Emerging Markets Articles
Emerging Markets Summary Articles
Week 36 – Marquis & Raynard – Institutional Strategies in Emerging Markets
Institutional Strategies: the comprehensive set of plans and actions directed at leveraging and shaping
socio-political and cultural institutions to obtain or retain competitive advantage.
Institutions are the “regulative, normative, and cultural-cognitive elements that, together with associated
activities and resources, provide stability and meaning to social life”. Organisations engage in three
specific and identifiable sets of institutional strategies:
Relational: involve networking efforts to cultivate and manage dependency relationships with
the government and key stakeholder groups. Include “any group or individual who can affect or
is affected by the achievement of an organization’s objectives”.
o Organizations also require social approval and legitimacy. Three streams of empirical
evidence:
Research on stakeholder management
Resource dependency theory
Corporate political strategy
o Relational strategies that are effective in developed countries may not work in emerging
markets. The integration of corporate political strategies with market strategies is very
important, because boundaries between the government and business spheres are
often blurred. While politically connected firms may enjoy a number of advantages,
these may come at a cost – if the value of such connections depreciate after unexpected
political shocks. Furthermore, the prioritization of stakeholder groups may not be an
issue of stakeholders’ power or legitimacy, but rather the “sticks and carrots” inherent in
the competitive market environment.
Infrastructure-building: address missing or inadequate regulatory, technological, and physical
infrastructures that support business activities.
o In emerging markets there is little or no reliable market data, poorly developed
distribution systems, a few communication channels and a lack of regulatory discipline to
change business regulations frequently and unpredictably. There are also
underdeveloped physical and commercial infrastructures. As inadequate communication
technology, transportation infrastructure etc. Firms in these countries are engaging in
collective action to overcome these problems.
o Furthermore, developing intermediary institutions is important e.g. China page 311.
Another infrastructure-bu.str. is the use of existing global standards that foster a
common language and understanding of business practices and outcomes.
Socio-cultural bridging: tackle socio-cultural and demographic issues that can hinder economic
development and trade—for example, political and social unrest, illiteracy, poverty, and ethnic
or religious conflicts.
o To combat the challenges, organizations have been found to invest heavily in employee
training and development, to bring over experts from the home countries and to make
location decisions based on the availability of skilled labor. Transporting managerial
practices from one social context to another requires adaption and combination with
local practices.
o Socio-cultural challenges: demographic disparities, local hostility toward growing migrant
worker populations etc.
o Enduring legacies of past Soviet-style market economies and Communist regimes.
These can still be seen in the excess physical and human resources characterizing
many state-owned firms. A greater appreciation of these legacies is critical for
understanding how local norms, values, and expectations continue to enable and
constrain organizational behavior and strategic action in emerging economies.
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Why Institutional Strategies are Essential in Emerging Markets
Although emerging economies differ in their pace of political and economic change and growth, they
share a number of characteristics that not only differentiate them from the more traditionally studied
developed markets, but also create a set of general challenges for navigating their business
environments.
Economic and Market Conditions
Emerging markets: “low-income, rapid-
growth countries using economic
liberalization as their primary engine of
growth”. They have high GDP growth rate,
often characterized by active consumer
markets, increased competition, and
decreasing trade barriers.
Developed: low GDP growth rate, mature
development sate, service-oriented market,
low trade barriers, and minimal government
intervention in business.
Developing: economic growth is hindered by
high levels of poverty and unemployment,
accompanied by moderate to high trade
barriers.
Institutional Conditions
In addition to baseline economic differences,
numerous political, legal, sociocultural, and
technological factors differentiate the business
environments of emerging economies from those of
developed and developing economies.
Institutional Theory: A New Frontier
The implication of our review is that organizations
may need to undertake a greater variety of strategies to align their practices and operations with
different host country contexts. Requires movement away from top-down, passive conceptualizations of
institutions to a more bottom-up interactive perspective that recognizes that organizations must be
strategic in shaping their external contexts. Highlighting a more interactive view of institutional
processes that complements traditional perspectives.
Week 37 – HBR – Karamchandani et al. – The Globe: Is the Bottom of the Pyramid Really for
you?
Apart from some successes in industries such as telecommunications, fast-moving consumer goods,
and pharmaceuticals, global corporations have been largely unable to reduce costs and prices enough
to serve poor consumers. Middle classes in developing countries often provide targets that are less
complicated to reach and require less alteration to corporations’ usual ways of doing business.
Companies find it easier to deal with large-middle income farmer or urban workers than producers at
the bottom of the pyramid.
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Many innovations that engage the poor have come from players outside the mainstream in their
industries. Barriers to the low-income market can be overcome.
Barriers in Search of Solutions
Success at the bottom of the pyramid requires companies to adapt their business models for
environments that are very different from their core markets. It requires selling low-margin products in
high volume. Often with the lowest-cost producers, the expense of distributing inputs, collecting output,
and monitoring and training these far-flung rural suppliers can be prohibitive.
Uncertain Cash flow: poor people live in uncertainty, up-front payments often not possible.
o Solution: accepting payment in instalments, pay-per-use strategies (no need for large
investments), specializing and standardizing (significantly reduce costs).
Gauging Demand: Many firms have wasted time and resources trying to market products that
are designed for the poor but that consumers don’t want.
o Solution: focus on areas where they can meet existing demand, with either lower-cost
and better-quality products than existing options, or simply cheaper ones.
Sales and Distribution Challenges: customers are often rural and scattered. Multinationals that
sell durable goods to villagers often rue the huge costs of meeting service warranties and
replacing parts in far-flung locations.
o Solution: build a dedicated channel to serve the market (team up with partner that have
reach in the market e.g. microfinance institutions).
o When not available: Distributing through, highly fragmented local networks (train a
network of small, rural agrodealers).
Disaggregated Providers: small farmers rarely have access to high-quality inputs, lack training,
output can be unreliable and farmers ‘side sell’.
o Solution: contract farming: providing inputs, give training and buy for certain price.
Recruit farmers in clusters, set up regional processing centers.
o Solution side selling: index purchase price to market price, monitor suppliers etc.
Underdeveloped Business Ecosystems: ecosystems needed to support a product or service are
often missing at the bottom of the pyramid.
o Solution: fill all the gaps along the value chain.
Creating New Kinds of Business
Business innovations at the bottom of the period represent not incremental adaptations but new,
ground-breaking, end-to-end strategies. For countless firms, taking on the bottom of the pyramid simply
isn’t worth the disruption that’s required to rethink business models. But for innovative multinationals,
the obstacles are far from insurmountable—and the rewards are great.
Week 37 – London & Hart – Reinventing Strategies for Emerging Markets: Beyond the
Transnational Model
With developed world markets becoming increasingly saturated, multinational corporations (MNCs)
have turned to emerging economies. Most MNCs have focussed on the wealthy elite at the top which is
only a small part and ignore a huge base of potential customers. Low-income markets in emerging
economies present both tremendous opportunities and unique challenges.
The Base of the Economic Pyramid: Opportunities and Challenges
The vast majority of the populations operate primarily in the large, but hidden, informal economies that
are not recorded in official gross national product. In the developing world, on the other hand, it is
simply too costly or complicated for many entrepreneurs to enter the formal economy. Below the
surface is an immense and fast-growing economic system that includes a thriving community of small
enterprises, barter exchanges, sustainable livelihoods activities, subsistence farming, and unregistered
assets.
Social Contracts and Social Institutions Dominate
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