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2 The Emerging Global Environment.pptx

This document provides information about the emerging global environment from 1993 to 2016. It includes the following key points: - GDP and population data for different world regions from 1993 to 2016, showing East Asia & Pacific and Middle East & North Africa experiencing the highest GDP growth. - Characteristics of emerging countries, such as high economic growth, an increasing middle class, investments in infrastructure and education, and a shift away from agriculture toward industry and services. - Different types of emerging countries including the BRICS nations, transition economies, and developing nations in Latin America, Asia, and Africa. - Data showing emerging countries experiencing much higher GDP growth than industrialized nations from 1990 to 2014. - Institutional and

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Chapter 2 The Emerging Global Environment
2 The World from 1993 to 2016 1993 2016 East Asia & Pacific 25% 30% North America 29% 27% European Union 30% 22% Latin America & Caribbean 6% 7% Middle East & North Africa 2% 4% Sub-Saharan Africa 1% 2% Russian Federation 2% 2% World GDP (Billion USD, current) 25 859 75 845
3 The World From 1993 to 2016 GDP (current billion US$) GDP per capita (current US$) Population, total (Million) Average yearly growth (1993-2016) 1993(%) 2016(%) 1993 2016 1993 2016 (Per Cent) East Asia & Pacific 6552 25% 22480 30% 3462 9788 1892 2297 4.18 North America 7458 29% 20160 27% 25822 56082 289 359 2.50 European Union 7815 30% 16487 22% 16211 17173 482 511 1.74 Latin America & Caribbean 1565 6% 5300 7% 3332 3761 470 638 2.81 Middle East & North Africa 608 2% 3145 4% 2224 2269 273 437 3.82 Sub-Saharan Africa 300 1% 1513 2% 540 512 556 1033 4.21 Russian Federation 435 2% 1283 2% 2929 2663 149 144 1.72 World 25859 100% 75845 100% 4667 4937 5541 7442 2.90
4 0 5 10 15 20 25 30 Industrialized economies Emerging markets: Africa Emerging markets: America Emerging markets: Asia Emerging markets: Europe Trade Growth GDP Growth FDI growth Globalization growth indicators, 2000–2014
5 What is an Emerging Country? No clear definition of what is an “emerging country”. Often describes countries that exhibit: • High economic growth • Increasing development of a middle class • A high degree of infrastructure and educational investment • A progressive shift from agriculture and services • An economy in which market mechanisms play an increasing role • Opening of their market to international trade and investment.
6 6 Different Types of Emerging Countries The BRICS emerging giants - Brazil, Russia, India, China and South Africa The Transition Economies (Eastern Europe) The Emerging Industrial Economies of Latin America, Asia and Africa (such as Chile, Mexico, Turkey, Malaysia and Indonesia) The Developing World (such as Vietnam, Nigeria, Pakistan)
7 Average Yearly Growth Rate (1993-2016) GDP /Capita 2016) Country Life Cycles (Bubble size proportional to GDP 2016) 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 0 10000 20000 30000 40000 50000 60000 70000 North America European Union East Asia and the Pacific Russian Federation Latin America & Caribbean Middle East and North Africa Sub-Saharan Africa
8 GDP Growth : Emerging Countries vs. the World (1990-2014) -Base 100 in 1990 Source: Data from World Development Indicators High Economic Growth 100 150 200 250 300 350 400 1990 2000 2010 2012 2013 2014 BRICS Developing Economies Emerging Industrial Economies World Transition Economies
9 132 2703 75 129 3039 1 10 100 1000 10000 Central & South America Asia Pacific Sub Saharian Africa Middle Est & N Africa World Forecasted increase in Middle Class Population in Emerging Regions from 2009 to 2030 (Million) Increasing development of a middle class
10 Middle Class Effect in Emerging Countries
11 Evolution of Urban Household Income in China
12 High Degree of Infrastructure Investments Source: Data from World Bank. World Development Indicators Average yearly growth of fixed capital formation % of GDP 1990-2014 Average fixed capital formation % of GDP 1990-2014 0% 2% 4% 6% 8% 10% 12% 14% 0% 5% 10% 15% 20% 25% 30% 35% 40% BRICS EIE EU World USA Transition Developing
13 Opening to International Trade and Investment Source: Data from World Bank. World Development Indicators and UNCTAD World Investment Report , 2010) Average yearly growth of fixed capital formation % of GDP 1990-2014 Average fixed capital formation % of GDP 1990-2014 0% 2% 4% 6% 8% 10% 12% 14% 0% 5% 10% 15% 20% 25% 30% 35% 40% BRICS EIE EU World USA Transition Developing
14 1990 2014 Brazil 23% 15% China 53% 7% India 60% 49% Russian Federation 16% 7% South Africa 15% 5% Egypt, Arab Rep. 39% 28% Colombia 20% 16% Sri Lanka 41% 30% Philippines 37% 30% Poland 25% 11% Czech Republic 12% 3% Hungary 18% 11% Indonesia 56% 34% Mexico 26% 13% Turkey 43% 14% European Union 9% 4% United States 3% 2% World 39% 20% A progressive shift from agriculture to services Agriculture (as % Share of GDP)
15 Market mechanisms play an increasing role Changes to national investment policies, 2002–2016 Source: UNCTAD: World Investment Report 2017: Table III.1, Page 99
16 The Washington Consensus • Fiscal discipline: limit budget deficit • Public expenditure directed toward high economic returns, improvement in income distribution, healthcare, education, and infrastructure • Tax reform: broaden the tax base and lower marginal rates; tax foreign holdings • Interest rates market determined • Competitive exchange rate • Trade liberalization • Liberalization of foreign direct investment (FDI) • Privatization of state enterprises • Deregulation: abolish entry barriers or restrictions on competition • Secure property rights
17 The World in 2050 according to Goldman Sachs
18 The World in 2050 according to Goldman Sachs
Institutional and Business Environments • Governance • Market imperfection • Ease of doing business • Importance of business conglomerates • A significant presence of bottom of the pyramid market segments 19
