Identifying a Business Strategy to Launch a Product in an Emerging Market

Identifying a Business Strategy to Launch a Product in an Emerging Market
Overview of the Start-up Company
XYZ enterprise is a start-up business that operates as a manufacturing and trading company as its type of business. The company is located in San Jose, California, the United States. The company manufactures and sells a unique product called the wrist-reader. The product acts as a wristwatch that customers wear on their wrists, yet the screen folds out to a 3×3 high-resolution LCD that can be applied as an e-book reader or to surf the Internet with an integrated Wi-Fi chip. The start-up firm still has a small workforce of 300 employees. Each employee is involved in different tasks, including the production activities, sales and marketing, supply chain, and accounting, among other organizational activities. Since its initiation, the company has achieved total annual revenue of US$300,000. Furthermore, the company was founded in 2014 by James Smith, who is also the company’s CEO. The company currently operates in the United States but would want to open up new branches in the global markets.
As the company’s CEO, James Smith wishes to locate three emerging markets across the globe and selects one of the three markets to adopt its products. The three emerging markets that will be selected are the China, India, and Brazil. In regards to the production capacity, XYZ enterprise produces 100000 wrist-reader products annually in the past years. However, it has realized the highest ever yearly output of 150,000 of such products.

It produces pieces as the unit type. In the U.S. market where the Enterprise currently operates, the wrist-reader is becoming highly common among 18-24-year olds in the region. As a result, the CEO believes that the product would also be quickly internalized among young persons in big emerging markets identified. The CEO and his assistant together with his junior staff are innovative individuals. Their innovativeness has been augmented by the development of information technology, which has allowed the company to design a website on which customers can interact with the employees and also know the products being offered. The websites will be developed and improved as the company hopefully expands its business. XYZ enterprise is a small-sized firm with regards to the size of the workforce, production capacity, asset ownership, the number of customers served, and the areas served (Van Arnum, 2011).
Issues to be solved
The CEO is challenged by the small size of the company hand has taken the initiative to develop the strategies to enter the emerging markets independently. As such, the issues that are to be solved are the entry strategies into the emerging markets, identification of the emerging markets, the selection of one emerging market, and other relevant concerns related to the operations of the business. Emerging markets will be the focus of these issues that are to be addressed. The emerging markets have become significant target markets for different products and services. The biggest emerging markets have multiplied the portion of global imports by two times in the past few years. The expanding middle class and population of the youth between the age of 18 and 24 years in the emerging markets mean growing demand for different consumer commodities, including electronics like wrist-readers. In these categories of product, demand is rising fastest in the emerging markets. Moreover, the emerging markets act as the manufacturing foundations for various enterprises (By, 2012). The XYZ enterprise should take advantage of this property and invest in large sums of money to establish manufacturing facilities in the emerging markets. Besides, the markets are sources of low-wage, assembly operations, and high-quality labor for production. Also, some emerging markets have big sources of natural resources and raw material that can be used in the production of the items.
China markets, for instance, are important manufacturing sites for producing the consumer electronics (Shankar, Ormiston, Bloch & Schaus, 2008). Brazil, which is one of the emerging markets that is within the South American region, is also a home for mining bauxite, the major component of aluminum that is required in the manufacture of wrist-readers. Ultimately, emerging markets also act as sourcing sites. Progressively, firms sub-contract their activities that do not form the core business processes to specialized contractors (Peng, Wang & Jiang, 2008). Consequently, XYZ enterprise will have to outsource the activities that do not form the core business tasks. It will also outsource some raw materials that are worth obtaining from the suppliers rather than producing in-house in these emerging markets. The opportunities of outsourcing and procurement will be enhanced through the emerging markets due to the presence of the availability of the technology functions and qualified workers in these regions.
