Summary Emerging Markets
Week 1 - Institutional strategies in emerging economies (AMA, 2015) Including slides
Strategy and related aspects of emerging markets
- What is “strategy”? (different from “tactics”!)
In the context of this course, strategy is the dynamics between ‘firm’ and ‘environment’ due to the
‘actions’ taken and the use of ‘resources’ in order to achieve goals (increase performance).
By definitions Emerging economies have low income, rapid growth, increased integration into the
global economy and undergone major market reforms or liberalization
- Economic liberalization or market reforms
o Reduced role of government (facilitator)
o Privatization of SOEs
o Lowered barriers to trade & investment
o Level playing field for business activities
What makes emerging markets unique for business?
- Pros
o Huge unmet demand for products, services and technology
o Young and growing population: Tremendous opportunities for growth
o Heterogeneous market segments: Something for everyone
o Low cost and skilled labor: Global production center
o Unique conditions: New frontiers for innovation
- Cons
o Difficult & unstable market conditions
o Poor infrastructure and information flows
o Heterogeneous demand
o High income inequality
o Huge intra-national diversity
The article
Our review of institutional strategies is focused on emerging market contexts, settings that are
characterized by weak capital market and regulatory infrastructures and fast-paced turbulent
change.
The effective management of socio-political and cultural institutions is no less important to
organizational survival than marketplace success.
Institutional strategy the comprehensive set of plans and actions directed at leveraging and
shaping socio-political and cultural institutions to maintain or improve an organization’s competitive
position
1. Relational strategies involve networking efforts to cultivate and manage dependency
relationships with the government and key stakeholder groups (Marquis & Qian, 2014;
Siegel, 2007).
2. Infrastructure-building strategies address missing or inadequate regulatory, technological,
and physical infrastructures that support business activities (Mair & Marti, 2009; Rao, 1998;
Schneiberg & Lounsbury, 2008).
, 3. Socio-cultural bridging strategies tackle socio-cultural and demographic issues that can
hinder economic development and trade—for example, political and social unrest, illiteracy,
poverty, and ethnic or religious conflicts.
In many ways, emerging markets occupy an intermediate position between developed and
developing markets. Specifically in terms of:
- the extent of market liberalization
- the degree of integration into the global economy
- and the level of economic development.
Different types of political regimes that exist across emerging economies, and note that with a few
notable exceptions, such as China, most emerging market economies are democracies.
Relational Strategies “Organizations require more than material resources and technical information
if they are to survive and thrive in their social environment”—that is, they also require social approval
and legitimacy.
- Business – government
- Corporate political activity (CPA) set of activities aimed at shaping or producing public
policy outcomes that are favorable to a firm’s continued economic survival and success.
- Research has highlighted the importance of interpersonal networks, social capital, and
informal institutions in contexts of “institutional uncertainty”, wherein social norms, trust,
and personal ties are critical in facilitating cooperation and the regulation of social behavior.
- While politically connected firms may enjoy a number of advantages over their peers, these
advantages may come at a cost—particularly, if the value of such connections depreciate or
become negative after unexpected political shocks
Infrastructure-Building Strategies e.g. just read
For instance, research has discussed how a lack of advertising and marketing research makes it
difficult to accurately assess consumer interests and consumption patterns. In addition, the lack of
well-established intellectual property protection regulations poses a significant threat to the
competitive advantage of firms. There is little or no reliable market data, non-existent or poorly
developed distribution systems, relatively few communication channels, and both a lack of regulatory
discipline and a propensity to change business regulations frequently and unpredictably”.
Firms are engaging in collective action to overcome problems associated with a lack of adequate or
reliable information, or underdeveloped physical and commercial infrastructures. Ikea worked directly
with World Wildlife Fund, a global nonprofit, to develop responsible forestry management and
certification of its wood suppliers in Russia and China. for instance, showed that to succeed in
markets such as China, where the concept of modular and consumer-assembled furniture was
uncommon, Ikea had to conduct a number of media and marketing campaigns to educate consumers
about this type of product.
Socio-cultural Bridging Strategies Many multinationals are either powerful enough to alter the
contexts in which they operate, or their products and services are valued enough to force dramatic
changes in local markets e.g.
- Managers frequently based decisions to expand operations “not on objective market
screening but on their own comfort level.
- Demographic challenges such as a young workforce, lack of available skilled workers, and
increasing urbanization are especially problematic in these contexts. To combat these
challenges, organizations have been found to invest heavily in employee training and
, development, to bring over experts and managers from the organizations’ home countries,
and to make location decisions based on the availability of skilled labor.