20 -1 -0.5 0 0.5 1 1.5 2 Developing Economies BRICS Emerging Industrial Economies Transition Economies OECD Government Effectiveness Scored from -2.5 (Weakest) to 2.5 (Strongest) Source: Data from World Bank Indicators,2015 • Quality of public services • Quality of the civil service & its degree of independence from political pressures • Quality of policy formulation and implementation • The credibility of the governments commitment to such policies
21 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Developing Economies BRICS Emerging Industrial Economies Transition Economies OECD Regulatory Quality From -2.5 (Weak) to 2.5 (Strong) Ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development. Source: Data from World Bank Indicators,2015
-1 -0.5 0 0.5 1 1.5 2 Developing Economies BRICS Emerging Industrial Economies Transition Economies OECD Rule of Law From -2.5 (Weak) to 2.5 (Strong) Confidence in the rules of society, the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. Source: Data from World Bank Indicators,2015 22
23 -1 -0.5 0 0.5 1 1.5 2 Developing Economies BRICS Emerging Industrial Economies Transition Economies OECD Control of Corruption Reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests. From -2.5 (Weak) to 2.5 (Strong) Source: Data from World Bank Indicators,2015
Institutional Voids in Emerging Countries  Access to Products Markets  Access to Labor markets  Access to Capital markets  Political and social systems  Bureaucracy Note: Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997). 24
 Lack of socio-economic and market data  Lack of information on quality of products and services  Difficulties in accessing suppliers  Weak logistical infrastructure  Intricate distribution and retailing systems  Poor product-related environmental and safety regulations  Unsophisticated consumer credit and payment mechanisms  Poor consumer protection Access to Products Markets Note: Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997). . 25
Access to Labor Markets  Weak educational system (Improving still)  Poor mobility of personnel  Ethnically, politically biased performance and remuneration of employees  Feeble protection of employees and restriction or prohibition of trade unions  Difficulties in fluidity of hiring and firing employees Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997). 26
27  Low liquidity of equity market  Limited effectiveness of banking and financial institutions in collecting savings and channeling investments  Lack of transparency on financial performances of corporations  Predominance of government banking sector  Poor protection for minority shareholders  High predominance of diversified conglomerates  Politically motivated allocation of licenses  Unclear bankruptcy process Access to Capital Markets Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997).
28 Political and Social Systems  Uncertain stability of political cohesiveness  Lack of clarity in the distribution of power  Strong interference in regulating business  Uncertain protection of property rights  Lack of independence of judiciary system  Ethnic, religious, family, linguistic tensions  Control of media  Control or prohibition of non-governmental organizations  Corruption Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997).
Bureaucratic Constraints  Investments and preferential treatment for national companies  Bureaucratic constraints on foreign business concerning the opening of businesses, acquisition of property, transfer of dividends, local borrowing, imports and exports, labor and currency Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997). 29
Ease of Doing Business Indicators 2018 From low ranking score (Easy) to high (Less Easy) Source: Data from World Bank, http://www.doingbusiness.org/rankings 145 139 128 111 112 59 72 60 55 49 24 100 125 82 78 35 48 30 27 34 31 20 7 6 0 20 40 60 80 100 120 140 160 30
Significant Presence of Bottom of the Pyramid Markets Bottom of the Pyramid Middle Class High Class Below 3000 ppp $/capita From 3000 to 20000 ppp $/capita Above 20000 ppp $/capita 31
32 Bottom of the Pyramid Population (Million) % of Total Population Bottom of the Pyramid Income (Billion ppp) % of Total Income Africa Asia Eastern Europe Latin America &Caribbean 486 429 95% 70% 2858 83% 63% 70% 3470 41% 254 28% 458 36% 360 509 Significant Presence of Bottom of the Pyramid Markets Source: Data from The Next Four Billion, IFC and the World Institute, 2007
33 Sources: Based on concepts discussed in Prahalad (2005) and Dawar and Chattopadhyay (2002). • Rural focus • Products built to last • Unskilled work process • Adapt supply chains to local conditions • Products designed for hostile environments • Hybrid technology: combination of advanced and adaptation • Find new price–performance relationships leading to quality at low prices • Products, service functionalities and packaging reinvented for local conditions • Promotion relies less on mass advertising and more on educational campaigns using government programs and NGOs Bottom of the Pyramid Markets - Marketing
34 Emerging Countries Competitors Haier (China – white goods) Tata (India – multiple markets) Ranbaxy Laboratories Ltd (India –Pharmaceuticals) PETRONAS (Malaysia - petrochemicals) CEMEX (Mexico – cement, building materials) Infosys (India – IT, consulting) SAB Miller (South Africa – Brewing/beverages) Lenovo (China – PCs, electronics) Huawei (China – telecoms, telephony hardware)
35 The Strategic Logic of Emerging Countries Competitors • Use their knowledge of local environment • Use their “national” preference • Use their low-labor cost • Sometimes use their natural resource On the Domestic Front On the International Front • Dominate Bottom of the Pyramid • Gain volume • Progressively push their capabilities upward • Eventually compete head-on with multinational players • Export low cost products • Buy ( copy??) technology Globalization and local firms: The Recent View
