CHALLENGES LIKELY TO BE

FACED BY THE BUSINESSES IN

THE EMERGING ECONOMIES IN
ADAPTING
INTERNATIONALIZING AT A
FAST PACE.

Submitted By
Ashish Bhasin
Roll No 8
MBA PT 2012-15

Introduction:
Globalisation is the new buzzword that has come to dominate the world
since the nineties of the last century with the end of the cold war and the
break-up of the former Soviet Union and the global trend towards the
rolling ball. The frontiers of the state with increased reliance on the
market economy and renewed faith in the private capital and resources, a
process of structural adjustment spurred by the studies and influences of
the World Bank and other International organisations have started in
many of the developing countries. Also Globalisation has brought in
new opportunities to developing countries. Greater access to developed
country markets and technology transfer hold out promise improved
productivity and higher living standard. But globalisation has also thrown
up new challenges like growing inequality across and within nations,
volatility in financial market and environmental deteriorations. Another
negative aspect of globalisation is that a great majority of developing
countries remain removed from the process. Till the nineties the process
of globalisation of the Indian economy was constrained by the barriers to
trade and investment liberalisation of trade, investment and financial
flows initiated in the nineties has progressively lowered the barriers to
competition and hastened the pace of globalisation

Impact on India:
India opened up the economy in the early nineties following a major crisis
that led by a foreign exchange crunch that dragged the economy close to
defaulting on loans. The response was a slew of Domestic and external sector
policy measures partly prompted by the immediate needs and partly by the
demand of the multilateral organisations. The new policy regime radically
pushed forward in favour of a more open and market oriented economy.
Indians have been quick learners in internationalization both in scale and
speed. With the domestic market fast catching up with the developed market,
the learning has had a multiplier effect. With booming local economies, the
emerging market multinationals are reaching for the stars .

India is Global:
For Asia and around the world, India is not simply emerging. India has
emerged US President, Barack Obama addressing the Indian parliament on
8th November, 2010. In the aftermath of the global financial crisis, the
Western economies are under pressure as their growth has either stalled or
drastically slowed down and there is growing awareness that their dominance of

the global economy might be under serious threat. They increasingly see their
future in the emerging markets. At the same time, major emerging economies,
including China and India, are powering ahead and in the process are redefining
the global economic landscape. Multinational companies from emerging
economies, particularly from Asia, now account for 70 of the Fortune Global 500
list and according to the United Nations Conference on Trade and Development
(UNCTAD), today account for over 16% of outward foreign direct investment
(FDI).
With its increasing integration with the international economy and the
burgeoning
middle class, Indian economy offers a fertile ground for
international expansion for Western multinationals. As we see, Indian firms are
fast internationalizing by investing abroad and employing locals. According
to a Columbia University study, Indian firms have invested over $75 billion
overseas in the past decade. A joint study by the University of Maryland, IndiaUS World Affairs and the Federation of Indian Chambers of Commerce and
Industry reported that over the last five years, Indian FDI projects in the US
created about 60,000 jobs with investment worth $26.6 billion. Similarly,
according to the Confederation for Indian Industry (CII), Indian firms are
the second highest foreign employers in Britain, with Tata, the UKs largest
foreign investor, employing over 47,000.

Indian firms are rapidly going international

- Made in India no longer liability -increasingly asset
- Indian firms are moving up the competitive
value chain
- Asia, Europe and the USA equally important
regions
- Increasing internationalisation boosts Indian firms'
performance
- Implications for European companies: Indian competition will increase in
Europe, North America and Asia
One of the core strengths of Indian firms is to extract maximum value from
even ailing businesses by applying innovative and cost effective methods that
they have developed over the years in an extremely resource constrained and
uncertain domestic environment. They have a unique approach to their
international growth that is grounded in their Indian heritage and culture. We
call it compassionate capitalism and it manifests in several ways, such as a
preference
for sustainable
growth, long-term commitment
to their
businesses despite economic turbulences, faith in the management team of
the acquired overseas companies and commitment to employees in terms of job
security and investment in training.

