Multinational Corporations in Emerging Markets Essay Example
The current wave of economic liberalization in the present decade has seen the growth and expansion of companies in developing countries to global heights that challenge subsequent existing multinational businesses (Motohashi, 2015).Companies in emerging countries have progressively moved up the global ladder and outside their home markets to dominate the world market (Zhang, 2015). Currently, internationalization and globalization is of the essence when running a business operation. There are abundant reasons for companies to go global, for instance; if the home market is torpid and there are better sales out of the country. Organizations that choose to remain home rather than reach out and go global might miss the chance to get into foreign markets and equally lose the business chance in their present home market. Mahindra and Mahindra is one special example of an automotive company that has designed products that rival those of other automobile giants such as Toyota and the Mercedes (Acharya, 2014). Other companies include Teva Pharmaceuticals in Israel, Cemex from Mexico, Baosteel from China and AmBev from Brazil.
According to Cavusgil et al (2014), emerging market economies are a division of previous developing economies which have attained significant modernization, industrialization and an improvement in the living standards since the 1980s. Major characteristics of emerging market countries include middle class growth that has elevated economic aspirations and a rapid betterment of the standards of living. Emerging market countries are basically defined as countries whose objectives involve a profitable modification process that is meant to diminish the difficulties being faced by the country such as overpopulation, poverty and poor infrastructure (Nolan, 2014). Emerging markets have thus formed due to the increasing attraction of global destinations for foreign direct investment, exports and sourcing (Motohashi, 2015). This retro respect paper subsequently discusses Lenovo as a multinational corporation in the emerging market economy. The paper will further discuss the potential benefits and challenges that are as a result of globalization and moreover suggest the lessons that global business executives can discover about the relationship between home and host country diversities in successful implementation of business.
Lenovo: A Multinational Company in an Emerging Market
Lenovo Group Limited is involved with the design, development and manufacture of technological accessories such as personal computers, tablets, phones, technological software and televisions (Thomas and Thomas, 2016). The company has its headquarters in Beijing, China and was founded by Liu Chuanzhi. Currently, Lenovo has successive headquarters in North Carolina and Morrisville in the USA and is operational in over sixty countries. In the year 2009, Lenovo spearheaded personal computer manufacturing companies in dividing countries between mature markets and markets that are emerging (Thomas and Thomas, 2016). The company developed diverse strategies to maximize profit and market share in both markets and has since had competitors adopting their approach in order to successfully carry out their business operations (Qiao and Conyers, 2014). After a struggle with cultural differences between the USA and China, Lenovo ultimately became the first legit multinational company in China and rose to surpass companies like Dell and Hewlett Packard. The Lenovo experience contributed to the surge of global mergers and acquisitions among Chinese companies that were meant to improve the overall economy of the country.
Emerging markets are attractive for global business operations due to their potential as target markets, manufacturing bases and destinations for sourcing (Motohashi, 2015). Emerging markets represent the growing demand for health care services, electronics and automobiles. The markets are therefore an essential target for technological products and manufactured products. Lenovo is basically a manufacturing base with its innovation center locate in Beijing. The enterprise of the multinational company is networked and its operations are based on global management principles. The top management of the company involves executives with international experience in the technological field of computer design and development (Thomas and Thomas, 2016). The company further operates on a high degree of transparency and has uniform human resource practices across the globe. Consequently, Lenovo employs an evolved decision making process where all the members of the company have an input in the decisions made. This strategy is completely contrary to the top down management style associated with Chinese companies (Thomas and Thomas, 2016). The absolute focus that Lenovo has dedicated in making its brand famous has additionally distinguished the company in the international market. From the global expansion of Lenovo and other Chinese industries, China has seen explosive growth as evidenced in its increased GDP, increased exports and the country accomplishing the position of the second largest economy in the world (Nolan, 2014). Following the discussion of Lenovo Group Limited in an emerging market economy and its operations in the global market, the succeeding section discusses opportunities and threats that accompany globalization and draws instances respectively from Lenovo.
