Survival Strategies for Local Companies in Emerging Markets
On the other hand, there are other industries that seek to gain success by meeting the local needs of the customers. This way they get closer to the customer and understand their wants and needs. For example, in retail banking companies try to build a relationship with the customers by catering to their needs. Consumers differ differently in their tastes. Their preferences vary enormously because of different tastes and different customs.
Multinationals selling their standardized products will never be able to cater to these local needs. Alternatively, high transportation costs in hese markets may discourage the multinational presence.
When we closely look at it, most industries lie somewhere in the medium spectrum. They sell internationally as well as try to cater to the local needs. Managers of companies must try and identify their presence in the spectrum.
Industries that seem similar may be far apart on the spectrum—pressures to globalize as in the case of Baja] when it thought that it had to globalize its scooter products the minute Honda stepped in to the market. However, Baja] found out that customers seek low-cost durable products and not the Honda’s standardized roducts.
Moreover, Baja] has the advantage of handling distributors in the country. Its distribution network is well diversified within the country which is almost impossible for a multinational to compete with it. Baja] had this competitive advantage. Moreover, companies operating in the local markets may have good relationships with the government and they readily get the government support which is not possible for foreign nationals.
Or, they may have distinctive products that appeal to the local customers which the foreign nationals are not able to produce cost effectively.
So effectively, there are two parameters by which managers will have to decide when they seek to have a competitive advantage against a foreign but huge national. Companies adopt different strategies when dealing with foreign nationals in the local markets: Defender: Focus on supplying local assets in segments where multinationals are not doing too well or weak Extender: Focus on expanding into international markets similar to those of the local market, using the competencies that had been developed at home. Dodger: Focus on creating a synergy viz. y entering into a Joint venture with the ultinational , or allow to be acquired by the multinational. Contender: Focus on upgrading the company’s capabilities and resources so as to be able to match foreign nationals or multinationals globally, often by concentrating to niche markets [pic] 1 .
Defender: Companies adopt this strategy when the pressure to globalize in the industry is low and their competitive assets can be customized or served to the home market. These companies have the advantage of better distribution and better understanding and coping with the local differing tastes.
For example, when Honda entered stepped in to the market, Baja] did not try to ompete with Honda’s products. Baja] found out that customers seek low-cost durable products and not the Honda’s standardized products. Moreover, Baja] has the advantage of handling distributors in the country. Its distribution network is well diversified within the country which is almost impossible for a multinational to compete with it.
Baja] had this competitive advantage. Moreover, companies operating in the local markets may have good relationships with the government and they readily get the government support which is not possible for foreign nationals.
Or, they may have distinctive products that appeal to the local customers which the foreign nationals are not able to produce cost effectively. Similarly, there are other companies that do not seek to compete with the multinationals but they have a competitive advantage over the foreign nationals primarily with the fact that they can reach better to the rural markets and seek the support of the government. 2. Extender: Companies that adopt this strategy are those that have developed quite well in the home market and are using their competency to extend to the global market.
This strategy is adopted when the pressure to globalize is not high. Companies that adopt this strategy are those that seek to try and provide the same products that is being offered in the home market to customers living abroad. For example, Jollibbee a Mexican fast food store did not try to compete with Mcdonalds when this huge multinational tried to enter its market. Rather, it concentrated on its competency in the Mexican market and tried to follow Mexicans all over the world by providing and catering to Mexican populated colonies in the world.
Similarly, most television hannels are seeking to adopt the same strategy.
NDTV can be viewed by Indians who are in Canada, USA and the other countries. This way, they keep in touch with their customers and seek to find out their differing needs and tastes. 3. Dodger: When the pressure is high to globalize and the company does not possess any transferable assets, companies seek to connect a link to their value chain and either enter into a Joint venture with a multinational by synergizing their operations in the market or allow itself to be acquired by the multinational company.
In such a case, companies have no other option but to dodge the competition in the market. For example, the Indian ice cream market has a dominant player viz.
Kwality Walls. Kwality sold its brand and assets to Unilever and now it is the leading ice cream player in the country. Kwality knew that it would not be able to compete with Unilever and so it allowed itself to be acquired by this multinational. Similarly, when Russia became a liberalised economy and Iron Curtain dropped down, Vist , a Russian local personal computer manufacturer did not try to compete with the
American or Japanese multinational manufacturer. Rather, it concentrated on the distribution system of PCs in the country.
The distribution system in Russia is marked by corruption and theft and it becomes almost a difficult task for a foreign national to carry out operations in Russia. This way, Vist seeks out to help the foreign nationals in the distribution of the multinational’s products because they being a local player will know all about the ins-and-outs of the country. As a result, they establish an important link in their value chain and seek to help out these companies. 4. Contender:
When the pressure is high to globalize and the company’s assets are transferable abroad, companies adopt the Contender strategy. These companies try to compete with the multinational companies by continuous upgradation and improvement in their overall operations but they try to stick to the niche that they have created and maintained all over the years.
For would be contenders that lack access to key resources, finding a distinct and defensible market niche is vital. For example, when General Motors decided to outsource the production of radiator caps for its vehicles, Sundaram Fasteners seized the opportunity to go global.
Sundaram bought the entire production line of General Motors, moved it to India, and within a year it became the sole supplier of radiator caps to General Motors. This way it not only supplied the materials but it also got involved in the Supply chain of GM and understood the changing needs of customers. So it is important for every company to know where they stand in terms of competitive advantage when a new but huge multinational enters a local market.
References: NiraJ Dawar & Tony Frost “Survival strategies for Local Companies in Emerging Markets”, Harvard College, p 123-129