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Emerging Market Firms vs Multinational Corporations

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Published: Mon, 5 Dec 2016

“A fresh breed of determined MNC is intensifying on the world, presenting both opportunities and challenges for conventional and well established multinationals. These new competitors hail from apparently unlikely places, emerging countries such as China, Russia, Brazil, India and even Indonesia and South Africa. They are vibrating the entire industries, from automobile and electronics to information technology and telecom services, and altering the systems of global competition.” (Business Week, 2006, p. 42).

21st century has carried away with several new opportunities and challenges due to the events and improvements in the recent past. The impact of these developments is felt more on the developing countries as these rapidly progress in terms of financial and market growth therefore getting closer to the emerging markets. Developing countries such as China, India, Indonesia and Brazil play an important role in the world economy, entrepreneurs and corporate companies in these emerging markets are aiming to build a world class and internationalised firms. The main ambition of these “Emerging Giants” is to make the most of new opportunities and to be able to compete against international MNC’s. So it is increasingly essential for the firms in emerging markets to get a clear understanding of these market opportunities and challenges to succeed in today’s’ global economy. A clear picture of the current state affairs shows that though firms have been rigorously smacked by the economic crisis and the drop in demand, the most of emerging firms have, so far, endured the test and prevented the collapse of their recently built international structures.

However, there are a rising set of firms that appear to challenge these odds, and score stunning successes in their battles against MNC’s. These firms, so called Emerging Giants, offer some imperative stuff in how emerging markets can craft endearing approaches. This report provides a general framework for developing world-class firms from emerging economies and the challenges and opportunities faced by these firms to become an Emerging Giants.

Shock

Opportunities faced by firms in emerging markets:

Nowadays, many firms from emerging economies are making the world astonish and become very familiar. For the past two decades, waves of globalisation have removed protectionist hurdles in the emerging markets. A foreign competitive pressure started to flow through the world economy, from firms in emerging economies like India, China, Brazil and Russia. These firms are looking to become world class global players – just as Tata Steel rose from India and Sony emerged from Japan in earlier stages of globalisation.

Once these emerging economies entered themselves into the world economy, multinational enterprises from Europe, America, Korea, and Japan were assaulted. Many domestic firms lost the market share and forced to shed off their businesses. However, a few organisations battled hard and survived. They held their own businesses against the blitz, restructured their organisations, utilized new opportunities, and developed international companies that made their global rivals astonish and made them think.

Challenges faced by emerging market firms:

Whilst companies from the emerging economies continue with their expansion of international business, they are faced with an enduring issue – are they capable to manage their accumulated assets economically on a global scale. Emerging firms are facing many challenges particularly due to inappropriate organizational structure, talent shortage, cultural differences, and lack experience in international business management. While facing specific challenges in various sectors and industries, emerging giants often come across common difficulties. One key issue about this dominance is that MNC’s may use their supremacy and influence to interfere in the host government’s finance, economic and political policies for their own growth (Harrison, Dalkiran, Elsey, 2000). The significant challenge for these emerging companies is to successfully compete with MNC’s which have two fundamental advantages over emerging economy firms. First challenge is MNC’s are well conventional, and hence have advantages of incumbency: Reputation, infrastructure, brand image, latest technology, organisational structure and access to vast resource – funding, contacts, distribution network and supplier (Malchow Moller, N., Markusen, 2007). But firms from emerging markets do not have these advantages in order to compete against the multinationals. The worst part is that they come from economies that experience severe market breakdown. They lack the infrastructure and HRM that makes a multinational firm. With developed markets getting increasingly saturated, Multinational enterprises (MNEs) are trying to expand their business globally. Global businesses have enormously increasing due to fact that decreasing of barriers in the international trading. Because of this fact most of the multinational enterprises storming in to emerging economies in order take the advantage of the conditions and opportunities for future growth. Local consumers have a wider choice after the arrival of multinational corporations. As a result local firms from emerging markets are left with very fewer opportunities and the influx will restrict the emerging firms’ growth.

When emerging economies open-up, local firms are forced to fight against MNC’s with their poor economy and hence they cannot invest more in R&D, advertising and marketing which are some of the essential aspects in order to compete with multinational enterprises. They are also in the back foot due to meagre infrastructure, supply and distribution network. Even while emerging companies are able to evade some of these obstacles and settle on a path of rapid development, they are hindered by the low domestic management talent group in their attempts t o develop a world class organisation. In theory, emerging firms can triumph over some of these barriers by accessing global markets for technology, finance and talent (Lipsey, 2002.). However, in prevailing conditions, different rigid and reputational obstacles often make this choice difficult to implement. Because of this reason, management in emerging economies are evidently worried about being thrown out in their domestic market by MNC’s when their domestic markets provide space to global competition. Last 2 decades have seen a wave of countries opening up to the world economy; the challenge for potential emerging giants is more extreme than before.

Competing against MNC’s:

Multinational firms from developed markets have an imperative advantage over emerging economies firms-access to the excellent organisational infrastructure. For example, U.K. MNC’s have access to the British financial markets, which eases them to raise low-cost finance structures in great quantity. They have world-class talent available through a well-built white-collar labour market and also they could able to develop good quality products using Research & development centres, marketing and advertising techniques. They are ahead of firms from developing countries with latest and advanced technologies developed by pioneering firms. Having all these advantages, wouldn’t Firms from developed countries make use of business opportunities in emerging economies better than the emerging economy firms themselves?

However, emerging market firms have a significant advantage over the firms from international companies. There are some reasons why firms from emerging economy can potentially turn the disadvantage of functioning in an emerging economy into an advantage, and may counteract the incumbency benefit of MNC’s in terms of their technology, brand image and access to capital.

First, sophisticated market MNC’s looking to take advantage of business opportunities in developing markets are faced with some challenges that emerging market firms have to contend with. For example, firms from developed countries look to exploit professional talent in emerging market. However, the firm has to deal with the excellence uncertainty in the labour market, and learn ways to find skilled professional to serve global market needs. It also has to study to operate with poorly built infrastructure. Emerging economy manufacturers have a distinct advantage over foreign MNE’s in dealing with local institutional voids for example-they have significant experience and cultural knowledge in dealing with these issues. In fact, MNC’s managers, spent their years of experience with a well-built infrastructure, are often are unable to deal with institutional issues that make it difficult to access consistent market information, and/or configure business partnerships based on trustworthy contracts. Emerging economies businesses, in contrast, have extensive knowledge of these institutional voids, and are able to manage them around through relaxed collective mechanisms and a deep knowledge with their environment.

Second, MNC’s are often hesitant to tailor their commodities and distribute them to each country that they function in. This is especially true for western MNC’s with a very successful business in large sophisticated markets in Northern and Western Europe. For these firms, it is too expensive and big headache to alter their goods and services to suit distinctive behaviour just to make use of what they see as risky and small business prospects in emerging economies. Their cost structure is also an important factor because it will be difficult for them to manufacture goods at price which is optimal for emerging markets. Firms in emerging markets, in contrast, have advantage over these constraints.


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