Internationalization Process beginning by Indian

Companies

Indias two most well known and established companies, the Aditya Birla Group
and the Tata Group. Both of them have a strong Indian heritage and have
contributed immensely to the modernization and globalization of India. They
are firmly embedded in the psyche of the nation and instead of resting on
their past laurels, they have reinvented themselves as modern multinational
corporations in a range of sectors, both manufacturing and services.
The founder of Birla Corporation, Ghanshyam Das Birla, was a close
associate of Mahatma Gandhi and the founder of the Tata Group, Jamshedji
Tata was known for his vision for India and established the nation building
industries, from steel to chemicals to cement and aviation. While both the
companies are still India centric, they have expanded overseas rapidly and
successfully.
Aditya Birlas internationalization journey began in South East Asia in line with
Indias so- called First Wave of internationalization in the 1970s when the
Government of India actively encouraged South-South cooperation in foreign
investment. At the time, the major Indian industrial houses, including Tata
and Birla, opted for Greenfield investments by pursuing joint ventures with
firms in the host countries and leveraged on their capability in reverse
engineering by replicating foreign technologies in cost efficient modes,
mostly in the manufacturing sector. While 90% of Aditya Birla Groups income
comes from the commodity business, over 60% of its revenues are generated
outside India.
However, Birla chose the acquisition route to expand downstream
aluminum business (Novelis in the USA) and the BPO business (Minnax in
Canada) as these acquisitions offered big and sticky clients with marquee
names. The current Chairman, Kumarmangalam Birla set the goal in 2003
to join the Fortune 500 league and having achieved that his next goal is
to join the Fortune 150 league which meant tripling the businesses.
The international character of the Tata Group was evident more than 130 years
ago when its founder Jamshedji Tata employed foreign managers in Tata Steel
and Tata Electric. The present Chairman, Ratan Tata believes in the same
philosophy. He says one of the reasons I have been keen to find a way to
really prepare the organization proliferated with other nationals is nothing
changes the perspective quicker or deeper than in fact having to have a
coexistence of cultures.
Whilst like the Birlas, the Tata group is a conglomerate with multiple business
lines, here we focus on Tata Motors which has a dominant market share

in trucks in India and the neighboring countries, including South Africa. Its
product profile has traditionally suited the bottom of the pyramid emerging
markets which is now changing with new world class products, such as
pick-up trucks and prestige cars, being added. Global auto companies that are
coming to India are forging collaborations with Tata Motors. For example, the
company has a joint venture with Marco Polo in Brazil for bus body building and
distributes Fiat cars in India. It has been in the car market for only 10 years and
already boasts an impressive range of cars from Nano, the worlds
cheapest car to prestige global brands with the acquisition of Jaguar and
Land Rover (JLR). It also recently acquired the truck business from Daewoo.

Internationalization Challenge being faced by Indian

companies
Firms which are primarily involved on the exports of Indian merchandise
or services to foreign countries face challenges in terms of :
- Foreign Regulatory Environment
- Non Tariff barrier and Phyto-sanitary barriers
- Foreign Exchange conversion Rates
- Very high transportation costs
- Inspection and certification
- Visa related issues
- Taxation

Some of the Debt / Cash management challenges are:

Valuation of foreign firm, which is being acquired are generally very high
and the high premium paid of such acquisition doesnt easily translated into
real benefits which in cash.
Most Indian firms are small in size and many of the target firms which
are being acquired are much large size, posing challenges with assimilation of
these firms
Raising debt/cash in Indian market is difficult and expensive ,
because of high interest rates and underdeveloped bond market in India
Underdeveloped Foreign exchange market in India pose another
challenge as Indian currency is very volatile and leads to frequent forex losses
for Indian firms
Indian Governments foreign exchange laws FEMA, which are not very
supportive of Indian firm wanting to business abroad
Firms which are raising substantial portion of debt from abroad find it
difficult to pay off debt because of foreign exchange volatility, which
makes even this debt expensive