36 • Low cost manufacturing based on low labor costs and financing • Large part of activities based on original equipment manufacturing, • minimizing marketing costs • Technology is acquired thru licensing or joint ventures Time • Brand creation and development • Investment in R&D • International expansion • Proprietary Technology • Own brand • International marketing Time Sources of Competitive Advantage • Investment in advanced production technology • Labor costs still moderate Development of National Champions Globalization and local firms: The Recent View Japan 1960s 1960s 1970s and beyond Korea 1960s 1970s 1980s 1990s and beyond China 1980s 1990s 2000s 2005 and beyond
37 Time • Start International expansion mainly by acquisitions • Invest in modern manufacturing technology • Start to build their own brand • Start their own R&D • Protected Domestic markets • Low-cost manufacturing based on low labor cost • In some cases access to natural resources • Technology is acquired through licensing or joint ventures • Large part of activities based on original equipment manufacturing • Compete head-on with traditional global firms Step 1 Domestic player And exporter Step 2 Internationalization Step 3 Global Player Development of National Champions Globalization and local firms: The Recent View
38 Products/Services Functionality and Performance Time High-End Markets Dominated by Multinationals Canon in Japan in the 60s (cameras) Honda in the 60s (motorcycles) Galanz in China in the 90s (microwaves) TCL in China (televisions) Samsung in Korea in the 80s (microelectronics) Reliance in India in the 90s (pharmaceuticals) High Low Low-End Markets Dominated by Domestic Firms National Champions: Building The Business
39 Domestic players both large and small Multinational firms from USA, Europe, Japan, Korea and Australasia…plus emerging Indian and Chinese Mutinational firms …) Technology and marketing Contextual and political know-how Low resource costs Competitive Approaches Scope Global Local Emerging Competitive Battlefield
40 ‘Dragons at Your Door’ See Ming Zeng and Peter Williamson, Dragon at Your Door: How Chinese Cost Innovation is Disrupting Global Competition Harvard Business School Press, 2007 Chinese companies disrupt global competition through COST INNOVATION: using cost advantages in radically new ways to offer customers around the world dramatically more for less  Start in China and overcome fragmentation  Export by looking for loose bricks in competitors’ defense (unexplored markets or products)  Moving upmarket: technology at low cost ( licensing, copying) and variety at low cost
41 Earth Moving Equipment Wheel Loaders Global Market: 720,000 units Chinese Market: 120,000 units Production Capacity in China: 200,000 units Prices (US$) CAT, Volvo: 120,000 Komatzu: 60,000 Chinese Co 30,000 Chinese Co exported: 2,000 Units in 2004 3,500 units in 2005 Chinese Product Caterpillar
42  By mid 1990s Whirlpool had big ambitions for Asia  China was considered as Key Market  Very fragmented industry with 650 appliance manufacturers operating in China  Customers focus was on local brands  Some emerging Chinese leaders : KELON, HAIER The Whirlpool Story in China - 1
43 Whirlpool entered in 1994 using:  JV in Beijing for refrigerators (Snowflake)  JV in Shanghai for washing machines (Whirlpool Narcissus)  JV in Shendu for microwaves (MCV)  JV in Shenzhen for air-conditioners (Whirlpool Raybo) Plus a greater China Headquarters in Hong Kong and a Design Centre in Singapore  Whirlpool exited in 1997 from its refrigerators and air-conditioning ventures Still produces compressors in Beijing, microwaves in Shendu and washing machines in Shanghai The Whirlpool Story in China - 2
44 Kelon Haier China’s Appliances Market -Shares in 2002 Other Xinfei Meiling The market is dominated by local players The Whirlpool Story in China - 3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
45 • Founded in 1984 in Beijing, (China Academy of Sciences), Listed in HK in 1994 as “Legend” • Dominates the PC Market in China with around 27% Market Share • Acquired IBM PC division in 2005 • N°1 PC maker in the world (after Dell and HP/Compaq) • Revenues of 40 billion US$ in 2016 Personal Computers, Servers Chinese Champions: Lenovo
46 Domestic Appliances, IT • Founded in 1984 in Qingdao • Considers itself as 4th biggest white goods manufacturer in the world • Revenues in 2017 : 37 billion $US • Sells products in 160 countries and produces in 13 countries “Guided by business philosophy of CEO Zhang Ruimin, Haier has experienced success in the three historic periods, noted as Brand Building, Diversification and Globalization. At the 21st anniversary of founding of the Haier Group December 26, 2005, Haier announced its 4th strategic development stage of Global Brand Building “ Chinese Champions: Haier
47  Established in 1999 by Jack Ma, a former English teacher from Hangzhou  Largest e-commerce (both B-to-B and B-to-C) platform in the world; above Amazon, Walmart  Operates its platform in 200 Countries  Expanded into media, entertainment, publishing, sport….  Revenues in 2017 : 23 billion $US E-Commerce Chinese Champions: Alibaba Group
48 Multimedia, Telecommunication • Founded in 1981 to produce telephone handsets • Early 1990s - branched out into audio equipment and distribution of TV sets produced in Hong Kong • Started production of TV sets in 1996 in Shenzen • Became n°1 TV producer in China in 2003 • Expanded production in Vietnam, Philippines, Indonesia, Thailand, Russia • Acquired Scheider in Germany • In 2004 created TTE (TCL Thomson Enterprise) with Thomson Multimedia (TCL owns 67% of the venture) • Ranked among the top 3 worldwide producers of TV sets • In 2005, fully acquired the mobile phone handsets business from Alcatel • Revenues of 16 billion US$ in 2016 Chinese Champions: TCL
