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Over the past 20 years, waves of liberalization have all but washed away protectionist barriers in developing countries. As multinational corporations from North America, Western Europe, Japan, and South Korea stormed into the emerging markets, many local companies lost market share or sold off businesses--but some fought back. India's Mahindra & Mahindra, China's Haier Group, and many other corporations in developing countries have held their own against the onslaught, restructured their businesses, exploited new opportunities, and built world-class companies that are today giving their global rivals a run for their money. In this article, the authors, citing the results of their six-year study of "emerging giants," describe the three strategies these businesses used to become effective global competitors--despite facing financial and bureaucratic disadvantages in their home markets. Some capitalized on their knowledge of local product markets. The Philippines' Jollibee Foods, for instance, has profitably battled McDonald's because it realizes that Filipinos like their burgers to have a particular soy and garlic taste. Some have exploited their knowledge of local talent and capital markets, thereby serving customers both at home and abroad in a cost-effective manner. India's software companies, for instance, recognized the possibility of providing services to overseas customers at least a decade before Western companies even considered hiring Indian software professionals. And some emerging giants have exploited institutional voids to create profitable businesses. China's Emerge Logistics, for instance, helps foreign companies navigate the country's disjointed transportation system and baffling bureaucracy, guiding them all the way from ports to retail outlets. The authors' research indicates there's more than one way to skin the proverbial cat: Some emerging-market companies compete in several countries, but others sell only at home.

How do companies develop a strategy that is both low-cost and differentiated without becoming squeezed in the middle? Describes how Teva, Israel's first and largest multinational, achieved its globally dominant position in generic pharmaceuticals, an industry that has undergone significant change over the last 20 years. Examines its strategies to defend itself against both low-cost competitors from India and other emerging markets as well as Big Pharma companies, which are adopting increasingly aggressive tactics in genetics.

Inventec Corp., with $4.5 billion in annual revenues, was one of Taiwan's leading original design manufacturers (ODMs). Inventec designed and manufactured electronic products such as computers, servers, MP3 players, PDAs, and cellular telephones for client companies that marketed the products globally. Inventec moved production to mainland China to lower costs in this highly competitive, low-margin business. But with its competitors also setting up shop in China, Inventec had to find another way to remain profitable. Could Inventec break its dependence on powerful clients by branding and marketing its products in China and other Asian markets? Was there a way for Inventec to separate and market the software that it designed for use with its hardware products.

In 2005, Haier, China's leading appliance manufacturer, had over $12 billion in worldwide sales and was the third-ranked global appliance brand behind Whirlpool and GE. Describes Haier's rise from a defunct refrigerator factory in China's Qingdao province to an international player with nearly $4 billion in overseas sales. Haier had followed a nontraditional expansion strategy of entering the developed markets of Europe and the United States as a niche player before venturing into neighboring Asian markets. Facing intense competition and price wars in the domestic market, in 2005 Haier was redoubling its efforts to build a globally recognized brand. Could Haier complete with the likes of Whirlpool and GE in their home market? Could Haier successfully defend against Chinese and multinational challengers in China while building a brand overseas?

Spreadsheet supplement for case 706-401.

Tells the story of Agora, the largest media company in Poland, describing its corporate strategy of diversification since its founding in 1989 by entrepreneurial journalists closely linked to the anti-communist movement Solidarity. Describes in detail Gazeta Wyborcza, the country's best-selling daily newspaper and Agora's main revenue contributor. In late 2003, Fakt, the new daily owned by a German publishing house, took the lead on the Polish newspaper market, harming Gazeta Wyborcza's sales and advertising revenues. Places students in the position of Wanda Rapaczynski, Agora's CEO, who, in mid-2005, explores ways to improve Agora's position in an increasingly competitive environment.

Emerging markets have attracted considerable attention and are likely to become an increasingly important political and economic force. They represent an enormous opportunity for entrepreneurs, multinationals, and investors but also pose a threat for products, jobs, and resources. They have the potential to redefine the way business is done in many industries but remain shrouded by myths. Provides an overview of the importance of emerging markets. Discusses the opportunities in and threats posed by emerging markets. Shows how studying emerging markets can provide new insights into business conglomerates, industry profitability, and corporate governance and discusses common perceptions and misconceptions of emerging markets.

With the demise of communism, many countries in the world are striving to build their economic activity around markets and to participate in free trade arrangements, such as the World Trade Organization (WTO), European Union (EU), and North American Free Trade Agreement (NAFTA). Addresses several issues critical to understanding the unique nature of emerging markets relative to their more mature counterparts. What is the fundamental challenge in building well-functioning markets? On which sets of institutions do advanced markets rely to resolve these challenges? What makes building these institutions complex? What happens when some of these institutions are either absent or underdeveloped in an economy? How does one spot these institutional voids?

Describes the challenges facing Jim Hackett, the newly appointed CEO of Anadarko Petroleum, an independent oil and gas exploration company. In addition to strategic and organizational issues, Hackett must address concerns about proper disclosure of the company's oil and gas reserves.

