Friday, December 4, 2015

Developing Markets and the Dangers of Taking Institutions For Granted

            Not all markets function the same and emerging markets require different strategies due to differences in income level, customer needs, infrastructure, and a litany of other reasons. Companies attempting to use the same strategy used in developed markets would likely see large losses. The article Strategies that Fit Emerging Markets explained how it is important for companies from developed countries to not take for granted the intermediaries or contract-enforcing mechanisms that have led to success and assume they’re the same in a developing nation, because they almost certainly aren’t. Each market has its own institutional, historical and cultural environment and it’s crucial that entrants into these markets consider these. Some of these “institutional voids” as the article calls them aren’t immediately apparent so it’s recommended to differentiate between country rankings since they can end up convoluted and lead one to assume incorrect information, so this article instead recommends asking a series of questions about the country with regards to political and social systems, the country’s openness, as well as its labor and product markets. By asking these questions a company would be able to avoid seeing their business nationalized or avoid fanning cultural flames one doesn’t know about, like the example given of assets being transferred from Chinese to Malay workers over 1969’s race riots. Just because something isn’t immediately known doesn’t mean it can’t derail everything. By asking these questions a company can weigh the costs of entering a market and compare it with potential for profits and perhaps decide to not enter a market or change their approach to cater to that market’s specific needs. The Lincoln Electric case explored this by asking how Lincoln should attempt to enter the Indian market, using experiences entering China and other markets as a model. From past experience in South Korea and Japan it was made evident that each market has its own structure requiring its own strategy.
            In addition to this, the readings focused on the concept of shared value, which is the idea of creating economic value in a way that creates value for society by addressing its needs and challenges. The article Creating Shared Value introduces the concept and then posits that the way governments currently work is counter-productive due to the fact that businesses and governments see each other as obstacles and have changed their strategies as such. Governments have chosen to “internalize” business externalities like pollution, while businesses have often responded by focusing on their reputations and maximizing shareholder returns. This article suggests that by working in conjunction and by creating clusters, or small localized centers focused around an industry and its innovation, government and business can maximize society’s overall return.

            Apple has demonstrated some of the principles from this past week with AppleMakes a Beeline For Carrier Billing In Emerging Markets, Starting with Russia as they move to expand their mobile payment platform to emerging markets. Russia’s high usage of cell phones vs computers makes them the ideal location to test this platform, but without a partner Apple runs the risk of hitting a snag in its operations. Like Lincoln Electric when attempting to enter China’s market, Apple is working with Vimpelcom, a telecom established in the region, to enter Russia’s market and gain a foothold and an ally familiar with the region to minimize the chances of encountering an institutional void that hinders operations.

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