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19 Nov 2021 
Claude 
Introduction
Globalization has changed the way many businesses operate and influenced brands that participate on an international scale to adopt global marketing strategies to succeed in the global market. There are many definitions of global brands, but for this chapter, a global brand is one with a global geographic presence and generates a percentage of sales outside the brand’s home market. For the last two decades, the market economy has changed significantly with most of the economic development taking place in emerging markets.
Emerging markets are categorized as economies moving towards more sustainable and rapid growth. Hence, presenting new opportunities for global brands especially those brands from mature economies in the United States, Western Europe, and Japan. Emerging markets have changed over the past 20 years and the rate of economic growth is growing at a 4% compared to 2% of that of developed economies (European Commission, n.d) and according to one report (Woetzel, Madgavkar, Seong, Bughin & Manyika, 2018), emerging markets are responsible for two thirds of the world’s economic growth.
“By 2030, the emerging markets will account for 62% of the total growth in global consumption and about 15.5 trillion in spending” (Donnelly, 2018a). Not to mention, countries such as China, India, South Korea, Indonesia, Thailand, and Singapore now provide a new set of opportunities for business expansion for global brands. Anu Madgavkar, a partner at McKinsey Global Institute in the research department identified that these countries all had at least a 3.5% real GDP per capita year over year for the past 50 years (Donnelly, 2018b).
Who is it for? This chapter is geared towards individuals who want to understand the survival strategies for global brands in emerging markets. That is to say, includes investors and global brands. Emerging markets offer investors the benefits of diversification.
Emerging markets do perform differently from developed markets and present opportunities for international investors to diversify their investment portfolios due to economic downturns in countries especially in mature markets (Terzo, 2018). In other words, economic downturns in countries like the United States can be offset by growth in an emerging market.
For Global brands looking to expand, emerging economies offer room for revenue improvement, become a buffer towards recession, as well as increase cooperation amongst multinational institutions (Pendleton, 2019). Since there is a rise of middle-class consumers in emerging markets, global brands have been attracted into expansion into these markets (Court & Narsimhan, 2010). This chapter will
Challenges
Global brands face many challenges that need to be taken into consideration when expanding into multiple emerging markets around the world. These challenges are cultural differences, political and government forces, and competition from local companies.
Our world is very complex, and each country has its unique mix of embedded cultural differences such as lifestyle, language, education, demographic, and economic situation. All these factors create complications that multinational corporations must pay attention to if they want to survive for the long term in the international market. These cultural differences affect consumer’s motives, attitudes, behaviours, and buying patterns, which must be tailored to or else international companies face uncertainty and risk (Rothaermel, Kotha & Steensma, 2006).
DuPont Teflon expansion into China is an example of when a company fails to adapt to cultural differences that led to the failure of a company in a foreign market (Neupert, 1999). Expanding to the Chinese markets was a great opportunity because of the improving economic situation. However, DuPont failed to adjust to the consumer needs and cooking habits of the Chinese people. Traditional Chinese cooking methods include different methods and utensils compared to cooking methods in western markets (Neupert, 1999).
Other differences include the size between western and Chinese kitchens, as well as the availability of cooking gases only accessible to a small part of the Chinese population (Neupert, 1999). Business and politics are connected and influenced by one another, especially when global brands enter emerging markets where both political and government systems involved influence almost every institution in the country. According to Rothaermel, Kotha, & Steensma, (2006),” A country’s political risk and forces, often represent underlying societal tension and unrest, may cause drastic changes in a country’s business environment that may prove detrimental to foreign business interests” (p. 59).
In some instances, global brands need to comply with government rules, restrictions, and regulations, to participate in the local market. Corruption and fraud are also risks to global brands looking to grow in emerging markets. When Google expanded to China, it faced lots of obstacles imposed by the Chinese government. The freedom of information and press is limited in China due to the censorship of search engines imposed by the Chinese government (Quelch & Jocz, 2010). Google was not willing to comply with restrictions that go against their core beliefs and values. This led to the end of its expansion in China.
