How to Win Emerging Market (Harvard Business Review)

Japan has succeeded to enter the market in developed countries such as the United State and European countries. Nevertheless, Japan existence is not happening in emerging markets. Shigeki Ichii, Susumu Hatori, and David Michael in accordance to that reality, wrote an article “How to Win in Emerging Market: Lessons from Japan” in Harvard Business Review volume 90 issue 5 on page 126-130, that was published in May 2012. The main aim of this article is depicting the challenges that should be faced to ramp up their sales because in comparison to other multinational companies, Japanese multinationals tend to have a slower sales growth. Those challenges are the distaste for middle and low-end segment, aversion to mergers and acquisitions, lack of commitment, and talent. In addition, in that article the authors also give example of two Japanese companies (Unicharm and Daikin) that successfully break the emerging market by overcoming those challenges. Four Challenges

Japanese multinationals have been growing slowly in emerging market because of their own failure. First, Japanese firms tend to use their strategy in established market, which is too much focused on the high-end market. Therefore, they lose the market share to other multinational rivals. It reflects that Japanese firms treat all their markets similarly, whereas each market has their own characteristics. For instance, the preferences of consumers in each market toward the types of televisions are different. It also influenced by the level of consumer wealth in those countries. Second, decision making at Japanese companies to merge and acquire with local partners tends to be slow, and if they do decide to acquire, often the most attractive target have already been snatched up by other multinationals (Ichii, Hattori, and Michael, 2012). It positively correlated with cultural distance theory which states that the investing firms will not want to cooperate with local partner if cultural distance increases. In fact, the more aggressive of the companies to merge and acquisitions in the right time and in the right place, the wider the gains on market share, distribution channels, capabilities and economies of scale.

Third, in terms of financial commitment, Japanese companies still invest huge amount of capital to developed markets, while the emerging markets grow rapidly. This also in a line with cultural distance theory that “if cultural distance increases the types of investment changes from high to low level of commitment. Last, Japanese firms do not have proper balance between Japanese expatriates and local executives. According to Ichii et al. (2012), it results in difficulty customizing products to local conditions, responding quickly to changes in the market, and breaking into new segments. Those facts and challenges are in accordance to cultural distance theory. However, as the counterargument of this theory, Japanese firm needs to cooperate with local partner because host country is so different from home that all help is needed. Moreover, the authors stated that these companies should consider their consumer segment and preferences, as each consumer in different markets would have different preferences and purchasing power. In addition, these companies should find the right mix of workers from home and host country. Overcoming the Four Challenges

In the article, Unicharm and Daikin, two Japanese companies, accomplish those challenges. They overcome it by breaking the middle market to reach the mass market. They also made deals with local partners because the situation is unfamiliar to them. Furthermore, they committed to the emerging market fully, which is shown by the transfer of its strongest marketing, R&D, and manufacturing to developing countries and one of its top executive (Ichii et al., 2012). Another point is that they give authority to local managers in important decision making, which serve customers better. Based on these facts, it is actually not impossible for Japanese companies to be successful in the emerging market. Additionally, it is also argument to overcome cultural distance theory that ‘as the cultural distance increase, the level of investment decreases, the type of investment lower, and the investing firm will not want to cooperate with a local partner’. Strengths and Weaknesses

In our opinion, this article has several strengths. First, the author stated the four challenges to enter emerging market as promised in the introduction. Moreover, they give brief examples of each challenge that makes us understand better on the circumstances. They also reviewed two successful Japanese Companies in entering emerging markets with consistently referring to the four challenges explained previously. On the other hand, there are several weaknesses. First is the authors did not explain the reasons of Japanese companies aversion to merger and acquisition. Second, they did not give example from other countries, which mean they did not give evidence to readers whether by overcoming those challenges could be applicable to other countries. In relation to international business concept, the company should consider every distance between home and host country. It is related to Ghemawat concept, which consist of cultural, administrative, geographic and economic distance. In addition, due to the differences of the distance between countries, it is impossible for us to treat all the markets in the same way. Conclusion

The lesson learned from the article is a perspective for multinationals enterprises whether from developed or developing countries, about how to win in emerging market or gain a market share as much as possible by considering the difference in markets preferences. Learning for manager about this article is the need to balance global capabilities with local needs (Ichii et al., 2012). In conclusion, the sluggish growth of the developed country will make the emerging market as a major source of revenue. The role of firms in emerging market becomes really important to support the performance of firms as a whole.

In relation to that, the firm must adapt to the characteristic of the emerging market, so their product will be suitable for the consumers in host country. The article gives the reader an insight that a successful strategy in the past may not be also successful in the mean time. In addition to that, there are four problems need to be addressed carefully before entering to new markets. Overall, it is an insightful article that adds the readers’ knowledge of how to enter emerging market. Three follow up questions: What characteristics of Japanese culture that make the companies averse to M&A? Why they choose the high pyramids of consumers in the emerging markets as the starting point? Why are Daikin and Unicharm able to be successful in entering emerging markets while other Japanese companies cannot?

References

Ichii, S., Hattori, S., and Michael, D. 2012. How to Win in Emerging Markets:
Lessons from Japan. Harvard Business Review. 90: 126-130. Verbeke, Alain. 2009. International Business Strategy. New York: Cambridge University Press.