49 Telecommunications (networks, products and solutions) • Started in 1988: digital fixed switch • In 1997: Launched GSM equipment. Established joint R&D labs with Texas Instruments , Motorola, IBM, Intel, Agere Systems, Sun Microsystems, Altera, Qualcomm, Infineon and Microsoft. As of June 2005, Huawei Technologies has a total of 10 joint research labs. • In 2000, established R&D centers in Silicon Valley (California) and Dallas in the US. • Cisco Systems alleged in 2003 that Huawei had infringed some of Cisco’s technology patents (resolved in 2004 with Huawei agreeing to revise the technology in question). • Revenues of 75billion US$ in 2016 Chinese Champions: Huawei
50 Consulting and IT Services • Established in 1981 •1987 First office in the USA • 2016 Revenue reaches 10 billion US$. Pharmaceuticals • Ranbaxy founded in 1961, initially specializing in generics • Sun Pharma started in 1983, specializing in niche therapies • Sun and Ranbaxy merged in 2014 (Sun acquiring 100% of Ranbaxy) • Ranked amongst the top fifty specialty generic companies worldwide • Manufacturing operations in 40 countries • Subsidiaries in 55 countries • Products available in over 150 countries. • Company Global Sales of US $5 Billion in 2017 Infosys Indian Champions - 1 Sun Pharma/Ranbaxy
51 • Created in 1961, now part of Kalyani conglomerate • Largest exporter of auto components from India • Leading chassis component manufacturer in the world. • Manufacturing operations in 10 locations in 6 countries • Global Sales of US $620 Million in 2017 • India’s oldest business conglomerate • 100 companies operating in six continents • Spread over seven business sectors: Engineering, Chemicals, Materials, Energy, Consumer Products, IT, Communication • Sales of US$ 100 Billion in 2017 • Employs some 695 000 People Indian Champions - 2 Tata Group Automotive components Bharat Forge Conglomerate
52 Multinational Corporations from: China India Multinationals companies are defined as companies with sales above 1 billion US$ (as of 2004) at least 10% of which is international Source: Data from Boston Consulting Group report The New Global Challengers (2006)
53 Millions US $ Source: Data from UNCTAD “World Investment Report, 2006 Cross-Border Global Acquisitions: Cumulative Acquisitions by the BRICS - 2 000.0 4 000.0 6 000.0 8 000.0 10 000.0 12 000.0 China India Brazil South Africa Russian Federation 2000 2016
54 In most emerging countries the industrial, financial and trading sectors are controlled by three groups of players: • Government-owned enterprises • The multinationals • The domestic “business groups” The domestic business groups exhibit typical characteristics: • Highly diversified • Personally controlled • Most often controlled by families or ethnic groups Business Groups in Emerging Countries - 1
55 Business Groups control large sectors of their economies: • Overseas Chinese in South East Asia • Korean Chaebol • Indian Family Groups • Rejuvenated State-owned enterprises in China • Latin American Groupos Business Groups in Emerging Countries - 2
56 Overseas Chinese In South East Asia: Traditional Role CREDIT DISTRIBUTE URBAN AREAS DISTRIBUTE BUY CREDIT IMPORT RURAL AREAS FOREIGN COUNTRIES
57 Evolution Of Overseas Chinese Groups In Southeast Asia Banking and Financial Services Real Estate Progressive Vertical Integration in Upstream Activities Investment in Industrial Activities (Assembling, Downstream); either Directly, through Joint-Ventures or Licensing Diversified Activities Diversified Activities Diversified Activities Diversified Activities Start up in “Trading”
58 Overseas Chinese Groups Organization And Management
59 Chaeron Pokphand (DHANIN CHEARAVANONT) 200 COMPANIES REVENUE: 8 BILLION U$S BEFORE GFC Animal Feed Poultry Milk Pig Farming Feedmill machinery Plantation Animal Heath Sausage Meat Farming Aqua Feed Shrimp Chemical Seeds Plant Protection Logistics Trading Trucks Motorcycles Drills Health Drinks Supermarkets Frozen Foods Distribution Real Estate Condominiums Golf PVC Luggage Toys Sponge Leather Telephony Cable TV Fiber Optics Switching Equipment Petroleum
60 Why so Important in Emerging Countries?  Privileged Access to Scarce Resources;  Political power  Information  Financial  Business opportunities  Monopolies  Reputation attracts best talent  Benefit from Market imperfections  Simplified “business systems”
61  In each of the businesses, limited competition (monopolies, oligopolies)  Innovation (products, processes) is purchased (licensing, joint venture)  Marketing is essentially a matter of sales and distribution: Brands are sourced externally, products also....  The key managerial task is to run logistics and production efficiently (Reduced complexity, no search for synergies) Innovation Logistics/ Production Marketing Obtained through licensing and joint ventures Key operational task Concentrated on sales and distribution in oligopolistic markets. Brands and products sourced externally Why So Diversified?
62 Progressively Changing…  Markets pressures: globalization, deregulation  Increased competition - both domestic and international  More complexity of management because of the need to develop own R&D and marketing capabilities.  Increasing financial stakes due to the move towards capital intensive activities  Overcapacities  Higher dependencies on foreign capital
63 Consequences ? Since the early 2000s, a large number of Asian Entrepreneurial Conglomerates have announced a series of moves under the generic name of : RESTRUCTURING • COST CUTTING: (wage cuts, bonus freezes, headcount reductions) • DEBT RESTRUCTURING:( See 200% D/E ratio imposed in Korea) • PORTFOLIO REDEFINITION: (Definition of Core Business, concentration of similar activities in the same group, intergroup mergers ) •DIVESTMENT OF NON-CORE ACTIVITIES: (spinning off, or selling off) •REORGANIZATION: ( flatter structures, decentralization of decision-making) “ We’ve expanded too much. Now we need to focus only on businesses in which we have a strong potential. It is impossible for us to maintain 100 different businesses under the current situation” - Samsung

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2 The Emerging Global Environment.pptx

  • 1.
  • 2.
