Lecture 5: Where to Go?

Question 1

Describe the importance of emerging markets

Answer 1

Convergence continues: over the past ten years about 60% of emerging economies have grown faster than America (The Economist, 2019).

If Western companies don’t develop strategies for engaging across their value chains with developing countries, they are unlikely to remain competitive for long.

Yet it is not easy to bridge the gaps through a standard internationalization strategy.

Question 2

what are some ways to distinguish advanced vs. less-developed economies

Answer 2

In general, advanced economies have:
* large pools of seasoned market intermediaries and
* effective contract-enforcing mechanisms,

whereas less-developed economies have:
* unskilled intermediaries and
* less effective legal systems.

Question 3

institutional void

Answer 3

Absence of specialized intermediaries, regulatory systems, and contract-enforcing mechanisms in emerging markets.

Question 4

how does “soft” infrastructure play a critical role in the execution of business models in home markets?

Answer 4

• Skilled market research firms
• Few end-to-end logistics providers, which allow manufacturers to reduce costs, are available to transport raw materials and finished products.

Question 5

how can companies work around institutional voids?

Answer 5

They develop strategies for doing business in emerging markets that are different from those they use at home and often find novel ways of implementing them, too.

They also customize their approaches to fit each nation’s institutional context.

Question 6

Why do companies often target the wrong countries or deploy inappropriate globalization strategies? (5)

Answer 6

1. Many corporations enter new lands because of senior managers’ personal experiences, family ties, gut feelings, or anecdotal evidence.
2. Others follow key customers or rivals into emerging markets;
   –> The herd instinct is strong among multinationals.
3. Biases:
   —> e.g. U.S. companies preferred to do business with China rather than India for decades was probably because of America’s romance with China,
   —> Partly as a result of the work missionaries and scholars did in China in the 1800s, Americans became more familiar with China than with India.
4. Doing Political Risk Assessment while ignoring the the soft infrastructures
5. Political stability vs structural conditions/institutional contexts

Question 7

what are some composite indices?

Answer 7

• GDP
• Per capita income growth rates
• Population composition and growth rates,
• Exchange rates
• Purchasing power parity indices (past, present, and projected).

Question 8

What are some challenges with composite indices?

Answer 8

Such composite indices are no doubt useful, but companies should use them as the basis for drawing up strategies only when their home bases and target countries have comparable institutional contexts.

Question 9

describe purchasing power parities (PPP)

Answer 9

are the rates of currency conversion that try to equalise the purchasing power of different currencies, by eliminating the differences in price levels between countries.

The basket of goods and services priced is a sample of all those that are part of final expenditures: final consumption of households and government, fixed capital formation, and net exports.

This indicator is measured in terms of national currency per US dollar.

While it’s not a perfect measurement metric, purchase power parity does allow for the possibility of comparing pricing between countries that have differing currencies

Question 10

What are the five contexts to examine when trying to identify institutional voids and if countries are comparable?

Answer 10

1. Political and Social System (tensions between ethnic groups)
2. Openness (determine if it is superficial or real)
3. Product Markets (reliable info about consumers, customer reports, courts, advocacy groups)
4. Capital Markets (intermediaries like credit rating agencies)
5. Labor Markets (quality of talents, engineering / business schools)

Question 11

What are the four determinants of national competitive advantage according to Porter’s diamond?

Answer 11

1. Factor Conditions
   - nation’s position in factors of production (skilled labour, infrastructure, etc)
2. Demand Conditions
   - nature of home-market- demand for the industry’s product or service
3. Related and Supporting Industries
   - The presence or absence in the nation of supplier industries and other related industries that are internationally competitive
4. Firm Strategy, Structure, and Rivalry
   - the conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry