Global Economy

Global Economy

How can a company from an emerging economy manage to make waves in global business?

Ask Embraer. The Brazilian firm also known as Empresa Brasileira de Aeronautica S.A. is the fourth largest commercial aircraft manufacturer in the world, behind Boeing, Airbus and Bombardier. In mid-August, it posted a 54 percent jump in sales and a 35 percent gain in second-quarter earnings.

A new HBS case study on Embraer, presented in Buenos Aires (in a modified version of how such a case might be taught in a standard classroom setting), offered plenty of room for lively debate among conference participants. Questions they considered: What key elements of strategy and competitiveness will help a firm from an emerging market suceed internationally? How can a government assist a company without smothering it?

Another point of central interest in the Embraer example was an ongoing dispute between Embraer and the Canadian manufacturer Bombardier, which has yet to be settled by the World Trade Organization. Conference participants offered a variety of predictions on how they thought the dispute could and should pan out.

According to Professor Pankaj Ghemawat, who led the discussion (while injecting what he called "procedural asides" to demonstrate how the case might be taught in a classroom), the Embraer case also illuminated ways that companies might craft a strategy to balance two spheres of influence: market and non-market forces.

Issues unique to the region

The case on Embraer, Ghemawat explained to the audience in his introduction, is one of the first "outputs" of the School's new Latin America Research Center (LARC). It was co-written by Ghemawat with LARC executive director Gustavo Herrero and senior researcher Luis Felipe Monteiro. Ghemawat, who originally started the case for his elective course on Globalization and Strategy, said that it also illustrates the first efforts of the LARC advisory committee to address business issues unique to the region.

"We started talking about what was distinctive about the Latin American context," Ghemawat said of their early meetings, "and about what research and course development efforts in this area—whether by Harvard or by other institutions—really needed to reflect."

The basic macro environment in emerging economies, he explained, is very different from that of developed economies that sometimes end up getting treated as a "base case."

"We talked about the role of government. And, while it's useful to focus on market strategy, the non-market components of strategy were things that needed to be highlighted as well."

Keys for strategy

"There's a lot going on in the case," Ghemawat warned the audience as the discussion began. "There's a lose-to-a-billion dollar commitment that Embraer is close to making for a new family of aircraft. There's an extraordinarily complex and bitter dispute at the WTO between the Canadian and Brazilian governments about Embraer versus Bombardier in the regional jet market. In addition, Embraer is selling or has sold a fraction of its equity to a French consortium. Plus, an IPO is being planned."

"What problems confront a company that's trying to become internationally competitive? What sorts of problems are Embraer's partnerships trying to overcome?"

As a company, conference participants said, Embraer had made a number of smart moves. Its human resources strategy was rejuvenated for flexibility, so people were motivated to work there. The company had lowered the cost of capital by sharing risks, first with the government and then, through outsourcing, with suppliers. It focused very early on foreign markets, rather than just on the domestic market.

While the company had clearly benefited from its relationship with the government, said one participant, it had somehow avoided being