Our story starts in Russia with McDonald’s French Fry problem. Planning to open the first Moscow McDonald’s in 1990, they realized Russian potatoes were too little. Yes, they tasted good. But the fries would be tiny–not like a McDonald’s French Fry. So, they had to import the seeds and grow their own potatoes in Russia. Similarly, McDonald’s built McComplex to make the buns, the hamburgers and virtually all else. They also needed to install new phone lines and vastly expand the local electric lines.
In other words, in an emerging market with an inadequate infrastructure, McDonald’s had a lot to do themselves.
Reading about manufacturers moving to Cambodia instead of China, I thought of the Russian McDonald’s. Wages in China are rising, the single child policy is creating a slower growing labor force, and the Chinese government can be unpredictable. So, why not hedge and go to a developing country like Cambodia?
The problem is that Cambodia has infrastructure challenges. Described as a “patchy power grid,” electricical outages are typical. One story in a Cambodia news daily told of a utility that had to cut power to a pumping station. As a result, for days, thousands of people in Sihanoukville had no water. Or, in Phnom Penh, too much demand has been causing rolling blackouts.
Consequently, when we read about factories going to Cambodia, about the Hard Rock café opening 2 restaurants and Burger King planning a second outlet and a Tiffany subsidiary building a large facility to polish small diamonds, we should remember that so much more needs to happen in an emerging market.
Sources and Resources: For $1, I got a day’s subscription to the Cambodia Daily and enjoyed a wealth of articles. Providing more of an academic perspective, this 2012 analysis of Cambodian electricity markets was enlightening. My starting point, though, was a NY Times article on businesses moving to Cambodia. Finally, I always show my class the story of the first Moscow McDonald’s in a CD, “A Taste of the West,” that is briefly excerpted here.