Another issue to be solved is the assessment of the emerging markets in regards to their potential. Here, the attention will be given to the per capita income of the country, the number of middle-class population, and the number of young population. These elements of emerging markets determine their market potential. For example, like in the U.S. market, the wrist-reader are most popular with the young population, and so the higher the population of young people, the stronger the potential of these markets. The identification of the emerging markets, including their market potential, will be followed by determining the entry strategies into these markets. Some of the success entry business strategies into the emerging markets that will be discussed in the report include strategic alliance, licensing and franchising, and joint venture (Cavusgil et al., 2014).
Three Emerging Markets
Brazil as an Emerging Market
Brazil is considered the world’s seventh biggest economy as it has a gross domestic product of 2.346 trillion (Grant, 2016). It is also considered the biggest economy in the Latin America. Brazil had been one of the world’s most rapid expanding countries until 2010. Nevertheless, it is scaled down by various concerns today. These problems are illustrative of a decreasing growth rate. As of 2014, the rate of expansion decreased to 0.1 percent, due to three years of modest growth (Spinks & Shinh, 2015). The country is also battling against corruption that has impaired the investment mood and spoiled the assurance of the private investor. The external sectors characterized by low product and service prices and floppy demand that have caused a lot of problems. Again, industrial manufacturing has taken a depression, and there is an increase in its current account deficit from 2.1 percent of Gross Domestic Product in 2001 to 4.2 percent of Gross Domestic Product in 2014 (Cavusgil et al., 2014). The interest and inflation rates are currently high, as well in the Brazilian economy. Besides, Brazil has a well-differentiated and well-established industrial segment. The level of growth in industrial processes was at its heights whereas the activity of import exchange has been conducted in the nation. The primary concentration of the import replacement was on the less durable consumer items sector followed by the durable products sector in the 1960s (Hutchings, 1994). The activity emerged to a contest when import of basic capital goods and raw materials was assumed in the late 1970s. The entire import exchange industrialization policy was drained by the beginning of the 1980s. The years afterward saw wide-ranging government programs to facilitate more development of its industrial section. Brazil’s industrial growth was at a peak in the 1980s, but there was a slower expansion in the 1990s (Hutchings, 1994). It can be said that Brazil has developed industries in the sectors of petroleum processing, cement, automotive, steel, aluminum, and iron manufacturing, aerospace, and chemical production. Apart from these fields, the food and beverage sector is a very vital area of the production sub-industry. The country has an adequate supply of cheap labor and plenty of raw materials, which has supported Brazil in its industrial advancement (Cavusgil et al., 2014).
China as an Emerging Market
The major industries in the Chinese economy include armaments, aluminum, chemicals, cement, coals, fertilizers, machine building, steel, ships, consumer products, iron, and transportation equipment (Grant, 2016). China is the world’s factory, with the individuals producing or assembling various products in demand across the world. China is already an emerging market success and has an abundance of opportunities to expand before it is considered a developed nation. China has a robust financial-services industry. The nation’s financial industry has developed to fulfill the requirements of a contemporary economy with the global transactions. Moreover, the Chinese are investors, the national government has not liability or debt, the financial institutions, such as the banks, keep a proper record for accountable lending, and the consumers continue saving funds and, therefore, the banks have money to lend out to start-up enterprises (Peng, Wang & Jiang, 2008). Also, China has one billion consumers. The country’s large population is its greatest chance. Most Chinese have nice earning by emerging-market averages. The population has been making funds and saving them, waiting for the period when the consumer products are readily available. Furthermore, most companies are privatized due to the implementation of the privatization laws. Several China’s biggest industries have been privatized, and the Chinese government is in the process of changing more firms to private ownership business units (Cavusgil et al., 2014). As a result, China is most likely to witness more innovation and expansion. Also, the privatization process will attract may more global investors who will more readily receive securities to operate in the China’s emerging market. However, doing business in the China’s emerging market is subjected to some disadvantages, including environmental destruction, demographic inequalities, and chances of turmoil.
