What do you think managers need to consider when making the decision to adopt their business models for EMs?

Question

What will be an ideal response?

Answer 1

Many companies encountered problems in EMs because they set up the same manufacturing facilities and systems they use to serve developed economies. However, in EMs, multinationals need to compete with local companies who emphasize low cost and are able to achieve operations at such costs due to their efficiency in production with high labour-intensive systems, and their ability to serve the product that meets the needs of the local customer. Then, the multinationals are also faced with the pressure of creating efficient production processes which can compete with the margins of the locals while meeting the customer needs (BCG, 2011). For instance, a company can replace the process to a more labour intensive one and strip the costs stemming from equipment and machinery. To maintain low costs, a company can also strip processes that are necessary in Western markets such as invoicing systems.

Doing business in EMs offers major learning opportunities for firms as they learn to operate in environments which change and evolve rapidly. In this structure firms are met with multiple forces such as rapid urbanization, industrialization and liberalization (Enderwick, 2009). Moreover, they are faced with different consumer cultures and needs. The EM structure often necessitates high levels of customization through which many multinationals are confronted with the need to rethink their business models, in order to create valuable consumer propositions for EM consumers. Through this process, doing business in such environments can lead to product and process innovation in EMs (Ghemawat, 2010). In designing their models, companies need to consider product attributes valued by the EM consumer. In order to provide such attributes, they need to modify their business models to take advantage of country advantages and lower costs.