STRATEGIES FOR EMERGING MARKETS

The class discussion started with the problems faced by the developing countries in the emerging markets and then the strategies to manage guarded globalization were discussed. In this present economic scenario, it is not easy for the companies of developing markets to get an easy hold in emerging markets. They have to face several hurdles and the major is the government and policymakers regulations. Pfizer’s patent problem in India and lowering of drug prices by the Chinese government to make more drugs local signify this. Increased population, rising salaries, modern transportation and communication technologies drove many developing countries towards emerging markets. But after global recession, emerging markets have resented towards guarded globalization. Governments are becoming wary of opening more industries to multinational companies and are concentrating more on protecting local interests. They chose the countries with which they want to do the business, pick the sectors in which they will allow the capital investment and promote state owned companies which they want to. They are being selective. A country’s political scenario has become crucial in deciding with which country they want to trade as financial services, telecommunication, information technology, food sectors have been politicized. At the same time, welcoming foreign investment in few sectors triggers nation-wide protests.
In India, allowing FDI in retail was a big issue. The major argument was that the local retailers and local players would be out of the market. Walmart entered into India through joint venture with Bharti, but did not survive long. Government of India laid a lot of restrictions for the foreign players entering the market. Many companies backed out as they did not want to comply with these regulations. Ikea was one among them which backed out since it did not want to comply with the Indian regulation that most of its raw material should be procured from local market. Allowing FDI into aviation also triggered a big debate as should foreign players be allowed in certain sectors. Governments do not compromise in certain sectors as they trigger the issue of national security like defense sector. On the other hand, allowing FDI in banking sector is considered positive as there is still a huge chunk of Indian population who has never entered a bank nor has an account. India visions that in few years, every individual would have a bank account and allowing FDI in this sector will help in reaching remote places also which are yet to be tapped. But, how much freedom will be granted to the foreign players is questionable.
Developed companies have to adopt certain strategies in such a guarded globalized scenario. Instead of trying to enter into industries that are closely guarded by that country’s government, they can focus on becoming strong in their home and become too diversified to fail. Companies should enter an emerging market with a long term vision, to stay in that country for a longer time and not return as soon as they enter. Ex.Walmart in India. Hence, they should choose a sector in which they can stay. Entering as a joint venture would provide a stable platform. Along with that, the companies should also try to add value to the state in which they are operating like hiring local labor, procuring materials from local players, comply with all government regulations. A country’s government will be willing and encourage foreign players in sectors in which they lack and which need to be developed like energy sector in China. Hence, companies which want to enter should try to capitalize on state capitalism.