Entry and growth strategies for emerging economies.

Abstract

This paper outlines why globalisation drives multinational enterprises (MNEs) into emerging economies, and provides conceptual frameworks that may aid investors to adapt their strategies to emerging economy contexts. MNEs have to develop a portfolio of local and/or global brands that matches their competences with local needs. Principally, foreign entrants could choose between three types of strategy: (1) Global-branding strategy - global brand with little or no adaptation, positioned as premium brand. (2) Local branding strategy - portfolio of local brands, positioned to serve mass markets. (3) Multi-tier branding strategy - portfolio of global local and brands, positioned to serve different segments of the market. If a firm has neither a global brand nor operational capabilities that are transferable to emerging economies a foreign entry would require them to develop a brand and capabilities 'as they go', which is a highly risky strategy. This strategy in particular requires the acquisition of complementary local resources controlled by local firms. However, acquisitions in emerging economies are inhibited by institutional obstacles and weak local firms. Decision-makers have to think creatively how to design their entry mode to overcome the obstacles to acquisition entry. The crucial strategic decision is how to design the operation. Many obstacles may best be overcome by customising a mode to the local context, rather than opting for a second best mode. In consequence, acquisitions often take unusual forms, notably staged, multiple, indirect and Brownfield acquisition, as well as JVs. These concepts are outlined and show under which conditions they may be appropriate entry strategies for an emerging economy. Proposed strategies are illustrated by analysing how one multinational enterprise - Carlsberg Breweries - has developed its operations in three very different emerging economies: Poland, Lithuania and Vietnam. Carlsberg has expanded its operations in emerging economies in the early 1990s, customizing its entry strategies to local contexts. Vietnam was entered as early as 1993 with two joint ventures that serve what is still a low-income economy, yet after several years earn substantive profits. In the far more developed and relatively large Polish market, Carlsberg entered with a partial acquisition in 1996, and has built a strong position using a staged acquisition, multiple local acquisitions, and an indirect acquisition. In the small Lithuanian market, Carlsberg took over a local brewery in 1999, and acquired further local brands in a global merger in 2001.

Citation

Discussion Paper Series, Centre for New and Emerging Markets, London Business School, No. 38, London, UK, 32 pp.

Entry and growth strategies for emerging economies.

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