Academic journal article Multinational Business Review

The Rate of Penetration by Multinationals into Emerging Markets: Evidence from BRIC

Academic journal article Multinational Business Review

The Rate of Penetration by Multinationals into Emerging Markets: Evidence from BRIC

Article excerpt

1 Introduction

Rapidly industrializing economies with large markets are an attractive target for multinationals with strong brands. A large population with increased disposable incomes, strong growth in many market segments and weak domestic competitors make such markets prime opportunities for multinationals. But capitalizing on the opportunities is not always easy. "Weak" competitors may in fact have strong loyalties among consumers in some local market or geographical area. A large number of small competitors and a fragmented market may in fact be a reflection of poor infrastructure and distribution obstacles in a large country. The increase in disposable income may not be distributed equally, but concentrated in a few metropolitan areas. In these areas, access to distribution outlets may be limited because of local brand loyalties in the supply chain. Even though consumer purchase habits may change with the increasing affluence, not all product categories will be affected equally. Some consumers might upgrade all the goods in the "household bundle," while others may opt for adding only a few luxury products and services to their budgets. Thus, certain product categories may not show much growth, and others will show high growth but from a very small base.

In addition, local competitors may prove more formidable than expected. When the large emerging markets take off, local entrepreneurs are probably the first to notice. One would expect that at least some of them would respond to the increased opportunities with vigor, and certainly that they would anticipate some new entries into the market from abroad. Even if they are primarily concerned with rearguard actions to preserve some of their previously protected markets, they would likely attempt more proactive strategies as well. Putting more resources behind their leading brands would serve both as a defense against new entrants and also lay the groundwork for expansion into other markets. Consolidation between firms that were previously competing would be expected, making for more formidable local competitors. The experience in the European market is illustrative. As the 1992 integration approached, many of the continent's formerly local leaders consolidated into larger cross-country units, generating scale returns, and fortifying their market positions. Examples range from trucking (Industrial Vehicle Corporation) to banking (Union Bank of Switzerland), insurance (AXA), and pharmaceuticals (AstraZeneca). It is logical to assume that the same strategy may well be followed by local competitors in emerging markets as rapid industrialization takes off. This means that any historical weakness of the local brands might well become a thing of the past, raising serious barriers for the entering multinational brands.

Many of the large multinational companies have overcome the actual and potential barriers to entry and have succeeded in many of the rapidly industrialized economies. The early declarations in [21] Ritzer's (1993) The McDonaldization of Society , in [3] Barber's (1996) Jihad vs McWorld , and in [20] Klein's (2000) No Logo might have overstated the global case, but there is no doubt that corporate global expansion has involved a number of multinational firms making strong inroads in local markets. Compared to the limited growth opportunities in saturated home markets, and judging from their annual reports, the multinationals from advanced economies have moved decisively into emerging markets with rapid industrialization and economic growth.

Against this background, one would be tempted to think that the top global brands would generally be leaders in their markets in many countries. Taking the so-called BRIC countries (the large emerging markets in Brazil, Russia, India, and China) as an illustration, one would presume that they all share the same leading global brands at the top of the market. Nike and Adidas would be competing leaders in athletic shoes, Unilever and Procter & Gamble would battle for top shares in personal care products everywhere, and they would fight for the market in all countries. …

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