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Globalization of Emerging Markets Companies & Rival Responses

Globalization of Emerging Markets Companies & Rival Responses

JUNG Moo-Sup

May 4, 2012

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This paper classifies types of globalization achieved by companies from emerging markets, attempts to identify their future development path and proposes responses for Korean firms.

Samsung Economic Research Institute developed its own gauge, the Potential-Globalization Model, to analyze data on 200 emerging markets global companies (EMGC 200) that are publicly traded and have at least US$500 million in revenue. For a comparison, 200 global companies in advanced countries and another 200 global firms in newly industrialized nations in Asia -- Korea, Taiwan, Hong Kong and Singapore -- were selected.

EM companies with the highest sales in 27 industries were mapped on the Potential-Globalization Model. Thirteen industries were in the low potential/low globalization segment (III), meaning that the potential and globalization of the EM firms in those industries are lower than peer firms in advance countries and newly industrialized nations. There was only one industry in the high potential/high globalization segment (I), six in the low potential/high globalization (II) and seven in the high potential/low globalization (IV). The results suggest that the overall level of globalization and potential of emerging market companies are still low. However, firms in the fourth segment have a high possibility of leaping into the first segment if they accelerate globalization. Therefore, their development needs to be studied.

Four types of globalization and potential level of EMGC were identified: Global Market Leaders (Segment I), Low-cost Partners (II), Low-end Market Makers Focusing on Domestic Demand (III), and Foreign Market Makers Focusing on Domestic Demand (IV).

The future development paths were identified as: Leap from Springboard (from III to I), Fast Globalization (from IV to I), Strengthen Value-added Functions (from II to I). Among these paths, Fast Globalization (from IV to I) poses the strongest threat to existing firms. Emerging market companies in this field have steady domestic demand but a modest overseas presence. They would very likely go global and thus pose a threat to established global players. Examples include construction firms such as China Railway Construction Corporation and oil refineries. Existing firms in this high potential/low globalization segment (IV) need to strengthen core competencies or develop new business strategies.

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