After recognizing the impediments of a market, the authors suggest that firms “adapt” their strategies, “change the context of the market or stay away. They cite McDonald’s entry into Russia and need to invest in logistics as the first example. McDonald’s didn’t invest in logistics elsewhere, but they needed a solid system to maintain efficiency in Russia. For “change the context” example, it uses financial auditing firms as the impetus for standardizing Brazilian systems and inducing other firms to follow, thus setting a new standard for the entire country. Finally, stay away means that it is simply “impractical or uneconomical” to enter the market. These three approaches exhaust the ways in which Khanna, Palepu and Sinha recommend investment.
While the framework in “Strategies that Fit Emerging Markets” is tidy, it seems to address only the most advanced of emerging economies from the standpoint of the most robust companies. The voids that the authors identify, such as a lack of labor and capital markets are often only solved once a country is developed. Even conditions like political stability won’t be alleviated until private sector firms have already entered the market and given the people of the country an opportunity to have a job outside of the public sector or informal economy. Strategies that Fit Emerging Markets seems particularly targeted at investment in Brazil, Russia, China and India. To generalize the relative wealth of these countries as compared to many other emerging markets is dishonest.
General Emerging Markets
The strategy of Change the Context has promise but must be decomposed. First, developing a network of basic services as in the Metro example can occur even with many voids in a market. Metro worked with food distribution. Food is a familiar good that needs little to prove its appeal. With a learning curve, businesses are likely to access actual demand. Demand is fundamental to most new ventures and the authors don’t add insight to its power or position to develop a market.
Second, secondary or auxiliary services, like validation and auditing, don’t often emerge until industry is firmly planted in a nation. Firms should continue to use international standards and use auditing services that are not based in the country until the auditors have a market large enough to support a firm in-country. This chicken-or-the-egg problem also undermines that the subject of the article is a general emerging market.
Developing economies need first. The first movers will probably not be able to use strategies that are built on a common western model where infrastructure costs are shared by a huge number of entities and the population has enough money to discriminate in its purchases. Like the Metro example, firms should seek to add efficiency and value to a place at its current scale. Companies should be willing to invest now and to grow with the country because development has many interaction effects. It may take a given company’s commitment to reach the tipping point that makes a market suitable. To wait for someone else may be prudent, but it may also make the wait eternal.