College of Business: University of Illinois at Urbana-Champaign

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In the Classroom: Management Challenges in Emerging Economies


3/28/2007

What happens when an American company conducting business in an emerging market uses a one-size–fits-all business strategy, and fails to heed the warnings of its foreign managers that dire consequences are imminent?

In the case of Avon, the first company selling direct to consumer in mainland China, the American managers did not trust nor listen to advice to form relationships with local government and firms, as local Chinese managers suggested. As a result, government regulations changed drastically and suddenly, and direct selling throughout the country was banned overnight.

In a new MBA elective seminar course taught by Xiaowei Rose Luo, an assistant professor of business administration, students examine topics such as these that make working in emerging markets particularly challenging.

“Management Challenges in Emerging Economies” is an introduction to some of the managerial challenges in emerging economies, or those countries that commonly exhibit lower levels of growth and stock market capitalizations than industrialized democracies.  These countries include Brazil, Korea, Taiwan, India, Indonesia, South Korea, Argentina and mainland China, among others.  According to a World Bank report, emerging economies represent the fastest growing business opportunities in the 21st century.

The class is mostly made up of MBA candidates, but also includes students from the Masters of Science and Technology Management, and Business Administration PhD programs, as well as executives from China’s Industrial and Commercial Bank, who are visiting campus this year as part of the China Executive Leadership Program.

“I’m finding that the Chinese executives in my class are validating the points I make about mainland China,” Luo added, “especially points about the rapid and unpredictable changes in the economy and the value of interpersonal relationships in conducting business.”

Through review and discussion of case studies and published papers that are part of Luo’s research, students examine businesses that have learned some tough lessons along the road.

For example, there are typically informal “rules of the game” that are key to successfully navigating social and cultural norms, said Luo.  

“Microsoft entered the People’s Republic of China in 1993, despite the lack of intellectual property rights protection in the country. What they didn’t anticipate was the severity of the impact of lack of legal protection.  “Once Microsoft formed an ally with the local government and got them involved in developing the software, there were more financial incentives for local government and players to protect intellectual property rights than to turn a blind eye to piracy,” added Luo.

Ultimately, though, the goal of the course is to develop top-notch managers, regardless of where they do business.

“We’re finding that some students are choosing to go back to their homelands to work after finishing their education in the States. Even more students will have to deal with emerging economies through subsidiaries of multinational companies they may work with,” Luo said.

UIUC College of Business