If investors accept compound interest to be the eighth wonder of world, then it has to be globalization that is the ninth. With each passing day, conglomerates move products from destination to destination, from the designer to the manufacturer and then to the shipper before it finally reaches the vender. Even services, mostly financial related, are exported and imported before they reach their final destination.
American firms find it difficult to access foreign markets. However, while the tangible and intangible may see several borders, the products themselves usually reach one type of end user, often in only one place. Companies that have nearly perfect business operations in the developed world are finding the emerging markets an incredibly tough sell.
Emerging markets haven’t been a problem for local companies, which leaves many to believe that doing business in the emerging markets is made almost impossible by government, not by the consumers themselves. Just last week, Walmart announced that it would shut down its Moscow office and leave Russia, finding the climate too difficult and uninviting for future acquisitions.
Other retailers have left Russia. Carrefour SA, a French retailer, left in 2009. The German Metro Group and very famously, IKEA, left the country as well. It was only recently discovered that two IKEA executives, despite their short stay in Russia, had made bribes for access to public utilities in
Completely Different Markets
There exists a great divide between the emerging markets and the domestic markets, particularly when it comes to the culture of both the people and government. Today’s emerging markets are perhaps as protectionist as ever, sealing off entry to their local capital markets while promoting takeover of assets in other countries.
Anti-trust laws in China have been used routinely to block or slow foreign purchases of local companies, but are rarely involved in structuring that leads to massive, domestic monopolies. Russian courts and legal system have shifted ownership rights overnight, and as evidenced by the growing disparity between multiples in BRIC firms, worries persist about Russian government involvement.
American firms are finding it incrementally difficult to access foreign markets. Walmart, a company that is perhaps as American as apple pie, is finding that the locals don’t like its brands. In fact, its acquisitions are keeping their own names after Walmart famously fell to the German Aldi in its home market some years ago.
What Investors Can Do
Investors have to go to the source with emerging markets to get the best bang for their buck. With the exception of Philip Morris and a handful of others, American firms aren’t getting into foreign markets, nor are they doing so cheaply. Most have concluded that the acquisition is better than the merger, and almost always better than expanding a brand naturally. However, while corporate giants may justify paying acquisition rates for major brands, individuals see better performance in going directly to the source.
The benefits are twofold: the brand may be acquired by foreign companies, or that the political favors may keep local companies in business. International investors are no longer justified in owning domestic brands as access to emerging markets.