INTERNATIONAL BUSINESS STRATEGY

ASSIGNMENT
Submitted by Pamela Roy (EPGDIB-IM 30B)

What are the challenges likely to be faced by the

businesses in the emerging economies
internationalizing at a fast pace?
Challenges for companies exporting Indian merchandise and services Firms which are
primarily involved in the exports of Indian merchandise or services to foreign countries faces
challenges in terms of:

 NTB & Phyto-sanitary barriers and Foreign regulatory environment

The rise of NTBs as a possible counterpoint to trade liberalization is best illustrated by the
recent wide-spread use of the antidumping (AD) measure. Until recently a rarely utilized NTB
outside of a handful of developed nations, these measures now affect tens of billions of
dollars in trade each year in both developed and developing nations, equal to roughly one-
quarter of worldwide imports (Hindley and Messerlin 1996; Niels 2000).

The Agreement on the Application of Sanitary and Phytosanitary Measures sets out the basic
rules for food safety and animal and plant health standards.
It allows countries to set their own standards. But it also says regulations must be based on
science. Trade has reduced manufacturing wages in high income countries and made entire
industries uncompetitive in some communities, giving rise to nationalist politics that seek to
stop or reverse further trade expansion. Increasingly anti-trade rhetoric and protectionist
agendas heard in Europe and the United States are emerging as low-income countries seek
better integration into the global economy.

 High Transportation Cost

Transportation costs, whether natural or man-made, introduce a band within which it is not
worthwhile or profitable to arbitrage the differences in prices across localities. Given the
demand and supply elasticities, it follows that any induced increase in aggregate demand will
have no impact on the global prices. As the price does not change as a result of the increase in
the small country’s excess demand, production will not change in a meaningful way in any of
the localities and there will be no price response. This means that the local excess demand
will be satisfied through a net importation of the commodity in question. Therefore, when all
is said and done, the policy-induced excess demand results in a deterioration of the trade
balance, no change in domestic production, and no effect on global prices or rates of return.
The local policies will have little or no effect on the integrated, small open economy. The
impact of the local policies will be felt on the small, open economy’s international accounts.

 Inspection and Certification Issues

The Asia Pacific and South America are projected to show a high rate of growth due to a
growing trend of outsourcing services to the developing countries in the region. In the recent
past, the volume of goods that are exported from these nations to already developed
countries has grown substantially. A reason behind the growth of this trend is the exported
good must comply with the western standards of safety and hygiene.

 Integration related challenges

Because of cultural difference, it is difficult to integrate acquired firm fully in terms
of workforce. Inexperience of management in this area poses major challenge. Also local
firms that had never been leaders in Innovation and research face challenges to acquire firms
which are innovation centric.

 Infrastructure

Emerging economies are still struggling to develop proper roads and ports. On the
infrastructure front, there is a huge shortfall in all the three areas—road, rail and port. This
acts as a huge opportunity for establishing several new public/private partnership projects.

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  Foreign Exchange Rate

Downfall of local currencies against major currencies also poses as a challenge in the present
day, as the manufacturing & operation cost goes up.

 Scarcity of Manpower

This is one of the weird byproducts of the growing economy. In China, people travel hundreds
of miles to seek for employment opportunities. They pursue the highest paying ones they
could find. And when they saw such jobs, they'll lose interest in lower paying one. As a result,
large employers get thousands after thousands of candidates to choose from, while the rest
employers do not have enough candidates to fulfill their orders.

 Marketing Challenges

Marketing knowledge is dependent on the relevance and depth of marketing information

available to the firm. Firms that use relevant, accurate and timely information are in a better
position to respond to export problems. Information about exporting and more specifically
market information were mentioned as the most serious problem of manufacturing. Getting
concrete information on respective
foreign markets is essential before exporting can occur.

 Distribution Challenges

Distribution is another major problem area in exporting. Many SMEs in developing countries
lack information about marketing channels and fail to establish marketing networks. Sound
financial position is one of the keys to secure price advantage in the target market. Many
SMEs in developing countries run into problems for lack of timely and adequate working
capital, which not only adds costs but can also endanger the entire production operation. The
importance of financial barriers to exporting, such as difficulty in acquiring the necessary
funds to initiate.

