Marketing in emerging markets: a review, theoretical synthesis and extension PDF

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Marketing in emerging markets: a review, theoretical synthesis and extension

Marketing in emerging markets

Justin Paul University of Puerto Rico, San Juan, Puerto Rico, USA and Indian institute of Management-Kozhikode, Kozhikode, India Abstract Purpose – The purpose of this paper is to provide an overview of theoretical models and studies dealing with the international marketing strategies in emerging markets and provides recommendations for future research based on the review. Design/methodology/approach – A review of literature on the topic was conducted and a new model is developed as a theoretical extension on the basis of insights from prior research. Findings – Organizations need to take into account several characteristics of consumers and markets in advance as part of their business plan to select appropriate emerging markets, and decide best possible entry modes. Originality/value – To the best of authors’ knowledge, there is no comprehensive review article on this subject, which provides directions for future research. The authors fill this gap in the literature and suggest strategies with regard to market selection, entry modes, market adaptation, customer relationship development with a new four-dimensional model. Keywords China, Multinational enterprises, Strategy, Emerging markets, Entry mode, International marketing Paper type Literature review

Received 14 April 2017 Revised 18 June 2017 12 November 2017 17 June 2019 26 July 2019 Accepted 29 July 2019

1. Introduction Globalization has led to the proliferation of inter-firm partnerships across national borders (Aulakh et al., 1996; Paul, 2015). Growth of emerging markets offers great opportunities to develop or discover new perspectives and practices in marketing (Sheth, 2011). This century is probably be all about marketing in the emerging markets while the last century was all about marketing in the developed countries (Sheth, 2008; Sheth, 2011). In today’s global economy, emerging markets are the growth engines in the world and often the primary targets for doing business (Cavusgil et al., 2012; Burgess and Steenkamp, 2006; Welsh et al., 2006; Fornes and Butt-Philipp, 2011; Nkamnebe, 2011; Bang et al., 2016; Sinha and Sheth, 2018; Paul and Benito, 2018). Before exploring the research question, we highlight why emerging economies are important in business. An emerging economy is defined as a low-income country, experiencing rapid economic growth because of government policies geared toward economic liberalization (Hoskisson et al., 2000). The most prominently studied emerging markets are China and India (Sheth, 2011; Paul and Mas, 2016; Walters and Samiee, 2003). Sheth (2011) noted that China and India have already emerged as the largest and third largest economies in the world in terms of purchasing power. These countries are the most populous as well as fastest-growing economies in the world, with approximately 37 percent of the world’s population (as seen in Table II). China and India showed an average total gross domestic product (GDP) growth of 6 percent from 1993 to 2015, while the USA averaged 2.6 percent in the same time frame[1]. Thus, the economic growth and increased purchasing power have great potential to significantly improve global trade. Some studies The author acknowledges the constructive comments received from Professors Jagdish Sheth (Emory University, Atlanta), Micheal Czinkota (Georgetown University, USA) and Ilan Alon (Chief Editor, International Journal of Emerging Markets).

International Journal of Emerging Markets © Emerald Publishing Limited 1746-8809 DOI 10.1108/IJOEM-04-2017-0130