Although Google had good intentions when expanding into China, they questioned whether it would be a good business decision to enter China with its existing political situation. The political situation and position of a country should be one of the top priorities to a company as it could be a direct factor to the success or failure of a global brand. Local brands in emerging markets over time have increased their economic growth, innovation, and ability to pose a legitimate competition to international corporations. According to Santos & Williamson, (2015), “Increasingly, powerful local companies are winning out against multinational competitors. This is especially true in emerging markets” (p.45).
Global brands have a disadvantage when it comes to the lower-value activities which were often outsourced to emerging economies (Santos & Williamson, 2015). This allowed local players to adopt or essentially copy products that were very similar or even better than those of global brands. According to Santos & Williamson, (2015), “Modularization and outsourcing allowed Xiaomi to produce smartphones that became number one in the Chinese market with a 13.7% share in the fourth quarter of 2014, outpacing both Apple and Samsung” (P.47). The rise of globalization has led emerging markets to gain an advantage with the increasing number of talented and knowledgeable workforce. Also, global brands can acquire products, technology, and talent from other places in the world to get a competitive edge (Santos & Williamson, 2015).
Local markets also have an advantage because they are integrated with local commercial networks and have a much deeper understanding of consumer needs and societal culture (Santos & Williamson, 2015). An example would be the competition between Uber and Didi. Didi is one of Uber’s local competitors in China (Wu, Chen, & Su, 2016). China is an increasingly growing market in ride-hailing services due to an increased population who all own smartphones (Wu, Chen, & Su, 2016). Didi had financing from major companies in China and had evolved to using messaging and payment apps which created an innovative advantage to the company (Wu, Chen, & Su, 2016).
Strategies
Based on the traits of emerging market countries, three sub-markets can be recognized, and each sub-market has its strategy.
Product Market – Brand Positioning
The consumers in emerging markets have suffered for decades because of the closed economies and limited selection of low-quality goods which come from domestic manufacturers. However, these emerging market countries such as Brazil, India, and China have opened up their markets growing rapidly during recent years. With the economic liberalization, free trade policy and higher income, consumers in emerging market countries are hungry for high-end products (Gingrich, 1999). There is a research result shows that the percentage of consumers claiming to have increased their spending on luxury goods in the last 5 years was 70 percent, which is 23 percent higher than those mature markets (Elena, 2017).
Since emerging market’s consumer behavior has shifted from “money-oriented” to “product-oriented”, finding an appropriate product position which fits the characteristic of an emerging market is critical for global brands. Furthermore, the product market in emerging countries is affected by “word-of-mouth”, which is a local phenomenon in those markets and is more general than in developed market countries. The research shows that 92 percent of people received recommendations from families and friends before purchasing in Egypt while only 29 percent in the United Kingdom (Atsmon, Kuentz, & Seong, 2012).
One of the reasons is that emerging market-consumers generally live close to friends and families. Meanwhile, the product markets generally acknowledge that if a product is used by more people, this product would have a smaller chance to fall apart (Atsmon, Kuentz, & Seong, 2012). Hence, finding a positive and clear brand positioning is quite important especially in emerging markets.
Labor Market – Innovation Strategy
To fully leverage the opportunities afforded by emerging markets, global brands should apply innovation strategies by establishing R&D hubs in emerging economies. The most important reason is fitness between R&D hubs and labor market in emerging markets. For global brands, an international platform of R&D hubs is critical. As we mentioned before, there are lots of cultural differences which will impact on customer preferences and purchasing behavior in emerging economies.
