As the universe is going flatter, and resources going accessible to smallest of organisations, prolonging growing is a serious issue. Today, planetary events and competition affect all companies – big and little – because most sell end product to and procure supplies from foreign states. As demand in the developed states is stagnating, fault it on the recession or worsening population growing, costs are going higher, more and more companies are eyeing the emerging markets as a beginning to prolong the parental growing. While China and India are the outstanding 1s, there are others like Brazil every bit good. In this study we analyze all the strategic factors that a company must take into consideration while measuring emerging markets and have presented a model which can be utile for any company with the above quandary. Further, the derived model is used in the context of China to measure ArcelorMittal ‘s scheme that it used to come in in the Chinese markets.


This study aims to analyse all the strategic factors that should be taken into consider by an organisation that is “ Diversifying in Emerging Markets to prolong Parental growing ” .

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

Why the undertaking survey?

In the past 2 decennaries, the universe has undergone a rapid transmutation. These bend of events has led to many companies, little and large, to come in into international markets, in this context emerging 1s. The factors can be outlined as follows:

Increase in enlargement and engineering

Today a much larger proportion of the population is involved in developing merchandises instead than merely bring forthing them. As a consequence, competition is acquiring tougher and one can see start-ups offering the best of engineering at lowest of costs ( The Chinese stand out as one large illustration ) .

Liberalization of cross boundary line trade and resource motions

Overtime, most authoritiess have reduced limitations on international motions of merchandises and services. This has led to the markets which were unfastened to merely domestic companies being available to everyone in the universe. Hence, no longer can an organisation count on an assured consumer base.

Development of services that support international concern

As more and more services are being available to back up international concern, greater is the figure of houses traveling planetary. As a consequence, an organisation is non merely confronting competition from domestic houses but besides large international houses for whom the international market has become attractive.

Turning consumer force per unit areas

Not merely do consumers cognize more about merchandises and services available in different states, but many more can afford to purchase merchandises that were one time considered luxuries. Hence, unless a house offers diverse scope of merchandises at different monetary values to the consumer, trueness is no longer guaranteed.

Changing political state of affairss

Increasingly, authoritiess have come to recognize that their ain involvements can be addressed through international cooperation. Therefore, they provide an array of services to assist domestic companies sell more abroad and support plans favourable to international trade. So, as more and more companies avail of the advantages, more is the force per unit area on an organisation to prolong growing.

Why enter into emerging markets?

It is no secret that economic experts all over the universe have placed high stakes on emerging markets and see them to be the human dynamo for future. Hence, for any company that wants to be successful in the long term and be genuinely planetary, it needs to hold a scheme to come in these markets.

The primary motivation for any company is to increase its bottom-line. But how does a company measure its bottom-line public presentation? Falling net incomes over clip are the best index of an erroneous public presentation. These net incomes can be reversed by 2 ways – Addition grosss or Decrease costs. While these are non the grounds that make a company decide whether to travel planetary or non, they are surely a manifestation of jobs that can likely be solved by traveling planetary or in short variegation.

The major factors that finally cause a company to look towards emerging markets for variegation of concern can be classified as follows:


Emerging markets are the least hit in recession. Hence, any company that wants to consistently bring forth grosss demands to be present in atleast one of them. Besides, developed states like Japan where the demand has been systematically worsening due to miss of population growing have become less attractive for companies while states like Indian with a billion plus population have become attractive.


Companies invariably seek out merchandises, services, resources and constituents from foreign states. Sometimes, it ‘s merely because domestic supplies are deficient to run into the current demand at sensible costs. They ‘re besides looking for anything that will give them a competitory advantage and long term growing sustainability. One of the biggest illustrations of such a tendency is the Indian IT BPO sector. It was the demand for the US companies to cut down costs that made India the epicentre of IT BPO industry and give the much needed push to Indian economic system.


A company might be involved in fabricating high engineering merchandises whose merchandise life rhythm is really low. Hence, it becomes imperative for a company to diversify its markets to cut down the hazard that it will confront by providing to merely one market. Besides, if it does n’t increase its markets, the rival might make so and therefore would take to loss of gross for the company.