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have pinpointed that those emerging markets provide some of the best opportunities to expand international brands (Kaynak and Zhou, 2010). The field of international marketing has expanded and is increasingly more sophisticated and complex than in earlier periods (Samiee and Chabowski, 2012; Dahlquist and Griffith, 2015). Over the past two decades, there have been significant increases in global trade and cross-cultural pollination of ideas (Hitt et al., 2016; Paul, 2018). Global business activities have sometimes been negatively viewed by the local people in emerging countries due to the impacts they often have on cultures, human rights and product consumption patterns (Witowski, 2005). Thus, it is essential for firms entering a new market to consider these concerns and focus primarily on consumer needs while ensuring profits from the market. Conversely, Sakarya et al. (2007) found positive receptiveness for foreign businesses and products in an emerging country (Turkey). China’s modernization and economic reforms have quickly progressed in recent years (Warner et al., 2004). China and India have emerged as the fastest-growing markets in the world during the last two decades (Chang and Ma, 2015; Paul and Mas, 2016). As global competition intensifies and developing countries grow in purchasing power, firms from developed nations see opportunities for expansion into emerging markets. However, some challenges are specific to emerging countries and must be properly addressed to enjoy success in these markets (Sheth, 2011). Sheth (2011) called for rethinking the marketing perspective and the core guiding strategy concepts while targeting emerging markets as they are distinctly different from advanced economies. Similarly, researchers have developed theoretical frameworks and models which help the firms carry out feasibility studies, select appropriate markets, consider macro-micro level aspects such as cultural, political, economic and legal factors in emerging markets (Ghauri et al., 2003; Mei, 2013; Sakarya et al., 2007; Meyer et al., 2009; Elg et al., 2015; Brenes et al., 2014). However, research gaps remain, as these models have not received due attention. There are many opportunities for researchers to apply these models in their studies using data from emerging countries. Moreover, to the best of the authors’ knowledge, there is no comprehensive review article on the topic of international business in developing countries published during the last decade that provides direction for future research. Therefore, the goal of this paper is threefold. First, we review the prior research on international business strategies that could be employed in emerging countries, identify research gaps and set an agenda for future research. Second, we discuss strategies in international business that multinational enterprises (MNEs) from other nations could potentially employ to improve their performance in emerging markets. Third, we develop a new model for firms to succeed in emerging markets grounded in findings from prior research. Thus, this study would serve as foundation work for those who are interested in researching different aspects of international marketing in developing countries which include market entry strategies, networking and social capital development in emerging countries and the process of internationalization. The paper is organized as follows: methodology is specified in the next section. Section 3 displays a discussion on why emerging economies are essential from a business perspective. It also discusses the foreign market entry mode, with a focus on joint ventures and relationship marketing. Section 4 introduces the theoretical models that describe marketing success in emerging markets. Section 5 discusses how business practices have evolved, followed by a general discussion. The recommendations for future research are presented in Section 6, and the conclusions are given in Section 7. 2. Methodology This is a literature review, using 71 articles from academic journals included on the Association of Business Schools (ABS), the UK ranking list. This list is more comprehensive and precise than several lists. Table I provides a summary of the journals used and the number of articles pulled from the mentioned journals. Analytical insights from this review

Journal name

No. of articles referenced

Author name (Year)

International Marketing Review

9

Journal of Business Research

5

International Business Review

4

European Journal of Marketing International Journal of Hospitality Management Journal of International Business Studies

3 3

Management and Organization Review Journal of Global Marketing

2 3

Journal of Marketing International Journal of Emerging Markets

2 3

Long Range Planning Journal of Public Policy & Marketing Management International Review

1 2 2

Journal of Macro marketing Academy of Management Journal

1 2

Journal of International Management Marketing Intelligence & Planning Journal of Consumer Marketing

2 1 2

Asia Pacific Journal of Marketing and Logistics Journal of International Consumer Marketing Journal of Strategic Marketing Journal of International Marketing

2

Asia Pacific Bus Review Harvard Business Review Journal of Academy of Marketing Science Journal of Operations Management Strategic Management Journal Journal of East West Business Journal of Services Marketing Multinational Business Review Journal of Small Business Management Agribusiness Journal of Consumer Behavior International Journal of Research in Marketing Asian Business & Management The Academy of Management Executive

1 1 1 1 1 1 1 1 1 1 1 1

Bang et al. (2016). Walters and Samiee (2003), Czinkota and Ronkainen (2003). Warner et al. (2004) Ghemawat (2001) Samiee and Chabowski (2012) Hitt et al. (2016) Meyer et al. (2009) Paul and Mas (2016) Lovelock (1999) Johansson and Leigh (2011) Welsh et al. (2006) Dijkstra et al. (2001) Zhou and Wong (2008) Burgess and Steenkamp (2006)

1 1

Horn et al. (2010) Peng (2001)

