Multinational Finance

As large emerging markets such as Russia, China, India and Brazil are playing an increasingly important role in the world economy, consumer-oriented firms in the financial services in these countries are aspiring to build world-class companies. The goal of these “Emerging Giants” is to be globally competitive and to exploit new globalization opportunities. The critical managerial challenge for these firms is to successfully compete with multinational companies, which have two fundamental advantages over emerging market companies. Multinationals are well established, and therefore have the benefits of incumbency: brand name, organizational capabilities, and advanced technologies. They can also leverage their access to vast resources such as finances, talent, and supplier and distributions networks, in their home markets as they defend their home turf and compete in world markets.

Unfortunately, emerging market companies do not have these advantages in their quest for being globally competitive. Even worse, they come from economies that suffer from severe market failures. They often lack the institutions and infrastructure that make markets work well. When their economies open up, emerging market companies are forced to compete with their advanced market foil, even while their own economies are struggling to develop market infrastructure. For example, emerging market companies often cannot access risk capital with the same ease and at the same cost in their home markets as established multinationals can. As a result, it is difficult for them to invest large sums in research and development and brand building which are critically needed to compete effectively with global giants. Infrastructure and unreliable quality of these companies supply network compete effectively with multinationals in world markets. Even when emerging market firms are able to avoid some of these obstacles and settle on a path of rapid growth, according to the article some may have realized...