Emerging Markets

 

International Business Development: Emerging Markets

 

The New Global Challengers: Emerging markets are countries such as Brazil, China, India, Mexico, and Turkey that, in contrast to advanced economies, are experiencing rapid economic growth, industrialization, and modernization. Most emerging markets are characterized by a young population and a growing middle-class. While emerging markets represent attractive markets and low-cost manufacturing bases, they also tend to have inadequate commercial infrastructure, evolving legal systems, and a high-risk business environment.

 

Despite their drawbacks, emerging markets have begun to produce new global challengers, top firms that are fast becoming key contenders in world markets. These firms pose competitive challenges to companies from the advanced economies, such as in Europe, Japan, and North America.

 

When a firm with a value-generating technological or managerial capability invests abroad, its shareholders and the host country’s citizens both stand to benefit. But no matter how good the apparent fit between what foreign companies offer and what host countries need, success is far from assured. Elections and other political events, economic crises, and changing societal attitudes can disrupt the best-laid plans in both emerging and advanced economies. The interplay of these forces, and the implications for the political choices that multinational firms make, will become especially prominent as national governments chart an uncertain course toward stabilization following the global financial meltdown.

 

The New Risk-Management Playbook:

Given the difficulty of constructing hedges against policy risk through contracts, insurance, or financial risk-management tools, foreign investors must accept the responsibility for directly managing the risk themselves. For many companies, that means rewriting the playbook. Instead of looking for immediate ways to improve operations, managers have to move beyond the quick cost-benefit analyses that they usually undertake and think more about how they can frame and shape public debate. And they must learn how to apply political pressure, either individually or as part of a coalition.

 

Framing the debate.

When companies enter new countries, they often engage in extensive PR campaigns that amount to little more than advertisements for the brand and specific commercial ventures. Instead, firms need to master the art of political spin. Presenting a venture as “fair,” “equitable,” or “growth enhancing” is often a simpler and more powerful means of securing political support than providing a cost-benefit analysis. The precise meaning attributed to such labels varies depending on a firm’s market position. New entrants garner support for policies that favor them over incumbents by citing the abuse of monopoly power. Conversely, dominant firms appeal to “fairness” by arguing that smaller entrants cannot survive without the government’s helping hand.

 

Instead of engaging in PR campaigns that amount to little more than advertisements for the brand, companies need to master the art of political spin.

 

This type of debate played out in the South Korean wireless market. LG Telecom—the third entrant, behind the much larger SK Telecom and Korea Telecom—made repeated calls for “asymmetric” government regulation of the market leaders in order to “level the playing field.” As the Korea Times reported, “The defining question is whether the government will back new entrants in the name of encouraging fair competition, or limit the pool to experienced players.” LG ultimately prevailed: In May 2001 the South Korean government announced that it would “guarantee a market share of at least 20% for a third major telecom operator through asymmetric regulation on Korea Telecom and SK Telecom.”