Emerging Markets

Karma Associate is a global Human Resource Management organization with worldwide operations.

Emerging Markets

In the last twenty years, there has been a sea of change in the nature of the triangular relationship between companies, the state and the society. No longer can firms continue to act as independent entities regardless of the interest of the general public. Companies are expanding their boundaries from the country of their origin to the evolving markets in the developing countries which have been often referred to as emerging markets. The current trend of globalization has brought a realisation among the firms that in order to compete effectively in a competitive environment; they need clearly defined business practices with a sound focus on the public interest in the markets.

The term ‘emerging market’ was originally coined by IFC to describe a fairly narrow list of middle-to-higher income economies among the developing countries, with stock markets in which foreigners could buy securities. The term’s meaning has since been expanded to include more or less all developing countries. World Bank (2002) says that developing countries are those with a Gross National Income (GNI) per capita of $9,265 or less. The World Bank also classifies economies as low-income (GNI $755 or less), middle-income (GNI $756–9,265) and high-income (GNI $9,266 or more). Low-income and middle-income economies are sometimes referred to as developing countries.

Successful global expansion depends on having leaders who can transcend the cultural barriers.  For success in global business the emerging market must take care of external dimension involving the external stakeholders like

Local communities
Business Partners
Human rights

And internal dimension like

Human resource Mgt
Work safety and health measures
Adaptation to change
Mgt of environmental impacts

The last decade has seen a mad rush amongst multinational companies to gain first mover advantages in emerging markets by establishing operations and subsidiaries. However most of the firms have found out to their cost that local competition was not as easy to overcome as they had thought with matters being made worse by cutthroat competition amongst the multinationals themselves.  “Local operations now realize that the three to five percent of consumers in emerging markets who have global preferences and purchasing power no longer suffice as the only target market. Instead, they must delve deeper into the local consumer base in order to deliver on the promise of tapping into billion-consumer markets”

Customer Segmentation and Consumer behaviour

There is an urgent need for modifying currently existing customer segmentation techniques. While segmentation based on finer product features may have been successful in the industrially advanced nations, such fine distinctions may not strike a cord with consumers in the emerging markets. This is amply demonstrated in the case of consumer products like toilet soaps where market segmentation techniques in the developed nations are based on value provided by products, like fragrance, anti-aging etc. However the mass market in emerging economies with lesser sophisticated consumers may not be compliant to such fine segmentation. Segmentation techniques will need more careful analysis of consumer behaviour with significant input from demographic data. For example, Dawar and Chattopadhyay (2000) point out that “Here, consumers dislike products that evolve too rapidly, making their recent purchases obsolete. Instead, the need is for basic, functional, long lasting products. The Volkswagen Beetle remained the largest selling car in Brazil long after it had been phased out of the affluent markets and despite competitive assaults by other manufacturers with newer models. The largest selling car in China is still the Volkswagen Santana, a model that was phased out of developed markets 15 years ago.” Thus clearly, in depth analysis of consumer behaviour is necessary in emerging markets although the level of customer sophistication may be less. Here CSR has an important role to play especially in building up trust in the minds of the consumers. In an emerging market where consumers are looking for functional products which last longer and accelerated obsolescence is not a problem like in developed markets, the consumer perception about the company brand assumes significance. A company which builds the image of producing quality products that last longer though they may not be on the cutting edge of technology will actually be able to gain strategic advantage in emerging economies.

The Indian Context
Emerging markets like India have drawn the attention of large MNCs for the potential of market growth. These markets are untapped and give entirely new domain for operations. However many MNCs also take the markets for granted and exploit the laxity in the norms of operations to their advantage. The lack of concern for the local community, the consumers and the environment by these corporations has created large scale public debate and action. It is important in this context to understand that the sustainable business growth is associated with care for the community and markets the corporations operate in. The negative publicity caused by the actions of MNCs has led to suspicion about their operations in the general public in these markets. The case of Coca Cola also proves without doubt that irresponsible corporate behaviour can have repercussion throughout their global markets.

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