In the book “Winning in Emerging Markets” (Harvard Business Press, 2010), the authors Tarun Khanna and Krishna Paletu, who have many years studying multinational companies entering new markets, present an interesting approach on how to be successful in emerging markets. This blog highlights some of the concepts discussed in the book:
- “Institutional Voids” are markets conditions that support the profitability of business models in developed economies but are not found in emerging markets. These institutional voids appear in different areas: products (e.g. market research information, distribution networks, after- sale support); Labor (e.g. education infrastructure, training, talent availability); Capital (e.g. reliability of financial data, rating agencies); and Macro Context (private property rights, contract enforcement).
- When faced with these institutional voids, multinational have various strategic choices to make: Replicate or adapt? Compete alone or collaborate? Accept or attempt to change the market context? And enter, wait or exit?
- A multinational company may attempt to fill one of the institution voids and play a market intermediary role to achieve two goals: improve the business environment and develop a new revenue source.
- Multinational companies naturally compete well in the top, more globalized segment of the market. As they go down market, local players have stronger market advantage
- The book also addresses the response of the local companies, or “emerging giants”, and how compete in their home turf and abroad.
- The authors provide practical analytical tools and examples for the various concepts presented in the book.
Overall, the book is a good read for managers selling abroad, especially for those with strategic, planning and advisory roles who require a solid framework to evaluate business opportunities in emerging country.