Chapter 14 - Role of Emerging Economies

Question 1

Idea of Khanna

Answer 1

Khanna argues that emerging economies are primarily characterised by important institutional voids, such as a lack of laws

Question 2

What characterises an emerging economy?

Answer 2

Absolute level of economic development

The pace of economic development

The extent and degree of stability of the free market

Question 3

Why are MNEs attracted to developing economies?

Answer 3

Availability of relatively inexpensive skilled labour

Access to a new level of innovation

Possible untapped market

Question 4

Institutional voids

Answer 4

Might be a lack of well functioning firms and the lack of a real market

Question 5

Khanna et al. suggest that managers should focus on the five questions related to an institutional context:

Answer 5

Macro level political and social context

Macro level openness of the economy

Product markets

Labour markets

Capital Markets

Question 6

Macro level political and social context

Answer 6

Press, accountability of politicians

Question 7

Macro level openness of the economy

Answer 7

How open is the country to FDI?

Highly open countries may also reduce the strength of the MNE’s FSAs relevant to host countries

Question 8

Products Markets

Answer 8

How are intellectual property rights protected?

Question 9

Capital Markets

Answer 9

How are you going to raise capital?

Question 10

After determining these five components, managers must now make a choice:

Answer 10

Adapt the business model to the host country

Change emerging market’s institutional context

Stay out of emerging markets