How does infrastructure availability and efficiency affect multinationals’ decisions when entering emerging markets?
What will be an ideal response?
The quality of infrastructure directly affects a country's economic growth potential and the ability of an enterprise to engage effectively in business. When an infrastructure does not develop with an expanding population and economy, countries begin to lose economic development ground. A country can produce commodities for export but cannot sell them because of inadequacies of the infrastructure. Product labour and capital markets cannot function effectively if the physical infrastructure within the country is not developed (Khanna and Palepu, 2010). A distinct difference between developed and emerging economies is the presence of infrastructural inefficiencies in the latter. Still, in EMs, increased investments in infrastructure are being made for sustained growth in world trade.
Distribution represents a major challenge for multinationals in EMs. Due to relatively inefficient infrastructure, absence of professional logistics intermediaries, and the dispersed nature of the population, the logistics processes are inefficient. As logistics provides a major challenge in EMs, establishing an efficient distribution network arises as a major undertaking for multinationals. Distribution and the ability to reach consumers in markets which are more dispersed, arises as a very big opportunity. Hence, some multinationals invest in distribution networks.
On the other hand, in considering the weaknesses in infrastructure, many multinationals partner with locals and establish joint ventures or build relations with local distributors. EM firms have adapted their operations to function efficiently in areas where logistics and distribution systems are not developed. Then the availability and the qualities of potential partners or distributors is an important factor which influences the multinational’s decision-making process. Many companies have also acquired distributors in order to main control over the dissemination of their products. If the company is not ready to invest in their own distribution network, then building successful relations with local distributors as well as ensuring sufficient monitoring of their activities arises as a necessity. In such cases, companies need to analyse the distributor’s operations and make sure that the distributor can fulfil their needs.
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