Opportunities and Threats of Globalization
As with diverse phenomena, the matter of multinational corporations in emerging markets is hurdled with various aspects that occur as an effect of globalization. Cavusgil et al (2014) recognizes diverse potential that is linked to emerging markets and develops three practical approaches which provide dependent estimates of the market potential. Income per capita indicates market potential through assessing the market potential of singular markets with the aggregate data of the country that is expressed in referral to a currency such as the US dollar. The purchasing power of consumers in the developing and emergent market economies appropriately stands for the quantity of products that consumers can purchase using their national currency with consistency with their specific living standards (Adekola and Sergi, 2016). The middle class is an equal determinant of market potential and it represents the class of people that are neither wealthy nor poor (Ozturk, 2016). This class has some significant level of economic independence and consumes discretionary products and services such as recreation, electronics, education, automobiles and furniture. The growth rate and the size of the middle class in a country are symbols of a changing economy in emerging markets (Cavusgil et al, 2014). The comprehensive index equally measures market potential through looking at; the size of the market, the growth rate of the market, market intensity, economic freedom, market receptivity, market consumption capacity, commercial infrastructure and country risk. From these approaches of discovering the market potential, investors are able to see opportunities that arise from globalization.
Lenovo Group Limited has the advantage of high productivity due to quality job performance and low cost of production in China (Shu, 2017). The innovation center is based in the country. Multinational companies in emerging markets source raw materials at a cheaper price since the resources are produced locally. Government support is equally significant as it helps improve the relationship of the corporation with the local suppliers and the producers. A good number of governments are equally supportive of global expansion since the move has a positive effect on a country’s economy. There is furthermore massive potential in emerging markets due to untapped skills, plenty of resources and lower costs. The amount of effort that goes into research and development in most multinational companies guarantees that the corporation has a favorable outcome in the operation of business (Thomas and Thomas, 2016). Lenovo has experienced massive sales turnout in the Chinese market as well as oversees and has trumped long term players in the computer and phone technological industry such as Dell and Hewlett Packard. Multinational companies in emerging markets also have the advantage of intricate knowledge on operations of companies as opposed to established multinationals who rely on market research to make decisions. This knowledge together with untapped talent and the low costs available on basic resources is a great opportunity for the Lenovo Group.
The attractiveness of multinational companies to big investors is an opportunity that Lenovo cannot pass up as investors are always seeking for new markets to conquer. Lenovo thus has the advantage and opportunity of receiving shareholder support and expanding its business further to more developing countries where the market has not been tapped (Thomas and Thomas, 2016). An instance of investor support is the introduction of business schools in emerging markets where the MNCs in the emerging market can train students based on their kind of business operations and source talent directly from the business schools. The structure of MNCs in emerging markets is an excellent opportunity for maximum utilization of resources and expansive sale of products and services (Motohashi, 2015). The corporations are first able to provide their products and services on a local level. Since the companies started from the bottom they have the loyalty of local consumers in the country. The structure in succeeded by a division that is both local and global where local consumers demand products that are of a global standard but want to pay less than the price of products of the global standards (Du, 2016). For Lenovo this directly reflects on the demand of smart phones that are effective and have global standards but can still be purchased at a low cost. The global tier in the emerging MNCs market caters for consumers who want products and services at global standards. Lenovo has achieved this rank through merging with the American market in its expansion strategies and still has the opportunity to expand further by tapping into other established markets; as its global recognition has increased its attractiveness to giant investors.
The market potential on the sale of smart phones is a current and future opportunity for Lenovo as there is a high demand of these phones from different target markets such as the Asian market (Kotabe and Kothari, 2016). Furthermore, the global attraction to innovative smart phones is a trend that is yet to die out thus Lenovo can benefit from production of sophisticated technological computers and smart phones. In addition to the demand for smart phones, cloud technology is a growth opportunity for Lenovo multinational as the company can invest further in the innovation to foster sales. The high demand for smart mobile phones that are cheap but effective has increased in developing countries including African countries and Lenovo has an opportunity to tap into this market.
