Strategies of multinational corporations in the emerging markets China and India


Master's Thesis, 2008
100 Pages, Grade: 1,3

Excerpt

TABLE OF CONTENT

ABSTRACT

LIST OF ABBREVIATIONS

1. INTRODUCTION

2. ECONOMIC SITUATION
2.1. The Global Economic Situation
2.2. The Economic Situation in Emerging Markets
2.3. The Economic Situation in China and India
2.3.1. China
2.3.2. India
2.4. The Economic Outlook
2.4.1. General Global Outlook
2.4.2. Outlook for Emerging Markets
2.4.3. Outlook for China and India

3. MULTINATIONAL CORPORATIONS IN EMERGING MARKETS
3.1. Definition of Multinational Corporations
3.2. Definition of Emerging Markets
3.3. The Current Situation of Multinational Corporations
3.3.1. Globally
3.3.2. In Emerging Markets
3.3.3. In the Emerging Markets China and India
3.4. The Role of MNC’s from China and India in the World’s Economy

4. STRATEGY
4.1. Definition of Strategy
4.2. Market Entry Strategy
4.2.1. Types of Entry Modes
4.2.2. Application in Emerging Markets
4.3. Innovation and Knowledge Strategy
4.3.1. Innovation Strategy
4.3.2. Innovation Strategy in Emerging Markets
4.3.3. Innovation Strategy in China and India
4.3.4. Knowledge Strategy
4.3.5. Implementation of a Successful Innovation and Knowledge Strategy

5. CHALLENGES AND RISKS FOR MNC’s
5.1. General Overview
5.2. Challenges and Risks in the Emerging Markets China and India
5.2.1. Challenges and Risks in China
5.2.2. Challenges and Risks in India
5.2.3. Challenges and Risks in China and India

6. BEST STRATEGIES OF MNC’s IN CHINA AND INDIA
6.1. General Overview
6.2. The Example of Wal-Mart in China

7. CONCLUSION

APPENDIX

ABSTRACT

In recent years, China and India have become two of the most important markets in terms of sales, low-cost manufacturing and R&D operations. The future progress will increase the competitive advantage for both countries and attract MNC’s from all over the world to invest. Nevertheless, success is not guaranteed, even with the large business opportunities that China and India provide. A MNC has to be aware of various challenges that both countries pose, such as government interventions, underdeveloped infrastructures or copyright violations. Hence, MNC’s need efficient strategies in order to compete and improve their position in these markets. Particularly the implementation of an efficient innovation and knowledge strategy has become a crucial aspect. Effectiveness in local product adjustments, globalizing R&D, tailoring talent management, mastering the complexity of global value chains, and managing risks are success factors that have to be considered. This, however, is not an easy task. Multiple failures of MNC’s in China and India demonstrate that it is important to adapt a company’s strategy to the local customer needs and to obtain a competitive advantage in the field of innovation.

The purpose of this master thesis is to discuss all these aspects and present crucial factors for the implementation of an efficient strategy for the two markets China and India, with a focus on innovation and knowledge. Obviously, there are limits to the scope of this dissertation. Some aspects as for example the cultural background of both countries, governmental restrictions, the role of outsourcing or the availability of financial resources have either not been considered or are only discussed briefly. Moreover, this dissertation will only provide a general overview as the business environment of MNC’s in each market will differ.

LIST OF ABBREVIATIONS

illustration not visible in this excerpt

1. INTRODUCTION

In the last 10 to 20 years the term emerging market has become very important in the international business context because countries such as China or India grew heavily and created new, enormous market segments. Companies from all over the world are seeking to do business in economically developing countries because of their great potential. Gross domestic product (GDP) per capita figures exceeding 10 per cent a year, a business environment of over five billion people (approximately 80 per cent of the global population), a growing domestic customer group of wealthy people, excellently educated workers and opportunities for low-cost production are changing emerging markets as South Korea, Mexico or India on a daily basis. Global companies like Coca-Cola, IKEA, Microsoft or Procter & Gamble have already realized the enormous potential and have expanded their business greatly into these markets. For example, HP benefited from the target segment in the Chinese computer industry that nearly doubled each year since 1996 (from a market value of $ 3.34 billion in 1996 to over $ 35 billion in 2006).[1] Already today, the 10 largest emerging markets have a GDP of more than $ 14 trillion (which is as big as the economy of the United States) and can not be ignored by multinational corporations (MNC`s) due to their huge business opportunities.[2]