Sometimes, there might non be any peculiar ground for a company to diversify its markets. The company might be diversifying merely to prolong competitory advantage in the hereafter and fudge its hazards. Besides, the company might desire to entree markets and derive a first mover advantage before a rival does or would desire to take advantage of an economic roar in a state. Under such fortunes, the company is said to be diversifying for strategic grounds.

Steel Industry is a really cyclical one. If the economic system roars, the industry roars and if the economic system goes into recession, the industry besides suffers. Hence, for steel-producers, it becomes really of import to diversify their markets which might non be necessary for other industries. Steel-producers therefore invariably look out for new avenues of demand, one such being emerging markets. Therefore, they make the ideal campaigner to prove our strategic model. Besides, ArcelorMittal being the largest steel-producer with many subordinates, we look into its strategic kineticss while come ining into China, the largest emerging market of all.


The model for any emerging market can be broken down into 2 factors:

Difficult Factors – It consists of all the factors that usually companies focus on while measuring any market. It pertains to the macro and micro economic sciences of the state.

Soft Factors – It consists of all those cultural factors that make every state unique. Most of the companies do non see these factors to be of import yet cultural mismatch has been the ground of death of so many multinationals in emerging economic systems.

As houses enter new operating environments, best manner to measure the micro and macro economic sciences of that state is utilizing the Porter ‘s Diamond of National Competitiveness. The PDNC can be used to place the factors that should be analyzed before come ining into any emerging market. Such factors can so be compared to happen out the current compatibility with the house and so suited schemes can be devised based on them.

Any emerging market can be analyzed through 4 major factors:

Firm Strategy, Structure and Rivalry

Resource Endowment

Related and Supporting Industries

Demand Conditionss

Firm Strategy, Structure and Rivalry

The sort of schemes ( low cost / high quality ) rivals are following in the emerging market

The construction of the houses pre-dominant in the markets – Are bulk of the concerns household owned?

The degree of competition in the industry. The best manner to happen that out is through ciphering the Herfindahl-Hirschman Index or HHI which measures the size of houses in relation to the industry and an index of the sum of competition among them. Its value ranges from it can run from 0 to 1.0, i.e. from a disconnected market to a individual monopolistic 1

Resource Endowment

Handiness of skilled labor

Conducive substructure to development of the organisation

Resource-availability at sensible costs

Knowledge and capital resources

Related and Supporting Industries

Strength and fight of providers – Can they supply choice stuffs in clip?

Presence of accessory industries

Presence of industries which lie frontward or rearward in the value concatenation

Demand Conditionss

Volume/Quantity of demand

Potential for growing

Demand for new merchandises

Quality of merchandises demanded

Latent Demand

It has been observed in the past that merely placing economic factors in a state is non plenty. Sometimes immense companies have failed to run in the emerging markets due to cultural daze or mismatch between the employees and senior degree direction. Hence, the cultural kineticss demands to be analyzed before come ining into any emerging market. The best theoretical account that can be used in this model is Hofstede ‘s cultural dimensions.


Focuss on relationship between single and others in a civilization

In an individualistic society, people are competitory, less co-operative, have personal ends, single ideas and sentiments and are willing to do determinations on their ain

Power distance

Peoples in states with high power distance believe in power and authorization

There is greater centralisation and unequal distribution of power

Peoples in states with high power distance regard authorization

Uncertainty Avoidance

Measures the extent to which civilization allows members into accepting equivocal state of affairss and digesting them

Peoples with low uncertainness turning away require formal regulations for everything, planning and ordinance


A civilization or society can be called masculine if it has the undermentioned values


Differentiated sex functions


Hunger for money

Loves challenges


Any company that plans to diversify into emerging markets must foremost execute a comparative fight analysis of itself. It must turn to the undermentioned inquiries before it sets out to make a strategic program of action to travel into an emerging market.

It must measure its strategic place in the current market, and analyse how that is bound to alter because of the companies in the emerging markets?

Pull out the chances and menaces that the current strategic scenario nowadayss for the company.

It must so seek and name the resources and accomplishments that it might necessitate to acquire/change in visible radiation of variegation into/competition from emerging markets.

Gap analysis between the current strategic place and what is required under the future threat/opportunity prognosiss.

