Week 1: Develop an understanding strategy related aspects of emerging markets
Video: What is strategy?
There are different ways to distinguish strategic decisions
from other (tactics/plan) decisions:
Who is making the decision; top management,
middle management, or junior management?
What is the nature of the decision; simple routine
decision or complex non-routine decision?
Implication of decision; short-term or long-term?
Framework to distinguish strategic decisions from other
types: look at 2 features
- Scope of the firm; how large is the impact of the decision
on the scope of the firm, defined by where, how and the
extend of value captured or created by the decision
- Extend of commitment; terms of whether new
investments, new relationships, new promotions, or new
policies are needed to make the decision work
A strategy is the grand view that only the strategists knows well enough because it’s something that’s
ongoing in his mind, while a tactic is a path that takes you from one point to another
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)
Lecture:
Developing countries, with a significant growth in the last few years, that have weak institutions.
Who are emerging markets?
People living under limited space and having very limited moves of spending (Brazil)
Overcrowded space with a lack of infrastructure – Thailand
Jazzy (new) cities, which is not being seen in any other country – Shanghai
Young inspiring population, like doctors that use digital transitions
Why do they matter? There are opportunities and disadvantages of emerging markets
√ Power of new technologies and innovations; opportunities in these countries
√ Aspirational population; they look forward to better delivery of services
X Extreme poverty and inequality
X Huge unmet demands but inadequate provisions; the population still don’t have all
the choices as one would find in a developed country
Different types of emerging markets: they all fall under the umbrella of emerging markets
o BRIC(S); Brazil, Russia, India, China, which are vulnerable to fluctuations, no steady growth
o MINT; Mexico, Indonesia, Nigeria, Turkey
o CIVETS; Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa
o Transition economies: ex-soviet countries
o Newly industrialized economies; east-Asian (Thailand, Singapore, Malaysia, Korea)
India and China where the dominant economies of the world (1000). But due to a big shift in
colonization, European countries and the US were growing bigger while the others shrink in the late
1900s. Nowadays the big three economies are Japan, China and the US. Emerging markets are
coming back, they simply try to regain their lost position
,Emerging markets; identifying factors of emerging markets. Hoskisson et al. identified 64 countries
as emerging markets, based on the following identification:
Low income; low per capital GDP, relatively to developed countries
Rapid growth; growth of more than 4%
Undergone major market reforms or liberalization; shift in doing business. Form can have
different shapes in different countries
Reduced role of government in business activities; China & India used to have a
command economies (till 1980) where business activities were controlled by state
owned enterprises that produced everything that the population needed for its
consumption. Little inputs of foreign goods are allowed in these markets
Privatization of State Owned Enterprises; opening up the economy by selling of the
state owned enterprises to private enterprises; more profit orientated
Lowered barriers to trade & invest; with market reforms, it is possible to get foreign
resources or foreign exchange reserves that are needed for raw materials, which are
not presented in the market. Without this the India’s’ government would run out of
funds. To get a loan they had have to lower their barriers to trade and investments
by reducing tariffs, taxes, etc.
Level playing field for business activities; no discrimination between a state owned
company and private owned company, both get same treatments from institutions
Emerging markets have, for a lager part, slowed down in terms of growth rate. But continue to
remain low income economies
More and more investment is going away from developed markets into emerging markets because
these markets are attractive for investment. But emerging markets also start to begin more and more
in developed markets
Capacity of the emerging markets: purchasing power parity of emerging markets are getting ahead
of the purchasing power parity of the advanced economy in terms of consumption
You cant predict who is going to be the next big market. Events (like war and pandemic) shake up
the world marker. It is difficult to predict what this shake will bring
More sophisticated parameters for identifying emerging markets of the future: rank countries on
the basis of market size, economic performance, quality of labor, infrastructure, reform status,
regulations and governance, economic resilience, and economic imbalances
China, India, Indonesia and Thailand are gaining in terms of investment opportunities
Pros of emerging markets Cons of emerging markets
Huge unmet demand of customers for products, Difficult & unstable market conditions; you cant
services and technology guess how the country will be in a few years
Young and growing population: tremendous Poor infrastructure and information flows
opportunities for growth
Heterogeneous market segments: there is Heterogeneous demand: you cannot assume
always a market. Large countries are not that a particular product will sell in a country,
uniform, so there are different people with maybe there is a market or not. With variety in
different demands and preferences the market it becomes difficult to produce
Low cost and skilled labor: key inputs like land High income inequality. You cant sell high
and labour are relatively cheap. Global branded products in markets with a log GDP per
production center to sell all over the world capital; they cant afford these kind of products
Unique conditions: new frontiers for innovation Huge intra-national diversity
,Paper: Why Focused Strategies May Be Wrong for Emerging Markets (HBR, 1997)
In Western economies, core competencies and focus are the mantras of corporate strategists. The
large, diversified business group remains the dominant form of enterprise throughout most
emerging markets. They all have some degree of central control
As emerging markets open up to global competition, consultants and foreign investors are
increasingly pressuring these groups to conform to Western practice by scaling back the scope of
their (core) business activities.