 Export procedures

One of the most cited obstacles with regard to exporting concerns the time and paperwork
required to comply with foreign and domestic market regulations. Governments do not solely
impose these procedural requirements. Also, independent organizations such as banks,
shipping organizations and insurance companies, have their own procedures. A firm that
wishes to enter the export market or intends to increase its export activity will have to acquire
the knowledge and skill to deal with administrative procedures. In particular for
inexperienced managers foreign documentation and paperwork may appear very difficult to
cope with.

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What are the challenges encountered by classical MNCs on
account of the internationalization of businesses in
emerging economies (EMNCs)?
Expanding across borders can be a highly beneficial growth strategy for a company. It can
find new markets for its products, new sources of raw materials, cheaper labor, or more
sophisticated technology. For this reason, increasing numbers of firms are moving out of the
confines of their home markets to export products and services, import production factors,
and invest abroad to control access to customers or suppliers. However, expansion across
borders is also challenging. Success at home does not always result in success abroad, no
matter how well liked the products are at home and how desirable they seem to be to
customers abroad. Venturing abroad entails serving customers with different preferences,
facing new and, in some cases, stronger competitors, and having to deal with cultural,
economic, technological, social, legal, and political differences between countries. These will
affect the overseas success not only of emerging market multinational corporations (EMNCs)
but also of highly successful firms from advanced economies.

 Globalization may be a fact of life, but it remains highly fragile. Embedding global
market forces in shared values and institutionalized practices and bridging the gaps in
global governance structures are among the most important challenges faced by
policymakers and corporate leaders alike (Kell & Ruggie, 1999).”
 MNEs face other equally important challenges such as ability to adapt to the cultural
differences, standards and practices (Sauvant, Maschek & McAllister, 2009).
 Appropriate market segmentation, relating to the low spending power of the major
part of the market and developing effective marketing strategies to apply in different
sections of the transforming society (Zainulbhai, 2005) are other major issues facing
MNEs in emerging markets.
 Balancing the price and quality; understanding the influence of institutions such as
judicial system, political system, education system and mixes of traditional local
culture and modern global culture (Zainulbhai, 2005).
 Industrial infrastructure is inefficient, lack of intellectual property right protection,
high tariffs, expensive bureaucracy, ambiguous rules and regulations, monopolistic
practices, control of distribution systems, unreliable and low quality suppliers and
challenges for MNEs overall industrial manipulation (Bennett, 1995; Gutierrez,
Spencer & Zhu, 2012; Luthra, Mangaleswaran & Padhi, 2005).
 High price sensitivity, local needs and limited purchasing power are the characteristics
of emerging markets (Prahalad & Lieberthal, 1998).’

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  Absence of specialized intermediaries, regulatory system and contract-enforcing
mechanisms are other critical issues in the emerging markets (Khanna, Palepu &
Sinha, 2005)
 Corporate social responsibility is growing challenge for the MNEs operating in
emerging countries. MNEs are expected to balance their role in economic
development with social responsibilities toward the country in which they operate
(Sauvant, Maschek & McAllister, 2009).

Human Challenges: Diverse challenges facing the human society today are outlined below:

• Global ethics
• Science and technology
• Energy
• Transnational organized crime
• Status of women
• Peace and conflict
• Capacity to decide
• Health issues
• Rich-poor gap
• Global convergence of IT
• Long-term perspectives
• Clean water
• Population and resources
• Democratization

 Business Challenges:

These challenges are directly related to business management issues including

investment, profitability, competition and growth. Other broader management
challenges facing MNEs operating in emerging markets such as:

 Market-segmentation Market-targeting Market-positioning

 Promotion
 Advertising
 Distribution

While remaining competitive in business and socially responsible at the same time is a
tough call for MNEs operating in emerging markets. However, it is achievable by having
an integrated approach to do business in that combining human needs with business
aspirations and concurrently overcoming the most problematic factors (Schwab, 2014), as
outlined below:

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  Corruption
 Inadequately educated workforce
 Government bureaucracy
 Access to financing
 Inadequate supply of infrastructure
 Poor work ethic in national labor force
 Restrictive labor regulations
 Foreign currency regulations
 Poor public health
 Tax rates
 Inflation
 Crime and theft
 Tax regulations
 Government instability/coups
 Policy instability
 Insufficient capacity to innovate

While conducting business in emerging countries, MNEs are expected to be socially

responsible in many ways:

 Being ethical.
 Law abiding.
 Economic contribution.
 Protecting consumer rights and interests.
 Respecting the natural environmental.
 Avoid all forms of discriminations.
 Promoting worker safety and welfare.
 Protecting shareholders.