Contemporary Issues and Trends in International Business
Lecture 1
What are Emerging Markets?
• Definition
o low-income, rapid-growth countries using economic liberalisation as their primary
engine of growth
▪ (Hoskisson et al., 2000: 249)
The Emerging Markets
• In the book, van Agtmael(2007) argues that the rise of emerging markets signals greatest
shift in global economic power since Industrial Revolution….
o Where were BRIC countries just 20 years ago?
▪ Brazil was an ‘economic basket’ case (i.e. hopeless)
▪ Russia was behind the Iron Curtain
▪ India was a socialist country
▪ China was just emerging from the Cultural Revolution
• It is claimed that in 30 years, the combined GNP of emerging markets will overtake that of
developed economies
Main Characteristics of Ems
• countries that share the characteristics of rapidly growing populations combined with
significant industrial capacity
• growing consumer market with increased earning potential, creating business opportunities
for both local and international firms
• large populations represent a wide potential pool of consumers for businesses, while high
growth rates mean that these markets will expand rapidly, providing proportionally more
potential customers
• importantly, growth prospects could be higher if institutional conditions improve–an
important source of growth and opportunity
Further Characteristics
• Resilient economies
• Sustained growth
• Significant exciting prospects
• Rising disposable income
• Access to technology, industrialisation
• Considered “lands of opportunity”
Example: How does China Matter?
• For decades American consumers were the main driver of international business
• This has changed with the rise of China and its growing middle class –focus of many Western
MNEs
• Slow growth of China over the last years resulted in problems for Western MNEs in car (JLR,
Daimler), technology (Apple), retail (Starbucks) and luxury industries (LV, Tiffany)
,Contribution to Global Growth
The Next-11 Emerging Markets
• In their 2005 Report, Goldman Sachs:
o “…discuss the candidacy of other countries to be BRIC-like. We have estimated
projections up to 2050 to include another broad group of possible candidates, a
group we call the N-11 -the Next Eleven”
• Jim O’Neill et al (2005) How Solid are the BRICs? Goldman Sachs Global Economics Paper
No.134
• Wilson and Stupnytska (2007) The N-11: More Than an Acronym. Goldman Sachs Global
Economics Paper No.153
Messages of N-11 Report
• The N-11 as a group of potentially large, fast-growing markets
• Recent economic performance has improved and equity markets have been strong.
• N-11 may not have the scale to have a ‘BRIC-like’ impact on the global economy but they
could rival the G7 in terms of new demand and sustained growth.
• Several of N-11 could perhaps join largest economies in world.
• Growth conditions vary widely across the N-11, and several face large challenges.
, • Growth prospects could be higher if certain conditions improved an important source of
growth and opportunity.
EM Environments – Economic Liberalisation
• Rapid institutional change –often simplified as “liberalisation” or “reforms”
• Reforms enabled rapid economic development
• Chinese government liberalised and facilitated the involvement of MNEs from late 1980s –
this enabled partnerships that facilitated knowledge transfers and increased the pace of
domestic innovation
• India has undergone a comprehensive transformation beginning with the implementation of
sweeping reforms beginning in 1991. These changes have seen a country that lagged world
technological standards by several decades rapidly re-connecting with the leading global
players
A Relative Definition of EME’s
• Advanced economies:
o post-industrial countries characterized by high per-capita income, highly competitive
industries, and welldeveloped commercial infrastructure. E.g., Australia, Canada,
Japan, United States, and Western European countries.
• Emerging market economies:
o a subset of former developing economies that have achieved substantial
industrialization, modernization, improved living standards, and significant
economic growth. They are some 27 countries in East and South Asia, Latin
America, Middle East and Eastern Europe. Examples: Brazil, Russia, India, China
• Developing economies:
o low-income countries characterized by limited industrialization and stagnant
economies. E.g., most low incomecountries in Africa, Latin America, and Asia, such
as Bangladesh, Nicaragua and Congo.
▪ Cavusgil et al (2008) International Business: Strategy, Management, and
the New Realities
Uppsala Model of Internationalisation
, Ghemawat’s CAGE Framework
• The world is not flat –it is ‘semi-globalized’
• ‘Distance’ and difference (between countries) still matters and impact on
international/global strategy
• Businesses that don’t take into account specific differences between countries are set up to
fail
• CAGE framework outlines the key barriers, costs and risks that have to overcome in
executing an international strategy
• Analyses differences between countries in terms of 4 ‘types’ of distance (Cultural,
Administrative, Geographic, Economic)
• Hence aims to show that distance matters in a variety of ways (CAGE) in the design and
execution of global strategy.
o Bartlett, C and Beamish, P (2010) Transnational management McGraw Hill
• Companies routinely over-estimate attractiveness of foreign markets
o By focusing solely on market potential factors such as population, per capita income,
levels of consumer wealth, propensity to consume
• They commonly under-estimate important costs and risks of doing business that result from
barriers created by distance
o Cultural, Administrative, Geographic, Economic
▪ Bartlett, C and Beamish, P (2010) Transnational management McGraw Hill
• Bartlett, C and Beamish, P (2010) Transnational management McGraw Hill
Cultural Distance
• Nepotism in Brazil
• Pride and communal mentality in Russia
• Caste system and ‘can’t say no’ mentality in India
• Importance of face in China
Cultural Challenges
• “Chinese people are not one homogeneous mass but contain a wide variety of regional
variations in language, in ethnicity and in income and wealth. It is true that the South and
East of China […] now have standards of living rapidly approaching those in many western
Lecture 1
What are Emerging Markets?