The first inquiry can be answered by turn uping the company in the Holfer-Schendel matrix drawn up with the “ emerging market development ” on the y-axis. To get at that, a thorough analysis should be performed to determine the current strategic place of the company. The analysis must incorporate the undermentioned stairss:


Fiscal analysis to determine the hard currency flow position of the company to diversify into emerging markets.

This may include both free hard currency flows every bit good as ability to raise fresh equity or debt in markets.

This is of import as variegation into emerging markets can be dearly-won owing to immense investings required in the competition ( This varies from industry to industry ) .

Fiscal wellness can be ascertained from the profitableness and turnover Numberss for the past 4-5 old ages.

The company must so determine the factors that contribute to its current fight. This may include capacity-productivity, market portion, technological progress, R & A ; D advantages, input cost, and labour cost and monetary value fight. This could be used to measure its comparative fight. These can be named as “ Strong ” , “ Weak ” , “ Average ” or “ Drop Out ” , which in this context could intend non to diversify into the new emerging market.

Third it must the buttockss the evolutionary phase of the emerging market that it is aiming. While making so, it must measure how much value each of its success factor could add, or how much each of them are susceptible to be exploitable at any given evolutionary phase of the mark emerging market.

For illustration, If a house A ‘s strength is in its low input cost, and high technological design, and it is be aftering to come in an emerging market that is at the growing phase, it should asses how much value these two factors can add to the company at the growing phase of the emerging market.

In measuring the part of success factors, it can weigh them in the order of its strength every bit good as the relevancy of that peculiar factor in the given market environment.

( Beginning: hypertext transfer protocol: // % 20Shendel/img00009.gif )

For the intent of our analysis, in the above matrix, the x-axis contains the “ Key factors for the company ” and the y-axis contains the “ phase of development of the emerging market for that peculiar merchandise or trade good ” .

These stairss are so aggregated to cipher the strategic place of the company which is so placed in the “ Holfer-Schendel ” matrix.


Once the Strategic place is fixed on the matrix, we proceed to execute a SWOT analysis of the company vis-a-vis its concern in the emerging market that it wishes to come in. In this analysis, we besides include the menaces and chances present due to “ Not diversifying ” into the emerging market.

The strengths can be assessed in footings of the success factors of the company that would be enlisted above. It could analyse the capablenesss of the company which could potentially give it an border in the emerging markets.

The menaces could include both the menaces that are present due to non entry into the emerging market, every bit good as the menaces that the company could confront on come ining the market. It should analyse the hurdlings that a company contemplating to venture into an emerging market could confront because of the legal, regulative and political environment in the emerging market ‘s host state. The power of the local rival et Al.

The chances should concentrate on the value add-on that could accrue to the company by traveling into the emerging market either as a base for production or as a consumer market in footings of the decrease in cost achieved, the presence of a market section that is compatible with the merchandise mix offered by the company, the labour cost decrease achieved by making concern in the market et al.

The failings could chiefly concentrate on the cultural mutual exclusiveness issues that largely arise with transverse national market variegations. It could besides include other such factors inherent to the company that may suppress it from viing in the given emerging market.


After holding performed the SWOT analysis, we go a degree deeper, to analyse the new demands that the environment in the emerging markets may enforce on the company. These demands may coerce the company to either alteration its bing resources/skills to accommodate the new market, or to develop wholly new accomplishment sets that could give it competitory border in the emerging market.

These Resources and Skill sets can be loosely classified, but non restricted to the undermentioned classs:

a. Cultural Communication Skills /Human Resource Training

B. Technological Innovation accomplishments

c. Process related cognition and resources

d. Backward Integration

Cultural Communication Skills and Human Resource Training

Companies in the services industry should particularly pay attending to developing cultural communicating accomplishments that are in sync with the host market. It should analyse the demands in cultural communications in the host market, and utilize the penetrations non merely vis-a-vis the clients but besides in structuring the organisation of its local subsidiary/office.

The preparation of the local employees in the systems and procedures of the company as besides in modern client relation techniques tailored to the local demands should besides be analyzed.

Technological Innovation Skills

The company must besides analyse the difference in the technological capablenesss of the company and the demands in the host market and place spreads in its current technological portfolio that ought to be filled to better function the emerging markets. The engineering factor is rather of import when it comes to functioning emerging factors, as the accent in these markets is on public-service corporation and efficiency, so that technological invention should acquire a different focal point while functioning these markets: switching from luxury heightening technological invention to public-service corporation maximising efficiency oriented technological invention

Process Related Knowledge

The environment in the host market and the demands of the market may render the extant procedures of the company insufficient, in such a state of affairs the company should take stock of the alterations that it requires to consequence in its procedure related cognition so that it adds value to the company in the new market scenario.