As lucrative as the emerging markets appear, there are diverse threats, risks and challenges that accompany this globalization aspect which may be detrimental to business operations in the respective market. Political instability in foreign nations is one threat that affects MNCs in emerging markets (Karolyi, 2015). Unreliable authorities of government may increase costs of operating businesses, business risks and diminish the capability of managers to foresee conditions of business (Cavusgil et al, 2014). An instable political environment is associated with corrupt practices and legal frameworks that are weak thus causing discouragement of investors. In developing countries, there is little progress of intellectual property protection law which may cause businesses to fail on the basis of counterfeiting. In the political environment, there may be regulations that are restricting to MNCs causing them to fail to operate on their full potential. The presence of massive bureaucracy demeans transparency in the host nations which contributes unfair competition.
The availability of business partners in emerging markets is on the lower side as many business persons and groups feel that the venture may be too risky (Cavusgil et al, 2014). As seen with the initial negotiations of China’s Lenovo and United States’ IBM, there was a cultural misunderstanding where the Chinese seemed to be in agreement with the proposals but were actually against it. There was also a huge difference in the type of management as the Chinese company was used to following orders from the top office while in the USA the managers could question the decisions of their superiors.
Financial threats faced by Lenovo include the volatile nature of currencies especially in terms of currency exchange (Hoberg et al, 2014). The unpredictability of the rates of currency may affect profits in an advantageous way but is equally risky when it goes down. An additional threat is the cutthroat competition that arises from existing companies and emergent companies in the same market. The brands strive to make their products and services superior so as to gain the larger share in the market. Lenovo made a successful entry in the American market but there is always the risk of a better project and brand loyalty to a competitor such as Apple which could cause sales to plummet. Increased use of mobile technology and smaller computer devices such as note books and tablets has caused the sales of laptops to diminish globally. Being a chief product of the Lenovo Group, the failing sales of laptops are a threat to the corporation as they may have to reduce the development of the particular product. Consequent threats include challenges that face the macro economy including fluctuations in foreign exchange; strong market protection in host countries; availability of many cheap products; cultural conflict; destructive company practices that threaten future companies and possible reputational damage (Claessens and Yurtoglu, 2013).
The Major Experiences that Global Business Executives can discover from the Interaction between Home and Host Country Diversities in the Successful Accomplishment of Business in Emerging Markets
The accomplishment of a successful relationship between home and host countries can be learnt through observation of MNCs in emerging markets and their practices that were both successful and futile. One major lesson is the need to have an excellent governance and execution strategy that will keep the corporation afloat in the event of challenges. The companies require financial resources and talent as well as raw materials at a low cost in order to manage their local and global scales of production. Moreover, as seen with Lenovo Group Limited, an invaluable reputation is best for achieving massive brand recognition and continued business.
The successful combination of cultures is equally important as it goes a long way towards avoiding future conflicts. The Lenovo experience shows the difficulties they previously faced in accepting each other’s cultures but ultimately agreed on a set of organizational culture that still benefits them currently. The standards of operation in Lenovo Group Limited are similar in the United States as well as in China. This includes the working hours, level of pay, work guidelines and expectations from all members of the corporation. This example has been successful for Lenovo and is being imitated by other companies in the same business.
One imperative lesson that has to be taken into account is the management of risk which is very diverse in the global economy and particularly in the novel emerging markets. The risks associated with emerging markets may be destructive to a company hence the need for intensive research, thorough negotiations with complete understanding of what each party wants and comprehension of factors that affect running business in the host country.
In conclusion therefore, emerging markets are certainly lucrative compared to remaining local and should they be exploited well then they have the potential of achieving successful outcomes as seen in Lenovo. Being a novel market, the opportunities are significant and make a great target market for business expansion in developing economies. The need to recognize threats and strategically implement informed decisions helps in improving the chances of success of multinational corporations in emerging markets.
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