Global Business Economics

Assignment :

International Aspirations of an Emerging Market Firm

EPGDIB 04 : Group No. 13 Abhishek Jain Nilesh Kothari Aloke Sharma Amrita Tripathy
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CONTENTS
Concepts Company Profile

Case Background
Case Questions

Case Answers

CONCEPTS
ADVANCED ECONOMIES Post-industrial countries characterized by high per-capita income, highly competitive industries, and well-developed commercial infrastructure. USA , Western Europe, Japan, Canada, Australia, New Zealand DEVELOPING ECONOMIES Low-income countries that have not yet industrialized. They have low buying power, limited appeal to foreign firms, and limited participation in international business. Africa EMERGING ECONOMIES Former developing countries that develop their economies more dynamics. EM is transforming into market-driven by liberalizing trade and investment. More participation in international business and regional economic integration. Asia , Latin America
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CONCEPTS
CORPORATE SOCIAL RESPONSIBLITY Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well of the local community and society at large.

CONCEPTS
Following the World Banks current definition of a Developing Country, the company defines emerging markets as countries that have a gross national income (GNI) of $11,456 or less per capita. Emerging markets are distinguished between three sub-groups according to market size (population) and economic attractiveness (GNI per capita in purchasing power parity terms). Strategic Opportunity Markets are the largest and most economically attractive for a multinational corporation that is looking to grow its customer base. These markets have a population over 40 million, and strong real GDP growth. These markets also have a GNI per capita over $2,000 per year in purchasing power parity (PPP).

Niche Opportunity Markets are countries with a population under 40 million that have average incomes over $2,000 in PPP terms and strong real GDP growth. These markets provide multinational companies with opportunities to grow their markets on a smaller scale, or they may 5 be gateways to larger nearby markets.

CONCEPTS
Long-term Opportunity Markets are the least attractive markets to a multinational corporation. These markets exhibit a low standard of living with a GNI per capita under $2,000 per year in PPP terms. In these countries, persistent poverty, corruption and political instability may be hampering economic growth. These countries may be viable markets in the long term with consistent political and economic reform. Over 140 countries, representing 84% of the worlds population, meet these criteria. The proportion of worldwide technology expenditures by emerging-market countries is steadily increasing relative to mature markets. The ten largest emerging markets are expected to spend $558 billion on IT and telecommunications in 2009. By 2015, the combined GDP of emerging-market nations will surpass that of the top 20 developed economies. Page 1 Mature Emerging: Strategic Emerging: Niche Emerging: Long-term
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EMERGING MARKETS
Market Sub-segments Strategic Opportunity Markets (16) Countries (Listed in order of population size) EA&P: China, Indonesia, Viet Nam, Philippines, Thailand EE&CA: Russian Federation, Turkey, Ukraine LA&C: Brazil, Mexico, Colombia ME&NA: Egypt, Iran South Asia: India, Pakistan SSA: South Africa Niche Opportunity Markets (48) EA&P: Malaysia EE&CA: Poland, Uzbekistan, Romania, Kazakhstan, Belarus, Azerbaijan, Serbia and Montenegro, Bulgaria, Turkmenistan, Croatia, Georgia, Moldova, Bosnia and Herzegovina, Lithuania, Albania, Armenia Characteristics The largest and most economically attractive developing-country markets. Population over 40 million Strong real GDP growth GNI per capita over $2000 in PPP Rapidly integrating ICT Improving standard of living Smaller, growing economies Population under 40 million GNI per capita over $2000 in PPP Strong real GDP growth

LA&C: Argentina, Peru, Venezuela, Chile, Guatemala, Rapidly integrating ICT Ecuador, Cuba, Dominican Republic, Bolivia, Some risk from political or economic Honduras, El Salvador, Paraguay, Nicaragua, Costa instability Rica, Panama Uruguay ME&NA: Algeria, Morocco, Iraq, Yemen, Syrian Arab Republic, Tunisia, Libya, Jordan, Lebanon, Occupied Palestinian Territories South Asia: Sri Lanka SSA: Cameroon, Angola, Congo, Mauritania Long-term Opportunity Markets EA&P: Myanmar, Cambodia, Papua New Guinea, Lao (38) People's Dem. Rep. EE&CA: Tajikistan, Kyrgyzstan LA&C: Haiti South Asia: Bangladesh, Afghanistan, Nepal SSA: Nigeria, Ethiopia, Congo Dem. Rep., Tanzania, Sudan, Kenya, Uganda, Ghana, Mozambique, Madagascar, Cte d'Ivoire, Burkina Faso, Niger, Malawi, Zimbabwe, Senegal, Mali, ,Zambia, Chad, Rwanda, Guinea, Benin, Burundi, Togo, Sierra Leone, Eritrea, Central African Republic, Liberia GNI per capita under $2000 in PPP Very low ICT integration Low income and standard of living High risk

