Business Strategies for Emerging Markets in Developing Nations

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Khanna, Palepu, and Sinha (2005) Tarun Khanna highlight the effectiveness of research on five different points for businesses looking to expand into international markets. Tarun Khanna is the Jorge Paulo Lemann Professor and Krishna G. Palepu is Professor of Business Administration at Harvard. Both Khanna and Paleup are coauthors of “Why Focused Strategies May Be Wrong for Emerging Markets” which was also published in Harvard Business Review. Jayant Sinha works with Mckinsey & Company in New Delhi.

Western companies need to stop shying away from emerging markets in developing countries. They do so because developing countries lack some of the structure and logistics that are found in developed countries, or the market structure is different as is the political and social system. Intermediaries such as legal systems and other services that ensure contract enforcing are not as well developed in developing nations. Khanna et al. (2005) identified the importance of researching the institutional context of each target country. This includes the political and social landscape, openness to foreign investment, and the quality of capital, labor, and product markets. Unfortunately, the Mckinsey Global Survey of Business Executives, which polled nearly 10,000 senior managers, found that only 13% of them researched their respective target country’s institutional contexts before leaving to do business there (Khanna et al., 2005, p. 4). Successful ventures abroad have done so because they figured out how to circumvent institutional hindrances. Ample research is done beforehand to determine a customized approach for operating in every country.

Ambitious international businessmen and women have 3 strategy choices for embarking abroad: (1) Adapt the business model; (2) Change the contexts; or (3) Stay out of countries where adaptation may be impractical or not profitable (Khanna et al., 2005, p. 13). In terms of global leadership and international markets, this article outlines important elements in how to run an effective international business. It teaches global leadership by way of assessing international markets. Effective leadership requires foresight, to not bring a company into a new market blindly by relying on other measures or not fully considering the impact of differences. A successful business model at home may not work in a developing country. Thankfully, this article helps to prevent losses that would have been incurred by utilizing a flawed strategy.

There are several significant implications for operating internationally. The key to investing in an international venture is research. Knowing ahead of time what is likely to work as a business model prevents unwanted surprises. Traditional approaches with Composite Indices conceal more than reveal pertinent information (Khanna et al., 2005, p. 7). More informative and useful tools are the five institutional contexts. Khanna et al. (2005) conveniently compiled a list of questions meant to shed enough light on a country to decide whether it is a profitable idea to do business there. All contexts play a role in how a business might pan out and should be considered meticulously.

Carsten and Miller (2014) covered a story on Lenovo’s deal with Google, stating they would buy the Motorola Mobility handset unit for $2.91billion. It marks the fourth-largest U.S. acquisition by a Motorola Mobility handset unit company in history. Lenovo is based out of China, the country Google left a few years ago due to China’s concern with security networks. Google’s presence is felt in almost every corner of the world, except China where over one-sixth of the world’s population calls home. Lenovo’s acquisition of a former Google-owned unit in Motorola will make it even more difficult for Google to thrive in China. Moreover, Lenovo has delved into Google-dominated territory, comparing semantic differentials and challenging smartphone beasts Samsung—a company that uses Google Chrome--and Apple in their marketplaces: the United States and beyond. In this respect, Lenovo elected to change the contexts. By buying out part of its competitor, it will change a multitude of facets as they begin to integrate Motorola’s weight into their ventures abroad, and further secures their home base by further excluding Google out of China.

References

Carsten, P. & Miller, M. (2014, January 30) China’s Lenovo steps into ring against Samsung with Motorola deal. Reuters. Retrieved from http://www.reuters.com/article/2014/01/30/us-lenovo-motorola-idUSBREA0T0GQ20140130

Khanna, T., Palepu, G., K., & Sinha, J. (2005) Strategies That Fit Emerging Markets. Harvard Business Review. 1-16.