Globalization and Emerging Markets?
In order to better understand the effects of globalization on emerging markets, it is essential to firstly understand the meaning of the term, and the role of globalization in business success. This is covered in this chapter.
The globalization process involves the establishment of economic, political, social, and technological links among countries (Lawal, 2006). In spite of all of its importance the term globalization does not have any exact or single definition, and can be viewed from a number of perspectives.
Researchers have presented a number of different theories and there are different school of thoughts. Like Albrow, 1996 describes “globalization is dissemination of practices, values, technologies and other human products throughput the globe”
At the other end David and Anthorny 2003 claim that globalization means the transformation in a spatial organization of social relations and transactions. Whatever the definition of globalization is, the importance of the topic has made it a hot topic discussion among the general public as well as among academics (David and Anthorny 2003).
The countries that are building a new economic structure with market and business focused strategies, and which offer an environment that offer businesses greater chances of success and wealth by promoting technology transfer and foreign direct investment, could be the good example of emerging markets (Sutton 2007).
A more flexible approach towards trade and foreign investment ensures that globalization brings lot of opportunities for business to target potentially lucrative markets with big potential. However, on the other end it also brings pressure for domestic firms to innovate and improve their competitive position. Many of these pressures and opportunities may demand big investment form organizations to market themselves as a best option and to create a competitive atmosphere. (Sutton 2007).
These emerging countries can play an important role either individually or as part of a regional trade bloc that has the ability to attract global businesses to invest and grow in the region.
Characteristics and attractions of emerging markets?
The emerging countries might have large populations and/or extensive natural resources which are considered huge potential for growth (Aguiar and Gopinath 2004).Their economic reserves and available sources of emerging markets are other key factors to the development of the concerned countries (Kaminsky, Reinhart, and Vegh, 2004).
The emerging countries might be going through a phase of economic and political reform at a domestic level. They are ready to accept and adopt open door planning and policies in place of their conventional investment and development strategies. Top four companies from seven biggest EM markets and their investment in three most attractive fields
According to Table:1 the above mentioned countries are considered the faster growing economies that have potential to play their roles in development in global trading growth. For example by 2020, the five most recognized and greatest emerging markets are expected to take the share of the world‟s market output to16.1 percent from 7.8 percent as compared to the year 1992. This is more than double, and these emerging markets are also supposed to become more important buyers of products and services as compared to the developed and industrialized countries (Archibugi and Sirilli, 2001).
Furthermore, they are also considered to have an important role to play in the world‟s political and economic issues and have a vital role to play in social affairs at the global level.
Problems of Emerging markets
According to Luo, 2003 emerging economies no longer conform to old development paradigms, they have some intrinsic problems and hindrances. Some of these problems might have roots in their fundamental business systems like governmental influences, traditional practices in domestic markets that can have strong opposition until change has occurred (Henise and Bennet, 2010).
Investment organizations want a defined and limited role for government and its influences which originate in the country‟s political system limited.
Another important problem which some countries have to face is corruption, which may destroy the business environment and restrict the development process. An even more challenging task for those countries is to undertake structural reforms within their financial, legal and political systems, so as to guarantee a disciplined and stable economy that is relatively free of political disturbances and interference (Luo, 2003).
Market disruption and distortion can be stimulated by the practices of international firms , because they eagerly want to win a large market share. The pressure on domestic firms to compete with international players sometimes become very high, which may also lead the situation of disruption within in emerging markets. (Henise and Bennet, 2010).
Why Telecom is an important industry, specially for rising economies?
According to Datta and Agarwal, 2004, Without the availability of ICT technologies it is not possible for any country to develop and grow .Innovative technological advancements make it possible for the world to become a small global village. Economic and business activities are mostly dependent on the advanced and speedy telecommunications networks.. Recent developments in ICT technology have become an important tool in becoming an efficient economic player in world market.
Telecommunications and economic growth
An Indian researcher Sridhar, 2002 thinks, all of the sectors in any economy are essentially connected to the ICT networks. A modern telecommunication infrastructure is not only important for domestic growth but also to connect domestic markets to international markets. If your telecommunication sector is developed the development of other sectors is also possible. (Sridhar, 2002)Previously industry and agriculture were considered the most important tools for development in a country. The advancement in technologies and ability to attract the foreign investments in different ways, are significant factors now. To communicate efficiently with foreign investors, an efficient and advanced telecom infrastructure is needed (Sridhar, 2002).
