Question

As the emerging markets in developing countries gain global influence and power, do you believe that the current developed countries will be able to maintain their competitive edge?

What do you think needs to be changed with the developed countries economic policies to maintain their current role or to become more competitive?

Please provide references for the information provided.

Answer 1

Part of the problem, we believe, is that the absence of specialized intermediaries, regulatory systems, and contract-enforcing mechanisms in emerging markets—“institutional voids,” we christened them in a 1997 HBR article—hampers the implementation of globalization strategies. Companies in developed countries usually take for granted the critical role that “soft” infrastructure plays in the execution of their business models in their home markets. But that infrastructure is often underdeveloped or absent in emerging markets. There’s no dearth of examples. Companies can’t find skilled market research firms to inform them reliably about customer preferences so they can tailor products to specific needs and increase people’s willingness to pay. Few end-to-end logistics providers, which allow manufacturers to reduce costs, are available to transport raw materials and finished products. Before recruiting employees, corporations have to screen large numbers of candidates themselves because there aren’t many search firms that can do the job for them.

Because of all those institutional voids, many multinational companies have fared poorly in developing countries. All the anecdotal evidence we have gathered suggests that since the 1990s, American corporations have performed better in their home environments than they have in foreign countries, especially in emerging markets. Not surprisingly, many CEOs are wary of emerging markets and prefer to invest in developed nations instead. By the end of 2002—according to the Bureau of Economic Analysis, an agency of the U.S. Department of Commerce—American corporations and their affiliate companies had $1.6 trillion worth of assets in the United Kingdom and $514 billion in Canada but only $173 billion in Brazil, Russia, India, and China combined. That’s just 2.5% of the $6.9 trillion in investments American companies held by the end of that year. In fact, although U.S. corporations’ investments in China doubled between 1992 and 2002, that amount was still less than 1% of all their overseas assets.

If Western companies don’t develop strategies for engaging across their value chains with developing countries, they are unlikely to remain competitive for long. However, despite crumbling tariff barriers, the spread of the Internet and cable television, and the rapidly improving physical infrastructure in these countries, CEOs can’t assume they can do business in emerging markets the same way they do in developed nations. That’s because the quality of the market infrastructure varies widely from country to country. In general, advanced economies have large pools of seasoned market intermediaries and effective contract-enforcing mechanisms, whereas less-developed economies have unskilled intermediaries and less-effective legal systems. Because the services provided by intermediaries either aren’t available in emerging markets or aren’t very sophisticated, corporations can’t smoothly transfer the strategies they employ in their home countries to those emerging markets.

Actions

We work with governments, investors and business in developing countries to strengthen their business environment, increase their access to international markets, improve their infrastructure and give more people access to financial services.

• Helping devoping countries to remove barriers to trade and investment
• Helping devloping countries to improve their infrastructure
• Helping people in devloping countries acessfinancial services.
• Stimulate private sector investment in country.
• Enabling business to include poor people directly.
• Supporting fair and ethical business operations
• Helping devloping countries benefit from global and regional trade.
• Providing debt relief of devloping countries.