a variable Harder to manage quality ofcost, not fixed customer service Agent / distributor keeps the customer relationship
  33. 33. Option: Open Overseas OperationAdvantages DisadvantagesLocal contact with customers & Significant cost & investment ofsuppliers management timeQuickly gain detailed insights Need to understand andinto market needs comply with local legal and taxDirect control over quality and issuescustomer service Higher riskAvoids tariff barriers
  34. 34. Option: Joint Venture or AcquisitionAdvantages DisadvantagesPopular way of entering Joint ventures often go wrongemerging markets – difficult to exit tooReduced risk – shared with Risk of buying the wrongjoint venture partner business or paying too muchBuying into existing expertise for the businessand market presence Competitor response may be strong
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