Backward Integration

The company should research the demand for backward perpendicular integrating, so as to procure supplies and cut down cost, for which it should exhaustively understand the market catering to the backward nexus in its value concatenation. It should analyse the natural stuff and other supply demands and place the spreads in the same, and strive for backward integrating.

Gap Analysis

Once the demand spreads are found for resources and frying pans, so the company can execute a spread analysis to determine the divergence between its resources and the demand of the market to right that spread.


The procedure of choice of scheme begins with the location of the company in the emerging markets through the Holfer-Schendel matrix.

The national Analysis though the Porter ‘s Diamond theoretical account and the other models used in this paper will be helpful in placing the degree of development of the emerging market and besides other of import features sing the fundamental law of the market which will be critical in make up one’s minding the concern scheme to be used.

Based on the Level of development of the emerging market and other factors autochthonal to the host we can make the undermentioned categorization of schemes:

1 ) Market Capture Strategy

This scheme aims at maximising the market portion of the company in the emerging market at a reasonably early phase in its development. The company following this scheme might do the maximal impact when it enters the market at a reasonably embryologic phase, and is ready to do immense investings in developing the concern and support systems and in accomplishing a solid backward integrating.

At the development phase onwards, of such markets, entry to foreign companies becomes truly hard owing to the domestic competition, and the troubles that the company could confront in backward integrating. In such a scenario, the company ‘s concern scheme should be to come in the market through horizontal integrating with bing domestic participants in the market, so that their expertness and competences could be harnessed to foster the company ‘s long term growing. The biggest hurt in following this scheme is the regulative models of the local authorities or the political influence of the local companies that could stifle the company ‘s entry into the market.

2 ) Growth Oriented Strategy

In a turning emerging market, it is hard for a company to come in the market unless it is a reasonably big international participant with the musculus to put in the substructure needed to turn along with the market.

A big foreign giant could come in a growing industry in an emerging market, typically by geting a robust domestic participant, and so to a great extent puting in doing alterations that grow the company with the market. But above that the giant should besides put in geting strategic accomplishments that equip it with competitory assets that differentiates it with the other participants in the market. It could be a engineering or procedure based border, which could give the company the border in the adulthood stage that follows the growing stage. Product distinction, procedure invention and other experiments should be tried out under these strategic conditions.

3 ) Net income Maximization Strategy

This scheme involves maximising net incomes through addition in monetary value, decrease in cost or increase in volumes or all put together. A company come ining an emerging market can be after this scheme even if the market is in development phase, if it able to accomplish economic systems of graduated table and present its best patterns that besides achieves economic systems of range so it could take down it cost and increase volumes thereby maximising net incomes. This scheme is the lone 1 that a company could follow if the market is at a stable phase. It can once more make so by come ining the market through acquisition of a well established domestic participant with strong backward linkages and solid substructure.

4 ) Consolidation Strategy

A pudding stone with domination of the planetary markets can seek to accomplish consolidation of a extremely competitory industry in an emerging market, if the market passes the shakeout phase and is about to come in the adulthood phase. It can make so by geting more than one big bing domestic participant, and endeavouring to cutting costs through scaled volumes and increasing dickering power with the providers every bit good as clients. For this to happen, the regulative environment every bit good as local competition should see the benefits of consolidation under the foreign giant, which should overrule the chance lost due to selling out to the foreign giant.

5 ) Focused Segment Strategy

A foreign company come ining a extremely competitory emerging market, could play it safe by first get downing out with aiming dedicated sections of the markets so as to avoid attending by the large local participants. It could improvize merchandise offering for that section, set up strong backward and forward linkages and when and If the clip is mature, spread out the focal point to include other sections of the market.