The most important emerging markets for MNC`s are China and India, for which reason the master thesis will focus primarily on these two countries. They are representative for the success of emerging markets during the last 20 years. In the next 10 to 20 years these two markets will become even larger in their size than mature countries as Germany, Japan or the United Kingdom (UK).[3] China and India are expected to grow from 6 per cent of the world’s output today to 20 per cent by 2025. As a result of that, China will be the second and India the fourth largest economy in the world by the year 2025.[4] In contrast, today’s advanced economies will lose significance in the world’s economy and the accompanying shifts in spending could provide substantial opportunities for all global companies.[5]

Furthermore, China and India have the highest residential figures which account for approximately 37 per cent of the world’s population. In both countries roughly 700 million people will be living in the mid-income segment by 2010, which is more than the population of the United States (US), Europe and Japan combined.[6] In fact, this segment is growing everyday. This means that a large number of people to sell new products/services to is emerging.[7]

Being involved in crucial markets as China and India will become an increasingly important strategic choice for MNC’s.[8] It is no easy task to identify the right strategy to enter the two markets as in most cases their environment differs from mature countries. However, especially an efficient innovation strategy is essential for MNC`s because domestic customers are more demanding and enterprises need to adapt their products towards the local needs to gain regional market share. An increasing number of global companies are already highly successful by shifting their competences to China and India. For instance Volkswagen, which has been active in research and development (R&D) in China since the mid 1990s, has sold more cars in China than in its German home market since 2002.[9] Other emerging market leaders like Unilever or Colgate-Palmolive already earn 5 per cent to 15 per cent of their global revenues from the two markets India and China, mainly because they successfully implemented an efficient strategy focusing on innovation.[10]

2. ECONOMIC SITUATION

2.1. The Global Economic Situation

In the last four years the global economy has grown on an average rate of 3.7 per cent. Especially the economies of the US, the European Union (EU), China, Russia, India and a few other large developing countries were the engines of global economic growth and responsible for high GDP figures up to 12 per cent.[11]

However, events such as the financial distress caused by the fallout of the US subprime crisis, the correction in a number of residential property markets, the surge in global headline inflation driven by record commodity prices plus the effects of the declining US Dollar, created substantial challenges for the world’s economy.[12] The US economy, which is still the most important and largest economy in the world, is already on the cusp of a recession. Also, other global economies face threats regarding their sustainability.

Despite of all these challenges, the world’s GDP grew at 3.5 per cent in 2007 to a total of $ 49 trillion.[13] The biggest contributor is the US with 25 per cent of the global economy followed by Japan and Germany. But emerging markets like India increased their importance extremely in the world’s economy because of their rising markets in the last years.[14] Therefore, the economic situation of emerging markets, with a focus on the two most important countries China and India, will be presented in more detail in the next chapters.

2.2. The Economic Situation in Emerging Markets

Regardless of the turbulences in the global economy, emerging markets have grown 35 per cent since 2003. Nowadays, these countries contribute to 30 per cent of the world’s economy (in total: $ 14.7 trillion) and will become even more important in the next years. If the purchasing power parity is considered, then the emerging economies constitute already to more than 50 per cent of the world’s GDP, which demonstrates their enormous influence on MNC’s.[15]

Developing countries have not only changed their own domestic markets but also the entire global economic environment because of their increasing importance in the last years. Significant economic factors, as commodity prices, grew heavily, mainly driven by the high demand from emerging markets. Only China was in charge of 64 per cent of the increased global demand for copper, 70 per cent of that for aluminum and 82 per cent for zinc between the years 2003 and 2007.[16] 80 per cent of the rising demand of oil is created by China and India.[17] Furthermore, the foreign reserves of developing countries have increased drastically in recent years. Since the Asian financial crisis 10 years ago, foreign reserves grew by over 60 per cent and emerging countries currently hold 75 per cent of the world’s foreign reserves (in total: $ 5.7 trillion).[18] In addition, around 42 per cent of America’s exports, 20 per cent of Europe’s exports, and 48 per cent of Japan’s exports are delivered to developing countries.[19] Financial indexes, as for example the BSESN (Bombay SE Sensitive Index) in India, also increased in the last years and supported the economic growth in these countries.[20]

It can be concluded that emerging markets heavily increased their influence in today’s globalized economy. In the last couple of years, emerging countries supported the world’s GDP with their growth and are essential for the continuous positive global economic development.