Some of the Integration related challenges are:

Human Resources
Perhaps the single most important challenge that emerging market MNEs face
relates to their human resources. Building a successful, integrated
international production network is a formidable challenge in and by itself. To
do so through the successful integration of acquired firms is an additional
challenge. It places considerable demands on their human resources, in
particular on their managerial skills and capacity. Moreover, the scale of the
challenge is relatively greater for emerging market MNEs: internationalizing
often at an early stage in their development, they have had less time to
develop such skills and capacities.
Emerging markets MNEs that have undertaken OFDI more recently are less
likely to have built up expertise and capacity in integrating acquisitions and
managing foreign affiliates. This skill and expertise gap may be further
compounded by an unwillingness to hire non-national managers. Levels of
foreign employment among leading Brazilian MNEs are almost half those of the
100 largest developing countrymens. This low level is the result of a
combination of two factors: family controlled MNEs seeking to avoid any
dilution of their control and high levels of in-group collectivism. Such
limitations in building an international management network do not bode well
for the ability of those MNEs to create integrated international production
networks. There are also broader challenges. MNEs face the continuous
challenge of balancing opportunities and risks. The rapid pace of globalization
and industry consolidation has led in many cases to a mind-set of hunt or be
hunted (PriceWaterhouseCoopers 2007, 5). One illustrative industry in this
respect is mining, where record commodity prices facilitated the paying down
of debt incurred to pursue acquisitions. Industry players saw consolidation as
essential to achieving economies of scale and synergies in operations. Today,
however, the dominance of resource based firms in the OFDI of a number of
emerging markets brings its own set of challenges: natural-resource-based
firms account for four-fifths of the foreign assets of the top twenty-five
Russian MNEs, and their rapid expansion took place on the back of high
commodity prices. High levels of debt coupled with falling commodity prices
make for an uncertain future, in which divestiture and further industry
consolidation may be the only options available.

ENVIRONMENT POLITICAL & ECONOMICAL

Having developed in riskier political and economic environments, emerging
marketmens notions of risk can be very different from those of developed
countriesMNEs. The greater the level of political risk in the home country, it
appears, the greater the tolerance for risk that MNEs develop. The Multilateral
Investment Guaranty Agency (MIGA) outlines the factors that shape perceptions
of political risk for south based MNEs. These include the location, sector and size
of an investment, as well as the home country environment and the MNEs
experience and history in outward investment. Interestingly, in terms of entry
mode, while Greenfield investments are considered economically more desirable
and less politically risky in developed countries, emerging market MNEs consider
them more risky in other emerging markets since the presence of a domestic
partner tends to reduce risk perceptions.
The means by which MNEs may balance their increasingly important role in
economic development with their growing responsibilities toward the country in
which they operate, is another area that presents potential challenges for
emerging market MNEs. As George Kill and John Gerard Ruggie stated (1999, 15),
Globalization may be a fact of life, but it remains highly fragile. Embedding
global
Because of cultural difference, it is difficult to integrate acquire firm fully in
terms of workforce. Also inexperience of Indian Managers in this area is
posing major challenges in fully integrating the facilities the abroad and real
benefits of acquisition

Lack Of Innovation and Support : Indian firm had never been leaders in
Innovation and research, which is challenge to acquire firm which are
innovation centric

Marketing knowledge is dependent on the relevance and depth of

marketing information available to the firm. Firms that use relevant, accurate
and timely information are in a better position to respond to export problems.
Information about exporting and more specifically market information were
mentioned as the most serious problem of manufacturing. Getting concrete
information on respective foreign markets is essential before exporting can
occur.