The conglomerate is too unwieldy and slow to compete in today’s fast-paced markets
Worries: focus is good for Western companies, but gets lost in translation to emerging markets;
There are no/less institutions that support the business activities of the company
Without effective securities regulation and venture capital firms, focused companies may be
unable to raise adequate financing
Without strong educational institutions they will struggle to hire skilled employees
Communicating with customers is difficult when the local infrastructure is poor
Unpredictable government behaviour can stymie any operation
Companies in emerging markets must take responsibility for a wide range of functions in order to
do business effectively, instead of a focused strategy on a few activities.
> Companies must adapt their strategies to fit their institutional context (country’s product,
capital, and labor markets, regulatory system, and mechanisms for enforcing contracts)
The difference in institutional context explains the success of large, diversified corporations in
developing economies (Indonesia/India), and their failure in advanced economies (US/UK)
Highly diversified business groups can be particularly well suited to the institutional context in most
developing countries. Conglomerates can add value by imitating the functions of several institutions
that are present only in advanced economies. Successful groups effectively mediate between their
member companies and the rest of the economy
Emerging market: how well an economy helps buyers and sellers come together. Every economy
would provide a range of institutions in order to facilitate the functioning of markets, but developing
markets fall short in a number of ways;
> Information problems; buyers (consumers, employers, investor) need reliable information to
assess the goods/services. Without adequate information they are reluctant to do business
> Misguided regulations; place political goals over economic efficiency. Many emerging
markets restrict the ability of companies to lay off workers. Because of this, companies are
less able to take advantage of opportunities.
> Inefficient judicial systems; companies are reluctant to do business without ways of ensuring
that their partners will hold up their end of the bargain. Contracts can align incentives,
therefore markets depend on judicial systems that are strong enough to enforce contracts in
a reliable and predictable way. Companies in emerging markets have to perform these basic
functions themselves.
Emerging markets are hardly uniform, but they all fall short to varying degrees in providing the
institutions necessary to support basic business operations:
Product markets; buyers and sellers suffer from a serve dearth of information for 3 reasons
o Communications infrastructure in emerging markets is often underdeveloped, which
makes it hard for marketers to communicate with customers; no phones, power
shortages, inefficient slow and unreliable postal service, inefficient courier services
, o There are no mechanisms to corroborate the claims made by sellers, because
independent consumer-information organizations are rare and government
watchdog agencies are of little use
o Consumers have no redress mechanisms if a product doesn’t deliver on its promise,
because law enforcement is often capricious and slow and there are few extrajudicial
arbitration mechanisms
Because of this lack of information, companies in emerging markets face much higher costs
in building credible brands. But established (quality) brands have power; they can use its
group name to enter new (unrelated) businesses. Also groups have an advantage, because
they can spread the cost of maintaining across multiple lines of business (group identity)
Capital markets; without access to information and safeguards, investors refrain from
putting money into unfamiliar ventures. Minimize the problem of the possibility to mislead
unsophisticated investors and provide investors with a free flow of largely accurate
information about companies through institutional mechanisms such as reliable financial
reporting, a dynamic community of analysts, an aggressive independent financial press,
venture capitals firms, intermediaries, and other watchdog bodies. By reducing risks to
investors, these institutions make it possible for new enterprises to raise capital on
approximately equal terms as big, established companies. These institutional mechanisms
are either absent or ineffective in emerging markets.