The lowest-cost, stripped-down products and a “one-size-fits-all” will not work anymore in emerging markets. Local R&D capabilities help position products for local markets and customer requirements. According to research, technology firms with global R&D activities can demonstrate better financial performance. Global brands that restrict foreign R&D to a few locations and focus on low-wage countries such as China and India also see above-average financial success. (Jaruzelski & Dehoff, 2008)
Global brands are not just moving to countries due to cost reduction. The increased talent pool in labor markets of emerging economies also is another important reason why we recommend adopt innovation strategy in emerging markets. Skilled people who are a prerequisite for boosting innovative performance are enjoying a brain gain as the number of young skilled workers increases. For example, the BRIC countries (Brazil, Russia, India, and China) had a total of 18 universities in the ranking of the global 500 universities in 2003, but this grew to 40 universities in the 2015 ranking. (Between 2000 and 2015 the number of domestic invention patent applications in China grew by a factor of 38 – from about 25,300 to more than 968,000 applications per year (Dutta, Lanvin,& Wunsch-Vincent,(Eds.), 2016).
Emerging markets also encourage innovation through legal, regulatory and economic assistance. The application of innovation strategy by establishing R&D hubs in emerging markets already be an essential part of globalization. Prominent global brands such as Microsoft, PepsiCo, IBM, Cisco, Nokia, and GE have also established R&D hubs in emerging markets to conduct scientific and engineering research and explore sustainable business models and organizational structures.
Capital Market – International Joint Venture (IVJ)
The development of economies gives developing countries a large capital market potential. For example, deeper capital markets in emerging Asia could free USD 8000 billion in funding annually, mostly for mid- to large-sized corporations and infrastructure accelerating economic growth and potentially lifting millions from poverty. There are many different kinds of methods to invest in emerging markets for global brands, for example, cross border mergers and acquisitions, and establishing international strategic alliances such as joint ventures. We believe that successful joint venture can present valuable opportunities while reducing costs and risks across the board.
The capital and financial markets in developing countries are remarkable for their lack of sophistication. Apart from a few stock exchanges and government-appointed regulators, there aren’t many reliable intermediaries like credit-rating agencies, investment analysts, merchant bankers, or venture capital firms. For foreign companies, especially for the global brands which first time to enter emerging markets, IJV will simply help then to share ideas, share capital, share profits, share work and share culture even the risks of a business because it is a win-win situation. For example, with the help of joint venture partner – the Moscow city administration, McDonald overcome the local supply chain issue (Thing, 2010).
Besides, because of domestic regulatory regulations and/or the nature of the host- country market, global brands are often left with little choice, but to form joint ventures with local companies. IJV can be very useful in sourcing cheap local inputs and materials and access to established local distribution networks, and can also provide insurance against political risks. For example, China required all automotive companies to enter Chinese markets via joint ventures a few years ago.
Except for consideration of the features of the emerging capital market, establishing IJV relationship will help MNCs protect their intellectual property. The technique rated most effective was forming a joint venture with a large Chinese partner, incentivizing that partner with outsized ownership, and relying on its self-interest to defend the IP. For example, BYD had a poor reputation for copying foreign competitors such as Toyota. However, Toyota announced it entered an agreement to jointly develop all battery-electric vehicles for China market in July 2019 (Wu, Chen & Tong, n.d).
Conclusion
Growth in emerging markets presents both huge opportunities and challenges for global brands. Investors and global brands can increase their brand awareness and revenue by entering into emerging markets since there is increasing economic activities. Although there are opportunities for global brands to grow in emerging markets, it is difficult to sustain. Challenges including cultural differences, political and government forces, and competition with local companies can interfere with growth.
According to research, these challenges can be overcome by strategies for instance brand positioning, innovative strategies, and joint venture strategies developed by global brands. By understanding these survival strategies, global brands will be able to position products to meet customer requirements, increase their talent pool, improve organizational structures, and adopt a win-to-win situation between themselves and competitors. They should develop both counter and cooperative strategies and by no means underestimate local competition attempting to take their brands globally as they break out into emerging markets.
The bottom line, global brands must carefully execute strategies to offset challenges and risks. An emerging market strategy, if chosen wisely, can lead to sustainability and growth