Governments in emerging economies have an interest in their technology advancement capabilities. So the telecom industry is under pressure from the government on one side, to make their communication networks efficient and appropriate, and from international investors on the other side, and also from companies wanting to invest in the telecom sector and share the market with domestic players (Datta and Agarwal, 2004).
It is a clear and evident from the literature that developments in the telecom sector have a direct and very firm impact on the collective growth of an economy. Sound planning is required to convert the telecommunications industry into a stronger pillar of the economy, so that this sector can play an effective role in the industrial, agricultural, financial and manufacturing sectors (Datta and Agarwal, 2004).
Telecommunications in Pakistan
The telecommunication sector has experienced massive and fast growth in Pakistan. This industry gets the greater focus of government and the private sector due to its linkage with economic growth, foreign direct investment, a huge customer base and high profit margins. Telecommunication networks and related services have become an essential part of everyone‟s life in Pakistan.
Figure 1 tells the massive growth in mobile users ratio in Pakistan. According to the data released in July 2008, the number of Pakistani mobile users had increased from .3 million to 90 million in the eight years from 2000 to 2008. According to PTA (Pakistan Telecommunication Authority) report published October 2010, the total number of telecommunications networks users was over 100 million in October 2010.
Due to the fast growth and huge customer base, telecommunication services provider companies are investing large amounts of capital in this sector, in order to improve the quality of their networks and in order to accommodate more customers (PTA report, October 2010)2.
Major investments in telecom sector
The attractiveness of the Pakistani telecom market can be assessed by having a look of some major investments in this sector in recent few years, according to the reports of Pakistan telecommunication authority (PTA Reports, 2010)3.
From figure 2 FDI in telecom sector in Pakistan can be observed from years 2001-2006 (PTA Report, 2008)
Norway’s TELENOR acquired their fifth mobile cellular license in the country for $290 million in 2004.
UAE‟s WARID acquired their sixth mobile cellular license in the country for $290 million in 2Emirates‟ Telecommunication Corporation (ETISALAT) bought a 26% stake in Pakistan‟s fixed line incumbent Pakistan Telecommunication Company for $2.6 billion in 2005 and are planning to invest $500 million to widen PTCL‟s existing fixed line network and to add approximately one million more telephone lines
China Mobile has acquired 100% in one of the cellular mobile companies – Paktel Limited. China Mobile had initially acquired a 88.86% share in Paktel for $460 million. Qatar Telecom bought a 75% stake in Burraq Telecom for Nationwide and International Telephony Networks.
Orascom Telecom of Egypt laid the first private sector undersea fiber optic cable for $60 million. CM-PAK of China Mobile has injected $700 million into the Pakistan telecom sector for its network expansion in rural areas since its takeover of Paktel. This is a part of $2 billion investment plan over the next three years, all of which will come from China (PTA Figures).
The large size of the Pakistani telecom market has attracted not only the telecom service providers companies but also the telecommunications networking equipment manufacturers.
Importance of host culture in emerging markets?
What is Culture?
The term culture means different things to different individuals. To some it means the enjoyment of specific literature, listening to specific music or eating some particular food. For musicians it could be, playing their traditional music.
“Culture is ‟that complex whole which includes knowledge, belief, art, law, morals, custom, and any other capabilities and habits acquired by man as a member of society ( Taylor, 1871 in Varisco 2009).
Cultures may consist of different elements, like language, food, way of living, a way of talking, practices, habits and mindsets. Culture can be taken as something which is developed by processes of continuous learning, sharing human values and daily life patterns. Culture is mankind’s primary adaptive mechanism (Damen, 1987).
Cultivating the Desirable success by focusing on culture
Certain cultures which were an integral part of national and individual identities for a very long time are fading as a new global culture develops. In spite of the new global culture that is developing, the religious, traditional and social values of different nations generally remain as intact as before (Canclini, 1995).
Managing and understanding the culture of target markets is becoming significant for organizations and companies around the world, but more especially in the emerging markets, where the intention is to make a good impression on the minds of people who form the markets (Luo, 2003).
Role of Cultures in Organizational Success
When an organization decides to go for global business opportunities, the better their understanding of host cultures, and the more informed their policies and strategies, the more likely they will succeed. Morrison claims that the success of international business may mostly rely on giving due importance to host country culture (Morrison, 2006, p168).