    2 The World from1993 to 2016 1993 2016 East Asia & Pacific 25% 30% North America 29% 27% European Union 30% 22% Latin America & Caribbean 6% 7% Middle East & North Africa 2% 4% Sub-Saharan Africa 1% 2% Russian Federation 2% 2% World GDP (Billion USD, current) 25 859 75 845
  • 3.
    3 The World From1993 to 2016 GDP (current billion US$) GDP per capita (current US$) Population, total (Million) Average yearly growth (1993-2016) 1993(%) 2016(%) 1993 2016 1993 2016 (Per Cent) East Asia & Pacific 6552 25% 22480 30% 3462 9788 1892 2297 4.18 North America 7458 29% 20160 27% 25822 56082 289 359 2.50 European Union 7815 30% 16487 22% 16211 17173 482 511 1.74 Latin America & Caribbean 1565 6% 5300 7% 3332 3761 470 638 2.81 Middle East & North Africa 608 2% 3145 4% 2224 2269 273 437 3.82 Sub-Saharan Africa 300 1% 1513 2% 540 512 556 1033 4.21 Russian Federation 435 2% 1283 2% 2929 2663 149 144 1.72 World 25859 100% 75845 100% 4667 4937 5541 7442 2.90
  • 4.
  • 5.
    5 What is anEmerging Country? No clear definition of what is an “emerging country”. Often describes countries that exhibit: • High economic growth • Increasing development of a middle class • A high degree of infrastructure and educational investment • A progressive shift from agriculture and services • An economy in which market mechanisms play an increasing role • Opening of their market to international trade and investment.
  • 6.
    6 6 Different Types ofEmerging Countries The BRICS emerging giants - Brazil, Russia, India, China and South Africa The Transition Economies (Eastern Europe) The Emerging Industrial Economies of Latin America, Asia and Africa (such as Chile, Mexico, Turkey, Malaysia and Indonesia) The Developing World (such as Vietnam, Nigeria, Pakistan)
  • 7.
    7 Average Yearly Growth Rate (1993-2016) GDP /Capita2016) Country Life Cycles (Bubble size proportional to GDP 2016) 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 0 10000 20000 30000 40000 50000 60000 70000 North America European Union East Asia and the Pacific Russian Federation Latin America & Caribbean Middle East and North Africa Sub-Saharan Africa
  • 8.
    8 GDP Growth :Emerging Countries vs. the World (1990-2014) -Base 100 in 1990 Source: Data from World Development Indicators High Economic Growth 100 150 200 250 300 350 400 1990 2000 2010 2012 2013 2014 BRICS Developing Economies Emerging Industrial Economies World Transition Economies
  • 9.
    9 132 2703 75 129 3039 1 10 100 1000 10000 Central & South America AsiaPacific Sub Saharian Africa Middle Est & N Africa World Forecasted increase in Middle Class Population in Emerging Regions from 2009 to 2030 (Million) Increasing development of a middle class
  • 10.
    10 Middle Class Effectin Emerging Countries
  • 11.
    11 Evolution of UrbanHousehold Income in China
  • 12.
    12 High Degree ofInfrastructure Investments Source: Data from World Bank. World Development Indicators Average yearly growth of fixed capital formation % of GDP 1990-2014 Average fixed capital formation % of GDP 1990-2014 0% 2% 4% 6% 8% 10% 12% 14% 0% 5% 10% 15% 20% 25% 30% 35% 40% BRICS EIE EU World USA Transition Developing
  • 13.
    13 Opening to International Tradeand Investment Source: Data from World Bank. World Development Indicators and UNCTAD World Investment Report , 2010) Average yearly growth of fixed capital formation % of GDP 1990-2014 Average fixed capital formation % of GDP 1990-2014 0% 2% 4% 6% 8% 10% 12% 14% 0% 5% 10% 15% 20% 25% 30% 35% 40% BRICS EIE EU World USA Transition Developing
  • 14.
    14 1990 2014 Brazil 23%15% China 53% 7% India 60% 49% Russian Federation 16% 7% South Africa 15% 5% Egypt, Arab Rep. 39% 28% Colombia 20% 16% Sri Lanka 41% 30% Philippines 37% 30% Poland 25% 11% Czech Republic 12% 3% Hungary 18% 11% Indonesia 56% 34% Mexico 26% 13% Turkey 43% 14% European Union 9% 4% United States 3% 2% World 39% 20% A progressive shift from agriculture to services Agriculture (as % Share of GDP)
  • 15.
    15 Market mechanisms playan increasing role Changes to national investment policies, 2002–2016 Source: UNCTAD: World Investment Report 2017: Table III.1, Page 99
  • 16.
    16 The Washington Consensus •Fiscal discipline: limit budget deficit • Public expenditure directed toward high economic returns, improvement in income distribution, healthcare, education, and infrastructure • Tax reform: broaden the tax base and lower marginal rates; tax foreign holdings • Interest rates market determined • Competitive exchange rate • Trade liberalization • Liberalization of foreign direct investment (FDI) • Privatization of state enterprises • Deregulation: abolish entry barriers or restrictions on competition • Secure property rights
  • 17.
    17 The World in2050 according to Goldman Sachs
  • 18.
    18 The World in2050 according to Goldman Sachs
  • 19.
    Institutional and BusinessEnvironments • Governance • Market imperfection • Ease of doing business • Importance of business conglomerates • A significant presence of bottom of the pyramid market segments 19
  • 20.
    20 -1 -0.5 0 0.5 1 1.5 2 Developing Economies BRICS Emerging Industrial Economies Transition Economies OECD GovernmentEffectiveness Scored from -2.5 (Weakest) to 2.5 (Strongest) Source: Data from World Bank Indicators,2015 • Quality of public services • Quality of the civil service & its degree of independence from political pressures • Quality of policy formulation and implementation • The credibility of the governments commitment to such policies
  • 21.