COMPANY PROFILE
Origins Establishment Ownership Business Line Annual Turnover Brands Product Market Area Subsidiaries Focus Area TURKEY 1955 KOC Group [Family Business Conglomerate]

Appliance Manufacturer US$ 4BN per annum Beko, Altus, and Arcelik > 100 products

[White Goods Business]

AC, Dishwasher, Washing Machines, Cooking Appliances, and Refrigerator Turkey, Europe (UK, Italy, Czech, Spain, Germany, Romania, Hungary) Blomberg, Grundig, Elektra Bregenz, Tirolia, Leisure, Flavel, and Arctic Arcelik aspire to expand its network in emerging markets and developing economies.
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CASE BACKGROUND
internally
Turkey is an emerging market Relatively low saturation level Purchasing power is low (outside big 4 cities) 50% are younger population (<25 y.o.)

externally

Turkey is applying EU membership Trade barriers declined in 1980-90 (Turkish market was opened for outside competitors) Arceliks market share was threatened.

Arcelik Launched

Aggressive International Expansion

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CASE BACKGROUND
In ADVANCE ECONOMIES, household appliance industry is mature and saturated.

In EMERGING MARKETS, household appliance industry is difficult to charge premium

prices and increase profit margin.

a. Innovation is costly - Frequent change production methods -Regular re-training factory workers.

b. Low spending power of buyer

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CASE BACKGROUND
BSH
Electrolux Haier GE
Dishwasher Refrigerators and Vacuum Cleaners China (Low Price) High Technology Involvement Home Laundry

Whirlpool
National

Merger & Acquisition is the strategy to be Worldwide in current scenario. National It caused: only 5 companies control >70% market in Europe (from 400 companies). ARCELIK: Acquired more than 7 companies in EUROPE.

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CASE BACKGROUND

Standardization the material, parts, and components

Automated manufacturing process

Arcelik is categorized as HIGH TECHNICAL COMPLEXITY firms. It is operated in fully automated machine and programmed in advance. 3 Build manufacturing plant outside original state

Arcelik: Build plant in Russia and Western Europe. Whirlpool: Build plant in China

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CASE BACKGROUND
Home appliances are commodities
Value lower prices create lower profit margin Product life-span is 10 15 years the lifecycle is slow In advance economies country, market are saturated Different market, different country, different culture in INDIA: Low Price in CHINA + LATIN AMERICA: Ample Features but Low Spending Power in EUROPE: Strict Environmental Rules

Difficult to suit the local market Difficult to charge average price in every country Hard Factors tooling, factory layout, procurement, and design do not provide long-term competitive edge
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Arcelik: International Aspirations to become Global Player

SUCCESS FACTORS 1
Produce product in lower-income countries
- Manufacturing plant in Turkey and Eastern Europe (Russia) - Arceliks produce appliances less expensively than other

Modernize the operations and Double the capacity

- Additional investment to build factory in Russia and adapt new production system technology - Established sales subsidiaries in Czech, Hungary, and Italy

Establish Distribution Centers throughout Europe

- 1.700 unparalleled distribution network (Beko) and 1.700 non-exclusively agents - 530 authorized service shops - Establish after-sales service network

Cooperated with IT Companies to build World IT System

- CISCO builds Virtual Networked Organization Online

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Arcelik: International Aspirations to become Global Player

THREATS 1
Arceliks brands are largely unknown outside Europe Brand becomes barrier to entry and threats for short-term success

Merger and Acquisition Global Distribution Network - Tailor the meet customer needs in respective country

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Case Questions

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CASE QUESTION
Arcelik has been very active in Western Europe,

Do you expect Arceliks prospect to be better in EM & DE than Advanced Economies ? In what ways, are EM and DE attractive to Arcelik? How can firm reap benefits from such market in order to maximize performance?

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Ans -

CASE QUESTION (Number 1)

Do you expect Arceliks prospect to be better in EM & DE than Advanced Economies ?

Prospect Arcelik :
DIMENSION
Population (% of the word) Approximate average per capita income (US dollars; PPP basis) Trade volume Education level Trade barriers Industry Inward FDI Economic or political system Country risk

As per the data given below future prospects for Arcelik are more in emerging markets and developing economies than in advanced markets.

Advanced Market
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Emerging Market
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Developing Market
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33.750 High High Minimal Highly developed High Capitalist Low

13.250 Low Moderate Rapidly liberalizing Rapidly improving Moderate to high Rapidly transitioning to capitalism Variable

6.450 High Low Moderate to high Poor Low Authoritarian, socialist, or communist Moderate to high
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CASE QUESTION (Number 1) In what ways, are EM and DE attractive to Arcelik?

Emerging Markets and Developing Economies are attractive for Arcelik than Advanced Economies due to following reasons : High population. Fast-growing markets. Low competition. Urbanization is increasing. Low-cost labor due to which these are ideal bases for locating manufacturing facilities. Rapidly increasing Industrialization. With increase in development activities more opportunities for business will arise.

