What is the role of emerging markets in a multinationals global strategy?

Question

What will be an ideal response?

Answer 1

Emerging markets have been increasingly contributing to global growth fuelled by increasing levels of domestic demand. As these countries grow, rising income levels lead to the emergence of a new middle class which will affect the world economy and the global demand significantly in the long run. In terms of a multinationals’ global strategy, emerging markets arise as important consumers, producers and competitors.

Emerging markets are associated with increased growth and consumption. Meanwhile, multinationals are facing relatively stagnant markets in developed countries. Hence, the role of emerging countries as potential markets is more significant.

Increased competition among the multinationals has resulted in splitting value chain activities internationally at increasing rates in the twentieth century. Increased levels of globalization also enable the companies to slice their operations and locate them in the least-cost or most advantageous locations.

Emerging markets have long been centres for manufacturing due to the availability of low-cost and skilled labour which can undertake high quality manufacturing operations efficiently. As intensified competition forces companies to drive down costs, many companies are relocating or investing in manufacturing facilities in emerging markets. Companies are increasingly engaging in global sourcing whereby they procure products or services from independent suppliers or subsidiaries around the globe.

The presence of emerging market multinationals in their domestic economies leads to intensive competition for multinationals trying to enter these economies. In their investments abroad, multinationals generally face the local competition at the lower end of the market and concentrate on high-end markets which are limited in size. In emerging markets, local competitors are endowed with knowledge of the customer, ability to operate at lower costs and strong relations with authorities as well as other players within the value chain. Often, emerging market firms have higher production efficiency than MNEs from developed markets due to their ability to optimize the production processes in emerging market conditions.

Domestic firms in emerging markets have also been growing rapidly. Due to increased liberalization as well as government incentives promoting outward foreign investment, such firms have also started to internationalize rapidly. In parallel, many emerging market firms are fast becoming global competitors.