Analysis Of Business In Emerging Markets Commerce Essay

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International market places are more competitive today's. Many American and European companies are turning to the emerging market due to the economic growth and population attracting capital, technology, of new markets. This report firstly analyzes; what is emerging market, Characteristics of emerging markets and Significance of emerging markets, Secondly entry strategy to enter emerging market through the local collaboration and advantages and disadvantages of local collaboration with real life cases

Transnational Corporation (TNC) is large business enterprise that manages production or delivers service in more than one country also called Multinational Corporation (MNC) (Dicken 2007) or Economic development one region can be spread to another through the network of linkage between enterprises. This is directly influence manufacture and sales or services more than one country. Basically TNC's operation most influence to increase local economy of the particular country, However TNC's operation plays important role in globalization.

Emerging markets are generally a country achieving rapid growth in business activity that offer wealth opportunity in trade, such as foreign direct investment, economic transfer, currently there are around 28 emerging market in the world. Under those countries China and India considered largest economy. According to the World Bank, five major emerging markets are Brazil, Russia, India, Indonesia and China, and other included countries Mexico, Argentina, South Africa, Poland, Turkey and South Korea. These countries made a serious change from developing countries to emerging market.

According to the World Bank economist Antoine van Agtmael the term is sometimes freely used as replacement for emerging economy, but really signifies a business experience that is not fully described geography or economic strength, such countries are considered in a middle phase between developing and developed position. Examples of emerging market include China, India, some countries of Latin America specifically Argentina, Brazil, Chile, Mexico and Peru), Some countries in the Middle East specifically in the Persian gulf Arab states, some countries in south East Asia, eastern Europe countries Russia, in Africa specifically south Africa (Wikipedia)

Significance of emerging markets

Some countries are basically export -oriented growth strategies like China, Brazil, Malaysia, Taiwan, and turkey have allow them do more effective trade in worldwide. As a results of liberalization many emerging economies has increased imported finished goods and semi finished goods from developed countries. The main reason imports increased because manufacturing industries are mostly depend on the imports goods and material. (Cavusgil, S. Tamer 2002)

Developed countries understand manufacturing machine tools and instrument widely accessible these markets. On other hand Aircraft manufacturer are mostly focus emerging market to do their business activity because of low cost for example such companies are Lockheed Aircraft, Whose Hercules turboprop is popular in developing countries. According to those reasons specially increasing traffic between developed country and emerging markets, as a result of these opportunities leads to success to emerging markets (Cavusgil, S. Tamer 2002)

Characteristics of emerging markets

First, they are local economic power with large populations, huge resource bases, and large markets. They're economic success will stimulate development in the countries around them

Second, they are intermediary the domestic economy and political restructuring under of them, even currently they have open door policies it more advantages than previous policies such interventionist policies. Interventionist policies are ineffective for sustainable economic growth

Third, Emerging market economy fastest growing economies, due to the economic growth it was contributing to a great world's growth of trade. The five biggest emerging markets share of world output will increase double from 7.8 percent in 1992 to 16.1 percent in 2020. In future they will also become more major buyers of goods and services than industrialize countries.

Fourth, they are serious members in the world's major political, economic, and social affairs. They are seeking a larger voice international politics and bigger part of the worldwide economy. (Chuan Li)

Entry strategies for Emerging Markets

Multinational companies to enter emerging market they cannot enter instantly because emerging market have difference type of economic environment infra structure, the level of technology, and political, legal, and cultural environment so multinational companies should clear understanding emerging market condition before enter into the market. (Cavusgil, S. Tamer 2002)

Contemporary the most western countries such as America and Europe firms are seeking to enter into the emerging market like India Brazil China and Mexico because of large number of population and fastest economic growth them mostly focusing on wealthy elite climate. These opportunities are comprised emerging market so it is key location to future growth for western companies (Ted London and Stuart L Hart 2004)

Entry strategies are may depend on various factors, such as the promise and size of the market, the business environment in the market, managerial understanding of the market, internationalization objectives, the product-market fit, the level of asset commitment for the target market, and the nature of competition in the target market. (Cavusgil, S. Tamer 2002)

There are eight principal strategies can classify into three (i) export entry moods', including indirect and direct exporting (ii) contractual entry modes', including licensing, franchising, technology transfer counter-trade, counter purchase, buyback, offset, clearing, management contracts, contract manufacturing or sub contracting, turnkey project, and infra structure project and (iii) investment entry modes, including marketing subsidiary, joint venture and foreign direct investment. To select the foreign partner local collaboration is appropriate method following case analysis base on through the local collaboration (Cavusgil, S. Tamer 2002)

Joint venture

Joint venture is an entity formed between two or more parties to undertake economic activity together, and they share in the income, expenses, and manage of enterprise, can classify joint venture two part one of that the joint venture can be for one specific project only and second one continuing business relationship. (Cavusgil, S. Tamer 2002)

The characteristics of the joint venture

The joint venture comprise of three basic elements

Separate legal entity

Joint ownership of the legal entity by the joint venture partners

Joint management by the partners of the separate legal entity (D.Robert Webster 1989)

