How do retailers from emerging markets internationalize? : The case of Chilean retailers

This paper explores how retail firms from emerging markets internationalize and compete with multinational retailers from developed markets. Drawing on interviews with company managers, industry data and corporate reports, this paper provides insights into the successful internationalization process of two Chilean retailers in the Latin American region.

Do Big-Four affilitates earn audit fee premiums in emerging markets?

The paper investigates whether Big-Four affiliated (B4A) firms earn audit premiums in an emerging economy context, using Bangladesh as a case. The joint determination of audit and non-audit service fees is also examined using a sample of 122 companies listed in the Dhaka Stock Exchange. Our findings reveal that although the B4A firms do not generally earn a fee premiumin Bangladesh, they charge higher audit fees for clients not purchasing non-audit services. This suggests that the B4A firms may actually lower audit fees to attract non-audit services, and cross subsidizes audit fees through non-audit-services fees. The lack of a B4A premium implies that there is lack of quality audit in emerging markets. We also document that audit and non-audit service fees are jointly determined in Bangladesh. Thus, we provide evidence of joint determination of audit and non-audit service fees in an emerging economy context.

Compliance with international financial reporting standards (IFRS) and the value relevance of accounting information in emerging stock markets : evidence from Kuwait

Since the 1960s, the value relevance of accounting information has been an important topic in accounting research. The value relevance research provides evidence as to whether accounting numbers relate to corporate value in a predicted manner (Beaver, 2002). Such research is not only important for investors but also provides useful insights into accounting reporting effectiveness for standard setters and other users. Both the quality of accounting standards used and the effectiveness associated with implementing these standards are fundamental prerequisites for high value relevance (Hellstrom, 2006). However, while the literature comprehensively documents the value relevance of accounting information in developed markets, little attention has been given to emerging markets where the quality of accounting standards and their enforcement are questionable. Moreover, there is currently no known research that explores the association between level of compliance with International Financial Reporting Standards (IFRS) and the value relevance of accounting information. Motivated by the lack of research on the value relevance of accounting information in emerging markets and the unique institutional setting in Kuwait, this study has three objectives. First, it investigates the extent of compliance with IFRS with respect to firms listed on the Kuwait Stock Exchange (KSE). Second, it examines the value relevance of accounting information produced by KSE-listed firms over the 1995 to 2006 period. The third objective links the first two and explores the association between the level of compliance with IFRS and the value relevance of accounting information to market participants. Since it is among the first countries to adopt IFRS, Kuwait provides an ideal setting in which to explore these objectives. In addition, the Kuwaiti accounting environment provides an interesting regulatory context in which each KSE-listed firm is required to appoint at least two external auditors from separate auditing firms. Based on the research objectives, five research questions (RQs) are addressed. RQ1 and RQ2 aim to determine the extent to which KSE-listed firms comply with IFRS and factors contributing to variations in compliance levels. These factors include firm attributes (firm age, leverage, size, profitability, liquidity), the number of brand name (Big-4) auditing firms auditing a firm’s financial statements, and industry categorization. RQ3 and RQ4 address the value relevance of IFRS-based financial statements to investors. RQ5 addresses whether the level of compliance with IFRS contributes to the value relevance of accounting information provided to investors. Based on the potential improvement in value relevance from adopting and complying with IFRS, it is predicted that the higher the level of compliance with IFRS, the greater the value relevance of book values and earnings. The research design of the study consists of two parts. First, in accordance with prior disclosure research, the level of compliance with mandatory IFRS is examined using a disclosure index. Second, the value relevance of financial statement information, specifically, earnings and book value, is examined empirically using two valuation models: price and returns models. The combined empirical evidence that results from the application of both models provides comprehensive insights into value relevance of accounting information in an emerging market setting. Consistent with expectations, the results show the average level of compliance with IFRS mandatory disclosures for all KSE-listed firms in 2006 was 72.6 percent; thus, indicating KSE-listed firms generally did not fully comply with all requirements. Significant variations in the extent of compliance are observed among firms and across accounting standards. As predicted, older, highly leveraged, larger, and profitable KSE-listed firms are more likely to comply with IFRS required disclosures. Interestingly, significant differences in the level of compliance are observed across the three possible auditor combinations of two Big-4, two non-Big 4, and mixed audit firm types. The results for the price and returns models provide evidence that earnings and book values are significant factors in the valuation of KSE-listed firms during the 1995 to 2006 period. However, the results show that the value relevance of earnings and book values decreased significantly during that period, suggesting that investors rely less on financial statements, possibly due to the increase in the available non-financial statement sources. Notwithstanding this decline, a significant association is observed between the level of compliance with IFRS and the value relevance of earnings and book value to KSE investors. The findings make several important contributions. First, they raise concerns about the effectiveness of the regulatory body that oversees compliance with IFRS in Kuwait. Second, they challenge the effectiveness of the two-auditor requirement in promoting compliance with regulations as well as the associated cost-benefit of this requirement for firms. Third, they provide the first known empirical evidence linking the level of IFRS compliance with the value relevance of financial statement information. Finally, the findings are relevant for standard setters and for their current review of KSE regulations. In particular, they highlight the importance of establishing and maintaining adequate monitoring and enforcement mechanisms to ensure compliance with accounting standards. In addition, the finding that stricter compliance with IFRS improves the value relevance of accounting information highlights the importance of full compliance with IFRS and not just mere adoption.

