Penetration of Multinational Business in Emerging Market

1. Introduction 

Emerging economies are increasing their rate of demand on advanced products and this creates a good target for multinationals to sell their products. Further, the rising number of people in these emerging countries creates a wide customer base for different products. There is relatively higher demand for various products in this population and thus different multinationals are targeting the market. The demand creates a friendly environment for multinationals to expand their market segment thus improving their sales. Reports show that multinationals are targeting emerging markets in China, India, Brazil, Mexico and South Africa with their products. The wide customer base is making multinationals compete for loyalty of consumer through use of different marketing mix.

 UPS a multinational company in United Arab Emirates and deals with transformers and related electrical products aim to penetrate Indian market. However, the company plans to get a consultant conversant with transformer market, who will develop a strategy that will ease penetration in this segment. Actually, Indians are gradually acquiring electronic products as they embrace development in their country, thus an attractive market for transformers. 

2. India Political Background 

India was a colony of Great Britain and attained its independence on August 15, 1947. Later, the country adopted a constitution on January 1950, which helped it attain a Republic status. India is democracy and its status is recognizable worldwide. Elective positions take place after 5 years where people elect their representatives in different legislative positions. The country has 6 territories that contain 29 states. The capital city of the country is in New Delhi, the location for Central Government. 

The government is made of different arms including Judiciary, Executive and the Legislature. The arms are present in both the central government and the states. President deputized by vice president heads the Executive. The executive also have members from parliament that are ministers. The ministers together form a council headed by a Prime minister. The legislature has upper house (Rajya Sabha) and lower house (Lok Sabha) and has ministers who are representatives of the people. The legislature has some similarities with that of Britain. The Supreme Court of India has overall power over the judiciary and helps in interpreting laws and ensuring that lawbreakers get conviction. However, the federal system in the country matches United States structure. 

3.  India Social Background 

Indian society comprise of different communities that live in harmony in the country. The society has investors, employees and consumers of different products. The progress of any business relies on composition and characteristic of a society. Therefore, investors need an understanding of social characteristic of a population to establish their possible buying habits. The approach ensures that business is able to choose correct marketing strategies that support high demand from customers. 

Though the Indian consumers in the past were lowly enlightened, the trend has gradually changed after 1980s and currently many are keen on what they buy from the market. Indeed, before 1980s, business focus was mainly on selling their products with low regard to marketing activities. However, globalization, economic reforms and government policies have made it necessary for business to market their products. Actually, literacy rate in the country has gone relatively up due to interaction with media and access to education for a significant percentage of the population. Consumers are now demanding for quality products, which are low in pricing. 

Additionally, consumers are conversant about their welfare and rights from business. Through trade unions, workers and employees are able to champion for better pay. Further, the workers demand safe working environment from their employers. In addition, workers are asking for adequate incentives, allowances, bonuses and welfare packages. The impact has resulted to embracing of social environment by consumers and businesses in India. Organizations in the country have adopted environmental conscious actions and responsibilities that ensure that there is conservation of the environment. The multinationals also ensure that they give work opportunities to the community and locals in India. Local business on the other hand gives priority to Indian society and consumers. Actually, competitiveness of multinationals in India influences need for increasing investment in research and development (R&D) together with erecting research centers. Indeed, the MNEs are supporting market research activities to improve their understanding of their target customers. 

4. Economic Background of India 

The growth of Gross Domestic Product (GDP) has been steady in the recent years despite facing different challenges to higher rate of growth. The growth rate of GDP in India over past 30 years has averaged at around 5.4% yearly. The influence of growth relates to shift of the country from a major importer to an export. Results show that India has registered positive net exports over these years. Further, data from Doing Business website shows, the country ranks position 134 out of 189 nations in regard to ease of carrying business in the world. However, India faces hurdles that include weak infrastructure, inefficiencies in bureaucracy, high illiteracy, poor health and unskilled workforce. However, the Indian government is embracing different techniques to solve these problems. 

Graphs

Industry	Component
Manufacturing	15%
Agriculture, fishing and forestry	12%
Real estate, business service and insurance financing	60%
Water and gas supply, electricity, quarrying and mining	5%
Construction	8%

4.1 GDP Projection 

India GDP	2016	2020
GDP annual growth rate	7.1	5.7
GDP growth rate	1.7	1.3

Graphs

Recommendation 

There are different factors such as economic growth that make India an attractive destination for multinationals. The economic situation allows the population to have relatively higher spending power. Indeed, in future, India has potential to become a leading consumer market in the world. Further, high cheap skilled labor also makes India attractive destination for multinational enterprise to invest. In addition, the government has put in place friendly policies that emphasis on making products in the country. The efforts make the destination friendly to investors from across the world. 