o Diversified groups can point to their track record of returns to investors. As a result,
large and well-established companies have superior access to capital markets.
o Conglomerates can use their internally generated capital to grow existing businesses
or to enter new ones. their ability to raise capital makes groups a prime source of
capital for new enterprises; venture capitalists
o Groups can act as lending institutions to existing member enterprises that are
otherwise too small to obtain capital from financial institutions.
o Conglomerates are attractive to foreign investors eager to put money into these fast-
growing markets. Outsiders turn to diversified groups and invest in a wide range of
industries. The groups become the conduit for large amounts of investment in their
capital-starved countries
Labor markets; most emerging markets suffer form a scarcity of well-trained people, because
of the lack of high-quality business schools that produce entry-level managers. Vocational
training facilities are also scare in emerging markets.
o Groups can create value by developing managers or human capital, and they can
spread the fixed costs of professional development over the businesses in the group
o Groups can provide much needed flexibility for labor markets in general by
developing extensive internal labor markets of their own. This because governments
in emerging markets usually make it difficult for companies to adjust their
workforces to changing economic conditions. When one company in a group faces
declining prospects, its employees can be transferred to other group companies
o Groups are able to put new talent to good use. by allocating talent to where it is
most needed, conglomerates have a head start in beginning new activities. Emerging
markets moved sector by relocating skilled people, instead of recruiting publicly
Regulation: governments in most emerging markets operate very differently from those in
the West. The state intervene much more extensively in business operations, and companies
have a hard time predicting the actions of regulatory bodies. Governments in emerging
markets are heavily involved in an intricate array of business decisions like changing prices on
commodities and importing raw materials. (institutional voids)
o Diversified groups can add value by acting as intermediaries when their individual
companies or foreign partners need to deal with the regulatory bureaucracy.
Experience and connections give conglomerates an advantage. Or sometimes even
Video: What is strategy?
There are different ways to distinguish strategic decisions
from other (tactics/plan) decisions:
Who is making the decision; top management,
middle management, or junior management?
What is the nature of the decision; simple routine
decision or complex non-routine decision?
Implication of decision; short-term or long-term?
Framework to distinguish strategic decisions from other
types: look at 2 features
- Scope of the firm; how large is the impact of the decision
on the scope of the firm, defined by where, how and the
extend of value captured or created by the decision
- Extend of commitment; terms of whether new
investments, new relationships, new promotions, or new
policies are needed to make the decision work
A strategy is the grand view that only the strategists knows well enough because it’s something that’s
ongoing in his mind, while a tactic is a path that takes you from one point to another
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)
Lecture:
Developing countries, with a significant growth in the last few years, that have weak institutions.
Who are emerging markets?
People living under limited space and having very limited moves of spending (Brazil)
Overcrowded space with a lack of infrastructure – Thailand
Jazzy (new) cities, which is not being seen in any other country – Shanghai
Young inspiring population, like doctors that use digital transitions
Why do they matter? There are opportunities and disadvantages of emerging markets
√ Power of new technologies and innovations; opportunities in these countries
√ Aspirational population; they look forward to better delivery of services
X Extreme poverty and inequality
X Huge unmet demands but inadequate provisions; the population still don’t have all
the choices as one would find in a developed country
Different types of emerging markets: they all fall under the umbrella of emerging markets
o BRIC(S); Brazil, Russia, India, China, which are vulnerable to fluctuations, no steady growth
o MINT; Mexico, Indonesia, Nigeria, Turkey
o CIVETS; Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa
o Transition economies: ex-soviet countries
o Newly industrialized economies; east-Asian (Thailand, Singapore, Malaysia, Korea)
India and China where the dominant economies of the world (1000). But due to a big shift in
colonization, European countries and the US were growing bigger while the others shrink in the late
1900s. Nowadays the big three economies are Japan, China and the US. Emerging markets are
coming back, they simply try to regain their lost position
,Emerging markets; identifying factors of emerging markets. Hoskisson et al. identified 64 countries
as emerging markets, based on the following identification:
Low income; low per capital GDP, relatively to developed countries
Rapid growth; growth of more than 4%
Undergone major market reforms or liberalization; shift in doing business. Form can have
different shapes in different countries
Reduced role of government in business activities; China & India used to have a
command economies (till 1980) where business activities were controlled by state
owned enterprises that produced everything that the population needed for its
consumption. Little inputs of foreign goods are allowed in these markets
Privatization of State Owned Enterprises; opening up the economy by selling of the
state owned enterprises to private enterprises; more profit orientated
Lowered barriers to trade & invest; with market reforms, it is possible to get foreign
resources or foreign exchange reserves that are needed for raw materials, which are
not presented in the market. Without this the India’s’ government would run out of
funds. To get a loan they had have to lower their barriers to trade and investments
by reducing tariffs, taxes, etc.