    21 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Developing Economies BRICS Emerging Industrial Economies Transition Economies OECD Regulatory Quality From-2.5 (Weak) to 2.5 (Strong) Ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development. Source: Data from World Bank Indicators,2015
  • 22.
    -1 -0.5 0 0.5 1 1.5 2 Developing Economies BRICS Emerging Industrial Economies Transition Economies OECD Rule ofLaw From -2.5 (Weak) to 2.5 (Strong) Confidence in the rules of society, the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. Source: Data from World Bank Indicators,2015 22
  • 23.
    23 -1 -0.5 0 0.5 1 1.5 2 Developing Economies BRICS Emerging Industrial Economies Transition Economies OECD Controlof Corruption Reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests. From -2.5 (Weak) to 2.5 (Strong) Source: Data from World Bank Indicators,2015
  • 24.
    Institutional Voids inEmerging Countries  Access to Products Markets  Access to Labor markets  Access to Capital markets  Political and social systems  Bureaucracy Note: Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997). 24
  • 25.
     Lack ofsocio-economic and market data  Lack of information on quality of products and services  Difficulties in accessing suppliers  Weak logistical infrastructure  Intricate distribution and retailing systems  Poor product-related environmental and safety regulations  Unsophisticated consumer credit and payment mechanisms  Poor consumer protection Access to Products Markets Note: Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997). . 25
  • 26.
    Access to LaborMarkets  Weak educational system (Improving still)  Poor mobility of personnel  Ethnically, politically biased performance and remuneration of employees  Feeble protection of employees and restriction or prohibition of trade unions  Difficulties in fluidity of hiring and firing employees Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997). 26
  • 27.
    27  Low liquidityof equity market  Limited effectiveness of banking and financial institutions in collecting savings and channeling investments  Lack of transparency on financial performances of corporations  Predominance of government banking sector  Poor protection for minority shareholders  High predominance of diversified conglomerates  Politically motivated allocation of licenses  Unclear bankruptcy process Access to Capital Markets Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997).
  • 28.
    28 Political and SocialSystems  Uncertain stability of political cohesiveness  Lack of clarity in the distribution of power  Strong interference in regulating business  Uncertain protection of property rights  Lack of independence of judiciary system  Ethnic, religious, family, linguistic tensions  Control of media  Control or prohibition of non-governmental organizations  Corruption Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997).
  • 29.
    Bureaucratic Constraints  Investmentsand preferential treatment for national companies  Bureaucratic constraints on foreign business concerning the opening of businesses, acquisition of property, transfer of dividends, local borrowing, imports and exports, labor and currency Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries. As discussed in Khanna and Palepu (1997). 29
  • 30.
    Ease of DoingBusiness Indicators 2018 From low ranking score (Easy) to high (Less Easy) Source: Data from World Bank, http://www.doingbusiness.org/rankings 145 139 128 111 112 59 72 60 55 49 24 100 125 82 78 35 48 30 27 34 31 20 7 6 0 20 40 60 80 100 120 140 160 30
  • 31.
    Significant Presence ofBottom of the Pyramid Markets Bottom of the Pyramid Middle Class High Class Below 3000 ppp $/capita From 3000 to 20000 ppp $/capita Above 20000 ppp $/capita 31
  • 32.
    32 Bottom of thePyramid Population (Million) % of Total Population Bottom of the Pyramid Income (Billion ppp) % of Total Income Africa Asia Eastern Europe Latin America &Caribbean 486 429 95% 70% 2858 83% 63% 70% 3470 41% 254 28% 458 36% 360 509 Significant Presence of Bottom of the Pyramid Markets Source: Data from The Next Four Billion, IFC and the World Institute, 2007
  • 33.
    33 Sources: Based onconcepts discussed in Prahalad (2005) and Dawar and Chattopadhyay (2002). • Rural focus • Products built to last • Unskilled work process • Adapt supply chains to local conditions • Products designed for hostile environments • Hybrid technology: combination of advanced and adaptation • Find new price–performance relationships leading to quality at low prices • Products, service functionalities and packaging reinvented for local conditions • Promotion relies less on mass advertising and more on educational campaigns using government programs and NGOs Bottom of the Pyramid Markets - Marketing
  • 34.
    34 Emerging Countries Competitors Haier(China – white goods) Tata (India – multiple markets) Ranbaxy Laboratories Ltd (India –Pharmaceuticals) PETRONAS (Malaysia - petrochemicals) CEMEX (Mexico – cement, building materials) Infosys (India – IT, consulting) SAB Miller (South Africa – Brewing/beverages) Lenovo (China – PCs, electronics) Huawei (China – telecoms, telephony hardware)
  • 35.
    35 The Strategic Logicof Emerging Countries Competitors • Use their knowledge of local environment • Use their “national” preference • Use their low-labor cost • Sometimes use their natural resource On the Domestic Front On the International Front • Dominate Bottom of the Pyramid • Gain volume • Progressively push their capabilities upward • Eventually compete head-on with multinational players • Export low cost products • Buy ( copy??) technology Globalization and local firms: The Recent View
  • 36.
    36 • Low costmanufacturing based on low labor costs and financing • Large part of activities based on original equipment manufacturing, • minimizing marketing costs • Technology is acquired thru licensing or joint ventures Time • Brand creation and development • Investment in R&D • International expansion • Proprietary Technology • Own brand • International marketing Time Sources of Competitive Advantage • Investment in advanced production technology • Labor costs still moderate Development of National Champions Globalization and local firms: The Recent View Japan 1960s 1960s 1970s and beyond Korea 1960s 1970s 1980s 1990s and beyond China 1980s 1990s 2000s 2005 and beyond
  • 37.
