1. Describe and discuss different strategies of multinational enterprises when expanding into emerging markets. Comment on the pros and cons of Carlsberg’s acquisition strategy in China.
An emerging market is one that has high growth or growth potential with an infrastructure that is under-developed. The focus of internationalization is shifting from developed countries to emerging countries as developed markets are becoming saturated. As multinational enterprises are turning to emerging markets for resource, future growth, and outsourcing, appropriate market strategies and execution in these markets have become crucial to global success. Therefore, when a multinational enterprise considers entering an emerging market, it should be clear about which strategy it should perform. When a corporation decides to expand its market into the emerging market, it has to choose between exporting or licensing, fully owned or shared ownership. Our team focused on the strategies in terms of ownership. There are two strategies of expanding into emerging markets in terms of ownership, which are joint ventures and wholly owned subsidiaries.
Joint venture is an attractive method of sharing risks and saving money through capital and resource sharing that companies with high uncertainty avoidance would prefer. Joint venture in emerging markets is a crucial strategy as some countries, such as China, will not allow outside companies to own the majority of a domestic business unless they establish a joint venture with them. Forming a joint venture with a company from the emerging economy has its benefits as the locally-based domestic corporation has access to a wide network of local contacts at company management level as well as local market intelligence, making it easier for them to spot good investment opportunities. For the emerging economy domestic companies’ view, joint venture provides them the chance to work with larger companies and learn from them in many aspects. They gain access to wider markets, opportunity to increase sales and enhance their technological capabilities. However, joint ventures can accompany potential financial losses and conflict between partners.
Wholly owned subsidiaries
Wholly owned subsidiaries is having 100% control of the company. Therefore, enterprises that implement this strategy hardly provide any technology transfer or other benefits to local economies. As wholly owned subsidiaries operate independently and without the control of local partners, they can exercise complete control and autonomy. However they may not be allowed to invest and operate in certain sectors in the emerging countries’ economy as they are possibly a huge threat to fragile domestic industries. Also, they can be more easily exposed to criticism concerning economic sovereignty. To address this problem, managers of the wholly owned subsidiaries can hire local managers, acquire local resources from local suppliers, as an effort to localize the production. The decision to enter the emerging market as a wholly owned subsidiary should be made very carefully as it requires significant amount of resource commitment of the multinational enterprise. Carlsberg aggressively acquired or make joint venture about 20 local brewery plants in Western China until 2007 and we can call its strategy as multiple-acquisition because they did many acquisitions in a short-term. In this strategy, there are some pros and cons. Basically, acquisition strategy gives company some advantages and disadvantages like ‘knowledge from local partners’, ‘conflicts with local firms’ and so on. In this situation, we should think about some characteristics of Chinese market (immensely fragmented and highly regionalized) By multiple-acquisition strategy in China, Carlsberg could get some pros and cons in addition to basic pros and cons of acquisition.
First, Carlsberg could build its market positions in...