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Possible Internationalization Challenges

for Companies from Emerging


Economies
International Business Strategy Assignment











SUBMITTED BY:
ASHISH JAIN
ROLL NO: 7C
MBA (IB) 2013-15










India opened up the economy in the early nineties following a major crisis that led by a foreign
exchange crunch that dragged the economy close to defaulting on loans. The response was a
slew of Domestic and external sector policy measures partly prompted by the immediate needs
and partly by the demand of the multilateral organisations. The new policy regime radically
pushed forward in favour of a more open and market oriented economy. Indians have been
quick learners in internationalization both in scale and speed. With the domestic market fast
catching up with the developed market, the learning has had a multiplier effect. With booming
local economies, the emerging market multinationals are reaching for the stars.
Rapid internationalization of Indian firms:
Made in India no longer liability -- increasingly asset
Indian firms are moving up the competitive value chain
Asia, Europe and the USA equally important regions
Increasing internationalisation boosts Indian firms' performance
Implications for European companies: Indian competition will increase in Europe,
North America and Asia
Three Strategies for Indian companies in overseas market:
Outsourcing: It is applicable when the domestic market is either very small or unattractive
Internationalization: It is applicable when companies are aiming to expand market or balance
business downturns and risk of domestic market
Multi-nationalization: It is applicable where companies are aiming to create sustainable
competitive position in several geographies

One of the core strengths of Indian firms is to extract maximum value from even ailing
businesses by applying innovative and cost effective methods that they have developed over
the years in an extremely resource constrained and uncertain domestic environment. They
have a unique approach to their international growth that is grounded in their Indian heritage
and culture. We call it compassionatecapitalismand it manifests in several ways, such as a
preference for sustainable growth, long-term commitment to their businesses despite
economic turbulences, faith in the management team of the acquired overseas companies and
commitment to employees in terms of job security and investment in training.
Internationalization Challenges faced by Indian companies:
1) Challenges for companies exporting Indian merchandise and services:
Foreign Regulatory Environment
Non-Tariff barrier and Phyto-sanitary barriers
Foreign Exchange conversion Rates
Very high transportation costs
Inspection and certification
Visa related issues
Taxation


2) Debt/Cash management challenges:
Raising debt/cash in Indian market is difficult and expensive, because of high interest
rates and underdeveloped bond market in India.
Underdeveloped Foreign exchange market in India pose another challenge as Indian
currency is very volatile and leads to frequent forex losses for Indian firms.
Indian Governments foreign exchange laws FEMA, which are not very supportive of
Indian firm wanting to business abroad

3) Integration related challenges:
Because of cultural difference, it is difficult to integrate acquire firm fully in terms of
workforce. Also inexperience of Indian Managers in this area is posing major challenges
in fully integrating the facilities abroad and real benefits of acquisition
Indian firm had never been leaders in innovation and research, which is challenge to
acquire firm which are innovation centric

4) Talent Acquisition and Retention Challenges:
Lackofinternationalexperience: Rapid-growth market companies are not confident that their
organization has or can build an effective international management team. Top management
teams lack awareness of local cultures and understanding of global markets, according to our
survey results.
Lackofinternationalmanagementpipelineforrecruitment: Companies in rapid-growth markets
are building their international management teams through the development of internal
pipelines as well as recruitment from other organizations. While building an internal pipeline
requires time and investment, the latter can result in high turnover and salary inflation.
Inability to retain and reward high performers: Some companies report it can be difficult to
appropriately incentivize performance across different markets and cultures. According to our
survey results, many companies feel they can improve their approach to retaining high
performing global talent.

5) Corporate social responsibility
The means by which MNCs may balance their increasingly important role in economic
development with their growing responsibilities toward the country in which they operate, is
another area that presents potential challenges for emerging market MNEs. As George Kell and
John Gerard Ruggie stated (1999, 15), Globalization may be a fact of life, but it remains highly
fragile. Embedding global market forces in shared values and institutionalized practices, and
bridging the gaps in global governance structures are among the most important challenges
faced by policymakers and corporate leaders alike. For the leaders of emerging market MNEs
seeking to invest in developed countries, this challenge is potentially even greater. Their ability
to adapt to, and successfully negotiate, the cultural references, standards and practices of
developed markets is critical to their success in these markets and may ultimately have
spillover effects in the home country, leading, in the longer term, to harmonization of
standards upwards.




Example:
ICICI Bank
ICICI Bank is an example of a company that has managed to adapt itself to the liberalization
and opening-up of the Indian economy by transforming itself into a fast-moving and customer-
driven entity. In this process, ICICI Bank has emerged as the 2nd largest Indian bank with the
largest international presence.
International expansion: ICICI Bank identified international banking as an important
opportunity in 2001 to cater to the cross- border needs of clients by leveraging domestic
banking strengths. In 2003, the Bank set up its very first offshore branch in Singapore followed
by an office in Dubai, and setting up of the UK and Canada subsidiaries in the same year.
Organization Structure: ICICI Bank went through five organizational changes in eight years
preceding 2007. There was a lot of resistance in the first year. However, after this initial phase
there was a change in attitude and outlook and the way people went about their work.
Processes:What sets ICICI Bank apart from its competitors is its superior ability in identifying
early trends, developing strategies to take advantage of these trends, and executing the
strategy better than others. ICICI Bank has always been competing successfully with the
international players in India. ICICI Banks relationships are considered as one of the key
strengths enabling the Bank to offer the best of both the worlds i.e. understanding the needs
of the Indian consumer and ability to deliver world-class solutions, including leadership in
structuring credits and syndicate loans.
CulturalDifferences: The Bank has a preference to have locals to take care of the regulatory
interface in international locations. Depending on regulatory requirements as well as foreign
language requirements, different countries have different mix of locals and Indian nationals.
E.g. in Russia, almost 90% of the employees are local Russians. The Bangladesh operations are
almost completely run by local Bangladeshis. Key positions in these international locations are
however typically staffed by Indian nationals with experience of having worked at the Bank in
India.