There is also visible continuing expansion of infrastructure such as roads, making accessibility to different places in the country possible. Further, through support of air and water transport the country is accessible from countries in Africa, South Asia and Middle East. Additionally, demographic of the country characterized by significant number of young population offer larger consumer base. 

Liberalization in the market further adds to the easiness of penetration in Indian market by foreign investors. However, such penetration faces the challenge of complexities that arise from specific characteristic of India. It is therefore important for multinationals to familiarize with regulations in the country before starting their business. Some of the factors that the foreign investors need to understand before deciding to enter the market include; processes of registering business, issues of cross cultures and tax structure. It is also necessary to recognize India as world second largest country in high workforce. 

5.  Market Entry Mode 

 There are different modes that multinational enterprise can penetrate a market in a foreign country and they include; collaborative strategies, licensing and franchising, Indirect and direct importing and exporting, strategic alliances, Joint ventures and Foreign direct investments. 

Goods exportation offers lowest risk but businesses have relatively low control. Franchise and licenses on the other hand, offer relatively high control to the business. Entries based on ownership such as subsidiaries that are wholly owned offer highest control. 

It is recommendable for multinationals to adopt different entry strategy such as direct exporting and later adopt contract manufacturing. Exporting is straightforward and simple for multinationals. Direct export involves a direct contact of a supplier and a foreign customer. Multinationals can opt to either use indirect or direct export where they involve agents as third parties. Direct export allows businesses to establish a relationship with customers that helps build long-term loyalty. 

Some of the benefits adopting direct export for entry in a foreign market include:

• Allow systematic entry into a market. 
• It protects multinationals from high tariffs. 
• Require low financing in penetrating a new market. 
• Prevent logistical difficulties. 
• Avoid restrictions that face foreign investment.
• Give investors time to study the market. 

Once foreign investor has settled in a new market, they need to consider contract manufacturing that involves outsourcing part or entire operations of manufacturing process. The method offer low risk on finances and relatively higher control by the multinational. The entry method allows MNE to utilize its resources on enhancing different aspects that characterize its value chain. 

Since USP multinational is entering to offer inverters and transformers to a market that is relatively untapped, it enjoys potential of benefiting from early entrant. The company will have easier supplier and distribution channels in addition to understanding consumer choice. Additionally, the multinational will benefit from government incentives and concessions. 

6. Implementation Plan 

USP multinational needs to adopt a business plan that has long-term aspiration without imposing some of its business models and international practices on Indian market. 

6.1  Search of Partner and Management 

The company needs creating a profile that describes the required characteristics and abilities of potential partner. The next procedure should be selecting appropriate candidate from the applicants. The other step should be interpretation of the partner where negotiations take place and completion of contract takes place. At this stage, the company needs to train its personnel to ensure that it achieves teamwork in its new establishment.

6.2 Location selection 

Selecting appropriate location for the business requires creation of a blueprint that help plan about taxation, government regulations and logistical implications. 

6.3 Installation 

After identification of a location, the company requires to develop structure that guides its business plan implementation. The installation processes needs to a guide through; project planning, operation planning and project implementation. 

Conclusion 

Multinationals need to understand the characteristics of demand of their products in foreign markets especially when targeting emerging markets. Through proper research, the multinationals are able to tailor make products that fit these markets and adopt workable entry mode. Further, there is need for the multinationals to choose reliable partners to enhance their penetration and reception in the new market. 

Emerging economies such as India offers an attractive market for multinationals that aim to penetrate new markets. However, the MNE need to understand the challenges and risks that are available in these markets. The emerging countries offer a growing market segment for multinationals and they are playing a significant role in global economy. USP multinational needs to study Indian market and serve it with its electronic products as an early entry thus boosting its competitiveness in the country. 

References

http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-multinationals-can-win-in-india

http://www.tandfonline.com/doi/abs/10.1080/0003684022000042991

https://www.henley.ac.uk/html/hwss/files/dps-pdf/JHD-2014-04.pdf

Arnold, D. J. & Quelch, J. A. (1998). New Strategies in Emerging Markets. Sloan Management Review. Retrieved from http://sloanreview.mit.edu/article/new-strategies-in-emerging-markets/.