Advantages of joint venture

Joint ventures allow companies to share technology, production and delivery of innovative goods and service

For the smaller organization with not enough fund and expert management skill, the joint venture is most effective method of obtaining relevant resource to enter a new market. This can be most attractive market

Joint ventures can be used to reduce political resistance and improve satisfaction of the company

Joint venture may offer experts knowledge of local markets and access to supplies raw materials, government contract and local production facilities

In emerging market countries joint ventures with developed countries have become increasingly important. These may lead toward national champion

Exchange controls may avoid a company from exporting capital and joint venture allow to obtain know-how method (Derek F. Channon 1999)

Disadvantages of joint venture

When occur joint venture it takes too much time to build a relationship between partners as a result business may challenged

The ventures objective is not 100 percent clear if not clear objective as a result of this the core activity may ineffective so they can't achieve the target

There is a difference in level of specialist, investment or assets brought into the venture by the different partner

Various cultures and management styles result in poor co-operation

The partner don't contribute leadership and management beginning stage

The joint venture success depend on the research and analysis of the objective it need high cost (Derek F. Channon 1999)

Important factors of joint venture

Main factors should be consider before joint venture is formed

Should have clear understand prospective partners

To check truthfulness of other party trust and verify trust- information which received from prospective partner and verify the prospective partner base on received information by to interview with third party

Most suitable structure for example when going to choose partner, must be a fastest growing company

Availability of valued or depreciated property being contributed to the joint venture

Rewards to the members that provide services (Jiagin Yang and Huei Lee 2002)

Planning for joint venture

The formation of international joint venture is very difficult process. Must well focusing following areas such as Should have define clear goals of organization, structure, legal issues, potential areas conflict between JVP; s

Identifying objective;

Each and every propose joint venture should have a clear understanding of the fundamental objective

Choosing the business form;

The second step is prefer the basic structure of business consequently appropriate capital, shares technology expertise

Identifying legal problem;

In the start of the process should identify and make solution key legal issues and potential problem area, including government rules and regulation

Identifying conflict between partners;

This is most important identify conflict between the parties and make over the problem and make equal commitment of business activity

Drafting the joint venture agreement;

Finally, this stage goal structure and legal issues are clearly identified this is suitable time to draft an agreement (Jiagin Yang and Huei Lee 2002)

Two major factors are involve to selecting new market these factors followed by Multinational corporation when they are seeking to enter the market.

Internal strength : including operational capability, technology development, competitive edge, and possible profitability

External condition and opportunity the stability of political and economic system of the nation as well as concern its technical condition labour availability and quality and potential market size (Jiagin Yang and Huei Lee 2002)

Analysis of real life Examples of joint venture in emerging markets

China has become one of the major markets for international business as results of the fastest growing rate, several internationals companies have been competing for business opportunity in China in the form of joint venture.

Large multinational companies globalize their operation in order to competitive in the market, Multinational Corporation are adopted more forceful operation strategies use in emerging market allow high quality product with lower price (Jiagin Yang and Huei Lee 2002)

Emerging Market of India

According to the global economic scenario India is a famous emerging market, in 1990s economic liberalization policies were stated, the domestic gross product is high due to the growth of Indian market, the average yearly growth rate between six to 7 %, in financial year 2008-09 the growth rate of GDP around 6.7 % (Indian Economy Overview)

The government of India plane to increase emerging market of them, taking some encouraging steps mainly to increase 9% of growth rate presently India is a 4th largest economy in the world in term of the purchasing power parity

Case Analysis

Hero Honda Joint venture in India

India did not allow foreign companies to enter the market in 1940s-1980s, and then the Indian government gives permission to the foreign companies to enter the Indian market in the middle of the 1980s through the joint ventures

Hero before joining joint venture

Hero manufactured Cycle more than 16000 Bicycle per day; they sold 86 million cycles until 2002, also they had superb network of dealers to serve India's expensive market and Hero group had entered many business area


Honda motor company has two- wheeler market and electric producer market, the Honda motor company firstly chooses Kinetic Honda motors Limited. But this joint venture work in field of scooter manufacturing there after HNC came to Hero Group as last joint venture

The various reasons for Honda selected Hero Group

The best engineering capability

Wide range of disruption network

Appropriate commitment to quality

Importance of Hero brand

Friendly industrial relation

Know-how experience in large amount production and distribution

The joint venture agreement is done in June 1984

The Honda motor company agreed to offer technology, such as know-how to HHM and create manufacturing facilities. This included future Research & Development attempts, Honda agrees to pay $ 500,000 & 4% royalty on SP and 26% of the equity held both partners and other 26% sold to the public and the rest held to financial institution

The Success of business

Hero Honda Motors had grown again and again, after produce large quantity 1.3 million vehicles in 2001as well as earring title of the world largest motor cycle manufacture

As results of annual sales volume of over 2 million motorcycles largest two-wheeler manufacture in the world

Hero Honda Splendor is biggest selling motor cycle brand

More than 9 million motor cycles on Indian roads

Market penetration with 5000 showroom

Cause for success

The wide range of penetration network of hero largely advantage sales; hero already exist the market it is one of the major advantages for Honda it reduce cost such as advertise. However hero already made good brand image among the people as a result, the peoples perception the new product also would be a standard quality. This is the significant benefit of Honda when organization try to enter the new market first they have to choose effective entry mood and right partner Honda did excellent job; have jointed Hero as a joint venture, it is brought success and reduce risk.

