EMERGING MARKETSChapter ObjectivesI. Doing Business with Transition EconomiesA. A Brief Historical ReviewCHAPTER 9EMERGING MARKETSChapter Objectives To understand the special concerns that must be considered by the international manager when dealing withemerging market economies To survey the vast opportunities for trade offered by emerging market economies To understand why economic change is difficult and requires much adjustment To become aware that privatization offers new opportunities for international trade and investmentOpening VignetteHigh-Tech Teaching in ChinaSummary:This vignette explains what Blackboard is and how it is used in education. Blackboard has moved into China where the potential market is huge. The drawbacks include the fact that Chinese universities have less money to spend on buying items such as Blackboard and that China has a poor record in recognizing intellectual property rights.Chapter OutlineI. DOING BUSINESS WITH TRANSITION ECONOMIESA. A BRIEF HISTORICAL REVIEW1. In Communist nations the government controlled all trade2. A central plan was used to determine production rather than consumer demand3. Perestroika was to fundamentally reform the Soviet economy by improving the overalltechnological and industrial base as well as the quality of life through increased availability of goods4. Glasnost encouraged the fee exchange of ideas and discussion of problems5. National agencies, large enterprises, and research institutes were authorized to engage in foreign trade6. Foreign investors were invited to form joint ventures7. Communism fell in the Soviet Union and Eastern Europe8. Trade shifted away from former communist bloc countries to the West9. Industry was privatizedB. The Realities of Economic Change1. New markets were opened for Western firms2. Infrastructure shortages inhibit economic growth3. Capital shortages are also a major constraint4. It is difficult to get data on and understand demand5. Substantial knowledge resources abound6. Shortage of management skills where an allocation mentality led to waiting for instructions dominated7. Manager and worker commitment and motivation is still lacking8. Managerial decision making is difficult due to the changes and crimeII. Adjusting to Global ChangeA. Adjustments to Change1. Resistance to change is evident in former Eastern bloc nations as everyone must get used to new ways of thinking and behaving2. The industrialized West must also get used to new trade flows3. There has been a job transfer away from manufacturing in the West as these jobs have moved to the emerging economiesB. International Business Challenges1. New potential consumer demand from larger populations2. As the market orientation takes hold and the desire for an improved standard of living emerges, new opportunities arise3. The unavailability of convertible currency blocks purchases4. Some countries do not protect intellectual property rights5. Cultural and business practices may not support Western styles of doing business6. Quality of products from emerging nations may be lacking7. The Eastern European nations supply good industrial productsIII. State Enterprises and PrivatizationA. Reasons for State-owned Enterprises1. National security (telecommunications, airlines, banking, and energy)2. Economic security—when nations are highly dependent on specific industries3. The sizeable investment for the development of an industry may be too large for the private sector4. Governments may decide to rescue failing private enterprises5. Governments may believe they will be more socially orientedB. The Effect of State-owned Enterprises on International Business1. May thwart on hinder market entry2. Sourcing from or marketing to a state-owned enterprise may be affected by politics3. May be tough competitorsC. Privatization1. Can lead to reduced government budges and more efficient services2. Usually results in more competition and innovation3. Usually more productive and attract more investment4. The trend is toward more privatizationFocus on Politics“For Sale” Signs Up in RussiaSummary:This vignette tells how it is now legal to own private land in Russia. But as Russia moves toward a market economy some get rich at the expense of others causing resentment and distrust.D. The Less-Developed Markets1. Companies have found they can make a profit while having a positive effect who persons living in poverty2. Companies need to learn about the needs, aspirations, and habits of these target populations3. Companies must combine advanced technology with local insights4. Providing access to these markets can be a thriving business itselfIV. The Role of the Multinational FirmA. Often successful in transition economies1. Tend to enter services sectors that allow high profit potential with minimal capital investments in the early stages2. As MNCs gain experience and knowledge of local markets, they increase the size of capital investments and use it as a link to other external markets3. As MNCs mature in these markets, the domestic market also becomes profitableB. Transition nations want to tap into the knowledge base of MNCs to become world-class competitorsFocus on EntrepreneurshipMeeting Need and Opportunity in Developing MarketsSummary:In developing nations many persons suffer from vitamin deficiency. To meet this need Coca-Cola developed Vitango and Proctor & Gamble developed Nutristar. These products will bring in some profits and help in establishing relationships with governments and other local