Today’s Top Stories
- London Attacker, Born in U.K., Had Criminal Convictions, Was Probed for Extremism (WSJ.com: World News)
- Pro-settlement hardliner Friedman confirmed as US envoy to Israel (BBC News - Home)
- Investing In Soccer (Forbes - Business)
- Eurovision: Russia rejects offer for Julia Samoilova to perform 'via satellite' (BBC News - Home)
- Mexico may 'step away from NAFTA' if deal isn't good (Business and financial news - CNNMoney.com)
- London Attacks Highlight Balancing Act for Big Cities (WSJ.com: World News)
- New GOP bill costs more, but doesn't cover more (Business and financial news - CNNMoney.com)
- MarketWatch First Take: Micron profits from memory price spike, expects party to continue (MarketWatch.com - Top Stories)
- Rolling Back EPA's Clean Car Standards Is Bad For America. Here's Why. (Forbes - Business)
- Republicans delay health vote as rebels defy Trump (Europe homepage)
- Republicans delay health vote as rebels defy Trump (UK Homepage)
Other Blog Headlines
- 5 Filters of the Mass Media Machine (The Big Picture)
- The Natural Rate of Interest: Estimates for the Euro Area (Economist's View)
- A few Comments on February New Home Sales (Calculated Risk)
Monthly Archives: September 2012
A recent article in the Economist pointed out that, in addition to facing operational difficulties, emerging market companies face marketing difficulties when tackling developed markets (see Brand New).
There has been a lot written lately about the emerging country champions – such as Haier, Lenovo, and Tata Motors – expanding abroad. I’ve even documented how difficult it can be for emerging market multinationals to expand into developed markets.
What’s interesting about this article, however, is that it highlights a particular challenge –building a global brand.
…non-branded companies typically earn gross margins of 3-8% and are constantly at risk of being undercut by cheaper rivals. Branded firms enjoy fatter margins (15% or more) and more loyal customers. Yet becoming a global brand is exceedingly hard. Emerging-market firms…struggle with limited budgets and unlimited prejudice.
The article describes a recent book by Amitava Chattopadhyay, of INSEAD, and Rajeev Batra, of the University of Michigan’s Ross School of Business, that addresses these challenges. The book argues that emerging market companies can overcome branding challenges by:
1. Exploiting their two basic advantages—economies of scale and local knowledge—to expand into new markets;
As I pointed out in Innovation in China, Part Trois, manufacturing low-margin goods isn’t sustainable for emerging market multinationals in the long run. And unfortunately, moving up the value chain from a low margin manufacturer to a globally-recognized company takes an inordinate amount of time.
In addition to the typical motivations for foreign expansion including market access and/or access to basic resources, firms from emerging markets often expand in an effort to tap into, and assimilate, state of the art technologies available in developed markets…[But] effectively integrating advanced technological knowledge is challenging. Closing the skills gap with advanced countries is no easy task.
Moreover, companies trying to establish their brand in a developed market oftentimes must combat the developed country consumers’ preconceived notions about the quality of goods. According to the Economist article:
Emerging-market firms must struggle with limited budgets and unlimited prejudice. GfK, a consumer-research company, found that only one-third of Americans were willing even to consider buying an Indian or Chinese car.
So although I think the book authors provide some good tips and isolate the kinds of things that emerging market multinationals need to do to overcome the challenges associated with global expansion, more often than not, these things are easier said than done.
More on this topic (What's this?)
Interdependence between Advanced and Developing Economies (Top Foreign Stocks, 9/14/12)
Emerging Markets: High Growth vs. High Returns (EconMatters, 8/28/12)
Think Emerging Markets Are Too Risky? Try These… (Investment U, 8/24/12)