Entering into international markets has become increasinglycommon for firms of all sizes. The process of selecting a right country inwhich to establish a new business venture is a significant and importantmanagerial decision, and requires the evaluation of many criteria. Above all,the major concern for all the firms is to choose an effective and efficientstrategy as per the market’s demand, competition and risks. In this report wewill dig deep into the concept of choosing the right strategy that fitsemerging markets.
Emerging markets are considered as the best ground to makehigher profits than developed markets. Since both transforming economics havedifferent trends, expectations and people’s preference, companies cannot usethe same strategies they use in developed countries. Top level managers of different companies have a commonconcern. Whether we talk about giant corporate players especially in UnitedStates, Europe, and developed countries in East acknowledge the challenge ofdeveloping a successful and flexible strategy.
Globalization is becoming thepriority of all the organizations, from a national company they are striving tobe a successful multinational firm. We all know that we must follow thewell-known management process that starts from idea generation followed byselecting the right idea. Second and one of the most important step is to forma plan and then transform into a plan of action i.e., a strategy.
After thatall a manager should keep his focus is to execute the strategy well. All the corporate firms are very aware that it has become verysensitive, critical and challenging to face in today’s world. They are alsokeenly aware that it has become tougher during the past decade to identifyinternationalization strategies and to choose which countries to do businesswith (Khanna et al.
, 2005). Whereas on another end it has been noticed thatmost of the companies are still stuck with their plan of actions they havedeveloped traditionally. That strategy generally focuses on a standardizedapproach to all new markets rather than introducing a change, though sometimesthey bring a little change with a focal twist. past records show manymultinational firms are struggling to develop a successful strategy tointroduce their products and services in developing countries or transformingeconomies.
Part of the problem, as per the past researchers, is that the absence ofspecialized intermediaries, regulatory system, and contract-enforcing mechanismin emerging markets – “Institutional voids,” (Khanna et al., 2005). Khannaet al. (2005) coined the phrase ‘Institutional voids’, a phrase coined byKhanna in his book “Winning in Emerging Markets”, “refers to the absence ofintermediaries like market research firms and credit card systems toefficiently connect buyers and sellers”. Past studies have shown, that veryoften multinational firms neglect the importance of infrastructure and its rolein the effective and efficient execution of the strategy. Since we know,developed countries have better manpower and market research firms that enablethem to fight with the all the present odds in the market.
whereas transformingeconomies lack these resources hence we cannot expect same results from thestrategy used in a developed country. Above mentioned concept can be understood if we take the example ofdifferent types of soil and their productivity. We can have a wonderful harvestof wheat and rice if grown in areashaving alluvial soil whereas in the black soil or laterite soil we cannotexpect the same results, moreover, we cannot grow wheat and rice. Becausethe alluvial soil is more futile and moist, it can grow almost everything. Butto make other kinds of soil as futile as the alluvial we need years continuesplowing and good irrigation facility. In this example, the alluvial soil isreferred to the developed nation whereas other kinds of soils representdeveloping nations. Taking the same example of the alluvial soil and other kinds of soils,we can also explain institutional voids.
Alluvial soil is very rich because theland was flooded with water for a long time and now it’s very soft and readyfor any kind of crop yield – whereas in other areas where there is lack ofirrigation facility or the areas having very less amount of water and rainfallwill take years to become futile. Here the absence of water is theinstitutional voids. Companies in developed countries usually take for grantedthe critical role ‘soft’ infrastructure plays in the execution of theirbusiness models in their home markets (Khanna et al.
2005). But that infrastructureis often undeveloped or absent in emerging markets (Khanna et al. 2005). Wealways have the option to hire a third party to do market research for us inemerging market but the question is, can we trust in their results. It is hardto cater the market and customer’s preferences as per the results given byresearch firms. it becomes hard to find a firm that can be trusted, said byKhanna et al.
, (2005). If we talk about top emerging markets i.e.
, BRIC, thebiggest question is what market entry strategies do foreign firms choose forentering the BRIC countries (Holtbrügge, Dirk et al., 2013). It has beennoticed that the level of economic freedom is low and corruption level is veryhigh, that give rise to institutional weaknesses. In fact, according to theIndex of Economic Freedom, the BRIC countries are classified as mostly unfree.
Of 183 countries analyzed for different aspects that constitute economicfreedom, Russia is ranked 143rd, China 135th, India 124th, and Brazil 113th(Heritage Foundation, 2011).Moreover, corruption tends to be a major problem inthe BRIC countries. Russia is ranked 131th of 176 countries in the CorruptionPerceptions Index, followed by India, China, and Brazil (78th) (TransparencyInternational, 2016). Having all these situations in emerging markets, it also becomes hard tofind right manpower too. Companies screen a large number of candidates to digout the best people to work for the organization’s goals. Due to all theseinstitutional voids, many firms have not succeeded in emerging markets.
Thoughmany companies are trying to invest in emerging markets, we also have a healthyamount of CEOs who prefer developed countries over developing countries toavoid the risk of not doing good.