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\nAya Chacar <\/span><\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\u201cMany people believe that in emerging economies, competition is weaker, enabling new players to be like the one-eyed man in the land of the blind,\u201d said Aya Chacar<\/strong>, assistant professor in the Management and International Business Department in the College of Business Administration, whose research focuses on competition, innovation, and change.<\/p>\n However, when she and a colleague compared data on all public manufacturing companies in India\u2014their exemplar of an emerging economy\u2014and the United States, representing a developed economy, their findings were quite different. The research found no difference between the countries in terms of how much companies with superior performance sustained their profitability. Over time, the performance of these companies declined and came closer to the average.<\/p>\n \u201cCompetition is just as strong in India for these manufacturing companies,\u201d Chacar said. \u201cIn fact, local car companies in India are outpacing established automakers like Volkswagen and General Motors in the Indian market.\u201d<\/p>\n The study also examined how below-average performers fared in the long run. Here, the results conformed to the expectation that performance would improve.<\/p>\n \u201cWhat we saw is in line with economic theory predictions,\u201d she said. \u201cPoorly-performing companies in the United States face strong discipline from the market and from investors.\u201d<\/p>\n Persistence does not always pay.<\/em><\/p>\n Indian companies that performed poorly, however, saw their performance persist more. Persistence of poor performance is important because it often reflects a waste of resources and squandering of investors\u2019 monies. Among the possible reasons:<\/p>\n The researchers also explored the persistence of below-average performing companies that are independent, or that are part of multinational corporations (MNCs) or Indian business houses\u2014business groupings similar to those of some American conglomerates.<\/p>\n \u201cWe had expected below-average performance by MNC subsidiaries to persist less,\u201d Chacar said. \u201cAfter all, managers should be under more pressure from the parent company, which would eventually sell divisions that aren\u2019t profitable and invest in more profitable businesses. We expected the same for companies affiliated with business houses, which are thought to help and to push their affiliates to improve their performance in those countries where investor groups are not as strong.\u201d<\/p>\n Once again, the research revealed a different situation. It was standalone companies that improved more.<\/p>\n According to Chacar, the research holds a crucial lesson for business people: innovation is key.<\/p>\n \u201cThough the competitive environment is important, it is dwarfed by companies\u2019 own resources, and most importantly, by their ability to innovate,\u201d she said. \u201cPlenty of companies do extremely well in highly-competitive industries and countries, and even hang on to their performance. Many do poorly and fail in less competitive environments. Managers need to\u00a0invest continuously in their companies\u2019 development to stay at the cutting edge, and they need to provide products and services that customers want and that other companies cannot provide as easily.\u201d<\/p>\n Small companies, and even giants like Wal-Mart, are vulnerable if they stop evolving.<\/p>\n \u201cWal-Mart has been struggling for a while in Germany because it has not figured out how to increase its relevance to German customers,\u201d Chacar said. \u201cThe company recently pulled out of the South Korean market, where it could not reach a significant market position.\u201d<\/p>\n Chacar and Balagopal Vissa<\/strong>, previously her PhD student and now a colleague at INSEAD, published their findings in an article titled \u201cAre Emerging Economies Less Efficient? Performance Persistence and the Impact of Business Group Affiliation,\u201d which appeared recently in the Strategic Management Journal<\/em>, the leading journal devoted to business strategy.<\/span><\/p>\n\n
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