India as an Emerging Market
India is a diverse nation that is often free to the entire whole world, and its emerging market environments indicate the power of an open and diverse economy. While just 60 percent of the persons are well-educated, many who have an education comprehend English (Van Arnum, 2011). English is one of the two official government’s languages, making the nation the biggest English-speaking country in the globe after the U.S. A program of economic liberalization began in 1991 resulted in a rapid expansion (Cavusgil et al., 2014). India’s big population and weak foundation imply that it can uphold much quicker average long lasting expansion than other nations in the world. Major industries include fertilizers, textiles, armaments, nonferrous and ferrous metal assembly, and petrochemicals. India has vast scale increase of a small economic foundation. Even slight progressions in the earnings, when magnified across above one billion persons, contribute to large sums of money. This is a significant opportunity together with other more openings in the Indian economy. Doing business in India is quite productive because the nation has many investors. People save a lot of money to promote companies. Thus, the business starters have access to local finance sources, including local financial institutions and family members. The nation’s culture and tradition promote companies. Again, the country is working hard to improve its infrastructure. The road networks, electricity, and communication systems are slowly but surely advancing (Spinks & Shinh, 2015). These improvements are advantageous to the business growth, including the XYZ enterprise. Furthermore, the population serves the foot of the economic pyramid. The Indian firms have been investing services, products, and packaging designs that appeal to customers and the general population who have low-income earners. Despite the opportunities of the Indian economy, conducting business in this emerging marketing is subjected to ethnic pressure, petty corruption, and extreme poverty (Cavusgil et al., 2014).
Selection of the Emerging Market
China’s emerging market is selected for the XYZ enterprise. The rationale for choosing China as the emerging market for the start-up company is that the investment rate is highest as compared to that of Brazil and India. The people are investors and many individuals keep on saving money to support investments and businesses. Again, the customer base is high in this country, totaling to one billion. This will provide a large customer base for the XYZ enterprise. Moreover, the labor supply is abundant and obtaining them, as well as the raw materials and technologies are comparatively cheaper than Brazil and India. As a result, the start-up company can obtain the raw materials and workers required to manufacture the wrist-readers is quite easier and cheaper in China. Ultimately, due to the support for privatization, the government investment in the business is low. People can invest in their private business and achieve their business goals faster. Other processes, such as innovation, are encouraged in the country. Simultaneously, the ownership of business is left in the hands of the private sectors and, therefore, business growth can be facilitated (Spinks & Shinh, 2015).
Emerging Markets Entry Strategies
Licensing and franchising are one of the entry strategies to the emerging markets. The agreements of licensing and franchising allow an incumbent to manufacture and sell the foreign company’s products in the marketplace as agreed. The agreement enables the incumbent to utilize the foreign company’s patented technology and expertise. The incumbent has to compensate the foreign firm for the act, which could be determined by the sales revenue or specified annual charges (Cavusgil et al., 2014). Another entry strategy that can be used by the firm is the strategic alliance. Here, both the incumbent and foreign companies agree to partner in the foreign market so as to meet specific objectives while continuing as independent entities.
Risks and Benefits of the Entry Strategies
In all these emerging markets, the benefit that would be achieved by adopting the licensing and franchising strategy is that the technique will lead to capital acquisition. The business will be able to expand with no risk of liability or equity cost. Likewise, the franchisee offers all the capital needed to open and run a business, enabling the firm to grow using the capital and resources of other incumbent firms. The risk of this strategy is that the start-up business will lose some extents of control over the business, will be under certain restrictions on where to run the business, and prevent the opportunities for innovation (Cavusgil et al., 2014). Again, the joint venture is beneficial in each of these emerging markets as it will lead to increased production capacity, improved access to new markets and channels of distribution, and pooling the risk and expenses with an associate (Spinks & Shinh, 2015). However, in each of these markets, the partners have varied goals for the joint venture. As such, the incumbent firm has different business strategies and goals than the foreign firm. This can further complicate the business operations of the enterprise. What is more, the joint venture is subjected to different management styles and cultures, which lead to poor co-operation and linkage. Finally, the strategic alliances also offer benefits in these emerging markets. Accordingly, the strategic alliances increase the brand awareness. The chance to expand the market size with an ally offers the additional opening to raise brand awareness. Consistent and increasing brand awareness is a core aspect of an enterprise’ success and prosperity in the market. Stagnant brand awareness prevents the growth of business. Furthermore, the strategic alliances permit a business unit to meet a broader market niche without investing in additional finance and time. Nonetheless, the strategic alliances impose the risk of the difficulty in maintaining honesty and trust. It is hard to identify the most trustworthy business partner and uphold the honesty and trust between the companies in the strategic alliances (Van Arnum, 2011).