The growth and international expansion of an emerging market retailer in Latin America

This study contributes to the literature on international retailing by addressing a gap in the literature as to how retailers from emerging markets expand internationally. This historical case study analyzes the growth and internationalization process of Chilean retailer Falabella, one of the largest in Latin America and has been able to compete with multinationals from developed countries. The research is based upon primary and secondary data sources including 33 oral interviews with company managers and family executives, as well as industry data, corporate reports, and trade journals. Drawing on institutional theory, the findings show that by belonging to a family conglomerate, engaging in networks and partnerships, organizational learning, and having an experienced management team helped Falabella gain legitimacy in all international markets.

Internationalisation of emerging market firms : an exploratory study of Chilean companies

Purpose This paper explores how firms from a Latin American market internationalise using the resource-based view (RBV) of the firm as a theoretical foundation. Specifically, it examines the internationalisation process of three Chilean companies that have become relevant international players. Design/methodology/approach Drawing on interviews with company managers, as well as industry data and corporate reports, this paper provides insights into the successful internationalisation process of emerging market firms. Findings The findings of this study suggest that specific capabilities and resources, such as belonging to a family conglomerate, domestic and foreign partnerships and networks, innovation and market orientation, and an experienced management team, are required for emerging market firms to internationalise and improve their performance in foreign markets. Originality/value This study is one of the few to address the internationalisation process of Chilean companies.

Profit and organisational legitimacy in an emerging market

While there is common acknowledgement that the main aim of organisations is to maximise shareholder wealth, firms also have the obligation to manage the needs of a broader group of stakeholders as these firms are a product of social creation. In this study, we test the notion that the concept, profit, is fundamental to society’s perception of the firm in an emerging market, and the need for a firm to legitimise a level of profit. We evaluate the relationship between the readability of various components of corporate annual reports and the level of profit, and we also take into account the nature of disclosure (mandatory and non-mandatory), the size of the firm and the nature of setup (public enterprises and publicly listed companies). Our findings suggest that, as with developed markets, in emerging markets profit is indeed an important determinant of the nature of operations of a firm, and that firms consider readability of their disclosures in attempting to legitimise a level of profit.

Home depot in Chile: case study

Retailing is rapidly becoming a global industry and many retailers are expanding to foreign markets. However, several retailers successful in their home countries have failed in emerging markets such as Chile. Little is known why these retailers succeed in some venues and not others. A case study of the failed operations of Home Depot in that Chilean market was developed in order to understand this issue in more depth. This case study included an analysis of the Chilean marketplace, expert and consumer interviews, and analysis of data from secondary sources. Finding showed difference in that institutional environment between Chile and the U.S., due to a higher family and relational orientation in Chile. Home Depot defied institutional pressures and maintained standardized retail practices.

Using a design led disruptive innovation approach to develop new services : practising innovation in times of discontinuity

Organisations face increasing competition from new firms in emerging markets and their past superior products may no longer provide competitive advantage in markets based on different cost and value differentials. A shift in design practices from product solutions to health services which are accessible and affordable by all is required. This paper explores a design led approach to innovation to assist medical device companies develop new services and experiences and reshape their notions of the nature, development and deployment of health care services. This approach uses design tools and methodologies that are grounded in the authentic understandings of stakeholder experiences, to assist an organisation create a vision of likely future health care scenarios. Through this process, organisations can explore the complexities in the delivery of future health care services in new and emerging markets allowing them to tailor product and service solutions which focus on being accessible and affordable by all. The industry based case study for the design of health services in carried out in emerging economies. The contribution of this work in advancing research into design innovation and future research directions are also presented.

How does the size and shape of local populations in China compare to general anthropometric surveys currently used for product design?

Anthropometry has long been used for a range of ergonomic applications & product design. Although products are often designed for specific cohorts, anthropometric data are typically sourced from large scale surveys representative of the general population. Additionally, few data are available for emerging markets like China and India. This study measured 80 Chinese males that were representative of a specific cohort targeted for the design of a new product. Thirteen anthropometric measurements were recorded and compared to two large databases that represented a general population, a Chinese database and a Western database. Substantial differences were identified between the Chinese males measured in this study and both databases. The subjects were substantially taller, heavier and broader than subjects in the older Chinese database. However, they were still substantially smaller, lighter and thinner than Western males. Data from current Western anthropometric surveys are unlikely to accurately represent the target population for product designers and manufacturers in emerging markets like China.