Distribution is another major problem area in exporting. Many SMEs in

developing countries lack information about marketing channels and fail to
establish marketing networks, pointed out that the lack of internationally
recognized company brand names, and appropriate marketing and retail
networks are export barriers to Taiwan.s indigenous manufacturers.
Researchers have also identified several other marketing barriers that can
inhibit exporting, for instance, pricing of the product in the international
market.
Sound financial position is one of the keys to secure price advantage in the
target market. Many SMEs in developing countries run into problems for lack of
timely and adequate working capital, which not only adds costs but can also
endanger the entire production operation. The importance of financial barriers to
exporting, such as difficulty in acquiring the necessary funds to initiate
Quality is often indicated as one of the most important conditions for entering
and remaining in foreign markets and logistics management. It concerns
packaging, meeting importers quality standards and establishing the suitable
design and image for export markets. There are different quality standards in
developing countries. However, many of the quality problems are the result
of inadequate knowledge about market requirements, product characteristics
and production technologies. A product, which sells well in a developing
country, may not sell at all in a developed country
Several researchers indicated that local product standards, customer
standards and buying habits may be unsuitable for foreign sales and may
require adaptation. In most studies successful firms adapt their products to
foreign markets.
Export market barriers are related to product requirements in the
export market, the country of origin, cultural similarity and brand
familiarity. Lack of similarity of legal and regulatory frameworks of the
exporting and importing countries and lack of familiarity with market export
procedures are also mentioned as export market barriers. These factors are
regrouped into customer and procedural barriers

Export procedures. One of the most cited obstacles with regard to exporting
concerns the time and paperwork required to comply with foreign and domestic
market regulations. Governments do not solely impose these procedural
requirements. Also independent organizations
such as banks, shipping
organizations and insurance companies, have their own procedures. A firm
that wishes to enter the export market or intends to increase its export activity
will have to acquire the knowledge and skill to deal with administrative
procedures. In particular for inexperienced managers foreign documentation and
paper work may appear very difficult to cope with

BUSINESS IMPLICATIONS FOR EMERGING-MARKET

MULTINATIONALS:
EMMs should follow an M&A model that builds on the respective strengths of each
party through adaptation rather than prescription. Given their relative
inexperience, some EMMs also should seek expertise in M&A to identify targets,
structure deals and capture post transaction synergies.
1. Master corporate governance:
As EMMs globalize and become more exposed to sophisticated markets and
consumers, attention will increasingly focus on transparent fiscal reporting
systems, organizational operations and investor relations. This is particularly
pertinent for those seeking to list on international stock exchanges or raise capital
in international markets. Public relations expertise will be necessary to manage
interactions with external stakeholders and sustain market position.
2. Organize for growth:
Beyond corporate governance EMMs will need to maintain the right mix of
cultures, management frameworks and leadership styles to sustain their growth
without encountering serious difficulties.
3. Operate within an evolving regulatory framework:
Going global requires learning how to maneuver through a myriad of regional and
international rules and regulations governing trade and investment, as well as
sector-specific and environmental requirements in both regional and developed
markets.
4. Manage protectionist backlash:
Waves of protectionist pressure may hinder the capacity for multinationals to
expand, particularly in strategic sectors such as energy. Consequently,
multinationals may need to explore different expansion strategies. The
uncertainty raised by the role of governments as owners and investors signals
the potential for further protectionist pressure.

Example : Suzlon Energy a Best example

for Handling Challenges of Internationalisation
Introduction
Suzlon was founded in 1995 by Mr. Tulsi Tanti and his brothers when they were
exploring alternative sources of power for their textile business in western
India. The unreliable electricity grid was then creating many inconveniences
for the business, prompting the family to explore wind energy as an alternative.
After the family installed two windmills to power their textile business, Tanti and
his brothers envisioned that they could actually make a very profitable business
out of generating wind energy. Shifting focus away from textiles, the new foray
of Suzlon into wind energy was financed with USD 600,000 put together
through the sale of some family assets. Tulsi Tanti and his brothers bought ten
turbines from Sudwind, a small German company, assembled a group of
former engineering classmates, rented a factory, and hired a German
consultant for 90 days to teach them the business.
When Sudwind went bust in 1997, the Tantis hired its engineers and created a
R&D center in Germany. In 1999, the company started selling its partly
homegrown turbines in the Indian market Following this foray, Suzlon has
grown over the last 10 years to become a top-5 wind energy producer
worldwide with sales of over USD 3.4 bn in 2008 and a global footprint.