2.3. The Economic Situation in China and India

Having analyzed the importance of emerging markets and their development over the last years China and India clearly stand out. Currently they are the third and tenth largest economies in the world.[21] Both countries have become the biggest and most dynamic markets for many products and industries. They are also the emerging market leaders in terms of economic growth.[22] Hence, China and India provide large business opportunities for most MNC’s of the world.

A good example to support these facts is the cell phone industry. China and India are the two fastest growing cell phone markets in the world.[23] China already has 350 million cell phone customers and the number is expected to reach almost 600 million by 2010. The Indian cell phone market has grown even faster, from just 5.6 million in 2000 to 55 million today.[24] International mobile phone companies such as Motorola, Nokia or Samsung have made huge business investments in India and China in order to earn their share of the market. The Finish market leader Nokia has already established 2008 a manufacturing unit in China and will soon open a R&D facility in India.[25]

In order to receive a detailed overview of the economic situation in both countries, the two emerging markets will be presented separately in this chapter. Moreover, a compact graphical overview about the economical situation of China and India will be given in Appendix 7 and 8.

2.3.1. China

The People’s Republic of China is by size one of the largest countries in the world and has the highest population figures with approximately 1.33 billion citizens. Its nominal GDP in 2007 has reached a level of $ 3.249 trillion with a real growth rate of 11.4 per cent.[26] In February 2008 the World Bank reported that China’s economy is the third largest economy in the world and the biggest emerging market. The US has still the strongest economy with $ 13.79 trillion.[27] However, experts agree that China will become the most important economy within the next 15 to 20 years and will overtake the US economy in terms of GDP at purchasing-power parity exchange rate.[28]

Since its market-oriented reforms in 1979 China’s economy has grown each year an astounding 10 per cent on average.[29] Especially the entry into to the World Trade Organization (WTO) in 2001 helped to strengthen China’s ability to maintain growth rates. Most quotas and other non-tariff barriers have been eliminated since its entry and sectors such as Banking, Travel & Tourism or Telecommunication have been opened for foreign investments.[30] Hence, China undergoes two major transitional phases: from a command economy (where supply and price are regulated by the government rather than market forces) to a market-based economy, and from a rural, agricultural society to an urban, industrial environment.[31] As a result of that, the country is currently the largest recipient of foreign direct investment (FDI) in the world and national authorities have approved over 300,000 foreign invested enterprises.[32] Nowadays, these companies represent more than 40 per cent of the country’s total national export.[33]

In the last 30 years the size of the Chinese middle class has grown dramatically because of the development of its economy.[34] The increase in private consumption is a key driver of China’s economic growth as the average living standard rises rapidly.[35] Nevertheless, incomes in China are with an average of $ 4,091 per person at only 10 per cent of those in the US, where workers earn approximately $ 41,000 a year.[36] However, experts agree that GDP at purchasing power parity can be a better measurement of the living standards in emerging countries like China as it also considers the weakness of local currencies. When comparing the difference between the Chinese ($ 6.99 billion) and the US economy ($ 13.79 billion), the discrepancy in living standards becomes less with this approach.[37]

Despite recent fears and challenges, China’s economy seems quite stable. Especially the rising positive current account balance, which is created by its exports, will support China’s economy to continue its growth with similar figures as in the last 10 years.[38]

2.3.2. India

After decades of isolation and restrictions on FDI, in 1991, India opened its economy for foreign firms and investors to integrate the country with the rest of the world.[39] Nowadays, the Indian market and its one billion plus population, represent lucrative business opportunities for almost every MNC in the world. Particularly industries such as IT, automotive, electronics or pharmaceutical are growing in India at rates of more than 10 per cent each year. In total, the country’s GDP increases at around 7 per cent each year.[40] This makes India the second largest emerging market and one of the fastest growing economies in the world.