3

1 1 2

Ettenson (1993), Essoussi and Merunka (2007), Javalgi and White (2002), Lee et al. (1993), Samuel Craig and Douglas (2001), Wood (2004), Sakarya et al. (2007), Zhou et al. (2009), Lado et al. (2004) Sharma et al. (2018), Sinha and Sheth (2018), Varadarajan and Kaul (2018), Heinberg et al. (2018), Lee et al. (2018) Kumar and Paul (2018), Helm and Gritsch (2014), Mei (2013), Merchant (2012) Ellis (2005), Ghauri et al. (2003) Altinay (2006), Chang and Ma (2015), Rosado-Serrano and Paul (2018) Aulakh et al. (1996), Sharma (2011), Meyer and Peng (2016) Luo et al. (2012), Chen et al. (2013) Albaum et al. (2003), Lages (2000), Kaynak and Zhou (2010) Johnson and Tellis (2008), Sheth (2011) Alon et al. (2010), Nkamnebe (2011), Fornes and Butt-Philipp (2011). Meyer and Thu Tran (2006) Qu and Ennew (2005), Witowski (2005) Abramson and Ai (1999), Zeng et al. (2013) Peterson and Ekici (2007) Hoskisson et al. (2000), Cuervo-Cazurra and Dau (2009) Li et al. (2012), Akbar et al. (2018) Appiah-Adu (1998a) Chan and Cui (2004), Wang and Chen (2004) Sengupta and Chattopadhyay (2006), Paul (2015) Cui (1999)

Marketing in emerging markets

Table I. Summary of articles included in this review

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were derived based on the findings of the studies. The time chosen for this review was 1993–2018 as this period witnessed the entry of many foreign firms into emerging countries using different entry modes such as exporting, licensing, international franchising, strategic alliances, joint ventures and foreign subsidiaries. Following well-established guidelines for review articles (Canabal and White, 2008; Paul et al., 2017; Paul and Rosado-Serrano, 2019), an extensive search was conducted on EBSCO, ProQuest and Google Scholar, using the following keywords: marketing in emerging/ developing economies/markets/countries, doing business in emerging countries, international business in emerging markets, export and market entry in emerging countries and MNEs in emerging countries. (A word cloud of these keywords are given in Figure 1.) In the next round, a check is there to find if the journal is included in the ABS (the UK) list or not in the subject areas of marketing, international business and management. The most relevant articles were selected based on if they were deemed useful by the researchers to answer the question, “What international marketing strategies should firms use in emerging economies?” The articles selected for this review include both conceptual and empirical research. The conceptual research provides theoretical value for the development of marketing recommendations, while practical work offers more concrete evidence to support the theoretical propositions made. Following prior research, to establish the criteria for article selection pertaining to emerging markets in our sample ( Jormanainen and Koveshnikov, 2012; Paul and Benito, 2018), we focus on research covering countries classified as “emerging countries” by the United Nationas conference on Trade and development (UNCTAD, 2015). This excludes research covering major advanced economies. Based on the list, we excluded 36 countries that IMF classified as advanced economies in 2014 (e.g. we did not include research covering such countries such as South Korea, Czech Republic and Estonia as their official status has changed to advance economies by IMF (UNCTAD, 2015)[2]. 3. Doing business in emerging markets? As the growing trend in businesses worldwide is to globalize, firms established in developed economies – such as the USA, the European Union and Japan – would benefit from entering