It's no easy task to identify strategies for entering new international markets or to decide which countries to do business with. Many firms simply go with what they know--and fall far short of their goals. Part of the problem is that emerging markets have "institutional voids": They lack specialized intermediaries, regulatory systems, and contract-enforcing methods. These gaps have made it difficult for multinationals to succeed in developing nations; thus, many companies have resisted investing there. That may be a mistake. If Western companies don't come up with good strategies for engaging with emerging markets, they are unlikely to remain competitive. Many firms choose their markets and strategies for the wrong reasons, relying on everything from senior managers' gut feelings to the behaviors of rivals. Corporations also depend on composite indexes for help making decisions. But these analyses can be misleading; they don't account for vital information about the soft infrastructures in developing nations. A better approach is to understand institutional variations between countries. The best way to do this, the authors have found, is by using the five contexts framework. The five contexts are a country's political and social systems, its degree of openness, its product markets, its labor markets, and its capital markets. By asking a series of questions that pertain to each of the five areas, executives can map the institutional contexts of any nation. When companies match their strategies to each country's contexts, they can take advantage of a location's unique strengths. But first firms should weigh the benefits against the costs. If they find that the risks of adaptation are too great, they should try to change the contexts in which they operate or simply stay away.

Hewlett-Packard's proposed $24 billion acquisition of rival Compaq marked the largest merger in the history of the computer industry. The merger was Hewlett-Packard's response to sweeping changes impacting the technology industry. The severity of the stock market's reaction to the deal's announcement, coupled with a "slim but sufficient" 51.4% shareholder approval margin, left many wondering whether the deal was beneficial for shareholders.

Reckitt Benckiser plc has developed an executive compensation system. This case outlines the structure of the system, its emphasis on performance-based pay and a global outlook, and explains the role of the human resources department, the board of directors, and company shareholders in determining pay. It raises questions about how to balance incentive remuneration effectively in recruiting and retaining top managers, while addressing shareholder concerns about executive compensation.

Now that companies such as General Electric and Citigroup have accepted the premise that employee stock options are an expense, the debate is shifting from whether to report options on income statements to how to report them. The authors present a new accounting mechanism that maintains the rationale underlying stock option expensing while addressing critics' concerns about measurement error and the lack of reconciliation to actual experience. A procedure they call fair-value expensing adjusts and eventually reconciles cost estimates made at grant date with subsequent changes in the value of the options, and it does so in a way that eliminates forecasting and measurement errors over time. The method captures the chief characteristic of stock option compensation--that employees receive part of their compensation in the form of a contingent claim on the value they are helping to produce. The mechanism involves creating entries on both the asset and equity sides of the balance sheet. On the asset side, companies create a prepaid-compensation account equal to the estimated cost of the options granted; on the owners'-equity side, they create a paid-in capital stock-option account for the same amount. The prepaid-compensation account is then expensed through the income statement, and the stock option account is adjusted on the balance sheet to reflect changes in the estimated fair value of the granted options. The amortization of prepaid compensation is added to the change in the option grant's value to provide the total reported expense of the options grant for the year. At the end of the vesting period, the company uses the fair value of the vested option to make a final adjustment on the income statement to reconcile any difference between that fair value and the total of the amounts already reported.

Following the liberalization of India's telecommunications service industry in the early 1990s, Bharti Tele-Ventures grew from a small entrepreneurial telephone equipment importer and manufacturer to become India's largest private-sector telecommunications service group in terms of numbers of customers. Attracting over $1.2 billion in foreign equity investments, more than any other Indian telecom firm, by 2001 Bharti had achieved the country's leading market position in mobile telecom service. By 2003, however, the nature of the game had changed. A spate of mergers and acquisitions had reduced the field to the most successful and best-financed contenders. At the same time, telecommunications regulatory changes let in new, lower priced competitors, significantly altering the rules of the game. Suddenly, in addition to government-owned BSNL and the stately Tata Group, India's oldest business house, Bharti was up against Reliance, the largest and most profitable of a new generation of business groups. Bharti's management and equity partners at Mittal and his partners at SingTel and Warburg Pincus had to determine what to do next.

Supplements the (A) case.

Just a few years ago, the U.S. stock market was the envy of the world. Thanks to new technology, friendly regulation, and the innovativeness of the financial services industries, it was open to anyone, anywhere, anytime. Americans poured into the market by the millions, and the more they invested, the more liquid, accessible, and attractive the markets became. The world is much less jealous today. Belatedly, investors have come to recognize that the vaunted business models of the new economy were more effective at consuming capital than generating it. The recent stock market and corporate governance failures, the authors argue, are rooted in regulatory and market changes introduced 20 years ago. These were intended to reduce the cost of financial information and increase liquidity--enhancements that the regulators believed would improve both investor access to the market and efficiency in pricing. The goal of liquidity was achieved, but the changes also triggered a race for the bottom in the auditing profession, destroyed the economics of investment analysis, and discouraged professional investors from relying on their own rational judgment. In this article, the authors explore what went wrong and outline their ideas for radical reform. They propose putting the country's stock exchanges in charge of the audit process; creating a new Investors Union modeled on the highly successful Consumers Union; and introducing a graduated tax on trading in pension savings.

Four firms in the airline industry illustrate the underlying differences in valuation multiples (price-earnings and price-to-book).

Presents a conceptual framework to examine successful companies in emerging markets and what enables them to avoid traditional emerging market obstacles. Examines those characteristics that allow these successful local companies to overcome market voids and become globally competitive.

Presents a conceptual framework of the circumstances when multinationals attempt to create, or face difficulty creating, value in cross-border commerce. Particular attention is paid to the role of multinationals as intermediaries in international transactions where the existence of traditional market intermediaries is absent.

Sanjay Kumar, the CEO of Computer Associates, faces investor communication challenges following the company's implementation of a new business model and the accompanying change method used to recognize revenue. Despite management's confidence that the new business model is working effectively, the firm's stock price falls significantly and a major shareholder challenges management through a proxy contest.