When we talk about Emerging Market naturally our focus sights on “BRIC” countries Brazil, Russia, India & China but in reality there are other emerging market economy also that will grow very fast in the coming decade or so. Those countries are Czech Republic, Hungary, Indonesia, Lebanon, Mexico, Poland, Russia, Singapore, South Africa, South Korea, Venezuela, Vietnam, Malaysia, Saudi Arabia, Thailand, Turkey & Egypt.
At present we have two global power house Europe & America however after the emergence of emerging market economy we are going to have 3 global power house Europe, America & Emerging Market that will compete against each other, trade with each other and create partnership with each other to grow and serve the global economy.
Till the last decade there were only 20 emerging market multinational in Fortune 500 list but now more than 70 emerging market multinationals are in Fortune 500 list. This shows that emerging market multinationals are spreading their legs very fast and the emergence of IT has provided more impetus to it as world becomes flat and boundaries are narrowed.
Now the question arises how emerging market multinationals will compete with developed worlds multinationals. what are the challenges they have to face? What kind of operating model they have to develop in order to compete in global environment? Similarly after the acute financial crises & expected low GDP growth trajectory for long period of time what will be the business strategy of developed market multinationals to compete globally?
There is a great divergence between Emerging Market & Development Market. How they will compete in each others market? In the normal circumstances there is huge difference between operating models of both the economy. This makes us to think further, how they will achieve economies of scale? Does they require global operating model? Answer is yes…………
Yes both the economy requires global operating model. Then again question arises, Does development market & emerging market completely changes its operating model as per local models of a particular country/region?
In order to understand these issues we have to check existing operating model of both the economy & their advantages & disadvantages.
At present circumstances when developed market multinationals expand themselves to nearby region then normally they adopt their existing operating model as market condition, consumer behavior, regulatory concern, formal structure, Low risk & culture are almost similar to their home country so they have to make only minor changes in their model and the same is true for emerging market multinationals also.
We can call this “Minor Diversity” but the problem arises when developed country encroaches into emerging market economy where conditions are vastly different to their home country like market condition which caters more to lower pyramid, consumer tastes & preferences vary across regions because of developing nature, volatility of risk, Political uncertainty, lack of proper regulation, informal structure & diversity in culture etc.. These differences require major changes in their model and we can call this “Major Diversity”.
Now we are going to see existing operating model of both developed & emerging market multinationals.
Operating model of Developed Market & Emerging Market multinationals
Above mentioned picture shows that Developed market multinationals gives more emphasis to Process & Technology and Organizational Architecture. Their operating model is process & technology driven and results were judged on the basis of performance metrics. They give very less importance to Leadership skills & Inter-personal relationship between people however opposite is true for Emerging Market multinationals where more emphasis is given to Leadership & Inter-personal relationship between people and less importance is given to process & technology, organizational Architecture & metrics.
For Example: In the oil and gas industry, for instance, emerging-market NOCs do not seem to rely as systematically on the strict net-present-value metric that IOCs use in their decision-making process—which is consistent with a more-risk conscious leadership style. Rather than adopting this metric, NOCs change the game by creating deals that involve aid and infrastructure packages. This signals a market development mind-set as opposed to a market-exploitation mind-set.
Leadership in developed market multinational tends to be more institutionalized: the CEO’s personality surely counts, but decision influences employees’ collective thinking however there are always some exceptions like Apple’s Steve Jobs. In most developed-market multinationals, leaders’ personalities are not as important as rules, processes and organizational structure. Leadership in these companies revolve around planning and structured and formal decision making more than around direct interactions and personal contacts with employees. Leadership is not concentrated just at the very top but distributed throughout the hierarchy and the top-management team. In developed countries, stock market pressure leads leader/CEO to give more emphasis on the short term and more conservative attitude toward risk.
On the other hand Emerging Market multinationals strongly rely on the leadership component. Leadership at these companies is personalized and centralized; it is also more entrepreneurial and top executives make fast, bold decisions and are oriented toward long-term risk. Because many emerging-market multinationals are privately owned, they often have greater unity of ownership and control than developed-market multinationals. The CEO, who is often the owner, usually has more power than the CEO of developed-market multinationals. This results in individual-based leadership structures more than in team-based leadership structures where power is more distributed. The CEO is also highly visible throughout the company and top executives are often family members or members of the same political party (ownership-related) or clan (political clan); by contrast, in developed-market multinationals, the leadership is almost exclusively composed of professionals.
Emerging-market multinationals are state-owned or privately-held and don’t need to meet the short-term demands of shareholders, their top leaders are more comfortable with risks and look more to the long-term. The amount of red-tape and bureaucracy that emerging-market leaders have had to deal with in their home countries is also a sign of their leaders’ strong entrepreneurial spirit. It equipped them with a superior ability to create networking skills within their ecosystem and to deal with political stakeholders. They are much less politically naïve than their developed-market counterparts, and this can help them in their efforts to internationalization.
People
Emerging-market multinationals typically rely heavily on people skills. These companies excel at fostering and leveraging wide inter-personal and inter-organizational networks. It aligned with a leadership style based on highly personalized interactions; networking is deeply engrained in emerging-market multinationals corporate and national cultures. In emerging-market multinationals networks are based on reciprocal obligations, long-term commitments, kinship and trust.
On the other hand Developed-market multinationals emphasis on people means extensive, formal international human-resource management processes. In developed market multinationals, networks tend to be rational and calculated which limits trust due to the higher risk of free riding and opportunism.
Organizational Architecture
Emerging-market multinationals where CEOs and top managers seem to concentrate more on authority, organizational structures are more centralized and hierarchical than in developed-market multinationals. High power-distance acceptance and benevolent paternalism are common traits of emerging countries. It suggests that some emerging-market multinationals may lack the lateral structures necessary to formally coordinate international operations.
