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Flashcards in MNEs in Emerging Markets Deck (25)
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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


How did Loreal adapt to the Indian market in the 1990s?

1991 - shampoo failed due to lack of differentiation

Repositioned to middle-class Indian women, identified hair dye as promising segment, marketed as a luxury product, worked with partners in the marketplace and achieved profitability in 2004