Potential Demand for the Wrist-Reader
The Indian consumers are progressively depicting a passion for owning luxury and premium watches. Urban inhabitants progressively see watches as a fashion proclamation and are frequently very careful to at least one. This version pattern has accumulated a force of both women and men. The increasing value of watches as a fashion gadget among urban youth also assisted watches in realizing retail value expansion of 17 percent in 2016, with sales level touching Rs89 billion (Grant, 2016).  The trend indicates that there are potentially large customer base and demand for the wrist-readers. On the other hand, in Brazil, it is projected that the scale of demand for luxury and premium watches will rely on the nation’s economic productivity, together with whether or not consumers with high incomes remain to buy such products domestically rather than overseas (Cavusgil et al., 2014). Simultaneously, it is projected that the growing cost of valuable metals will impact unit prices for average and luxury watches. Further, in China, the luxury consumers buy a watch centered on two major variables. The first factor is the brand’s reputation, based on the service, sales records, and advertisements. Another factor is the design attractiveness of the watch. It is also projected that the wrist-reader products will receive high demand because the Chinese consumers prefer luxury and premium watches and consider theme as fashion, especially among the youths of age 18 to 24 years.
Legal and Political Environment of China
The People’s Republic of China is considered as a socialist nation under the people’s independent dictatorship spearheaded by the working class and centered on the partnership of peasants and employees. The government consists of the political party system and people’s congresses. The systems of multi-party collaboration, people’s congresses, democracy at the primary rank of society, and regional ethnic independence, mutually constitute the core and basic context of China’s political structure (Emerging markets debt roundtable, 2014). As one of the basic political system of China, the multi-party cooperation structure determines the status and roles of the Communist Party of China and other political parties of the country and their correlations. On the other hand, the legal structure is based on the Confucian ideology of the social organization by moral education. Following the revolution of 1911, the Republic of China mainly acquired a legal system of Western nature influenced by the German policy and law (Emerging markets, 2013). There is no custom of constructive law in this country, and the initial civil code can be traced back in 1980. In sum, comprehending the balance between the system of government of China and its philosophy is important to conducting business in the complex nation. The country is both a rising superpower and emerging market. The leaders perceive the economy as an instrument to protecting the state’s influence, which is further vital to upholding steadiness and expansion and guaranteeing the long lasting sustainability of the Communist Party (Cavusgil et al., 2014).
Political and Legal Environment of Brazil
The political and legal conditions of the country are moderately stable. Despite the current political turmoil seen in the country, the government has formed stringent business rules that aim at streamlining the foreign business in the nation. The laws are distributed by the states, local authorities, and federal government within their respective scopes of power. The Brazilian legal structure relates to the Roman culture and all rules directed to control and correct all types of circumstances must have been in the past documented and issued to the public (Van Arnum, 2011). The principal of the Brazilian legal structure is the Federal Constitution. The Codes are also the main legal documents in the country besides the Federal Constitution. The Codes include the Tax, Civil, Penal, and Civil Procedure Codes. The Codes serve different rules, including the Brazilian tax regulations under the Tax Code (Cavusgil et al., 2014).
