Survival strategies for Local Companies in Emerging Markets
In battles for emerging markets, big multinationals don’t hold all the advantages. However, local markets do get affected. The local markets suddenly face foreign multi-national rivals with many advantages: in terms of financial technology, financial resources, superior products, powerful brands, and seasoned marketing and management skills. Often, the survival of the local players in the markets that are emerging is at stake.
Many questions arise in the head of the local player as to define ways to overcome this new but powerful entrant into the local market. Many of the local players seek the help of the government to reinstate trade barriers or any kind or form of support. They have two options:
• To become a subordinate partner to a multinational or
• Simply selling out and leaving the industry.
Two key questions that needs to be addressed by every manager in emerging markets:
✓ How strong are the pressures to globalize in the industry?
✓ How internationally transferable are the company’s competitive assets?
Once these questions have been addressed, a local player can better understand the basis for competitive advantage in the industry and the strengths and weaknesses of the multi-national rivals.
Just because a multinational enters the local market, it does not mean that they have a better advantage over the local player considering the brand that they have developed in the international market.
To answer the first question, the company must understand the products that they are manufacturing. For example, aircraft manufacturers, computer chips and telecommunication switches have to seek to globalize because they have an enormous fixed cost for their product development and they can only survive by selling in multiple markets. Moreover the products that they seek to globalize are standardized products and customers are satisfied with that.
On the other hand, there are other industries that seek to gain success by meeting the local needs of the customers. This way they get closer to the customer and understand their wants and needs. For example, in retail banking companies try to build a relationship with the customers by catering to their needs. Consumers differ differently in their tastes. Their preferences vary enormously because of different tastes and different customs. Multinationals selling their standardized products will never be able to cater to these local needs. Alternatively, high transportation costs in these markets may discourage the multinational presence.
When we closely look at it, most industries lie somewhere in the medium spectrum. They sell internationally as well as try to cater to the local needs. Managers of companies must try and identify their presence in the spectrum. Industries that seem similar may be far apart on the spectrum---pressures to globalize as in the case of Bajaj when it thought that it had to globalize its scooter products the minute Honda stepped in to the market. However, Bajaj found out that customers seek low-cost durable products and not the Honda’s standardized products. Moreover, Bajaj has the advantage of handling distributors in the country. Its distribution network is well diversified within the country which is almost impossible for a multinational to compete with it. Bajaj had this competitive advantage. Moreover, companies operating in the local markets may have good relationships with the government and they readily get the government support which is not possible for foreign nationals. Or, they may have distinctive products that appeal to the local customers which the foreign nationals are not able to produce cost effectively.
So effectively, there are two parameters by which managers will have to decide when they seek to have a competitive advantage against a foreign but huge national....
References: • Niraj Dawar & Tony Frost “Survival strategies for Local Companies in Emerging Markets”, Harvard College, p 123-129
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