Presently, the Indian economy is the 10th largest in the world and if the growth will continue at the same rate, the country will become one of the most important global economies in the next 20 years. India’s competitive advantage, besides low wages, is an excellent educational system which creates millions of highly-skilled workers (e.g. IT specialists). By 2050 India is expected to have 1.6 billion citizens, which is a great opportunity for MNC’s, as it would represent the largest customer segment of the world.[41]

2.4. The Economic Outlook

2.4.1. General Global Outlook

The growth of the world economy is expected to decline, from 3.5 per cent in 2007 to 2.6 in 2008 and 2.7 per cent in 2009.[42] Nevertheless, these prospects remain surrounded by much uncertainty.[43] For example, it is still unclear whether the monetary and fiscal policy stimuli implemented by the US government will take effect any time soon or whether hidden problems in the financial and housing markets will push the major economies into a recession with worldwide consequences. The rising commodity prices such as oil could also have a huge negative impact on the economic development in the next years. For example, the GDP of Germany declined by 0.9 per cent to 2.5 per cent in the year 2007 due to the increasing oil price.[44]

2.4.2. Outlook for Emerging Markets

In contrast to the general global outlook, the emerging market economies are expected to grow at a rate of about 6 per cent in 2008 and 2009, which is only 0.75 per cent below the rate of 2007.[45] Asia will remain the most dynamic region, with a growth of roughly 7.5 per cent in 2008, driven mainly by the two most important emerging markets China and India. In contrast, Japan, which is still the largest developed economy in Asia, suffers from an economic slowdown and is expected to grow only by 1.3 per cent in 2008. GDP growth in other developing regions will range from 4 per cent (Latin America) to 6 per cent (Eastern Europe, Middle East and Africa).[46]

2.4.3. Outlook for China and India

In December 2007 the rating agency Standard & Poor announced that the economic outlook for India and China in 2008 and 2009 will be relatively robust. They believe that China's double-digit economic growth should continue in 2008 with a GDP growth of 10.4 per cent. However, the Asian Development Bank reported in April 2008 that inflation in China is expected at an average rate of 5.5 per cent as rising food prices create upward pressures. This could have a negative influence on China’s economic growth.[47] Concerning India, Standard & Poor said that measures taken by the Reserve Bank of India are expected to slow down the country's economic growth marginally in 2008. The forecast of real GDP is about 8.2 per cent against 9 per cent in 2007.[48]

However, different analysts warned that the region's debt and equity markets could face increasing pressure in the year ahead. Oil prices up to $ 145 may hinder growth drivers in China and India as energy consumption has grown rapidly.[49] Problems in China and India could also arise due to changes in exports. 20 per cent of China’s and 12.76 per cent of India’s GDP is created by exports and the slowdown in some markets will surely have an impact on the economies of both countries. As seen in Appendix 16 and 17 despite the rising domestic demand the dependency on exports increased in the last five years.

China and India have realized this threat and both countries are becoming more self-sustainable. Emerging markets like China or India are growing on a day-by-day basis and therefore are building their own customer segments. Hence, in the next years the domestic demand will become even more important and will support the GDP growth of both countries. They have also learned from the last recession phase, after September 11th 2001, to be less dependent on other single markets. As a result of that, they have shifted their export focus, besides Europe and the US, to other emerging countries such as the United Arab Emirates (UAE), Brazil or Vietnam. Surely, a US recession would still impact the economies of China and India but not as badly as it did in 2001 when exports reduced by 25 per cent. Even the contrary is true and a slowdown would probably benefit the two countries as less growth would decrease the risk of inflation.[50]

Furthermore, the GDP forecasts for both emerging markets are still better in comparison to the growth rate of the US economy (in 2008: 1.5 per cent) or the Euro zone (in 2008: 1.6 per cent). Thus, China and India will be in a position to achieve a high economic growth and will continue their successful development.