Hofstede contributes a lot in this domain by giving a theory of culture and explaining cultural differences among different nations. His research work and five cultural dimensions are currently considered to be a most important document for any international business, indicating the importance of cultures and their understanding for businesses (Hofstede, 1996).
According to a Chinese researcher Fei Yin, 2008 by creating a uniform, compatible and acceptable values with host nations can play a vital role in successful international business. Moreover he explains that language, cultural sensitivity and communication cultivation for host cultures can also play an important role in success of an organization. For international business adaptation and localization is becoming a very common approach to improving the chances of success across different cultures. For organizations adaptation not only means to adapt itself to the state policies of the target country, but it also means to adapt itself to the local cultural conditions. Along with other factors, the success of international business also depends on how well that organization fits in with the local cultural and social environment (Yin, 2008).
There is a significant evidence from scientific literature that cultural concerns are a matter of core importance for any international business, Cateora and Graham 2005 believe “There are many important differences between countries in terms of culture, stages of economic and marketing development, political and legal systems, and customer values and lifestyles” (Cateora and Graham, 2005).
Chee and Harris 1998, claimed “Consumer tastes and preferences are very specific and vary considerably. Furthermore, if the products are not adapted and therefore remain at the same cost to produce, the price of the products could be so that they do not match what is affordable in a given country or more expensive than local competitors” (Chee and Harris, 1998).
It is important that social and the social values between the organization and the host culture should be carefully harmonized to enhance the level of trust between both sides. It is not only beneficial to create a conflict free cooperative culture, but it can also increase the chances of success for an organization (Cateora and Graham, 2005).
While acknowledging the importance of the host nation culture, and adapting it as one the tool for success in international business,, it is also true that such practice may also become the reason of disruption in markets, and can promote unethical business practices, especially in the case of emerging markets where the competitions to win the markets is usually consider higher and intense.
This thesis does not deny the implication of other elements that should be considered. This thesis also notes that even after adopting the culture of the host nation, the chances of failure still exist. The example of Walt Disney can be quoted here, where despite adopting the French culture they could not succeed despite changing their name from Walt Disney to Disney Land.
With the promotion of borderless business and flexibility towards trade and foreign investment, globalization brings a lot of opportunities for organizations to focus on markets with big potential, despite the fact that distortion and disruption is also observed in such markets. It‟s a known fact emerging markets are an attraction for international firms.
A desire by international firms to win a large market share, pressure on domestic firms to compete with international players, greater governmental and environmental influences, acceptability of international firms by the host nation, compatibility of international business with local, social and cultural interests could be the main reason for disruptions, with the possibility of other external and internal factors.
Telecommunications is not only considered one of the most important industries for efficient communications but it is also believed that telecommunications has a very prominent role to play in economic growth and development of any country. The large customer base, high growth potential and profit margins has made the telecommunications market more attractive for international players.
The Pakistani telecom market is also considered very attractive due its large volume of subscribers, growth and foreign direct investment.
The race for market share in the Pakistani telecom market by international telecom players has become more aggressive. Different business models, policies and strategies are being adopted by international businesses to win this market.
When an organization decides to go for global business the better their understanding of host cultures the better their business policies for that region, which can lead an organization to success.
Table of contents :
1.1. Research Background
1.2. Research Importance
1.3. Research Question
1.4. Research Purpose/Aims
1.5. Research Contributions
1.6. Research Limitations
1.7. Chapter Summary
2. Theoretical framework
2.1. Globalization and evolution emerging markets
2.1.2. Emerging Markets
2.1.3. Characteristics and Attractions of Emerging Markets
2.1.4. Problems of Emerging Markets
2.2. Why telecom is an Importnt Industory Specially for Rising Economies
2.2.2. Telecommunications and Economic Growth
2.2.3. Telecommunicatins in Pakistan
2.2.4. Major investments in Telecom Sector
2.3. Importance of Host Cultures in Emerging Markets
2.3.1. What is Culture
2.3.2. Cultivating the Desireable Success by Focusing on Cuture
2.3.3 Role of Cultures in Organizational Success
2.4 Chapter Summary
3.1.Ocerview of Research Methods
31.1. Preliminary and Exploratory Phases
3.1.2. Empirical Study Phase
3.2. Reliability and Validity
4. Empirical Study/Huawei in Pakistan
4.1. Introduction of Case Environment
4.2. Huawei more than a local Hero
4.3. Huawei Success is Beyond the Low Prices
6. Concluding Remarks
6.2. General Conclusion
6.3. Further Research