Discuss the issues foreign investors need to consider when trying to capture EM customers. Suggests was to capture opportunities in EMs for new entrants.

Question

What will be an ideal response?

Answer 1

For firms from developed markets, emerging markets arise as a relatively untapped area. Often, in EMs firms from developed markets offer products designed for consumers in their own markets based on superior technologies, high quality and design features. Such strategies often fail due to the differences among EM consumers and consumers in developed markets in terms of tastes and priorities.

Although tastes in advanced economies are converging to an extent, such is not the case in EMs (Matusitz and Reyers, 2010). In many EMs even the consumers with high incomes are mostly associated with different spending habits when compared to developed markets (Chavan et al., 2009). Many multinationals from developed markets have been unsuccessful in EMs mainly due to limited understanding of the markets. A major error that such firms make is to offer standard products slightly modified for the market. In EMs understanding the consumer and their needs and offering products customized for the market can arise as a necessity (Chandra and Nelankavil, 2008). In formulating a strategy, firms need to make sure that their product suits the consumer culture, and create value propositions which focus on providing the benefits valued by the EM consumers. As such, firms need to understand the consumer tastes in these markets. Consumers may not be valuing a particular aspect of the value proposition or they may be valuing an aspect not offered by the company. Modifying the offering in line with consumer tastes can help foreign entrants capture a greater consumer base.

Even though many consumers in emerging markets prefer products with lower prices, price is often not the most significant determinant in purchasing decisions. EM consumers are often more cautious than their counterparts in advanced economies, hence they may focus purchasing decisions on quality as opposed to searching for the lowest price (Chavan et al., 2009). Another factor which influences purchasing decisions is the availability of the product. In EMs targeted segments may reside in dispersed locations, or their shopping habits in terms of retail locations may be different. Firms need to make sure that they are able to reach their target consumer base (Johnson, 2011).

In entering emerging markets, treating multiple markets as uniform can be a mistake, as emerging markets are culturally and structurally different from each other. Firms also need to consider differences within an EM. Regions in a given market may be associated with different tastes. Alternatively, different modifications to a firm’s product may be necessary in marketing to different regions within a market, due to the varieties stemming from the environment factors. Such differences are bound to multiply when considering the different lifestyles and infrastructure among regions.

What are some new businesses arising from changes in EMs?
Increased importance of EMs and the need to create or adopt products for these markets has also led to discussions on reverse innovation (Alcácer and Chung, 2011). Reverse innovation occurs when an innovative product is designed for EMs and less developed economies are transferred to advanced economies afterwards. Though examples of such cases are rare, the prospect of operating under different conditions in EMs can lead to further advancements in terms of innovations which could then be exploited in advanced economies as well (Govindarajan and Ramamurti, 2011).

The growth rates of EMs have accentuated the importance of investing in infrastructure because the current state of the infrastructure in many EMs is not adequate to support high growth rates. In countries with accelerated growth patterns, the demand of infrastructure and housing increases rapidly. This pattern especially highlights the need for infrastructure development that the cities will need in order to support the increased population as well as the rapid growth. Multinationals can work with EM governments in undertaking construction activities. Moreover, to finance the infrastructure, governments need funding, which highlights significant opportunities for financial service providers.

The increased presence of female participation in consumption affects consumption patterns, creating even larger opportunities in the consumption of household goods in EMs. Rapid growth of the younger population also highlights business opportunities. The younger generation is associated with a tendency to try new things and this is especially visible in technology products. Internet penetration has been increasing at higher rates in EMs when compared to developed nations and this trend is expected to continue.

Increased concerns of climate change and the need to shift to low carbon economies has generated a new trend in foreign investment. In many EMs especially, younger generations are environment conscious. Although environmental laws in emerging economies are not as stringent as they are in developed countries, firms interested in doing business in EMs over the long term should be aware that the situation is changing fast.