3. MULTINATIONAL CORPORATIONS IN EMERGING MARKETS

3.1. Definition of Multinational Corporations

A multinational enterprise is a company that has an integrated global philosophy encompassing both domestic and overseas operations.[51] Therefore, a multinational corporation has its facilities and other assets in at least one country other than its domestic market. Moreover, MNC’s are able to benefit from special economic opportunities that exist in the countries where they operate. For example, many enterprises that have their headquarter in North America or Europe locate a part of their manufacturing facilities in developing countries in order to decrease expenses by capitalizing from low wages.[52] In most cases, companies also offer their products in these countries to maximize their profit.[53]

Currently, almost all major multinationals are American, Japanese or Western European, such as Nike, AOL, Honda or Deutsche Bank. However, the number of MNC’s from emerging markets in the world’s economy is growing.[54] Advocates of multinationals declare that they create jobs, wealth and improve technologies in countries that are in need of such developments. On the other hand, critics say that MNC’s have undue political influence over governments, exploit developing nations as well as increase job losses in their own home countries.[55]

3.2. Definition of Emerging Markets

During the last 20 years, the business world has gone through drastic but mostly positive changes. In the 1980s, business on international terrain was essentially practiced by the 20 richest countries (US, EU and Japan). During the 90`s the term emerging market first appeared and is widely used nowadays. One way to define emerging markets would be to list all countries that are not considered as developed. These are countries such as China, South Africa, Hungary, Argentina or Singapore.[56]

Vladimir Kvint, who is the President of the International Academy of Emerging Markets (an organization which educates business, academic and political leaders from industrialized countries on how to combat poverty on the basis of cooperation with multilateral institutions, research organizations, universities and companies from developed countries), defined the term emerging markets in more detail.[57] In his opinion an emerging market can be described as a “society transitioning from a dictatorship to a free market-oriented economy, with increasing economic freedom, gradual integration within the global marketplace, an expanding middle class, improving standards of living and social stability and tolerance, as well as an increase in corporations with multilateral institutions.”[58] An analysis of all 192 country-members of the United Nations (UN) leads by this definition to the selection of 81 countries that can be categorized as emerging markets.

Countries whose economies fall into this category can vary in their size from very big to very small. Hence, even China, which is deemed to be one of the world's strongest economies, is allocated in this category alongside much smaller economies like Tunisia. Both countries belong to the category of emerging markets because they are concentrating on economic reform programs, have begun to open up their markets, and emerge onto the global scene.[59]

However, the definition of Kvint is an inexact approach. A more useful way to identify emerging markets is to consider some of their key attributes. The major ones are the level of income (GDP per head), the growth rate and the stage of development (degree of openness in the economy, size of the economy and state of financial markets). Unfortunately there are countries such as Singapore which do well on all these criteria but are still classified as emerging markets. The reason for this is that they are lacking stability or face significant uncertainty (either economically or politically). Therefore, these countries are still considered as being an emerging market.[60]

Given these considerations it can be concluded that emerging markets have a high growth as well as great risk potential. Risk can be expressed by differences in the value system, religion, legal/political system, cognitive structures or uncertainties concerning the economic outlook.[61] Pacific Rim Markets (e.g. Indonesia or Vietnam), which grew rapidly in the early 90s and then collapsed during the Asian financial crisis in 1997, are a good example for the risk which emerging markets hold.[62]

Nevertheless, emerging markets are still highly attractive for investors and offer the potential for striking returns in a relatively short period of time. This situation is often caused by favorable market circumstances as for example an excellently educated workforce, a strong growing customer base or low-cost manufacturing possibilities.[63] Over the next two decades, most of the world’s growth is expected to take place in today’s emerging markets.[64] However, it is important to mention that not all countries that are defined as an emerging market will equally contribute to the global economic growth. For example, most African countries, with the exception of Egypt and South Africa, will continue to demonstrate a poor economic environment (e.g. inefficient economic system, corruption, political instability etc.).[65] Therefore, it would be wrong to consider emerging markets automatically as successful and strong growing economies.

3.3. The Current Situation of Multinational Corporations

3.3.1. Globally

Currently many MNC’s are concerned due to the slowdown in important markets.[66] Especially enterprises, which are primarily operating in declining markets (e.g. the US market) or in industries that are facing huge problems (e.g. banking), suffer. However, most global companies already obtain more than 1/3 of their revenues outside their domestic markets as for example Heinz (57.7 per cent) or Microsoft (38.7 per cent).[67] The Coca-Cola Company even achieved a 19 per cent growth in their overseas markets in the first quarter of 2008. This enabled the company to offset the weak results from their domestic US market and to obtain a record profit.[68] Currently, international sales contribute to 73.8 per cent of Coca-Cola’s total sales. This figure will further increase in the next years because of the enormous international growth opportunities.[69]