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Ans -

CASE QUESTION (Number 1)

How can firm reap benefits from such market in order to maximize performance?

Reap benefits from such markets

Parameter Advance Market Well educate Income per capita high can gain a high profit margin Emerging and Developing Market Low-labor cost Income per capita rapidly increase should be adjusting price and cost little gain profit margin Opening up to growth as well as technology improvement

Population

Industry

Saturated

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CASE QUESTION Arcelik is keen on entering EM and DE,

What type of risk that they challenge in EM? What management do to identify the most promising market? How should firm adapt the product?

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CASE QUESTION (number 2) -

What type of risk that they challenge in EM? Political Instability Corruption, Collusion, Nepotism
Week Legal Framework

Less Reliable (business environment.)

Week Intellectual Property Protection

No laws enforcement

Bureaucracy, Red Tape, and Lack or Transparency Burdensome Administrative rules

Excessive requirements for license

Partner Availability and Qualifications Characterized by inadequate legal & political framework Dominance of Family Conglomerates
Highly diversified Control the majority of economic activities (half the revenue in Korea) Government protection and support Superior market knowledge
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CASE QUESTION (Number 2) -

What management do to identify the most promising market?

Partnering with Family Conglomerates Reduce the risk, time, and capital requirement good relationship with government and other key local player target market opportunities more rapidly and effective overcome infrastructure-related hurdles leverage FCs resources and local contact Marketing to Governments in Emerging Market government buy enormous quantities of product usually emerging country have economic development plan (need to build or improve national infrastructure) Skillfully Challenge Emerging Market Competitors

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CASE QUESTION (Number 2) -

What management do to identify the most promising market? Per-Capita Income as an Indicator of Market Potential
GDP are indicator of purchasing power of customer

Middle Class as an Indicator of Market Potential

Size and growth rate of middle class serve a signal of dynamic market economy

Use of a Comprehensive Index to measure market potential

-Market -Market -Market -Market Size (all population) growth rate (GDP) intensity consumption capacity -Commercial Infrastructure -Economic Freedom -Market Receptivity -Country Risk

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CASE QUESTION (Number 2) How should firm adapt the product?

Merge and acquisition with other company in emerging market Collaboration technology, knowledge (product and market), share distribution channels, etc. Produce potential product base on customer wants Purchasing power in emerging market is relative low

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CASE QUESTION
Arcelik may be better poised to cater economic development of EM and DE,

In what ways Arcelik skillfully fulfill its Corporate Social Responsibility in such countries? Suggest specific approaches that may include: developing simpler, less expensive appliances; arranging for multiple installment purchases; encouraging the development of local suppliers; and designing products that conserve water and energy.

CATERING TO ECONOMIC DEVELOPMENT NEEDS OF EMERGING MARKETS AND DEVELOPING ECONOMIES :

Leading firms display good corporate social responsibility by engaging in activities that facilitate economic development in emerging market and developing economies. There are 2 (two) trends as form of CSR: Fostering Economic Development with Profitable Project. Microfinance to Facilitate Entrepreneurship.

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CASE QUESTION (Number 3) In what ways Arcelik skillfully fulfill its CSR?

FOSTERING ECONOMIC DEVELOPMENT WITH PROFITABLE PROJECTS

Firms serve low income countries with

inexpensive,

specifically-designed

products

and services and community involvement. IN OTHER WAYS Firms create jobs and contribute to

development.
Investments generates tax to improve living standard. Transferring technology and know how. Develop community-oriented social programs.

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CASE QUESTION (Number 3) In what ways Arcelik skillfully fulfill its CSR?

Microfinance to Facilitate Entrepreneurship

Microfinance, emerging of financial institutions that serve emerging market entrepreneurs with small scale loans. By providing small loans, can help pull them out of poverty. Various organizations now offer other forms of small scale financial services, including insurance and mortgage lending.

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CASE QUESTION (Number 3) Suggest specific approaches of CSR

ARCELIKS CORPORATE SOCIAL RESPONSIBILITY IN EMERGING MARKET

FOSTERING ECONOMIC DEVELOPMENT W/ PROFITABLE PROJECTS Firm creates innovative & quality product that meets local demand with lower price. Firms create jobs and contribute to development. Firm enter the market and establish manufacturing/assembly plant. Firm establish distribution centres throughout country. Firm boasts a strong after-sales service network.

Firm performs the company's operations with full compliance to laws, moral standards and human rights.
Firm organizes training programs for employees to raise awareness of the environment and conducts projects with government organizations and with NGOs.

MICROFINANCE TO FACILITATE ENTREPRENEURSHIP

Firm offer financial services that provide installment purchase for its customer.
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THANK YOU

EPGDIB 04 : Group No. 13 Abhishek Jain Nilesh Kothari Aloke Sharma Amrita Tripathy
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