Q. How is the strategy of an EMNC any different from that of an MNC? For example, consider Walmart. It started as just a little shop that offered the lowest prices, but grew to be the second largest corporation in the world. In what ways would the strategy of a Walmart differ from that of an EMNC?

Great question, and a frequent one.

Back in the day when Sam Walton started Walmart, he must have faced the same problems as EMNCs today.  In the last chapter of our book we make the case that our book applies to all “challenger businesses,” as they face similar hurdles to our EMNCs in many ways.

There are however three big differences in the issues facing challenger businesses and EMNCs.

1. First, companies in the US, Canada, and more generally the developed countries do not have to deal with a negative country of origin. This can be a formidable hurdle.  So, a Tata, Mahindra, Huawei, Haier, Lenovo, or Arcelik has to contend with this big, big challenge which research shows can take years to overcome.
2. Second, aside from China and India, the other emerging markets have markets that are quite tiny, which means that developing scale at home is very difficult.  If you are from the US, you have a huge advantage of being able to become a giant before stepping out abroad.  For most EMNCs and even for those from China and India in sectors that are anything but FMCG, and a few categories like mobile telephony in India and China or cars in China, volumes are low domestically.  So, India’s domestic market is tiny in the automotive sector, as an example and a Mahndra or Tata Motors has to expand overseas before having the scale of their competitors.
3. Third, they lacked role models.  Do not underestimate the importance of having them. Perhaps, without Yahoo and others before them, Google would not have happened. The triple challenge then is a real problem that has constrained their growth.

In terms of their strategies, developed country challenger firms, when they are small, are less able to exploit the lower costs of the EMNCs as they do not have low cost at home and they neither have the capability to outsource, nor do outsourcers find them interesting due to their lower volumes.

The other thing is the mindset.  Managers from poor countries have a “poor” mindset.  First world managers simply do not.  They grew up with resources and do not or perhaps cannot think like that. I was giving a talk last year when someone from an Indian firm that does IT work for Renault during the Q&A related his personal experience.  He said during a meeting Carlos Ghosn, CEO of Renault-Nissan, asked him how much it would cost for him to undertake a challenging new project that he had in mind.  The person concerned said he needed some $50k and a team of 3 people to get started and once they had some more insight, he would ask for more money and resources with a clear plan.  Apparently, Mr. Ghosn noted that this is why he comes to the Indian firm, as at Renault-Nissan the IT people would have demanded a team of 30 people and $5 million to see what could be done.

This difference as you can see can have a profound impact on how things are done in MNCs versus EMNCs.

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