With reference to Mattel and your own research to what extent do you think that a business strategy of targeting emerging markets is a good one (40marks)

An emerging market is a country which is in the process of rapid growth and industrialisation and it can consist of the BRIC countries, which are Brazil, Russia, India and China.

Targeting an emerging market could be a good strategy. This is because if the current market the business is operating in is in saturation, it could be then justified for them to expand in to these emerging markets as this gives them an escape route away from a saturated market or if the market is in recession to allow them to maximise sales revenue and allow them to survive in a recession. This is because we see that emerging markets usually have a quickly growing middle classes with a strong economic growth meaning that they would be able to escape the worsening current market and move to sell in somewhere with a stronger economy and a larger middle class. Meaning that this middle class is more likely to have money to spend on the new businesses products or services. Also meaning that the growing middle class is resulting in a culture shift, so there could be higher demand for their products or services in the emerging market. As a consequence to moving in to these emerging markets it also means that there brand name and image is growing and becoming more well known in these new markets. We see this with JLRs move to India as the Indian company TATA motors brought JLR, with this market development strategy they then aimed their products of selling luxury cars to the growing middle class of this economy. Before they entered this market, companies that previously owned JLR could only make a loss but once entering the emerging market of India they have since managed to gain £41.6million. However emerging markets can sometimes not be a good idea. That is because of the threats that it comes with. For example, with the move into these different markets the culture change in the new markets and sometimes businesses can not adapt or identify these differences. Another threat in these markets may be competitors. Businesses can sometimes not be protected by by the laws in the new markets and so there products might just simply be copied. A threat could also be that the infrastructure in the new markets may be poor, making distribution and and marketing difficult and poor. An example of a company who didn't identify the cultural differences in the new markets is, Mattel’s Barbie Shop in China who shows that targeting emerging markets is not always a good business strategy. This is because Mattel opened BarbieShop in China by spending $30million on opening the store. But the doll failed, although there was a growing middle class, the brand of Barbie in China just was not strong. So the consumers were not willing to spend premium prices on a brand they didn't care about and that they could get a similar knock off dolls for much less. This coupled with that fact that the doll was too feminine for the Chinese consumers as they had preferred a more “cute” doll. Meaning that they didn't gain enough sales in order to keep the stores open.

Targeting an emerging market can also be seen as a good strategy because by moving in to these emerging markets it could make the costs of production a lot cheaper. This is because we see in emerging markets that there is a large pool of highly skilled workers which work at a cheap wages. Meaning that a businesses targeting an energising market would be able to cut wage costs and thus overall operation costs. They could be also seen as being good because the access to raw materials could be easier. Also they could be less/no import tax on the raw materials meaning again that a business would be able to cut down their costs and thus make their cost of production cheaper so they could gain more revenue. To back this point up, JLR again with their move to India meant that they were able to reduce the production costs which were previously causing them to make a loss. So due to the cheaper labour and the cheaper raw materials it means they were able to survive in India. We also see that Dyson moved their production to China, they could have done this to ensure they're able to cut shipping costs. However Dyson failed to identify the legal bills that it would cost them so failed on their first time in to China. However I can accept that moving in to an emerging market may not always be a good strategy. This is because when moving in to emerging markets the main location of the business could be located a lot further away from the production line meaning that it could be a lot harder to communicate with the factories and control what is going on there, for example the quality of the products or how the workers are being treated. If the quality of the product is decreasing this means that it could result in customer dissatisfaction and thus their brand name is worsened in the new market. Then if the workers are being treated poorly it could raise PR problems with the company looking bad. We can see this with Apples production in Shanghai with the company Foxconn having to install nets to stop workers killing themselves due to how unhappy they were at work and how poorly they were being treated. This then lead to Apple having a lot of bad publicity in the news and thus their brand image was worsened. We also see this with Burberrys move to China, workers there complained of low pay and aggressive, verbally abusive behaviour towards them by the factory managers which resulted in a 4 day strike. Burberry had joined the Ethical Trading Initiative but Burberry had been made aware of the rules being broken, which again gave them bad publicity and resulted in the bottom end of their expected profits.

To evaluate, targeting emerging markets can be seen as a good strategy. This is because we see that it can provide opportunities in a new market when markets are in decline or are in recession. I can accept that the emerging market come with many risks I believe that they have a big demand for products due to the higher growth of the middle class as well as having cheap, highly skilled workforce. The success in an emerging market depends upon the research that they do on the market beforehand to ensure they can identify what the new markets consumers want/need as well as any rules/regulation or costs that the new market has as well as identifying the cultural differences. So overall I believe that the risk of an emerging market can mostly all be overcome/ planned for with the use of effective and reliable research.