- Because multinationals from emerging economies are “more used to dealing with
discretionary and/or unstable governments in their home country, they are better prepared
than the traditional MNEs to succeed in foreign countries characterized by a weak
institutional environment” Institutional Theory: A New Frontier We, thus, encourage future
studies to explore how organizations develop dynamic strategy repertoires, which enable
them to learn, reconfigure, and adapt strategies in response to rapidly changing conditions.
Week 2 - Articles Including slides
Emerging markets Features
- Frequently prone to market failures (Khanna & Palepu, 1997)
1) Information problems
a) E.g. Rodamas as a reliable partner to comply with local regulations
2) Misguided regulations (political gains over efficiency)
a) E.g. Indonesian laws and policies changed with the dictator in power
3) Inefficient or lax enforcement or contracts/law
a) E.g. Indonesian courts could not be trusted with property rights cases
- Rapidly evolving institutions
1) Too much too fast (unexpected events)
a) E.g. Asian financial crisis (1997), India & Russia debt default (1990s) 4 Market failures
Evolving institutions | faculty of economics and business gem 11-09-2019 EM features…
2) Dismantling existing systems and building new ones
a) E.g. New system for tax collection in India (2017); Privatization and listing of firms in
Chinese stock exchanges
3) Political and economic instability/uncertainties
a) Frequent Government changes: India (1990s) witnessed 4 national elections and several
govt.
b) Dictatorship preferences: Indonesia, Philippines, Turkey etc.
c) Political ideology swings: Argentina in 90s, Brazil in 2010s
d) Policy shifts: From import substitution to export promotion in Indonesia (Rodamas case)
- Underdeveloped strategic factor markets
1) Capital markets: High costs of capital, forex restrictions
a) Connections with local banks helped Rodamas
2) Labor markets: Shortfall and mobility constraints
a) Lack of qualified people in management and sales (Rodamas)
b) Labor regulation and policies (How easy/difficult to hire and fire?
- Underdeveloped strategic factor markets
1) Capital markets: High costs of capital, forex restrictions
a) Connections with local banks helped Rodamas
2) Labor markets: Shortfall and mobility constraints
a) Lack of qualified people in management and sales (Rodamas)
b) Labor regulation and policies (How easy/difficult to hire and fire?)
3) Product markets: input quality; infrastructural voids
a) E.g. Poor distribution infrastructure in Indonesia
- Missing intermediaries
, 1. Credibility enhancers
a. E.g. EQUIS (education), ISO (quality), Credit rating (BKR)
2. Information analysts/advisors
a. E.g. Market research, investment banks, financial advisors
3. Aggregators/distributors
a. E.g. Private equity, incubators, mutual funds
4. Regulators and enforcers
a. E.g. Russia lacked equivalent of OSHA (safety) or FDA (quality)
5. Adjudicators
a. Huurcommissie in NLD
- Govt. intervention and control over economic activities
1) Direct participation via SOEs
a) E.g. Nationalization of banks in Indonesia
2) Facilitate national strategic interests
a) E.g. Chinese government’s backing in outward FDI decisions involving technology
acquisitions (Cui & Jiang, 2012)
3) Political opportunism to stay in power
a) E.g. To provide jobs, develop specific regions etc. ; Suharto in Indonesia preferring select
group of ethnic Chinese business leaders etc.
- High intranational and subnational diversity
1) Income levels
a) 4.4 billion people earn less than 10$ per day
2) Tastes and preferences
- Informal economy dominates the formal (London & Hart, 2004)
1) Too costly or complicated to operate formally
a) E.g. Mom & Pop stores; roadside vendors
2) Need for unorganized support groups
a) E.g. Home assistants in Indian and Chinese megacities
3) Social and not economic contracts
a) E.g. micro-finance loans given to women in Bangladesh; community service centers
The articles
1. Probing theoretically into central and eastern Europe: transactions, resources, and
institutions (JIBS, 2005) (including slides week 3)
Explaining three theories: [1] organizational economics theories (transaction cost
economics/TCE/TCT and agency theory; [2] Resources based theories; [3] institutional
theories. And how it contribute in understanding key issues such as:
o Entry strategies of foreign investors , including the JV company, post acquisition
restructuring, cross cultural management.
o Restructuring strategies of local incumbents including the SOEs.
o And entry and growth strategies of entrepreneurs (local start-up companies) →
determinants of the firm establishment and its survival in the CEE market.
