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Submitted By:

Navneet Singh
Roll No. 33 B
Sec-B, EPGDIB 13-15

Topic - Challenges likely to encountered by firms business into emerging


economy to internationalize at a fast pace
Introduction:
Does a challenging atmosphere provide a firm, an environment to become more
successful & mature and is it that these firms finding more challenges into an
emerging economy in an era of globalization? IF yes, then why they look forward for
the emerging economies to operate, knowingly it will be challenging? Does firm
believes on the saying of Jim Rohn that "If you are not willing to risk the usual you will
have to settle for the ordinary." If the answer is yes then lets lookout for the factors
which motivate a firm to operate into an emerging economy & prospective risk &
challenges associated with rewards.
Operating in any Emerging Economies & markets appeal to the firms & its investors
for numerous reasons where the main attraction is their rapid economic growth which
associate with higher returns. Firms also create an opportunity for themselves for
global diversification, low cost, increasing consumer base, adding new supplier & able
to downside the exposure to various financial & regulatory risks.
As per recent declaration of International Monetary Fund that the ten fastest growing
economies in recent future will all be in emerging markets. Where BRIC economies of
Brazil, Russia, China & India with other Latin American countries like Mexico &
African countries contributing a major chunk to attract the Firms to operate & expand
their operations in these leading emerging economy. The concentration of Population
& consumer base is also more in emerging economies. Increasing consumption due to
increase in income & expenditure capacity in emerging economy attracts to the MNC
for new avenues of expansion & investment. Lower input cost of material, skill &
economical labor motivates an MNC to make a strong present in emerging economy.
Mature Firms also get an advantage to increase its existing products PLC.
Challenges Encountered by Firms in Emerging Economy:
The nature of opportunity & challenges does vary from company to companys
business model & operation. Where R&D intensive companies prone to employ new
talent & centers from the emerging world & integrate them back to the existing
operation. These firms require adapting the regulatory regime, and sometimes
becomes more interventionist. While consumer oriented companies facing conflict to
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tailor their business to local needs while maintaining their global process. There are
other reasons as well for the firm to think before internationalize. Those firms operate
relatively consistently who have grown organically internationally but find it difficult to
match their product & services with the local need. In comparison to those who have
grown through M&A, contrast may find easier to tailor operation to local market but
harder to integrate back to achieve Economy of scale & scope. Majorly all the global
firms face challenges at a common set on managing strategy, people, cost & risk for
internationalize successfully.
There are few of the challenges counted as per below for the firms when they think to
internationalize into an emerging economy.
1. Which root to adopt for Internationalization from
a. Direct Export / Import
b. Indirect Export
c. Licensing
d. Franchising
e. Joint Venture & Strategic Alliance
f. Direct Investment & Wholly Owned Subsidiary
g. Or the Combination of the above options
2. Foreign countrys guidelines & policies to operate
3. Regulatory Guidelines & its implementation & impact
4. Environment & adaption for Foreign Investment
5. Strength of Law enforcing bodies & its implementation
6. Intellectual Property rights protection
7. Utilization & implementation of technology already available with the firm
8. Decision to adaption of any new Technology for new market
9. Organizational Structure Globalize Vs Localize
10. Selection of right intermediaries & business partner for the firm in local market
11. Taxation Structure
12. Political Environment & Stability.
13. Cultural differences & local practices to do the business.
14. Local issues & Corruption.
15. Target Market Segmentation & Suitable Product Lines for foreign country
16. Demand Quality Vs Price Balance
17. Sensitivity of Product Pricing placement
18. Fastally Change in Purchasing Power of Target Population & firms offering
19. Understanding of Product Life Cycle
20. Industrial Infrastructure
21. Logistics & Supply Chain Management issues
22. Firms Brand Image & Shareholder value in foreign & Home country.
23. Translational and Transaction risk due to fluctuation in Currency conversion rate.
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24. Financing & Accounting guidelines & associated risk in foreign & Home country.
25. Flexibility in transferring the income to parent company.
26. Flexibility to bring more foreign investment & Disinvestment by the firm.

Conclusion:
Experts find the emerging economy market is full with the opportunity & challenges.
More risk more gain slogan goes with the business world. Emerging economies
primarily considered to be a profit center by the firms due to availability of
tremendous growth frontier and consumer base.
Firms should consider the following strategic actions in order to cope with the
Emerging Markets Business hindrances.
1. There should be collaborative approach by the firms to deal with the local
government, bureaucracy, Law practices & regulatory environment.
2. Firms should focus initially to establish Strategic alliances with local suppliers and
business partners & spend time to understand the business environment.
3. Firms should actively participate to invest in local infrastructure development to
showcase its long term perspective to present in local economy.
4. The firm should invest in Research, Training & Development and also should focus
to develop local Human Capital by appointing host country managers.
5. Firm should offer greater responsibility and flexibility to local managers in
emerging markets to support them to adapt best of their local requirement.
6. Firm should consider a demand driven model in emerging economy for market
assessment & develop new framework to define its various policies.
7. Firm should develop the ability to understand the risk in its early days of
expansion so they can strategies their activity to counter the future risk.

Due to its increase in demand & rapid growth, Emerging markets will keep emerging
and Firms will keep profiting from these markets. Risk and challenges are part and
parcel of business and business management. These Emerging markets will contribute
a major role to the global economic and social development to a greater extent and
Firms should be partner in such development by playing their role of investors, job
creators, tax-contributors, and social capital promoter. Businesses based on profit and
loss sharing philosophy and practice are the ones to remain successful in the global
economy.

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