Figure 1. Word cloud of keywords used for sourcing the articles for review

emerging markets to expand their operations and maintain global competitiveness (Sheth, 2011; Merchant, 2016; Sinha and Sheth, 2018). In the 1960s and 1970s, these developed market firms typically broadened to other developed markets, similar to their home market. On the other hand, they entered emerging countries in the 1980s and 1990s and strengthened their activities and operations aggressively across different continents during the last two decades. To demonstrate the importance of the emerging countries in the global economy, Table II summarizes the population and average GDP growth rates of the largest emerging countries, in comparison to the USA. As businesses expand into emerging countries, business research efforts need to be more closely aligned with market growth opportunities outside the industrialized nations (Samuel Craig and Douglas, 2001; Sharma et al., 2018). The government reforms that sparked the growth of emerging economies have impacted businesses, which appear to have reduced the operating costs of firms in those markets[3]. Firms in any market experience a distinct set of problems in their business and depending on the type of firm and their accompanying problems, the effect of these pro-market reforms will be different. Research has shown that domestic firms typically benefit more from these reforms than foreign-owned enterprises, as the former has a more significant impact on the national economy compared to the latter (Cuervo-Cazurra and Dau, 2009). MNEs have entered into the “strategic investor” phase in China, where now the integration of Chinese operations into the MNE network receives growing attention (Braun and Warner, 2006). The benefits of doing business in emerging market economies are generally positive (Alon et al., 2010; Paul, 2018). This is especially true for firms in the services sector, which tend to have a higher economic impact than manufacturing firms ( Javalgi and White, 2002). Witowski (2005) notes that the implementation of marketing activities has the potential to reduce poverty, and social and environmental harm. Governmental policies also contribute to a more positive view of marketing activities in these emerging countries (Appiah-Adu, 1998a). The positive view of business in emerging markets is critical, as marketing catalyzes economic growth (Arslan and Larimo, 2016; Appiah-Adu, 1998b), as well as develop new managerial and entrepreneurial capacities among the local business people. Schuh (2007) found that internationally integrated and multi-tier brand strategies had helped western MNEs to succeed in central and eastern Europe when they opened up. Burgess and Steenkamp (2006) proposed a framework delineating four stages through which emerging market research contributes to the field. The four stages are: theory development, acquisition of meaningful data, analysis of the data to test one’s theories and learning. The foreign market entry modes include exporting, strategic alliances, joint ventures, franchising, etc. (Shen et al., 2017). However, exporting is the major option for most firms. Nevertheless, the use of strategic ambidexterity, where firms may enter international markets with various strategies, depends on internal and external opportunities and constraints (Czinkota and Ronkainen, 2003; Alon et al., 2016). In this context, Varadarajan

Country

Population (2017)

Population (percentage of world total)

Marketing in emerging markets

AVG GDP growth: 1993–2017 (percentage)

USA 318,892,103 4.45 2.6 Brazil 201,398,858 2.79 3.2 Russia 142,590,534 1.98 2.0 India 1,261,527,930 17.50 6.7 China 1,390,510,630 19.30 10.0 Source: Developed by the author, using data from the following websites: www.worldpopulationstatistics.com/; http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx

Table II. Population and GDP in the USA and major emerging economies

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and Kaul (2018) offer a framework to organize potential opportunities for doing well in emerging markets by doing good innovations. Several studies have examined the success of export marketing strategies in emerging markets (Albaum et al., 2003; Lages, 2000; Lado et al., 2004). International business activities by MNEs should be treated as a means to achieve economic stimulation, and should not be restricted by emerging country governments (Arslan and Larimo, 2016; Merchant, 2016; Verbeke and Merchant, 2012). However, it is not uncommon for marketing activities to be overlooked in emerging countries (Peterson and Ekici, 2007). Furthermore, inefficiencies in the marketing systems of these markets leave a lot of untapped potential and increased government involvement in these systems which will increase the probability of their success (Varadarajan, 1984). Cui (1999) examined several notable characteristics of the Chinese consumer market and drew marketing strategy implications for MNEs using a hybrid approach based on demographics, psychographics and geographic factors. Peterson and Ekici (2007) suggest that consumer interpretations and attitudes toward marketing efforts serve as an indicator of a firm’s ability to improve the consumers’ quality of life. Chan and Cui (2004) also study the attitudes of consumers toward marketing in China and conclude that consumers from emerging countries are often less critical of a firm’s marketing efforts, compared to consumers from more developed countries. Thus, the emerging market consumer is likely to be satisfied with their purchases than developed market consumers. Similarly, Zhou and Wong (2008) drawing on conspicuous consumption and normative influence theories found that three motives, perceived prestige, perceived quality and perceived value, have an impact on purchase intentions for foreign brands among young consumers in China. Several prior studies (e.g. Heinberg et al., 2018; Kumar and Paul, 2018) show that corporate image and reputation can help marketers to enhance brand equity in emerging markets such as China and India. Legal factors determine whether a firm should set up a joint venture in countries such as China and India ( Johnson and Tellis, 2008). In many cases, the only long-term market entry mode a foreign firm can use is joint venture. For example, in some sectors such as the retail and insurance sector, these countries legally perm...