• Definition
o low-income, rapid-growth countries using economic liberalisation as their primary
engine of growth
▪ (Hoskisson et al., 2000: 249)
The Emerging Markets
• In the book, van Agtmael(2007) argues that the rise of emerging markets signals greatest
shift in global economic power since Industrial Revolution….
o Where were BRIC countries just 20 years ago?
▪ Brazil was an ‘economic basket’ case (i.e. hopeless)
▪ Russia was behind the Iron Curtain
▪ India was a socialist country
▪ China was just emerging from the Cultural Revolution
• It is claimed that in 30 years, the combined GNP of emerging markets will overtake that of
developed economies
Main Characteristics of Ems
• countries that share the characteristics of rapidly growing populations combined with
significant industrial capacity
• growing consumer market with increased earning potential, creating business opportunities
for both local and international firms
• large populations represent a wide potential pool of consumers for businesses, while high
growth rates mean that these markets will expand rapidly, providing proportionally more
potential customers
• importantly, growth prospects could be higher if institutional conditions improve–an
important source of growth and opportunity
Further Characteristics
• Resilient economies
• Sustained growth
• Significant exciting prospects
• Rising disposable income
• Access to technology, industrialisation
• Considered “lands of opportunity”
Example: How does China Matter?
• For decades American consumers were the main driver of international business
• This has changed with the rise of China and its growing middle class –focus of many Western
MNEs
• Slow growth of China over the last years resulted in problems for Western MNEs in car (JLR,
Daimler), technology (Apple), retail (Starbucks) and luxury industries (LV, Tiffany)
,Contribution to Global Growth
The Next-11 Emerging Markets
• In their 2005 Report, Goldman Sachs:
o “…discuss the candidacy of other countries to be BRIC-like. We have estimated
projections up to 2050 to include another broad group of possible candidates, a
group we call the N-11 -the Next Eleven”
• Jim O’Neill et al (2005) How Solid are the BRICs? Goldman Sachs Global Economics Paper
No.134
• Wilson and Stupnytska (2007) The N-11: More Than an Acronym. Goldman Sachs Global
Economics Paper No.153
Messages of N-11 Report
• The N-11 as a group of potentially large, fast-growing markets
• Recent economic performance has improved and equity markets have been strong.
• N-11 may not have the scale to have a ‘BRIC-like’ impact on the global economy but they
could rival the G7 in terms of new demand and sustained growth.
• Several of N-11 could perhaps join largest economies in world.
• Growth conditions vary widely across the N-11, and several face large challenges.
, • Growth prospects could be higher if certain conditions improved an important source of
growth and opportunity.
EM Environments – Economic Liberalisation
• Rapid institutional change –often simplified as “liberalisation” or “reforms”
• Reforms enabled rapid economic development
• Chinese government liberalised and facilitated the involvement of MNEs from late 1980s –
this enabled partnerships that facilitated knowledge transfers and increased the pace of
domestic innovation
• India has undergone a comprehensive transformation beginning with the implementation of
sweeping reforms beginning in 1991. These changes have seen a country that lagged world
technological standards by several decades rapidly re-connecting with the leading global
players
A Relative Definition of EME’s
• Advanced economies:
o post-industrial countries characterized by high per-capita income, highly competitive
industries, and welldeveloped commercial infrastructure. E.g., Australia, Canada,
Japan, United States, and Western European countries.
• Emerging market economies:
o a subset of former developing economies that have achieved substantial
industrialization, modernization, improved living standards, and significant
economic growth. They are some 27 countries in East and South Asia, Latin
America, Middle East and Eastern Europe. Examples: Brazil, Russia, India, China
• Developing economies:
o low-income countries characterized by limited industrialization and stagnant
economies. E.g., most low incomecountries in Africa, Latin America, and Asia, such
as Bangladesh, Nicaragua and Congo.
▪ Cavusgil et al (2008) International Business: Strategy, Management, and
the New Realities
Uppsala Model of Internationalisation
, Ghemawat’s CAGE Framework
• The world is not flat –it is ‘semi-globalized’
• ‘Distance’ and difference (between countries) still matters and impact on
international/global strategy
• Businesses that don’t take into account specific differences between countries are set up to
fail
• CAGE framework outlines the key barriers, costs and risks that have to overcome in
executing an international strategy
• Analyses differences between countries in terms of 4 ‘types’ of distance (Cultural,
Administrative, Geographic, Economic)
• Hence aims to show that distance matters in a variety of ways (CAGE) in the design and
execution of global strategy.
o Bartlett, C and Beamish, P (2010) Transnational management McGraw Hill
• Companies routinely over-estimate attractiveness of foreign markets
o By focusing solely on market potential factors such as population, per capita income,
levels of consumer wealth, propensity to consume
• They commonly under-estimate important costs and risks of doing business that result from
barriers created by distance
o Cultural, Administrative, Geographic, Economic
▪ Bartlett, C and Beamish, P (2010) Transnational management McGraw Hill
• Bartlett, C and Beamish, P (2010) Transnational management McGraw Hill
Cultural Distance
• Nepotism in Brazil
• Pride and communal mentality in Russia
• Caste system and ‘can’t say no’ mentality in India
• Importance of face in China
Cultural Challenges
• “Chinese people are not one homogeneous mass but contain a wide variety of regional
variations in language, in ethnicity and in income and wealth. It is true that the South and
East of China […] now have standards of living rapidly approaching those in many western