Political and Legal Environment of India
Both the legal and political circumstances of India are steady. The government policies are set to protect the business activities of both domestic and foreign firms. As a result, XYZ enterprise will be protected from the unethical business practices, such as unfair competition. Also, the business contracts may be written or made orally. Nevertheless, some contracts have to be written and have to be registered. India is governed by the law, and non-biased treatment of all proceeding is determined by the constitution (Cavusgil et al., 2014). Nonetheless, in reality, a fair charge cannot often be assured. The nation also has distinct personal law codes for each religious group, including the Muslims, Hindus, and Christians. Again, while India has a virtual-federal system, the judiciary arm is integrated. The judiciary branch consists of the District Court, High Court, and Supreme Court (Van Arnum, 2011).
Sources of Funding
There are many types and sources of funding that the CEO can use to obtain the required money for his start-up business. The first source of financing is the personal investment. Personal savings can form a source of financing either through cash or collateral on personal property. The availability of personal investment can confirm to the banker that the individual can be committed to his or her project (Grant, 2016).  The second source of funding is the “love money.” This refers to the money lent by friends, family, parents, or a spouse. The money should be repaid later as the company earnings rise. The venture capital should also form a source of funding. The business is expected to grow fast in the emerging market due to the high demand for its products and a large customer base. Since it will operate as a technology company, the venture capitalists will be attracted to the investment activities of the enterprise (Greenwald, 2013). Furthermore, grants and subsidies are important sources of finance for the business. It is difficult to adopt inventions like the wrist-reader business in the market and, therefore, the government representatives offer support to the start-up companies. The XYZ enterprise can have access to this financing to assist it in covering overheads and expenses, such as marketing, research and development, salaries, productivity enhancement, and machinery (Zou, 1994). A good business plan and proposal can be a way of convincing the government to disburse the grants and subsidies. The companies combine their efforts and exchange technology and expertise, as well as the risks and expenses, encountered. Again the company will also opt for the joint adventure as its entry strategy. This will involve sharing the activities with the incumbent firm in the target market.
Risks in China’s Market
The XYZ enterprise is a small business that will face several risks in the Chinese emerging market. The first risk is the political instability. The political conditions, such as corruption, ease of entering the market, and too many procedures followed in obtaining the necessary certificates, can increase the business costs and decrease the managers’ ability to predict business situations in China (Verbeke, 2013).  Further, a small business like XYZ enterprise can be subjected to weak intellectual property protection. The intellectual property law enforcement can be too slow and may take too long to be executed. Also, the problem of counterfeiting is common in the China’s market. As a result, the business can easily lose its ideas or its trademark can be copied. Also, the small business like XYZ enterprise may not obtain readily available and qualified business partner in the emerging market, making it hard to launch its business (Knight & Kim, 2009). Likewise, bureaucracy and an absence of transparency can lead to excess paperwork, approvals, administrative policies and regulations, and licenses. Some of these rules lack transparency and discriminate some small foreign firms from receiving the required document to start a business in China (Boone, 2007).
Conclusion and Recommendation
China’s market is selected against the other two emerging markets because of several reasons. The reasons identified are the large customer base of over one billion consumers, ease of ownership of business and assets due to the privatization of companies, availability of cheaper labor, presence of cheaper raw materials, suitable business cultures, and appropriate political and legal environments for the business operation. All these factors prove that conducting and expanding the writs-reader product business in China will be profitable. Thus, it is recommended that China is chosen as the target emerging market to expand the business. The consumers prefer luxury watches, have high purchasing power, have the willingness to spend on the fashion items like the wrist-readers, and the economy of China is booming, enabling the citizens to achieve what they want in regards to the income. Ultimately, the sales projections of the business are as follow. The sales volume and revenue at the end of the first five years of the business’ operation in the emerging market are 120,000 units of the wrist-readers and US$4.5 million, in that order (Grant, 2016).

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