Emerging markets are changing where and how the world does business. In the past, a company’s expansion was limited to familiar territories, generally within a close geographic area. Now, as the world becomes smaller and companies embrace a global mindset, a country’s rules, regulations and economic policies are becoming stronger determinants in the success and profitability of companies large and small.
For companies looking to make the leap and internationalize, a key consideration is regulatory reforms, or in other words the economic liberalization and national governance policies that governments implement to open up and strengthen their markets and economies. What can a company gain from internationalizing? If a country with an emerging economy favors economic liberalization and other reforms designed to help the market function better, does this benefit local companies, or is it only helpful for companies from more developed countries that can more easily enter these developing countries? #LeadersatWork spoke with Luis Dau, Assistant Professor of International Business and Strategy at D’Amore-McKim, about his research on how regulatory reforms affect and influence global expansion.
“Internationalization can give companies a leg up in the competitive and evolving global business landscape,” said Dau. “It presents companies with a unique opportunity to learn about foreign markets, how to operate in a more competitive business environment as well as how to operate under alternative regulatory and economic standards.”
It’s what they do with this valuable information, Dau says, that can really make the company’s international expansion worth their while.
“All of this exposure can be brought home to make your company even more competitive,” explained Dau. “Every country is going through their own regulatory changes, so by understanding how the systems work in other countries, you’re more prepared for successful adaption back home and are more apt to make smart operational decisions.”
Take Cemex for example, the third largest cement company in the world.
“Cemex is a great example of how an internationalized company can benefit from a more thorough understanding of the economic regulations of foreign countries,” said Dau. “They first expanded into the United States and Latin America, but when they purchased one of their largest competitors in the UK, they learned how to operate in a more competitive business environment with stricter environmental regulations and a tighter regulatory framework.”
As Cemex grew, it was able to take its newly acquired knowledge and apply it to its operations in its home country and network of subsidiaries, making Cemex more competitive both in Mexico and globally. Benefits such as these, gleaned from the experience of entering new markets, can be even greater.
“Understanding this topic requires an interdisciplinary approach,” said Dau. “We need to understand different cultures, regulatory frameworks and environments, and firm strategies. Companies are the motor of an economy. Understanding how these reforms actually encourage economic development, whether they are having the intended effect or not, is very important for global development.”
Today, there is a huge debate on the benefits of regulatory reforms and globalization, with proponents arguing that globalization aids local companies, which are forced to become more efficient and competitive in order to survive. On the other hand, detractors suggest that globalization is occurring at the expense of smaller companies from developing countries, which will often be crushed by their much larger competitors from developed countries. So what does Dau’s research say about this?
“We found that regulatory reforms benefit developing countries the most,” explained Dau. “For these companies, regulatory reforms make it easier for them to internationalize. Developed countries already have strong regulatory frameworks, so they have less to gain from the reforms. Surprisingly, we found that companies from the least developed countries are negatively impacted by the reforms, presumably because the companies are not prepared to respond to the reforms and struggle to survive.”
So what do today’s international business leaders need to know? “Firms need to align their international strategy with home and host market policies and environments for those strategies to fully bear fruit”, explained Dau. It’s important to understand the different international strategies companies pursue to adapt to changes in their economic and political environments. This can help leaders grasp how different modes of entry, timing of internationalization, and other internationalization decisions can help companies reap the benefits of reforms and other regulatory changes and make the smartest decisions.
Luis Dau presented his research on the relationship between the internationalization of companies and regulatory reforms in emerging markets at the D’Amore-McKim School of Business Research Showcase, shown in the video clip below:
How has your company benefited or been challenged by internationalization? Leave your comments below.