Emerging Markets and Multinational Enterprises

By Pillania, Rajesh K. | Multinational Business Review, Summer 2009 | Go to article overview
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Emerging Markets and Multinational Enterprises

Pillania, Rajesh K., Multinational Business Review

Emerging markets are increasingly becoming the growth drivers of the global economy and there is increased scrutiny and interest in emerging markets since the 1990s (Pillania, 2009). The interest can be viewed from a demand and supply perspective. With a huge population and increasing income, emerging economies provide a big market for goods and services. Also, with talented manpower and low costs, emerging economies are supplying more and more goods and services to the world (Pillania, 2009).

Multinational corporations (MNCs) play a very important role in global business and economy. There is an increased interest in research and explanation for emerging markets and MNCs (London and Hart, 2004; Meyer, 2004; Ramamurti, 2004; Khanan et al., 2005; Pillania, 2008; Pillania, 2009). There are five aspects to this. First, MNCs from developed countries are targeting emerging markets. However the success record of these MNCs in emerging markets, particularly that of American MNCs has been far from satisfactory. This has prompted researchers, particularly in leading American universities to study the reasons for MNCs failure in emerging markets (Khanan and Palepu, 1997; Ramamurti, 2004). MNCs need to reinvent strategy for emerging markets and look beyond the transnational model (London and Hart, 2004). The concept of institutional void is one such explanation available. According to this concept the lack of regulatory framework, contract enforcement mechanism, and specialized intermediaries in emerging markets is the reason for failure of developed countries MNCs in emerging markets. MNCs need to adapt their strategies according to the context (Khanan et al., 2005, Pillania, 2009).

The second aspect of the MNCs and emerging markets is the increasing number of emerging markets MNCs (EMCs) going to developed countries. These EMCs are fighting with established MNCs from developed countries for market share and growth. There is a manifold increase in merger and acquisition activities of EMCs from emerging markets into developed countries. They have been expanding and acquiring new businesses at a frenetic pace, conducting more than 1,100 mergers and acquisitions, altogether worth US$128 billion in 2006 (UNCTAD, 2007, Accenture, 2008). Acquisition of IBM hardware by Lenevo; Choros by Tata group; and, recent acquisition of Jaguar and Land Rover from Ford group by Tata are few examples. EMCs are expanding at a speed and scale to make even the largest Western multinationals take notice (Accenture, 2008, Pillania, 2009).

The third aspect is increasing competition and fight by EMCs in other emerging markets to MNCs from developed countries. Because of their experiences of operating in emerging markets, EMCs have an advantage in understanding another emerging market as well as of lower costs as compared to developed markets MNCs. For example, automobile and electronics MNCs from South Korea are much more successful in India as compared to MNCs from Europe or USA or even Japan. Even the well-established Maruti Suzuki Company has got tough competition from Hyundai. Emerging markets MNCs have the potential to change the basis of competition in both Western and emerging markets. This is because they are: managing a broad range of risks comfortably; mastering the art of improvisation; and, keeping in tune with the importance of culture and localization (Accenture, 2008, Pillania, 2009).

The fourth important aspect is the increasing competition among EMCs, particularly in third world countries. EMCs require substantial resources, particularly natural resources, for their ambitious growth. To obtain access and control such resources, EMCs are engaged in intense competition in developing world countries. Chinese and Indian oil giants, supported by their respective governments, are fighting each other in African countries for control of oil and other natural resources (Pillania, 2008).

The fifth aspect is the increasing power and impact of EMCs.

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