By contrast on the other hand developed-market multinationals tend to rely heavily on their organizational architecture to coordinate their international operations.
Process & Technology
Processes and technologies were given less importance in Emerging Market multinationals. This component is also less important than their leadership and people components. Emerging-market multinationals tend to subordinate processes to people.
By contrast, processes and technology in developed-market multinationals are an essential component of their operating model even when these multinationals operate in regions of similar economic development.
Metrics
Emerging-market multinationals use fewer metrics than developed-market multinationals since the former may have fewer tracking processes in place to generate the metrics. In emerging market multinationals, metrics used to measure individual performance and productivity do not seem to be as important as they are in developed market multinationals. Emerging-market multinationals appear to place more emphasis on loyalty, kinship and political connections for talent management.
Developed-market multinationals typically use metrics to assess the quality of human resources, innovation, supply chain effectiveness, knowledge management and leadership.
In order to internationalize business or encroaching in other countries/region, what shall be global operating model of Emerging & Developed Market? How to develop model so that they can retain advantages of existing model & improve on activity required as per other region/countries requirement?
Global Operating Model
Emerging Market Multinationals:
Leadership
Emerging-market CEOs centralize decision making—a possible flipside of their personalized leadership style—could be a handicap to their success in developed markets. The autonomy of subsidiaries might be stifled when they need it the most.
For example, Hyundai has suffered important setbacks in the United States (market share loss, high executive turnover) due to the feudal leadership style of its CEO. Evolving partially toward the more Western distributed-leadership model might then make sense.
Because family, cultural or political clan relationships matter for leadership selection and appointment, and because the clan is likely to be home country-based, leadership in emerging-market multinationals also needs to become more geographically diverse to manage a broad multi-power economy. More global emerging-market multinationals are beginning to understand this. Companies like Tata manage the career of future leaders with multiple foreign assignments, which creates more sensitivity to international markets.
Thus, emerging-market multinationals with a footprint in broad multi-power economy should embrace some of structural leadership attributes of their developed-market counterparts. They need to reconcile more structure and their current agility and speed of decision making. This will give them an added advantage as compare to developed market multinationals.
People
Emerging market multinational should converge towards more systematic international HR processes. In spite of progressive adoption of western human resource practices, the emerging market networking capability seems enduring. It influences both organizational and individual performance against expectations. More global emerging-market multinationals like Tata are using international networking extensively to leverage knowledge across borders. They not only keep the senior management of acquired foreign companies but also connect them with all employees in and outside India who hold valuable knowledge. These strong interpersonal networks have the added benefit of creating strong identifications with the company and of fostering the emerging-market entrepreneurial culture that helps employees become more comfortable with change. In the multi-power world multinationals are trying to emulate these networking capabilities.
Organizational Architecture
Tight hierarchy among emerging market multinationals with wide multi-power footprints is hindering integration and responsiveness. On the other hand, as the strong interpersonal networks of these companies may provide an advantage in helping them to manage the differentiated networks needed to manage successfully in broad multi-power economy.
Emerging market multinational should try to progressively converge towards developed market organizational architecture however they should continue using their soft skills advantages.
Process & Technology
Emerging-market multinationals may need to strengthen the role of processes and technologies in their configuration, they should also be wary of the rigidities that processes can create. In fact emerging- market multinationals should continue to subordinate processes to people. Although formal processes and technologies are important in a differentiated network, excessive reliance on them can inhibit the creation of interpersonal ties and thus, hinder the creation of customer intimacy, delay in decision making, opportunity loss, and the adaptation to local markets.
Metrics
Metrics help to determine whether the global operating model is performing well and whether each of the components is internally and externally aligned. Alignment of global operating model components will be increasingly important to emerging market multinationals performance. Emerging market whose footprint is more global may also need to employ more metrics.
Developed Market Multinationals:
Leadership
Developed-market multinationals have problems because of excessively structured leadership. They needs to move from an emphasis on management, in which good managers produce predictable results, to an emphasis on leadership, where leaders are charismatic, risk-taking, fast moving and far sighted.
If your strategy is to deliver breakthrough performance, you need a different type of leader to make that happen but the problem lies within existing workplace structures and business processes that are constructed not for breakthroughs, but for predictable performance. Simply put, successful leaders of the 21st century will not be cut from the cloth of managers of the old.
Developed market multinationals needs entrepreneurial leaders to get successful in multi-power economy.
People
Global developed-market shall try on developing networking skills.
Developed-market multinationals should realign their global operating model thoroughly by developing employee’s ability to network, by letting ties to be created by local people and not only by senior expatriates, by creating structure and performance metrics which allow foreign subsidiaries to lead more initiatives that go out from the corporate standard will provide impetus to develop inter-personal relation & networking skills.
Organizational Architecture
Developed market economy organizational architecture requires to reconfigure their global operating models so that more informal, soft components can play the necessary lubricating role. For example, it has been well documented that networks require intense inter-personal communication, a capability well found among emerging-market multinationals. This is where more global developed-market requires re-balance of their configuration and to include more of the soft components will gain.
Process & Technology
Developed-market multinationals with diverse footprints in multi-power economy should work to balance processes and people, in particular to succeed in emerging markets. The key for them might be to differentiate where standard processes work best (for efficiency maximization) and where they should rely more on people’s skills and networks. In other words, in some locations, human-based solutions might be the least expensive and most satisfying.
Metrics
Developed market multinationals are already metrics driven they should properly align metrics with increased importance of Leadership & People in their global operating model.
Global Operating model of Developed Market & Emerging Market Multinationals
Both Developed Market & Emerging Market multinationals make sure that all the components of global operating model should properly aligned with each other in order to provide Superior Business Performance.
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