Case Study – The Mechanicss of Growth

Over the last 20 old ages, ArcelorMittal has developed gained foothold in China. Harmonizing to Laxmi Mittal “ Our scheme is to construct a sustainable and stable concern with our Chinese spouses, making value through the rhythm, through graduated table and variegation ” . It can be seen that ArcelorMittal entered into Chinese markets due to strategic grounds. It already had proficient know-how and direction expertness something gained from its leader Mr. Mittal which was so used to scale up every works by increasing efficiencies down to every procedure and map. Together with its Chinese spouses, ArcelorMittal portions a vision of long term and reciprocally good success. Hence, in the twelvemonth 2007, ArcelorMittal acquired a strategic interest in the China Oriental Group Company Limited which will enable ArcelorMittal to finally raise its equity interest in the Company to 73.13 per cent.


Case Study – Growth in Recession

As the remainder of the universe is emerging through a recessive period, it ‘s a different narrative at ArcelorMittal. Harmonizing to it, growing in emerging markets had helped countervail shriveling demand in the all the major economic systems that had to endure through the fiscal crisis. In other words, it sustained its growing by diversifying its hazards from developed states to emerging 1s. This illustration reinforces the importance of emerging economic systems in prolonging the growing of organisations. While the developed states are still down, emerging markets are counterbalancing for the loss. It is this uncertainness associated with the markets that has led to companies looking for ways to prolong growing and control costs at the same clip.

Case Study – Analyzing China

Low centralisation has been blighting China ‘s steel sector for long clip doing it possibly the most disconnected steel industry in the universe. The steel industry though large is non really strong. State-owned endeavors form the majority of the production with SMEs accounting for merely a little end product.

China ‘s steel industry has been confronting from over-employment of workers and has been laboring with the thought of restructuring.. Besides, on the substructure and engineering forepart, China ‘s steel industry is expected to rush up. It aims to accomplish universe quality criterions for 60 % of the finished steel merchandises by the twelvemonth 2011. The cardinal authoritiess had pledged around 15 billion kwais in subsidies and loans to further research and development in the steel sector.

Due to over-capacity and inordinate demand, China has become one the universe ‘s largest importer of iron-ore, the natural stuff used to fabricate steel. A big proportion of imported Fe ore comes from Australia ‘s Rio Tinto, BHP Billiton and Vale of Brazil. Any consolidation in the iron-ore industry would do the providers monopolistic and therefore high dickering power in puting the monetary values. This is bad for the industry in the long tally, as it can confront higher production costs and as a consequence lower net incomes.

It is no secret that overcapacity is one of the major jobs blighting the steel industry. However, in malice of this factor, it is the demand for steel in China itself that has led to steel giants packing their bags and traveling to China. Over last 10 old ages, China has become the largest manufacturer of steel in the universe with end product making 500 million metric dozenss in 2008 and portion increasing to 37.6 % . Equally long as the committedness of authorities towards development of the state remains high, the steel industry will go on to develop in the hereafter. Ever since China became the member of WTO in 2001, rapid industrialisation has led to an addition in demand for steel merchandises. Exponential growing of some of the high capital intensive industries such as car, building and ship building have boosted the demand for high-end steel merchandises. Sing the rate at which China turning and anticipating that it would prolong its current growing rate, no admiration it has become a dream finish for all those companies who want to widen their client and gross base.

Culturally, China ranks low on individuality, high on power-distance, low on maleness and high on uncertainness turning away. As a consequence of its political government and traditions, its labour force is easier to command and hence is suited for fabrication houses.

Case Study – Decision

ArcelorMittal ‘s nucleus concern scheme throughout the universe has been to consolidate the industry with the consequence that it is able to take down costs through scaled volumes and increase monetary values because of addition bargaining power with both clients every bit good as providers. This cost lowering, volume increasing and therefore net income maximizing scheme has worked because of the concentrated degree of development in western economic system. With regard to the Chinese market ArcelorMittal could see to be holding a strong, but non dominant competitory place owing both to the local regulative environment that are unfriendly to foreign consolidations every bit good as local competition. The market itself is turning and extremely competitory. This being the instance, we urge that the most optimum scheme for ArcelorMittal would be to non straight enter the market, as it could confront stiff competition which could run out its investings, but enter the market through acquisition of companies that serve focussed sections of the fabrication sector or other steel based industries. This manner it would least pull the attending of the regulators and rivals and will besides acquire the clip to garner resources to construct a strong base with strong linkages in the supply concatenation, which it could utilize to scale up operations in hereafter.