Suzlon today
Suzlon has a global market share in the wind-turbine business of about 10.5%
(BTM, 2007). The company operates in 21 countries (Annual Report 2008, p.
3) and employs almost 14,000 people from 15 nationalities The company
derived 58% of its revenues in FY 2008 from outside India against 34% the
earlier year. The USA accounts for almost 20% of total revenues, while Europe
and the rest of the world together account for about 27% of revenues.
As part of its internationalization strategy, in 2006 the company
acquired Hansen Transmissions of Belgium for USD 565 mn . Hansen was the
worlds second largest gearbox maker and Suzlon expects that the acquisition will
give it manufacturing and technology development
capability
in
wind
gearboxes, and enable an integrated R&D approach to design more
efficient wind turbines. In May 2007, Suzlon acquired a 33.6% stake in
REPower for USD 698 mn . RePower is one of the worlds largest manufacturers
of offshore and onshore wind turbines and the acquisition is expected over the
years to add to Suzlons technological capability, especially in the production of
large wind turbines

On the importance of international markets, Mr. Tanti expects about 40% of

Suzlons future revenues to come from Europe, 20% from the US, 10% each
from India and China and the balance from the rest of the world

Company Structure
Suzlons global marketing center is located in Amsterdam, Netherlands; the
international business headquarters are based out of Aarhus, Denmark; while the
Indian operations headquarters are in Pune, India As on 31 March 2008, Mr. Tulsi
Tanti was the Chairman of the Board at Suzlon, while Mr. Toine van Megen, a
Dutch national, was the CEO of the wind energy business at the company. In a
subsequent reorganization
in December 2008, Tulsi Tanti retook direct
operational charge of the companys operations to better deal with the difficult
business environment, while Mr. van Megen shifted back to supervisory
responsibilities at the Group level Suzlon seems to have been moving towards
increased decentralization in the last few years. Until a few years back, Suzlon
was a promoter-driven company.
As a first step towards empowerment and increasing accountability, the
promoters created strategic business units (SBUs) and appointed nonpromoter heads of the SBUs. This change led to decentralization in the
company. Additionally, individual functions got embedded in the SBUs and
the whole corporate paradigm shifted to the SBUs. Within the SBUs, there was a
matrix structure, with about 70% weight to line manufacturing and about
30% to the functional heads. This led to a need for balance, but since people with
existing experience within the company were sent to the SBUs, there was a
common understanding of overall priorities, which facilitated the change to the
SBU and matrix structure.
The chief executive in Amsterdam is empowered to hire his own team for the
international operations. Some functions like CFO and CHRO are located at
Amsterdam. The choice of location is decided upon what makes best sense for
the business and what makes for the most effective way of working. Each
country is responsible for creating its own deployment strategy, team, etc led
mainly by respective country heads who could be of any nationality.
Promoters have steadily decentralized decision-making autonomy to the global
management team. This change to being more international is also changing the
company culture to being more diverse. Professionalization is increasing at
Suzlon.

Human Resources
Suzlon employs more than 14,000 people from 15 nationalities is a very strong
financial brand. The challenge lies in making it an employment brand. Green
industry and the companys growth and success story give the company a
strong pull.

