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Summary - Doing Business in Emerging MarketsCHAPTER 1
Defining Emerging Markets
3 lenses
The academic lens: Hoskisson e.a.
Emerging economies are low-income, rapid-growth countries using economic liberalization as their primary
engine of growth.
! Hidden comparison with us, the western countries. Emerging Markets are countries, that are becoming more
like us and are therefore interesting for us. What’s with the countries that are not engaging in becoming like us,
are they not interesting for us because of this reason?
Typology: emerging market economies, transition economies
Three perspectives (common aspect: firm in context)
In the early stages of market emergence, institutional theory is preeminent in helping to explain impacts on
enterprise strategies. This is because government and societal influences are stronger in these emerging
economies than in developed economies. As markets mature, transaction cost economics and, subsequently,
the resource-based view are more important.
Institutional theory perspective
• Differences between institutional environment in home and host markets
• Rapid changes in institutional environment in host markets
Transaction cost perspective
• Law vs. opportunism
• Agency theory (who is the principal and who the agent)
Resource-based perspective
• High importance of intangible resources
The political lens: Mody (IMF-International monetary fund)
➢ Financial view/debts: every country is in debts, apparently there is a difference between the debts of
emerging markets and developed markets.
Core issue: recontracting debts
Underlying perception: EM = debtor nations (Schuldennationen)
• The inherently volatile (eingewurzelte Unbeständigkeit) nature, and the transitional characteristics, of
emerging markets make policymaking particularly hard in these economies.
• Policymakers are constrained by the lack of strong institutions with a track record to convey the sense of
stability.
• Thus, commitments embodied in specific contracts are a possible substitute to a seasoned institutional
framework.
The commercial lens: Morgan Stanley Capital Investment (MSCI)
defines an emerging market in terms of the number of quoted companies of a certain size and “free float”
(the proportion of shares available for ordinary investors to buy), plus a market’s openness to foreign
ownership and capital.
Various lenses
Traits (Merkmale) of EM:
Recurrent traits mentioned as typical for EM in publications of various lenses. All definitions and statements
regarding traits of EM are also Western-based. It is useful to try to reconsider the 4 salient traits of EM
introduced above from the perspective of EM.
• Institutional Voids (Lücken) - some institutions needed for smooth business processes can be missing in
some EM vs. Western institutions are products of decades or centuries of development. It is unrealistic to
expect that EM can simply re-enact those institutions in their own cultural context
, • Informal Processes - insufficient codification of regulations and processes, facilitating corruption,
opportunistic behavior vs. Same as for institutional voids, but even more moderated by culture; In many
EM, informal processes are the social standard
• Volatile Political System - rapid development leads to frequent changes of regulations, making business
processed difficult to plan vs. this is not problematic, but a natural consequence of the rapid growth of EM.
A rigid political system will deter rapid development
• Strong Government Control - local economic players are bound to many, frequently changing, ad hoc
regulations of various administrative levels vs. EM usually still feel weak in comparison to large developed
nations. Strong government support for the local economy is perceived as fair, at least until a certain level
of development has been reached
‘Typical’ features of EM are usually anchored in the institutional perspective.
These traits are relative in nature and not equally strong for each EM.
National Business System – academic model
Stop regarding the traits of EM as identified by Western business consultants and academics as undesirable
but see them as typical for those markets.
National Business System - explains the different ways of organizing the economy and business process in
different countries and regions. Each nation (regardless the level of development) has a NBS, a unique way of
organizing the economy.
Morgan (2007) National business systems research: Progress and prospects
The national business systems approach begins from the idea that different forms of capitalism
institutionalize particular economic rules of the game that shape the strategies, structures and
competitiveness of firms. Thus, societies developed institutions that reflected their own particular way of
organizing economic relations (from systems of ownership through to patterns of industrial relations).
In the period from the 1960s (after the rebuilding of European and Japanese manufacturing industry following
the destruction of World War Two), manufacturing firms from different institutional contexts and with
consequently different capabilities competed on a (relatively) level playing field.
The Western (US) hegemony (Vorherrschaft) enforced a feeling of teleology (auf ein Ziel hin gerichtet): all
nations are gradually decreasing national particularities. This was reinforced by the disappearance of the Soviet
Union: ‘different forms of capitalisms’; convergence (Annäherung) rather than divergence (Abweichung)
Whitley (1999): Divergent Capitalisms
One of the distinctive features of Whitley’s approach was the way in which it put organization and
management as central to the analysis rather than focusing on more general processes of economic and
political structuring. At the level of institutions, Whitley sought to create a systematic framework that
included culture, education, collective bargaining (employers vs. employees) and workplace organization,
the institutions of ownership and finance (firm owners vs. managers), the nature and purpose of the state,
law and regulation in relation to economic development and the impact of family structure.
Major distinction: no teleology, i.e. nations are not regarded as all going into the same direction; growing
influence of EM on global business seems to corroborate (bestätigen) that: divergence rather than
convergence
➢ This course adopts the point of view on NBS of Whitley (and others). EM, which also vary considerable
among themselves, have different NBS than what are generally regarded as the developed nations.
Each nation has the right to develop its own NBS, informed by the national culture, history,
geographic conditions, etc.
➢ When a MNC from nation A wants to develop business activities in nation B, the company needs to be
aware of the differences between the its home NBS and that of the new host nation.
➢ This applies to any pair of home and host nations, but will be more urgent in the case of initiating
business in EM.
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