Research is conducted in the Central and Eastern Europe (CEE)
Week 1 - Institutional strategies in emerging economies (AMA, 2015) Including slides
Strategy and related aspects of emerging markets
- What is “strategy”? (different from “tactics”!)
In the context of this course, strategy is the dynamics between ‘firm’ and ‘environment’ due to the
‘actions’ taken and the use of ‘resources’ in order to achieve goals (increase performance).
By definitions Emerging economies have low income, rapid growth, increased integration into the
global economy and undergone major market reforms or liberalization
- Economic liberalization or market reforms
o Reduced role of government (facilitator)
o Privatization of SOEs
o Lowered barriers to trade & investment
o Level playing field for business activities
What makes emerging markets unique for business?
- Pros
o Huge unmet demand for products, services and technology
o Young and growing population: Tremendous opportunities for growth
o Heterogeneous market segments: Something for everyone
o Low cost and skilled labor: Global production center
o Unique conditions: New frontiers for innovation
- Cons
o Difficult & unstable market conditions
o Poor infrastructure and information flows
o Heterogeneous demand
o High income inequality
o Huge intra-national diversity
The article
Our review of institutional strategies is focused on emerging market contexts, settings that are
characterized by weak capital market and regulatory infrastructures and fast-paced turbulent
change.
The effective management of socio-political and cultural institutions is no less important to
organizational survival than marketplace success.
Institutional strategy the comprehensive set of plans and actions directed at leveraging and
shaping socio-political and cultural institutions to maintain or improve an organization’s competitive
position
1. Relational strategies involve networking efforts to cultivate and manage dependency
relationships with the government and key stakeholder groups (Marquis & Qian, 2014;
Siegel, 2007).
2. Infrastructure-building strategies address missing or inadequate regulatory, technological,
and physical infrastructures that support business activities (Mair & Marti, 2009; Rao, 1998;
Schneiberg & Lounsbury, 2008).
, 3. Socio-cultural bridging strategies tackle socio-cultural and demographic issues that can
hinder economic development and trade—for example, political and social unrest, illiteracy,
poverty, and ethnic or religious conflicts.
In many ways, emerging markets occupy an intermediate position between developed and
developing markets. Specifically in terms of:
- the extent of market liberalization
- the degree of integration into the global economy
- and the level of economic development.
Different types of political regimes that exist across emerging economies, and note that with a few
notable exceptions, such as China, most emerging market economies are democracies.
Relational Strategies “Organizations require more than material resources and technical information
if they are to survive and thrive in their social environment”—that is, they also require social approval
and legitimacy.
- Business – government
- Corporate political activity (CPA) set of activities aimed at shaping or producing public
policy outcomes that are favorable to a firm’s continued economic survival and success.
- Research has highlighted the importance of interpersonal networks, social capital, and
informal institutions in contexts of “institutional uncertainty”, wherein social norms, trust,
and personal ties are critical in facilitating cooperation and the regulation of social behavior.
- While politically connected firms may enjoy a number of advantages over their peers, these
advantages may come at a cost—particularly, if the value of such connections depreciate or
become negative after unexpected political shocks
Infrastructure-Building Strategies e.g. just read
For instance, research has discussed how a lack of advertising and marketing research makes it
difficult to accurately assess consumer interests and consumption patterns. In addition, the lack of
well-established intellectual property protection regulations poses a significant threat to the
competitive advantage of firms. There is little or no reliable market data, non-existent or poorly
developed distribution systems, relatively few communication channels, and both a lack of regulatory
discipline and a propensity to change business regulations frequently and unpredictably”.
Firms are engaging in collective action to overcome problems associated with a lack of adequate or
reliable information, or underdeveloped physical and commercial infrastructures. Ikea worked directly
with World Wildlife Fund, a global nonprofit, to develop responsible forestry management and
certification of its wood suppliers in Russia and China. for instance, showed that to succeed in
markets such as China, where the concept of modular and consumer-assembled furniture was
uncommon, Ikea had to conduct a number of media and marketing campaigns to educate consumers
about this type of product.
Socio-cultural Bridging Strategies Many multinationals are either powerful enough to alter the
contexts in which they operate, or their products and services are valued enough to force dramatic
changes in local markets e.g.
- Managers frequently based decisions to expand operations “not on objective market
screening but on their own comfort level.
- Demographic challenges such as a young workforce, lack of available skilled workers, and
increasing urbanization are especially problematic in these contexts. To combat these
challenges, organizations have been found to invest heavily in employee training and
, development, to bring over experts and managers from the organizations’ home countries,
and to make location decisions based on the availability of skilled labor.