    37 Time • Start Internationalexpansion mainly by acquisitions • Invest in modern manufacturing technology • Start to build their own brand • Start their own R&D • Protected Domestic markets • Low-cost manufacturing based on low labor cost • In some cases access to natural resources • Technology is acquired through licensing or joint ventures • Large part of activities based on original equipment manufacturing • Compete head-on with traditional global firms Step 1 Domestic player And exporter Step 2 Internationalization Step 3 Global Player Development of National Champions Globalization and local firms: The Recent View
  • 38.
    38 Products/Services Functionality and Performance Time High-End Markets Dominatedby Multinationals Canon in Japan in the 60s (cameras) Honda in the 60s (motorcycles) Galanz in China in the 90s (microwaves) TCL in China (televisions) Samsung in Korea in the 80s (microelectronics) Reliance in India in the 90s (pharmaceuticals) High Low Low-End Markets Dominated by Domestic Firms National Champions: Building The Business
  • 39.
    39 Domestic players both largeand small Multinational firms from USA, Europe, Japan, Korea and Australasia…plus emerging Indian and Chinese Mutinational firms …) Technology and marketing Contextual and political know-how Low resource costs Competitive Approaches Scope Global Local Emerging Competitive Battlefield
  • 40.
    40 ‘Dragons at YourDoor’ See Ming Zeng and Peter Williamson, Dragon at Your Door: How Chinese Cost Innovation is Disrupting Global Competition Harvard Business School Press, 2007 Chinese companies disrupt global competition through COST INNOVATION: using cost advantages in radically new ways to offer customers around the world dramatically more for less  Start in China and overcome fragmentation  Export by looking for loose bricks in competitors’ defense (unexplored markets or products)  Moving upmarket: technology at low cost ( licensing, copying) and variety at low cost
  • 41.
    41 Earth Moving Equipment WheelLoaders Global Market: 720,000 units Chinese Market: 120,000 units Production Capacity in China: 200,000 units Prices (US$) CAT, Volvo: 120,000 Komatzu: 60,000 Chinese Co 30,000 Chinese Co exported: 2,000 Units in 2004 3,500 units in 2005 Chinese Product Caterpillar
  • 42.
    42  By mid1990s Whirlpool had big ambitions for Asia  China was considered as Key Market  Very fragmented industry with 650 appliance manufacturers operating in China  Customers focus was on local brands  Some emerging Chinese leaders : KELON, HAIER The Whirlpool Story in China - 1
  • 43.
    43 Whirlpool entered in1994 using:  JV in Beijing for refrigerators (Snowflake)  JV in Shanghai for washing machines (Whirlpool Narcissus)  JV in Shendu for microwaves (MCV)  JV in Shenzhen for air-conditioners (Whirlpool Raybo) Plus a greater China Headquarters in Hong Kong and a Design Centre in Singapore  Whirlpool exited in 1997 from its refrigerators and air-conditioning ventures Still produces compressors in Beijing, microwaves in Shendu and washing machines in Shanghai The Whirlpool Story in China - 2
  • 44.
    44 Kelon Haier China’s Appliances Market-Shares in 2002 Other Xinfei Meiling The market is dominated by local players The Whirlpool Story in China - 3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
  • 45.
    45 • Founded in1984 in Beijing, (China Academy of Sciences), Listed in HK in 1994 as “Legend” • Dominates the PC Market in China with around 27% Market Share • Acquired IBM PC division in 2005 • N°1 PC maker in the world (after Dell and HP/Compaq) • Revenues of 40 billion US$ in 2016 Personal Computers, Servers Chinese Champions: Lenovo
  • 46.
    46 Domestic Appliances, IT •Founded in 1984 in Qingdao • Considers itself as 4th biggest white goods manufacturer in the world • Revenues in 2017 : 37 billion $US • Sells products in 160 countries and produces in 13 countries “Guided by business philosophy of CEO Zhang Ruimin, Haier has experienced success in the three historic periods, noted as Brand Building, Diversification and Globalization. At the 21st anniversary of founding of the Haier Group December 26, 2005, Haier announced its 4th strategic development stage of Global Brand Building “ Chinese Champions: Haier
  • 47.
    47  Established in1999 by Jack Ma, a former English teacher from Hangzhou  Largest e-commerce (both B-to-B and B-to-C) platform in the world; above Amazon, Walmart  Operates its platform in 200 Countries  Expanded into media, entertainment, publishing, sport….  Revenues in 2017 : 23 billion $US E-Commerce Chinese Champions: Alibaba Group
  • 48.
    48 Multimedia, Telecommunication • Foundedin 1981 to produce telephone handsets • Early 1990s - branched out into audio equipment and distribution of TV sets produced in Hong Kong • Started production of TV sets in 1996 in Shenzen • Became n°1 TV producer in China in 2003 • Expanded production in Vietnam, Philippines, Indonesia, Thailand, Russia • Acquired Scheider in Germany • In 2004 created TTE (TCL Thomson Enterprise) with Thomson Multimedia (TCL owns 67% of the venture) • Ranked among the top 3 worldwide producers of TV sets • In 2005, fully acquired the mobile phone handsets business from Alcatel • Revenues of 16 billion US$ in 2016 Chinese Champions: TCL
  • 49.
    49 Telecommunications (networks, productsand solutions) • Started in 1988: digital fixed switch • In 1997: Launched GSM equipment. Established joint R&D labs with Texas Instruments , Motorola, IBM, Intel, Agere Systems, Sun Microsystems, Altera, Qualcomm, Infineon and Microsoft. As of June 2005, Huawei Technologies has a total of 10 joint research labs. • In 2000, established R&D centers in Silicon Valley (California) and Dallas in the US. • Cisco Systems alleged in 2003 that Huawei had infringed some of Cisco’s technology patents (resolved in 2004 with Huawei agreeing to revise the technology in question). • Revenues of 75billion US$ in 2016 Chinese Champions: Huawei
  • 50.
