Winning in Emerging Markets: A Road Map for Strategy and Execution

image from: www.winninginemergingmarkets.com
culled from:www.hbr.org


Emerging Market Action Items: The frameworks and examples in this book point to several key action items for companies operating in and out of emerging markets.

Experiment to Fit Business Models to Emerging Markets: Institutional voids can frustrate, stifle, and undermine the business models and operations of any company doing business in emerging markets. In light of these contextual challenges, some companies choose to exit or avoid emerging markets. Those companies that decide that the opportunities in emerging markets are too great to pass up or delay need to appreciate and respond to the challenges posed by institutional voids.

Emerging markets are so tough to crack that companies are highly unlikely to get their strategies right the first time out. Companies of all stripes need to experiment to fit their strategies to the unique contexts of emerging markets—and instill in their organizations an organizational openness to experiments. Zain's One Network and Microsoft's FonePlus are only two examples of successful emerging market experiments.

Position Your Business as a Partner in Progress: Foreign as well as domestic companies have found success in emerging markets by positioning themselves as partners in progress—building businesses that also advance market development. Initiatives along these lines can take a number of forms—from advancing traditional corporate social responsibility to filling institutional voids—in service of businesses or as stand-alone projects.

Microsoft's investments in the development of China's software industry facilitated the development of its own business in the country. The job creation and tax revenue produced by Zain's business in African countries facilitated its government relations and operations. Similarly, the employment Tata Consultancy Services brought to Uruguay enabled the company to receive fast-tracked visas for employees traveling from India. At home, Tata Group filled voids in social services for employees in Tata Steel's company town Jamshedpur. Metro Cash & Carry's primary business filled voids in the food supply chains in emerging markets, reducing waste and bringing more transactions into the tax net, although this argument could not overcome entrenched opposition in Bangalore. Nonetheless, working to be—and to be seen as—a partner in progress can help companies in emerging markets, particularly multinationals coming in from more developed markets.

Balance Ambition with Humility in Emerging Markets: Multinationals based in developed countries as well as emerging market -based companies face a tension between ambition and humility. Multinationals want to exploit the tremendous opportunities in emerging markets, but they need to carefully evaluate the extent to which they have the local knowledge and capacity to fully exploit those opportunities. Segmenting these markets and carefully aligning ambitions and capabilities can help multinationals avoid costly mistakes. Multinationals need the humility not only to gauge their own capabilities in relation to the institutional context of emerging markets but also in terms of their position in emerging markets. As one multinational executive explained, "Most emerging markets are highly sensitive. They're emerging because for years they've been colonized. That has left its own suspicions, distrust, et cetera of foreigners. It's certainly true in China. It's certainly true in India. It's probably true in many other places. So people want the benefits of globalization and development, but they want to know that they're not being exploited." 1

Emerging market -based companies also need to weigh their ambitions with their capabilities, particularly as they consider approaches to globalization. Teva Pharmaceutical's "billion-dollar theory" exemplifies emerging giant audacity. As one company executive explained, "Many companies pass the same way in Israel. The difference is really not personal. The difference is in the recognition that going the path that history wrote for us, we will remain a small Israeli company that will not have any influence on anything. If you want to do something, try to do something very different. What we did was something that, at that time, was very different." 2

India's Tata Group, among the most audacious emerging market -based globalizers, has faced organizational strains in its globalization, as one company executive described:

    [B]ecause we are starting fresh, we don't have the collective memory of mistakes. [B]ecause India is booming, because our balance sheet is strong, people don't see risk in the same way they would do if they were working in [a multinational company] where growth rates are high at 10 percent. That balance of risk versus ambition: How fast can we go? What's our capability? How far can you test people who've never done it? We've got lots of smart people whose experience is very limited in international business. So that's the balance between throwing people in versus holding people back because you don't have the bench strength to do it. 3

Just as any company operating in an emerging market needs to audit its institutional context in relation to its own capabilities, multinationals and emerging market -based companies need to audit their management capabilities and bandwidth as they weigh how far they can go in emerging markets and, in the case of emerging giants, how ambitious they can be in their globalization. As the example of TCL shows, audacious moves into new market contexts and attempts to integrate widely different corporate cultures through acquisitions can be particularly challenging.

Appreciate the Inherent Risks of Emerging Markets: To many observers, the emerging market story is largely one of growth and opportunity. This euphoria can quickly end when companies are burned by corruption, abrogation of contracts, wanton expropriation, or other risks in these markets. These risks are inherent in emerging markets, but in light of them, what should firms do? Companies can exit these markets, limit their ambition so as not to encounter them squarely, limit their exposure by operating through an agent or other party, or build in mechanisms, such as audits and internal vigilance, to deal with corruption.

Infosys and Tata Group set high standards for their organizations in light of corruption in India. As illustrated by the experience of Siemens—which agreed to pay $1.36 billion to U.S. and German authorities in 2008 to settle corruption charges—not maintaining such high standards can impact not only a multinational's business in an emerging market but also its wider business. 4 In mid-2009, it was reported that more than 120 companies were under investigation by the U.S. Department of Justice for potential violations of the Foreign Corrupt Practices Act. 5 Specialized antibribery compliance firms—credibility enhancers, in our taxonomy of market intermediaries—have sprouted up to help firms manage these issues. 6

The chief executive of one emerging giant active in many emerging markets described how his firm has managed the corruption issue:

"How do we survive? It's like many of the great companies who survive corruption in their own countries. For us, the challenge is how to conduct our business in the most ethical way and according to the highest standards, moral standards. That is something we will not give up. And that's a choice because we have the whole world to go after. We have more than 220 countries worldwide. Therefore we have a choice. If we go to a country where we are asked to do something which is corrupt, we will just withdraw. We just don't do business there. And that happened a number of times, so we accept only to work in areas where we will not be forced in any degree of corruption, whether directly or indirectly." 7
About the author

Martha Lagace is the senior editor of HBS Working Knowledge.