There is a lack of major competitor in the beginning year

Honda have excellent technical capabilities at the same time the reliability of Hero; both combinations bring to the business efficiency and effectively

The market demand increase for motorcycle

Better usage of fuel

Peoples perception changed

Declining price difference with scooter

Nora- Sakari Joint venture in Malaysia

In my understanding the case of Nora-Sakari, in this case all problems regarding cultural differences. If we consider all happened mainly that during the negotiation, zainal said that he had ever involved this like difficult negotiations. Zainal said sakari negotiators very serious and they have strong power as well as big background

Why absent both companies' managers on 8th of June meeting?

Because there was a different management style and personal behavior The Malaysian more concern and dependent on their manager (zainal) and sakari people they have made decisions on their own ability without asked head office

Any other problems and strategies of both companies


Sakari concern Nora will copying the Sakari technology and later become major competitor in Asian region the future. This show Sakari did not believe the Nora and Nora also fear device of Sakari


Sakari engineers senior managers, a manger, lawyers and unknown; they did not have experience in Asian countries (two Muslims an Swedish included sakari's team)

Nora two engineers, manager, accountant and a lawyer, who are already, have a experience with negotiation in western countries

Negotiation on July 8th meeting Sakari senior manager did not participate, but one of senior accountant joined as a new member he was very proudly person and he insults the local culture

Equity ownership:

Sakari proposed 49% for Sakari and 51% percent for Nora. Nora proposed a 30% percent for Sakari and 70% percent for Nora this a common practice foreign equity share regulation of Malaysia, equity sharing the major impact of this collaboration.

Sakari proposed reasonable as well as according to the joint venture rules and regulation base on equity sharing, but Nora hanging into the traditional regulation (30%-70). And Sakari was concerned ability to control the accessibility if its technology to Nora and Nora become a decision maker of joint venture. Nora also had this like similar strategy, which is long term strategy to develop own digital switching hi tech product if both parties agreed with suitable shares the collaboration would occurred if compare to other strategy because both companies more concern decision making power of joint venture and secretly of their technology

Technology transfer:

Sakari provide the necessary structure of the switch exchanging device to protect the core of technology and Nora was proposed the basic structure should be developed at the joint venture company the right to use the root of the technology

Nora was undoubtedly trying to get the technology without compensating, but Sakari strongly refused it, However the main advantages of local collaboration is technology transfer in here both parties are conflict to share their technology

Royalty payment:

Sakari wanted 5% of the joint venture gross sale; Nora proposed 2% of the net sales. Sakari accountant doesn't know about the Nora had already large invested with other joint venture as well as Nora consider five per cent too high because it would affect Nora's financial situation.

Expatriate's salaries and perk:

Sakari proposed for short term expert per day USD $1,260 with travel and accommodation and for the permanent expert USD $20,000 per month. Nora proposed short term senior expert-RM 1,350 per day, for expert -RM 1,170 per day and for permanent experts: senior experts-RM 24,300 to RM 27,900 for experts-RM 22,500 to 25,200

Sakai did not consider the cost of living in difference countries. However Nora fails to make salaries details in international method like dollar Nora provides their currency method it's make difficulties to understand how much is that.


Location: Helsinki, Finland Location: Kolalamboor, Malaysia

They both disagree with the location

In my point of view this case analysis The Sakari role-play in several stages of negotiation according to the Successful entry mode strategy, but Nora did not concern they mainly focusing Sakari technology and more power for joint venture equity shares divided also their fellow traditional regulation even though Nora's salaries of expert seniors quite similar if compare with Sakari, However Nora missed the big opportunities to become a leader of Southeast Asia

Recommendation for renegotiation

Equity ownership 40% for the Sakari and 60% for Nora

49% to Sakari 51% for Nora on that condition Sakari build the basic structure the joint venture company

Technology transfer Sakari has to consider the New joint venture company need technology even though they have right to protect their technology and both companies may invest R&D


Contemporarily western countries seeking appropriate market to do business activity, which is wealthy as well as elite market, the most appropriate markets are emerging markets Such as South East Asia, South Korea and Latin America even most attractive countries like India, China, Malaysia and Brazil among the countries due to the rapid growth economy and population

When multinational companies want to enter to emerging markets they should choose appropriate entry strategies otherwise, they can't survive in the market, there are alternative entry strategies are available, but more effective entry strategy is through the local collaboration entry mood as a joint venture because, joint venture has unique characteristics, both companies have biggest opportunities and advantages such as risk reduction, tariff reduction, secure supply of component and reliable supplier as well as reduce government risk. These advantages create joint venture a possible option for penetrating market. According to the above Hero-Honda and Nora- Sakari case analysis in my point of view joint venture is the effective way of entry strategy to enter markets and survive.