Flashcards in MNEs in Emerging Markets Deck (25)
How is MNE strategy in EMs formed?
Through balancing the institution based view and resource based view
What is the institution based view?
Formal/informal institutions guiding strategy
What is the resource based view?
Competitive advantage dependent on value, rarity, imitability and non substitutable
Are domestic capabilities always applicable in foreign markets?
- EMs require social and network capital not western technology
- IKEA a success in China due to beginning as a JV and acquiring local knowledge
- Need dynamic capabilities - ability to renew and recreate resources
What does keeping capabilities dynamic involve?
Sensing - scanning and searching for changes and opportunities
Seizing - developing new products and services in response to sensing
Reconfiguring - changing the composition or level/quality of capabilities
What are institutional voids in EMs?
- Lack of available or developed local intermediaries
- Voids present in labour/product/capital markets
How should MNEs face voids?
Develop understanding of their existence, align with own resources and core competencies, be willing to experiment and explore competitive advantage - seek low cost entry modes first
What are the four strategic choices to respond to institutional voids?
Replication vs adaptation
Compete alone or collaboration
Acceptance vs attempt to change market context
Enter vs wait vs exit
What is replication vs adaptation?
Replicate business model, exploit global brand advantage in terms of knowhow, talent, finance but relies on convergence of taste
Adapt business model, products, organisations to institutional voids
What is the choice of competing alone or collaborating?
- Compete alone
- Acquire capabilities to navigate institutional voids through JVs/partnerships
- Collaborating reduces risk of expropriation, synergistic benefits, local knowledge
What is the choice of acceptance vs attempt to change the market context?
Take the market context given or fill institutional voids in service of own business
What does enter vs wait vs exit mean?
Enter or stay in market despite voids - based on attractiveness
Explore opportunities elsewhere, based on firm performance
Why is adaptation best in EMs?
- Different spending habits and preferences
- Products designed for western middle class may be too expensive for EMs
- Japanese Panasonic tried to export fridges from Japan but found they were too small for Chinese kitchen
- Ikea very good at adaptation
How is poverty prevalent in EMs?
- Africa and Asia contain 90% of the world's rural population
- India has rural population of 893 million
- China has rural population of 578 million
- Those living below poverty line $1.90 per day in SSA and southern Asia
What is the bottom of the pyramid?
- Socioeconomic segment representing 75% of the world's population
- People earning less than $1500 p/a
- Value conscious consumers
- Unexplored territory for profitable growth
- People living on less than $1.25 per day
What are the spending habits like of the very poor?
Dharavi - poorest slum in India:
- 85% have a TV
- 50% have a pressure cooker
- 21% have a telephone
Poorest people in Bangladesh devote 7% of income to communication services
What is the 4A framework of marketing?
- Acceptability - functional and acceptable products: meet local needs, local R&D necessary
- Affordability - people having the purchasing power
- Availability - supply chain and distribution, infrastructure limited in rural places - localise source
- Awareness - product knowledge and brand awareness
How should MNEs address low income consumers in terms of awareness?
- Promote through a mix of outlets, form partnerships with NGOs
- Tailor to the market
- Need good CSR for NGO partnership, trusted by locals
- P&G uses NGOs to sell its water: prevents disease
How should MNEs address low income consumers through affordability?
- Reduce package size (US vs Indian Pantene)
- EOS = discounts
- Price depends on the industry
- Caution regarding government protest - protection of local industries
What are the requirements of the BOP market that MNEs should consider?
- High volumes of low margin, low value transactions
- Informal markets: companies whose practices rely on certification may struggle
- Long range mindset? BOP can take a long time to generate a return
What is the tradeoff between replication and adaptation?
Local adaptation = increase in costs
Standardisation = cheaper
Adaptation could cannibalise appeal of brand
- Loss of EOS
- Loss of reputation
- Operational complexity
- Drastic product change
What organisational adaptation factors should MNEs consider?
- Tensions between subsidiaries and HQ likely
- Reporting to HQ vs reporting to regional offices
- Microsoft and Motorola adapted by requiring Chinese subsidiaries to report to HQ
What is the adaptation process?
- Identify the need to adapt
- Determine what to keep and what to adapt
- Acquire local knowledge
- Tailor products to local needs
- Adapt distribution approaches
How can MNEs change the market? Why is it beneficial/not beneficial?
- Fill voids e.g create own distribution
- Improve quality standards
- Train supply chain
- Provide additional services
Win-win for MNE and host, first mover, good for networks
Risk of sunk cost/failure