Level playing field for business activities; no discrimination between a state owned
company and private owned company, both get same treatments from institutions
Emerging markets have, for a lager part, slowed down in terms of growth rate. But continue to
remain low income economies
More and more investment is going away from developed markets into emerging markets because
these markets are attractive for investment. But emerging markets also start to begin more and more
in developed markets
Capacity of the emerging markets: purchasing power parity of emerging markets are getting ahead
of the purchasing power parity of the advanced economy in terms of consumption
You cant predict who is going to be the next big market. Events (like war and pandemic) shake up
the world marker. It is difficult to predict what this shake will bring
More sophisticated parameters for identifying emerging markets of the future: rank countries on
the basis of market size, economic performance, quality of labor, infrastructure, reform status,
regulations and governance, economic resilience, and economic imbalances
China, India, Indonesia and Thailand are gaining in terms of investment opportunities
Pros of emerging markets Cons of emerging markets
Huge unmet demand of customers for products, Difficult & unstable market conditions; you cant
services and technology guess how the country will be in a few years
Young and growing population: tremendous Poor infrastructure and information flows
opportunities for growth
Heterogeneous market segments: there is Heterogeneous demand: you cannot assume
always a market. Large countries are not that a particular product will sell in a country,
uniform, so there are different people with maybe there is a market or not. With variety in
different demands and preferences the market it becomes difficult to produce
Low cost and skilled labor: key inputs like land High income inequality. You cant sell high
and labour are relatively cheap. Global branded products in markets with a log GDP per
production center to sell all over the world capital; they cant afford these kind of products
Unique conditions: new frontiers for innovation Huge intra-national diversity
,Paper: Why Focused Strategies May Be Wrong for Emerging Markets (HBR, 1997)
In Western economies, core competencies and focus are the mantras of corporate strategists. The
large, diversified business group remains the dominant form of enterprise throughout most
emerging markets. They all have some degree of central control
As emerging markets open up to global competition, consultants and foreign investors are
increasingly pressuring these groups to conform to Western practice by scaling back the scope of
their (core) business activities.
The conglomerate is too unwieldy and slow to compete in today’s fast-paced markets
Worries: focus is good for Western companies, but gets lost in translation to emerging markets;
There are no/less institutions that support the business activities of the company
Without effective securities regulation and venture capital firms, focused companies may be
unable to raise adequate financing
Without strong educational institutions they will struggle to hire skilled employees
Communicating with customers is difficult when the local infrastructure is poor
Unpredictable government behaviour can stymie any operation
Companies in emerging markets must take responsibility for a wide range of functions in order to
do business effectively, instead of a focused strategy on a few activities.
> Companies must adapt their strategies to fit their institutional context (country’s product,
capital, and labor markets, regulatory system, and mechanisms for enforcing contracts)
The difference in institutional context explains the success of large, diversified corporations in
developing economies (Indonesia/India), and their failure in advanced economies (US/UK)
Highly diversified business groups can be particularly well suited to the institutional context in most
developing countries. Conglomerates can add value by imitating the functions of several institutions
that are present only in advanced economies. Successful groups effectively mediate between their
member companies and the rest of the economy
Emerging market: how well an economy helps buyers and sellers come together. Every economy
would provide a range of institutions in order to facilitate the functioning of markets, but developing
markets fall short in a number of ways;
> Information problems; buyers (consumers, employers, investor) need reliable information to
assess the goods/services. Without adequate information they are reluctant to do business
> Misguided regulations; place political goals over economic efficiency. Many emerging
markets restrict the ability of companies to lay off workers. Because of this, companies are
less able to take advantage of opportunities.