Leadership
After envisioning the future potential for wind energy, Tulsi Tanti and his brothers
helped develop a business model offering end-to-end and hassle-free
solutions, and worked towards impressing policymakers in India, and companies
in India and abroad to go for their wind-energy solutions . Suzlon has grown at
twice the industry average over the last few years .Recognizing his efforts and
success in the area of fostering renewable energy, Like many family-owned
businesses in India, leadership at Suzlon has so far been centered around
the family patriarch Mr. Tulsi Tanti and the Tanti family. But, recognizing
the importance of introducing professional management and people with
international experience in the business, the family appears to be moving
into the background and focusing on more strategic roles according to Rao. As
on 31 March 2008, the company had a Dutch national as its CEO. The Group
Executive Council led by the CEO reports to the Group Supervisory Council led by
the promoters of the company in order to ensure effective corporate
governance. The Board of Directors at Suzlon has a couple of members
with several years of international banking experience.
Culture
Suzlons corporate culture is undergoing a certain transformation as the
company internationalizes. For instance, there has been an increasing call for
greater transparency in decisionmaking as the company internationalizes, and
international employees are demanding greater empowerment. There is also a
need to substitute promoter involvement with process orientation. In order to
facilitate this change, the company is conducting programs for leadership
development at its Corporate Learning Center.

Conclusion
Suzlon appears to be transforming itself from a family-owned and family-driven
business to acquiring qualities of a professionally-run MNC. A part of Suzlons
success can be attributed to its being in the right place at the right time, in
terms of the timing of its founding and the sudden international focus on
renewable energy. At the same time, Suzlons strategy emphasizing aggressive
international expansion and organizational transformation might have played
a role. Key features of organizational transformation and excellence at Suzlon
include:
1. Decentralization and professionalization in its structure over the last year
2. Investment in international R&D and innovation
3. A change in focus towards performance-orientation in its HR and compensation
policies
4. Increased presence of international managers in its top management team
5. Efforts to emphasize the binding and motivating effects of corporate culture
While Suzlon has achieved been successful in the international environment over
the last few years, the fast growth track inevitably means that there will be
occasional challenges in managing this growth such as quality issues faced by the
company recently. To deal with such challenges, the company will have to work on
keeping its current spirit of growth alive while constantly focusing on upgrading its
organizational and operational excellence to world standards.

Some of the major patterns and conclusions that the study converges upon are
as follows:
From comparative to competitive advantage: With shift towards
advantages based on availability, lower cost and skills of the technical and scientific
manpower, Indian companies need to create complementary skills and the
success
are governed by competencies developed within a company and
aspirations of its top management.

Favourable push and pull conditions for overseas successes:

For an increasing number of industries, Indian companies are reaching the point
of having global advantagesfavourable factor conditions, domestic demand
characteristics comparable
to that overseas, presence of ancillary and
supportive
skills,
and pervasive confidence for looking beyond domestic
markets. On the pull side, from the situation of Indian origin being a handicap,
the world has come to acknowledge India advantage.
Three strategy types for Indian companies in overseas markets:
Outsourcing, where the domestic market is either very small or unattractive;
Internationalization, where companies are aiming to expand market or balance
business downturns and risks of domestic market; and, Multinationalization,
where companies are aiming to create sustainable competitive position in several
geographies.
Differing requirements
of the institutional
and the retail
customers:
Joint ventures are generally not viable for institutional
customers, while being a useful option for reaching the latterwith benefits
related to local knowledge, capital, brand, and distribution.
Organizing for growth and capability building: Structure for the three
strategy types is different and a dual-core model could balance requirements of
risk-taking in new areas with efficiency in stabilized activities. While carrying
Indian imprint, the culture will be company-specific and should be allowed to
evolve in a directed way.
Critical role of conviction-laden leadership: This is a common element
across all the Indian companies that have made overseas breakthroughs and
the leadership traits of being clear, fundamentals oriented, and planned need to
be supplemented with international orientation and preparedness for longer
haul for success in overseas markets.

MBA 2012-15 Roll No 8 - International Business Strategy