Over the years, many successful American companies have tried to expand their operations overseas. The article Strategies That Fit Emerging Markets discussed questions that companies must ask themselves about the political and social systems, openness, products markets, labor markets, and capital markets that exist in these developing economies. The answers to these questions can help a company determine if their current strategy will be successful in a specific emerging market. In this blog post, I am going to discuss companies that have encountered some of these issues while expanding into these foreign markets.
In the 1970s, Nestle began marketing baby formula to emerging markets in Africa. However, Nestle never asked the right question about Africa’s product market which was, “Can companies access raw materials and components of good quality?” Since Nestle never asked this question, the company entered a market where clean water was not readily available. As a result, children became sick, and, since 1977, there has been a Nestle boycott in the region. Had Nestle investigated the condition of raw materials for baby formula in Africa, the company may have pursued a different strategy or may have decided that Africa did not have the necessary resources for a baby formula business.
In addition, Best Buy has performed very poorly in China because it did not properly analyze China’s product market. The Chinese don’t like huge stores, like the ones Best Buy offers. They also won’t pay for the high-cost products that Best Buy stocks, unless the product is from a very famous brand. This is because the high rate of piracy in the country has reduced demand for these types of products, and, thus, the price they are willing to pay has decreased. Best Buy should either alter its strategy to offer cheaper products or leave China all together due to the high rate of piracy in the region that is driving its margins down.
Furthermore, Coca-Cola met resistance when it tried to begin operations in India. In 1977, Coke refused to give the Indian government its recipe for Coke. The executives at the company believed that the government was demanding the recipe so as to give the local competition an advantage. Since the company now knew that its intellectual property would not be protected in this market, Coke decided to leave India and didn’t return until 1993. In this case, the political system in India caused the Coca-Cola Company to decide that operating in India was not a good strategic move.
Clearly, questions about an emerging market’s political and social systems, openness, products markets, labor markets, and capital markets are important for companies looking to expand to ask. These questions can prevent blunders, such as the boycott on Nestle products. They can also prevent companies from entering an emerging market before it is ready, such as Coke in India and Best Buy in China. In short, these questions will inform companies if they have the right strategy for this new market that does not operate in the same way as the one they are from.