Using scenarios to explore the social aspects of design led innovations

Emerging technologies have redefined the way people go about everyday life. An increasing array of online and on-the-go solutions supporting remote work, entertainment on demand, information sharing, social communication, telehealth and beyond, are now available at the touch of a screen. This paper discusses concept of scenarios as a design tool that can be successfully employed by organisations as an innovative design led approach to: (i) understand people’s everyday practices in current social contexts in order to identify opportunities and emerging markets, and (ii) reveal stakeholder relationships existing in the provision of services within current everyday practices. To illustrate this approach, two case studies will be presented: the first focusing on a real industry project exploring opportunities for the development of future health care services, the second focusing on people’s access to services as part of a transport journey experience. This paper aims to demonstrate the use of scenarios as part of a design led innovation approach to understand the social aspects and their complexities of new designs in an increasing everyday technological driven context.

The benefit of modeling jumps in realized volatility for risk prediction : evidence from Chinese mainland stocks

Recent literature has focused on realized volatility models to predict financial risk. This paper studies the benefit of explicitly modeling jumps in this class of models for value at risk (VaR) prediction. Several popular realized volatility models are compared in terms of their VaR forecasting performances through a Monte Carlo study and an analysis based on empirical data of eight Chinese stocks. The results suggest that careful modeling of jumps in realized volatility models can largely improve VaR prediction, especially for emerging markets where jumps play a stronger role than those in developed markets.

Transfer pricing and multinational financial institutions : the case for replacing arm’s length price with a unitary approach

The international tax system, designed a century ago, has not kept pace with the modern multinational entity rendering it ineffective in taxing many modern businesses according to economic activity. One of those modern multinational entities is the multinational financial institution (MNFI). The recent global financial crisis provides a particularly relevant and significant example of the failure of the current system on a global scale. The modern MNFI is increasingly undertaking more globalised and complex trading operations. A primary reason for the globalisation of financial institutions is that they typically ‘follow-the-customer’ into jurisdictions where international capital and international investors are required. The International Monetary Fund (IMF) recently reported that from 1995-2009, foreign bank presence in developing countries grew by 122 per cent. The same study indicates that foreign banks have a 20 per cent market share in OECD countries and 50 per cent in emerging markets and developing countries. Hence, most significant is that fact that MNFIs are increasingly undertaking an intermediary role in developing economies where they are financing core business activities such as mining and tourism. IMF analysis also suggests that in the future, foreign bank expansion will be greatest in emerging economies. The difficulties for developing countries in applying current international tax rules, especially the current traditional transfer pricing regime, are particularly acute in relation to MNFIs, which are the biggest users of tax havens and offshore finance. This paper investigates whether a unitary taxation approach which reflects economic reality would more easily and effectively ensure that the profits of MNFIs are taxed in the jurisdictions which give rise to those profits. It has previously been argued that the uniqueness of MNFIs results in a failure of the current system to accurately allocate profits and that unitary tax as an alternative could provide a sounder allocation model for international tax purposes. This paper goes a step further, and examines the practicalities of the implementation of unitary taxation for MNFIs in terms of the key components of such a regime, along with their their implications. This paper adopts a two-step approach in considering the implications of unitary taxation as a means of improved corporate tax coordination which requires international acceptance and agreement. First, the definitional issues of the unitary MNFI are examined and second, an appropriate allocation formula for this sector is investigated. To achieve this, the paper asks first, how the financial sector should be defined for the purposes of unitary taxation and what should constitute a unitary business for that sector and second, what is the ‘best practice’ model of an allocation formula for the purposes of the apportionment of the profits of the unitary business of a financial institution.

Global business today, 3rd Asia Pacific Edition

The third edition of Global Business Today continues to effectively combine a world-wide orientation with an emphasis on the strategic issues that impact global business in our region. The authors provide background on the political, economic, social or cultural aspects of countries grappling with an international business issue, raising students' awareness of how national and geographic differences affect the conduct of international business. Chapter 7, for example, contains a new Country Focus box titled, "India's stuttering economic transformation". Developing economies are covered in the new Emerging Markets feature emphasizing the global coverage of the text and the increasing complexities and opportunities in international business. Chapter 13 contains Another Perspective box titled, "The China-plus-one Strategy."

Internet marketing and export market growth in Chile

Previous studies show that the Internet positively influences firms’ export activities from developed markets. However, the literature is vague as to whether the Internet has an impact on the export performance of firms from emerging markets. This study tests a conceptual model that includes the effect of Internet marketing capabilities on export market growth in an emerging market. Drawing on a cross-national sample of 204 export firms from a Latin American country (Chile), findings indicate that Internet marketing capabilities positively influence the availability of export information, which in turn impacts the development of business network relationships and export market growth.