> Inefficient judicial systems; companies are reluctant to do business without ways of ensuring
that their partners will hold up their end of the bargain. Contracts can align incentives,
therefore markets depend on judicial systems that are strong enough to enforce contracts in
a reliable and predictable way. Companies in emerging markets have to perform these basic
functions themselves.
Emerging markets are hardly uniform, but they all fall short to varying degrees in providing the
institutions necessary to support basic business operations:
Product markets; buyers and sellers suffer from a serve dearth of information for 3 reasons
o Communications infrastructure in emerging markets is often underdeveloped, which
makes it hard for marketers to communicate with customers; no phones, power
shortages, inefficient slow and unreliable postal service, inefficient courier services
, o There are no mechanisms to corroborate the claims made by sellers, because
independent consumer-information organizations are rare and government
watchdog agencies are of little use
o Consumers have no redress mechanisms if a product doesn’t deliver on its promise,
because law enforcement is often capricious and slow and there are few extrajudicial
arbitration mechanisms
Because of this lack of information, companies in emerging markets face much higher costs
in building credible brands. But established (quality) brands have power; they can use its
group name to enter new (unrelated) businesses. Also groups have an advantage, because
they can spread the cost of maintaining across multiple lines of business (group identity)
Capital markets; without access to information and safeguards, investors refrain from
putting money into unfamiliar ventures. Minimize the problem of the possibility to mislead
unsophisticated investors and provide investors with a free flow of largely accurate
information about companies through institutional mechanisms such as reliable financial
reporting, a dynamic community of analysts, an aggressive independent financial press,
venture capitals firms, intermediaries, and other watchdog bodies. By reducing risks to
investors, these institutions make it possible for new enterprises to raise capital on
approximately equal terms as big, established companies. These institutional mechanisms
are either absent or ineffective in emerging markets.
o Diversified groups can point to their track record of returns to investors. As a result,
large and well-established companies have superior access to capital markets.
o Conglomerates can use their internally generated capital to grow existing businesses
or to enter new ones. their ability to raise capital makes groups a prime source of
capital for new enterprises; venture capitalists
o Groups can act as lending institutions to existing member enterprises that are
otherwise too small to obtain capital from financial institutions.
o Conglomerates are attractive to foreign investors eager to put money into these fast-
growing markets. Outsiders turn to diversified groups and invest in a wide range of
industries. The groups become the conduit for large amounts of investment in their
capital-starved countries
Labor markets; most emerging markets suffer form a scarcity of well-trained people, because
of the lack of high-quality business schools that produce entry-level managers. Vocational
training facilities are also scare in emerging markets.
o Groups can create value by developing managers or human capital, and they can
spread the fixed costs of professional development over the businesses in the group
o Groups can provide much needed flexibility for labor markets in general by
developing extensive internal labor markets of their own. This because governments
in emerging markets usually make it difficult for companies to adjust their
workforces to changing economic conditions. When one company in a group faces
declining prospects, its employees can be transferred to other group companies
o Groups are able to put new talent to good use. by allocating talent to where it is
most needed, conglomerates have a head start in beginning new activities. Emerging
markets moved sector by relocating skilled people, instead of recruiting publicly
Regulation: governments in most emerging markets operate very differently from those in
the West. The state intervene much more extensively in business operations, and companies
have a hard time predicting the actions of regulatory bodies. Governments in emerging
markets are heavily involved in an intricate array of business decisions like changing prices on
commodities and importing raw materials. (institutional voids)
o Diversified groups can add value by acting as intermediaries when their individual
companies or foreign partners need to deal with the regulatory bureaucracy.
Experience and connections give conglomerates an advantage. Or sometimes even