    50 Consulting and ITServices • Established in 1981 •1987 First office in the USA • 2016 Revenue reaches 10 billion US$. Pharmaceuticals • Ranbaxy founded in 1961, initially specializing in generics • Sun Pharma started in 1983, specializing in niche therapies • Sun and Ranbaxy merged in 2014 (Sun acquiring 100% of Ranbaxy) • Ranked amongst the top fifty specialty generic companies worldwide • Manufacturing operations in 40 countries • Subsidiaries in 55 countries • Products available in over 150 countries. • Company Global Sales of US $5 Billion in 2017 Infosys Indian Champions - 1 Sun Pharma/Ranbaxy
  • 51.
    51 • Created in1961, now part of Kalyani conglomerate • Largest exporter of auto components from India • Leading chassis component manufacturer in the world. • Manufacturing operations in 10 locations in 6 countries • Global Sales of US $620 Million in 2017 • India’s oldest business conglomerate • 100 companies operating in six continents • Spread over seven business sectors: Engineering, Chemicals, Materials, Energy, Consumer Products, IT, Communication • Sales of US$ 100 Billion in 2017 • Employs some 695 000 People Indian Champions - 2 Tata Group Automotive components Bharat Forge Conglomerate
  • 52.
    52 Multinational Corporations from: China India Multinationalscompanies are defined as companies with sales above 1 billion US$ (as of 2004) at least 10% of which is international Source: Data from Boston Consulting Group report The New Global Challengers (2006)
  • 53.
    53 Millions US $ Source:Data from UNCTAD “World Investment Report, 2006 Cross-Border Global Acquisitions: Cumulative Acquisitions by the BRICS - 2 000.0 4 000.0 6 000.0 8 000.0 10 000.0 12 000.0 China India Brazil South Africa Russian Federation 2000 2016
  • 54.
    54 In most emergingcountries the industrial, financial and trading sectors are controlled by three groups of players: • Government-owned enterprises • The multinationals • The domestic “business groups” The domestic business groups exhibit typical characteristics: • Highly diversified • Personally controlled • Most often controlled by families or ethnic groups Business Groups in Emerging Countries - 1
  • 55.
    55 Business Groups controllarge sectors of their economies: • Overseas Chinese in South East Asia • Korean Chaebol • Indian Family Groups • Rejuvenated State-owned enterprises in China • Latin American Groupos Business Groups in Emerging Countries - 2
  • 56.
    56 Overseas Chinese InSouth East Asia: Traditional Role CREDIT DISTRIBUTE URBAN AREAS DISTRIBUTE BUY CREDIT IMPORT RURAL AREAS FOREIGN COUNTRIES
  • 57.
    57 Evolution Of OverseasChinese Groups In Southeast Asia Banking and Financial Services Real Estate Progressive Vertical Integration in Upstream Activities Investment in Industrial Activities (Assembling, Downstream); either Directly, through Joint-Ventures or Licensing Diversified Activities Diversified Activities Diversified Activities Diversified Activities Start up in “Trading”
  • 58.
  • 59.
    59 Chaeron Pokphand (DHANIN CHEARAVANONT) 200 COMPANIES REVENUE:8 BILLION U$S BEFORE GFC Animal Feed Poultry Milk Pig Farming Feedmill machinery Plantation Animal Heath Sausage Meat Farming Aqua Feed Shrimp Chemical Seeds Plant Protection Logistics Trading Trucks Motorcycles Drills Health Drinks Supermarkets Frozen Foods Distribution Real Estate Condominiums Golf PVC Luggage Toys Sponge Leather Telephony Cable TV Fiber Optics Switching Equipment Petroleum
  • 60.
    60 Why so Importantin Emerging Countries?  Privileged Access to Scarce Resources;  Political power  Information  Financial  Business opportunities  Monopolies  Reputation attracts best talent  Benefit from Market imperfections  Simplified “business systems”
  • 61.
    61  In eachof the businesses, limited competition (monopolies, oligopolies)  Innovation (products, processes) is purchased (licensing, joint venture)  Marketing is essentially a matter of sales and distribution: Brands are sourced externally, products also....  The key managerial task is to run logistics and production efficiently (Reduced complexity, no search for synergies) Innovation Logistics/ Production Marketing Obtained through licensing and joint ventures Key operational task Concentrated on sales and distribution in oligopolistic markets. Brands and products sourced externally Why So Diversified?
  • 62.
    62 Progressively Changing…  Marketspressures: globalization, deregulation  Increased competition - both domestic and international  More complexity of management because of the need to develop own R&D and marketing capabilities.  Increasing financial stakes due to the move towards capital intensive activities  Overcapacities  Higher dependencies on foreign capital
  • 63.
    63 Consequences ? Since theearly 2000s, a large number of Asian Entrepreneurial Conglomerates have announced a series of moves under the generic name of : RESTRUCTURING • COST CUTTING: (wage cuts, bonus freezes, headcount reductions) • DEBT RESTRUCTURING:( See 200% D/E ratio imposed in Korea) • PORTFOLIO REDEFINITION: (Definition of Core Business, concentration of similar activities in the same group, intergroup mergers ) •DIVESTMENT OF NON-CORE ACTIVITIES: (spinning off, or selling off) •REORGANIZATION: ( flatter structures, decentralization of decision-making) “ We’ve expanded too much. Now we need to focus only on businesses in which we have a strong potential. It is impossible for us to maintain 100 different businesses under the current situation” - Samsung