- Because multinationals from emerging economies are “more used to dealing with
discretionary and/or unstable governments in their home country, they are better prepared
than the traditional MNEs to succeed in foreign countries characterized by a weak
institutional environment” Institutional Theory: A New Frontier We, thus, encourage future
studies to explore how organizations develop dynamic strategy repertoires, which enable
them to learn, reconfigure, and adapt strategies in response to rapidly changing conditions.
Week 2 - Articles Including slides
Emerging markets Features
- Frequently prone to market failures (Khanna & Palepu, 1997)
1) Information problems
a) E.g. Rodamas as a reliable partner to comply with local regulations
2) Misguided regulations (political gains over efficiency)
a) E.g. Indonesian laws and policies changed with the dictator in power
3) Inefficient or lax enforcement or contracts/law
a) E.g. Indonesian courts could not be trusted with property rights cases
- Rapidly evolving institutions
1) Too much too fast (unexpected events)
a) E.g. Asian financial crisis (1997), India & Russia debt default (1990s) 4 Market failures
Evolving institutions | faculty of economics and business gem 11-09-2019 EM features…
2) Dismantling existing systems and building new ones
a) E.g. New system for tax collection in India (2017); Privatization and listing of firms in
Chinese stock exchanges
3) Political and economic instability/uncertainties
a) Frequent Government changes: India (1990s) witnessed 4 national elections and several
govt.
b) Dictatorship preferences: Indonesia, Philippines, Turkey etc.
c) Political ideology swings: Argentina in 90s, Brazil in 2010s
d) Policy shifts: From import substitution to export promotion in Indonesia (Rodamas case)
- Underdeveloped strategic factor markets
1) Capital markets: High costs of capital, forex restrictions
a) Connections with local banks helped Rodamas
2) Labor markets: Shortfall and mobility constraints
a) Lack of qualified people in management and sales (Rodamas)
b) Labor regulation and policies (How easy/difficult to hire and fire?
- Underdeveloped strategic factor markets
1) Capital markets: High costs of capital, forex restrictions
a) Connections with local banks helped Rodamas
2) Labor markets: Shortfall and mobility constraints
a) Lack of qualified people in management and sales (Rodamas)
b) Labor regulation and policies (How easy/difficult to hire and fire?)
3) Product markets: input quality; infrastructural voids
a) E.g. Poor distribution infrastructure in Indonesia
- Missing intermediaries
, 1. Credibility enhancers
a. E.g. EQUIS (education), ISO (quality), Credit rating (BKR)
2. Information analysts/advisors
a. E.g. Market research, investment banks, financial advisors
3. Aggregators/distributors
a. E.g. Private equity, incubators, mutual funds
4. Regulators and enforcers
a. E.g. Russia lacked equivalent of OSHA (safety) or FDA (quality)
5. Adjudicators
a. Huurcommissie in NLD
- Govt. intervention and control over economic activities
1) Direct participation via SOEs
a) E.g. Nationalization of banks in Indonesia
2) Facilitate national strategic interests
a) E.g. Chinese government’s backing in outward FDI decisions involving technology
acquisitions (Cui & Jiang, 2012)
3) Political opportunism to stay in power
a) E.g. To provide jobs, develop specific regions etc. ; Suharto in Indonesia preferring select
group of ethnic Chinese business leaders etc.
- High intranational and subnational diversity
1) Income levels
a) 4.4 billion people earn less than 10$ per day
2) Tastes and preferences
- Informal economy dominates the formal (London & Hart, 2004)
1) Too costly or complicated to operate formally
a) E.g. Mom & Pop stores; roadside vendors
2) Need for unorganized support groups
a) E.g. Home assistants in Indian and Chinese megacities
3) Social and not economic contracts
a) E.g. micro-finance loans given to women in Bangladesh; community service centers
The articles
1. Probing theoretically into central and eastern Europe: transactions, resources, and
institutions (JIBS, 2005) (including slides week 3)
Explaining three theories: [1] organizational economics theories (transaction cost
economics/TCE/TCT and agency theory; [2] Resources based theories; [3] institutional
theories. And how it contribute in understanding key issues such as:
o Entry strategies of foreign investors , including the JV company, post acquisition
restructuring, cross cultural management.
o Restructuring strategies of local incumbents including the SOEs.
o And entry and growth strategies of entrepreneurs (local start-up companies) →
determinants of the firm establishment and its survival in the CEE market.
Research is conducted in the Central and Eastern Europe (CEE)