As seen in these examples, many MNC’s are more flexible and not as vulnerable to economic fluctuations as in the past due to their reduced dependency on one single market. They compensate weaknesses in some markets with the growth in other or new markets. Most MNC’s spread their risk by taking advantage of this opportunity. According to a Capgemini Report from 2007, these benefits drive companies which are national in their origin into multinationals that invest into key emerging markets.[70]

Despite of all these aspects, it is important to mention that the situation of a company or an industry depends on various factors and not only on the opportunities which the market offers. Currently several MNC’s, as for example General Motors or EADS, suffer regardless of their international activities. Internal (wrong strategy, false product positioning etc.) as well as external aspects (demand, commodity prices, government restrictions etc.) might be reasons for their struggle.

3.3.2. In Emerging Markets

Eighty-five per cent of the world's population resides in emerging markets. We are looking at immense nations that are rapidly moving from subsistence living to being consumers, which in turn means a large number of new people to sell new products and services to.[71]

In today’s globalized world the success of international business organizations depends heavily upon the utilization of opportunities created in the emerging markets. According to the literature of Kretzberg, emerging markets imply the possibility of above-average returns in comparison to industrialized economies and for most international enterprises it is a need to invest into these regions.[72]

In the past, MNC’s were complacent and earned enough surpluses for their commanding positions in developed and other selected countries.[73] During this time MNC’s regarded emerging markets primarily as low-cost production locations. Enterprises like Volkswagen moved to countries as Brazil, China or Mexico to manufacture their products in low-cost environments in order to obtain a competitive advantage. Then MNC’s discovered attractive business chances in emerging markets and started to serve them as well. However, they just offered their existing product range or even sold older product models at lower prices. Due to this strategy, MNC`s have primarily focused on the wealthy elite, with products and business models similar to those used in the developed world.[74]

While these companies were successful in the past, most MNC’s have now realized the opportunity to achieve an even greater market share and profitable growth by developing innovative products and services tailored to local customer needs. There can be little doubt that the five billion potential customers in the emerging markets allow for great market opportunities due to their increasing purchasing power. Thus, emerging markets pose a high potential for MNC’s to add revenues, which compensate a possible decline in matured markets.

Clearly, emerging markets also bring various risks to MNC’s. Lack of skilled labor, government interventions, underdeveloped infrastructure, and inefficient property right protection, among others, can create substantially higher costs.[75] A more detailed description about the challenges and risks for MNC’s in emerging markets, with a focus on China and India, will be given in chapter five.

In most cases the opportunities in emerging markets outweigh the risks and threats. Encouraged by government policies, some global enterprises are already locating higher-value activities such as complex production, research and development, and sales/marketing operations in these economies.[76] Markets like the US, Canada, Europe and Japan will continue to be important for MNC’s and still provide growth opportunities in some sectors (e.g. Biotech). However, emerging markets offer more chances of development. Especially the increasing economic power will be a significant driver of growth in the coming years.[77] Therefore, most MNC’s will continue to increase their investments in developing countries as China and India.

3.3.3. In the Emerging Markets China and India

Many managers of MNC’s believe that China and India are currently two of the most interesting markets in the world, in terms of growth, low-cost manufacturing and market size. The attractiveness of these two markets compared to developed countries lies in their price competitiveness upheld by an abundant cheap labor force. However, product pricing is affected not only by labor and material costs but also by the level of productivity. The productivity and industrial competitiveness in China and India has steadily improved relative to developed countries.

For example, both countries currently derive competitive advantages for MNC’s from their innovative environment. In the latest Global Competitiveness Report of the World Economic Forum China is ranked number 38 and India number 28 in terms of innovation (out of 131 countries). Clearly, both countries have to further increase their level of innovation as they are still lacking behind most developed countries in terms of “quality of scientific research institutions” or the “utility of patents”. Also, other emerging markets as Korea (rank 8), Taiwan (rank 9) or Malaysia (rank 21) have a competitive advantage in terms of innovation potential. As a result of that, both countries need to catch up in creating a more innovative environment. If this is achieved MNC’s are able to promote innovativeness and employ efficient innovation and knowledge strategies.[78]

But advantages as “high R&D spending of enterprises” or “government procurement of advanced technological products” supported China as well as India to advance their competitive situation and attractiveness for foreign companies in recent years.[79] For example, the Indian government presented a new Innovation Act in September 2007 that increased the focus on research investments, strengthened education opportunities in mathematics, science and technology, and developed an innovation infrastructure.[80] This attracts firms from around the world and allows them to benefit from unique competitive advantages. A more detailed description about innovations in the two emerging markets and the relevance for MNC’s will be given in chapter 4.3..

