Coming out of Emerging Markets EMBA Global Strategy Session 6 Professor Mari Sako Dr Eric Thun 26 February 2014
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Coming out of Emerging MarketsEMBA Global Strategy Session 6
Professor Mari Sako
Dr Eric Thun
26 February 2014
Plan for this session
Advantages and disadvantages of emerging market firms
China: International module
BREAK
India: Impact of institutional reforms on corporate strategy
Case: Bharti Airtel in Africa
2
Comparing China and India (I)
Comparing China and India (II)
Comparing China and India (III)
Comparing China and India (IV)
Comparing China and India (V)
Source: Bloomberg/IMF
8
Comparing China and India (VI)
Source: Economist, 30 September 2010
9
China as a Home Base
• Political Structure?
• Economic Structure?
• How does political economy shape competitive advantage? 10
Share of World GDP
Goldman Sachs Forecast
Source: Goldman Sachs
Setting the StageThe Middle Kingdom and the World
• Imperial China • Century of Humiliation • The Mao Era • The Reform Era
The Qianlong Emperor in Ceremonial Armour on Horseback by Giuseppe Castiglione (1739 or 1758)
Portrait of the Kangxi Emperor in Court Dress, by anonymous court artists (late Kangxi period).
Treaty of Nanjing, 1842
• Extraterritoriality • Moderate tariffs and no monopolies • Hong Kong ceded to Britain in perpetuity • Treaty ports
The Paris of the Orient
The French Concession: 1849 - 1946
Century of Humiliation
• First Opium War, 1839-1842 • Treaty Ports • Second Opium War, 1858 • Anglo-French occupation of Beijing
in 1860 • Japanese invasions in 1894-1895
and again 1930s
The Mao Era: China Stands Up
• Create political institutions
• Economic recovery and growth
• Transform society
Causes of the CulturalRevolution
• Mao worried about succession • Mao hated bureaucracy • Mao wanted a return
to ideology • Mao wanted the young
to make revolution
The Reform Era
• Growth in Private Sector – Agricultural reform and decentralization
• Growth in Foreign-Invested Sector – Opening to trade and investment
• Growth in State Sector – Ownership reform and restructuring
The Starting Point
32Source: Steinfeld, p. 49.
Employment Share of Agriculture (%),1978-2003
80
70
60
50
40
30
20
10
01978 1985 1990 1995 2003
33
National Sources of FDI in China,1985-1990
Hong Kong/Macao 61.5%Japan 12.8%
USA 11.2%Taiwan 7.6%United Kingdom 1.1%France .9%Italy .7%
Singapore .6%Others 3.6%
Source: Khan, 1991, p. 44.
Foreign Direct Investment in China(as a percentage of GDP)
36Source: World Bank
Number of Firms by Ownership(in millions of firms)
Source: China Economic Quarterly, June 2008
State Industrial Enterprise Profit
Source: Naughton, The Chinese Economy, p. 305.
From Plan to Market in China• Starting Point: Hierarchical bureaucracy , managers
focus on fulfilling plan, planned prices, soft budget constraints
• Pre-1993: Slowly allow markets to grow on the margin, increase in managerial incentives through contracts, but soft budget constraints remain
• Mid-1990s to Present: Corporatization, managersfocus on profits (with qualifications), prices set by market (with government intervention at times), hard budget constraints (with qualifications)
• Defining characteristic of reform in China has been gradualism, experimentation and lack of political reform.
Whither China?
Income per person relative to the United States,
log of %
MADE IN CHINA!but...
Value Capture in a $600 iPhone 4
Processing vs. Normal Exports(for advanced technology products exported to U.S.)
50,000
Dol
lar 40,000
30,000
U.S.
20,000ofill
ions
10,000
M
0
-10,0001996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Data Source: China Custom Statistics, U.S. Census ATP definition
Processing Normal Others
Ownership of Exporting Firm in China(for advanced technology products exported to U.S.)
35,000
30,000
r
25, 000
Dol
la
20,000
U.S
.
15,000
of 10,000
Mill
ions 5,000
0
-5,000
-10,0001996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Data Source: China Custom Statistics, U.S. Census ATP definition
SOE Joint Veture Wholly Foreign Collective Private
Crude Birth and Death Rates in China
Source: Scott Rozelle, Stanford University
Falling Supply + Rising Demand =Increasing Wages
Source: Scott Rozelle, Stanford University
Growth of the Domestic Market20
18
16
14
12
Trillion 10
RMB8
6
4
2
01995 2004
Source: 1995 and 2004 Industrial Census and UN Comtrade data for the same years.
Domestic Market Growth: Autos(unit sales in millions)
20
18
16
14
12
10
8
6
4
2
0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Industrial Yearbooks
Domestic Market Growth: CNC Machine Tools(unit sales)
120,000
100 ,000
80,000
60,000
40,000
20,000
01997 2000 2003 2006
Source: Industrial Yearbooks
Domestic Market Growth: Wheel-Loaders(unit sales)
140000
120000
100000
80000
60000
40000
20000
01997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Industrial Yearbooks
Domestic Market Growth: Excavators(unit sales)
80000
70000
60000
50000
40000
30000
20000
10000
01997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Industrial Yearbooks
Domestic Market Growth: Mobile Handsets(unit sales in millions)
200
150
100
50
0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Brandt and Thun 2011
Different forms of ownership with different challenges….
• Foreign firms struggle to lower their cost structure and navigate unfamiliar terrain.
• Chinese private sector firms struggle to upgrade
• Chinese state-owned firms struggle to restructure
• How is competitive advantage created in China?
Underlying Questions
• What are the strengths and weaknesses of the Chinese economic model? How sustainable is this model?
• What is China’s role in the global economy and how is it evolving? What should it be?
• How does the Chinese “model” and China’s place in the global economy shape the strategies of Chinese firms and the opportunities for foreign firms?
Core question: How is competitive advantage created in China?
• Topic 1 - The State and Business in China • Topic 2 - Foreign Firms in China • Topic 3 – The Private Sector • Topic 4 – Challenges • Topic 5 – China’s Future
• Mix of readings: broad overviews, case studies, “how to” pieces, additional readings available electronically
• Reading through reading guide and key questions before you begin; I will tell you what is relevant for each session
• Background readings on China listed in the front
TheLOCALE
55
TheSCHEDULE
Assessment• Strategy report for either a non-Chinese firm that is either entering (or
struggling to compete in) China’s domestic market, or a Chinese firm that is struggling to globalize.
• Report should include: – Analysis of competitive landscape (including domestic and foreign firms) in the relevant
industry – Current trends and characteristics in the industry
Hurdles and obstacles facing firm – Strategy recommendations
• The intent of this report is to use the case of China to integrate concepts and knowledge that you have acquired in the EMBA program. What will be the advantages/disadvantages of domestic firms in this sector? What will be the advantages/disadvantages of foreign firms in this sector?
• You are free to use information from any source, but be careful to provide full citations.
• Word limit is 5,000 words. Deadline is Monday 23rd June at 12 noon. See Information Sheet for further submission requirements.
Advice for Coursework• Choose an industry and firm for which information is accessible—review
the cases/industries covered in the course as a starting point
• Think carefully about the purpose of the report and make sure that you cover every element.
• Draw implications from evidence—don’t just repeat facts, interpret and analyze them.
• Utilize frameworks and concepts both from this course and other relevant courses.
• Only provide the evidence that is necessary to make your case.
• Key marking criteria: power and coherence of the argument, evidence to support the argument, use of relevant concepts/ techniques
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