Because of these circumstances, most enterprises of the Fortune Global 500 list already targeted these markets in recent years. "China's and India’s GDP growth rate in the past 23 years are 2.5 times higher than in North America and Europe. If the leading increase rate keeps growing, these countries will undoubtedly develop into strong economic powers in the next 50 years. Multinational companies must attach sufficient importance to the promising purchasing power on the Chinese and Indian market" is a statement made by the Chief Executive Officer (CEO) of Boeing, James McNerney Jr., after the establishment of three large joint ventures in China and India in 2007.[81]

A specific analysis of MNC’s in the two emerging markets is not feasible due to the differences of each industry and company. Nevertheless, in the following paragraphs two different examples will be given in order to receive a more profound understanding of the situation of MNC’s in China and India.

In the year 1977 the Coca-Cola Company had to leave the Indian market because the Junta government came into power and prohibited FDI. These restrictions were eased up in 1993 and Coca-Cola restarted its operations after an absence of 16 years. When Coca-Cola reentered the Indian market, they did not make much effort in establishing itself within the country. Hence, the company failed badly and lost significant market share to its main competitor Pepsi. However, Coca-Cola realized that they had to change their strategy. The enterprise decided that acquiring an Indian brand was necessary to strengthen its business and improve its position in the market. Coca-Cola purchased “Thums Up”, a popular Indian brand in the soft-drink industry, and promoted it as its flagship brand in the country. By now “Thums Up” accounts for 25 per cent of the market share in the Indian beverage market.[82] Due to this success, the enterprise now regards India, with its 300 million soft-drink consumers, along with China and the Philippines as one of their most important markets worldwide.[83]

[...]


[1] Ng, P., Case Study: Dell: Selling Directly Globally, Harvard Business Review, 2000

[2] www.imf.org

[3] See also Appendix 1

[4] www.un.com, World Economic Situation and Prospects 2008

[5] See also Appendix 2

[6] Cavusgil, S.T., Ghauri, P.N., Agarwal, M.R., Doing Business in Emerging Markets, 2002, p.166

[7] www.ft.com/cms/s/0/be77e600-605f-11db-a716-0000779e2340.html?nclick_check=1

[8] Jansson, H., International Business Strategy in Emerging Country Markets, 2007, p.2

[9] Kretzberg, A., Market Entry Strategies for Emerging Economies, 2008, p. 81

[10] www.sloanreview.mit.edu/smr/issue/2008/spring/09/

[11] See also Appendix 3

[12] www.dbresearch.com, Global Economic Outlook 2008

[13] See also Appendix 3

[14] www.un.com, World Economic Situation and Prospects 2008

[15] www.un.com, World Economic Situation and Prospects 2008

[16] www.nytimes.com/2008/01/15/business/worldbusiness/15commodities.html

[17] See also Appendix 4

[18] See also Appendix 5

[19] Cavusgil, S.T., Ghauri, P.N., Agarwal, M.R., Doing Business in Emerging Markets, 2002, p.164

[20] See also Appendix 6

[21] www.cia.gov

[22] www.imf.org

[23] The Wall Street Journal Asia, “Branding Gains Respect in Emerging Markets”, 3rd January 2006

[24] Businessweek, “Special Report: China and India”, 22nd August 2006

[25] Upadhyay, S., Effective Business Strategies of Multinational Corporations in an Emerging Market Economy, 2004, p.34

[26] www.state.gov/r/pa/ei/bgn/18902.htm

[27] www.cia.gov

[28] See also Appendix 9

[29] See also Appendix 10

[30] Luo, Y., Strategy, Structure and Performance of MNC’s in China, 2001, p.34

[31] www.investorwords.com

[32] See also Appendix 11

[33] www.imf.org

[34] www.theaustralian.news.com.au/story/0,25197,22603953-5005200,00.html

[35] www.euromonitor.com/Chinas_middle_class_reaches_80_million

[36] www.news.bbc.co.uk/2/hi/business/7148695.stm

[37] www.cia.gov

[38] See also Appendix 12

[39] Cavusgil, S.T., Ghauri, P.N., Agarwal, M.R., Doing Business in Emerging Markets, 2002, p.178

[40] See also Appendix 13

[41] www.businessweek.com/magazine/content/05_34/b3948401.htm

[42] See also Appendix 14

[43] www.un.com, World Economic Situation and Prospects 2008

[44] www.dbresearch.com, Global Economic Outlook 2008

[45] See also Appendix 15

[46] www.dbresearch.com, Global Economic Outlook 2008

[47] www.chinadaily.com.cn/china/2008-07/23/

[48] See also Appendix 14

[49] www.dbresearch.com, Global Economic Outlook 2008

[50] www.un.com, World Economic Situation and Prospects 2008

[51] www.studystack.com/studytable-36397

[52] See also Appendix 18

[53] Daniels, J., Radebaugh, L., International Business, 1998, p.9

[54] See also Chapter 3.4.

[55] www.financial-dictionary.thefreedictionary.com/Multinational+Corporation+-+MNC

[56] See also Appendix 19

[57] www.emergingmarketsacademy.org

[58] www.forbes.com/opinions/2008/01/28/kvint-developing-countries-oped-cx_kv_0129kvint.html

[59] www.investopedia.com/articles/03/073003.asp

[60] www.pearsoned.co.uk/Bookshop/article.asp?item=361

[61] Jansson, H., International Business Strategy in Emerging Country Markets, 2007, p.5

[62] www.answers.com/topic/emerging-markets?cat=biz-fin

[63] www.12manage.com/description_emerging_markets.html

[64] Cavusgil, S.T., Ghauri, P.N., Agarwal, M.R., Doing Business in Emerging Markets, 2002, p.1

[65] www.academicjournals.org/ajpsir/PDF/Pdf2007/May/Kehl.pdf

[66] See also Chapter 2.1.

[67] www.heinz.com, Annual Report 2007; www.microsoft.com, Annual Report 2007

[68] www.iht.com/articles/2008/04/16/business/coke.php

[69] www.thecoca-colacompany.com, Annual Report 2007

[70] www.economictimes.indiatimes.com/MNCs_face_threat_from_emerging_market_players/

[71] www.gartner.com/it/page.jsp?id=506303, Statement of Sandy Shen (Research director at Gartner)

[72] Kretzberg, A., Market Entry Strategies for Emerging Economies, 2008, p.19

[73] Upadhyay, S., Effective Business Strategies of Multinational Corporations in an Emerging Market Economy, 2004, p.67

[74] Arnold, D., Quelch, J., New Strategies in Emerging Markets, 1998, p.27

[75] Kretzberg, A., Market Entry Strategies for Emerging Economies, 2008, p.19

[76] www.deloitte.com, Innovation in Emerging Markets: Deloitte 2008 Annual Study

[77] www.search.ft.com/ftArticle?queryText=innovation+emerging+markets&y=0&aje=false&x=0&id

[78] www.gcr.weforum.org

[79] www.gcr.weforum.org

[80] www.thehindubusinessline.com/2007/09/11/stories/2007091151161200.htm

[81] www.search.ft.com/ftArticle?queryText=innovation+emerging+markets&y=0&aje=false&x=0&id

[82] Upadhyay, S., Effective Business Strategies of Multinational Corporations in an Emerging Market Economy, 2004, p.184

[83] www.meaindia.nic.in/indiapublication/Success%20stories%20in%20India.htm

Excerpt out of 100 pages

Details

Title
Strategies of multinational corporations in the emerging markets China and India
College
European School of Business Reutlingen
Grade
1,3
Author
Year
2008
Pages
100
Catalog Number
V117743
ISBN (eBook)
9783640200924
ISBN (Book)
9783640207923
File size
1805 KB
Language
English
Tags
Strategies, Multinational, China, India
Quote paper
Master of Science Andreas van de Kuil (Author), 2008, Strategies of multinational corporations in the emerging markets China and India, Munich, GRIN Verlag, https://www.grin.com/document/117743

Comments

  • No comments yet.
Read the ebook
Title: Strategies of multinational corporations in the emerging markets China and India


Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free