I interviewed Mona Pearl who discussed New Emerging Markets and Risks.
Where are the new emerging markets? BRICs was the big thing. Brazil, Russia, India, China, these were the defining countries for future work. Here, these emerging countries have emerged, and there are new candidates, new, upcoming potential stars. If a company wasn’t in the BRICs, it seemed they weren’t global. Most companies changed their strategy to be in the BRICs.
Looking into 2015 and beyond, I see South Africa as an emerging market, as well as Turkey. The region of central Europe, as well as Central America and north Asia, and the one we may not really see as an emerging market per se—and it may be a stretch to call it so—Japan. Japan is definitely a country to watch very closely, as growth is definitely on the horizon.
Some emerging markets are strong and others aren’t. It’s all about picking the right ones and the right ones for the company and its product, the right ones for you. There has to be a match between the target market and the company’s capabilities, vision, and strategy. This is no news for any company. Basically, it’s not about generalizing and saying we’re going to find emerging markets.
When going to emerging markets, we, of course, face risk. I define a risk basically starting with what is based in the dictionary: a situation involving exposure to danger. But when we talk about international markets, what comes to mind are the words uncertainty, unpredictability, instability, insecurity. I’m sure you can think of a few more. However, parts of risk can be eliminated with preparation and the company’s doing its homework in terms of defining their target market within the market itself, their target audience, segmenting the market, understanding how to do business in the target market in terms of culture and operation. Sounds easy? Not really.
This is where most companies fail miserably. Uncertainty can be associated with political, financial, and, in some regions, geographical predictable events that we know, from past experience can take place and have taken place in the past, which means it’s almost certain that it’s going to happen, but we don’t know when. It may take one year, it may take five years, it may take fifteen years. For example, the turmoil in the Middle East is in different variations; it repeats every so often and depends on the country. This is a predictable risk when going to the Middle East, but there is no way to tell when exactly and what shape or form it may take. And we see it right now as events emerge.
When we think about it, what are the risks in these emerging markets? What comes to mind are several risks to anticipate when trying to do business, expanding, and growing into emerging markets. Of course, we have political risk. That may involve the results of an election that may affect the business climate, as well as the appetite for inbound FDI, foreign direct investment. This can financial stability in the country, prices, and, therefore, the ability to be profitable and sustainable for the long run.
For example, Indonesian presidential elections that took place on July 9, 2014, just recently, where [Joko Widodo] won. However, had he lost, defeat for [Joko Widodo] would have prompted big investors to sell. It really depends who is going to be elected and how it is going to work afterward. Another example, very recent in Turkey, the Prime Minister Erdogan won the presidential election on August 10. His confrontations with antigovernment protestors have spooked markets before, and he’s known for trying to influence central ban decisions. For some companies, it may pose a huge risk.
If we look at another region, Brazil’s presidential elections in October are also putting investors on edge. Dilma is expected to win a second term, but economists have warned that her fate may hinge on Brazil winning the World Cup. If Brazil loses, it could spark renewed anger over the huge cost of hosting the tournament. We’re done with the World Cup, but these hesitations and the risk that’s perceived is not going away.
Certainly, economics is another risk factor in emerging markets. Deep-seated economic challenges such as slowing growth, high inflation, and dependence on foreign capital could return to haunt some emerging markets in the coming months. When we look at Brazil, India, Indonesia, Turkey, South Africa, which were dubbed the Fragile Five last year by Morgan Stanley because they have these risks in common. Little appears to have changed since then. We look at it and we try to figure out a strategy and it’s not easy.
Another risk is the rising oil prices. Investors seem to be relaxed about the continuing crisis in Iraq. All prices spiked briefly in June as the Islamic militants advanced to cross over into Iraq but have since fallen back partly bemuse of reports that Libya could resume exports. The story is that, basically what it means in terms of risk, that any significant destruction to oil exports from Iraq, OPEC’s second biggest producer, would send world prices back up and could dent global growth, which means what for emerging markets, which is our topic? Emerging markets that depend heavily on all imports, such as Turkey and India, would suffer the most, which, again, raises the risk to companies that are doing business in these countries.
Then we have political violence, corruption that make it very difficult to do business in these countries. Unless a company has savvy people who know how handle and maneuver the challenges successfully, most likely, they’re going to find themselves pretty broke. When we look at all of these risks, it’s a matter of assessing and understanding what we face and how to overcome it.
We shouldn’t forget supply chain risks and challenges as well. In the emerging markets, there may not be the infrastructure necessary for smooth delivery, assembly, after-market service, inventory, and such. The risk is a gap in delivery that may cause the company the business and leave them standing helpless while losing business to their competitors. All of these risks and more are dominant in emerging markets.
When we look at the risks and all the implications, it can be addressed and should be addressed with basically gathering the right information in the applicable context and analyzing it as it may pertain to the company—its vision, goals, objectives, specific strategy. It’s not a one-size-fits-all. There is no one size that fits all, nor is there an application you can download that can give you the right answers and this information with a guarantee; that simply doesn’t exist.
For example, when I was working with a company to open the Indian market, we were faced with geographical, cultural, and financial issues in the risk for the project, and it was almost the decision to stop. The way I approached this was to look at each component separately, tie it into the company’s mission, vision, and strategic goals while changing course as we moved ahead. That requires the flexibility, the know-how, the knowledge. This project was successful and proved itself immediately as the experience, knowledge, and the know-how were crucial to make decisions on the go.
What was also important was the ability to read and interpret a situation real-time and shift plans based on a modular strategic approach. The risk was addressed. First of all, everybody needs to be aware of the potential for risk and not when it’s too late. When you already face these events, it may be way too late to fix. Keep your eye on the ball or on the pulse and know how to read and interpret reality and context, reality in different countries, reality in different cultures, and different realities. This requires seasoned people with global-growth experience who have been there, done that, and have the ability, the knowledge—again, the know-how—to look at the situation analytically.
As I always tell my clients, we have to create the dots here and not connect them. Strategy is something that you’ll do in the future; it doesn’t exist. It hasn’t been done by you yet. Something you have never done, and there are no instructions anywhere that can char the road with guarantee. When planning for success, it is crucial to understand that what makes a local company successful may be the same that will bring it to a crash when going global. The one thing I avoid when addressing global risk is the exhaustive risk-management processes. This may not be the best way to deal with the risk in markets where global organizations must move fast and in real-time to lock in opportunities and overcome challenges.
Understanding these risks is just a starting point. Capturing the benefits and mitigating the challenges associated with each will require global companies to explore new ways of organizing and operating. This is where my group comes in and helps companies flourish and address their risks in a rewarding manner. A rewarding manner for the business world is becoming profitable, sustainable, and successful in the long run.
About Mona Pearl
Strategic Planning for Fast Pace Growth, Interim COO/CMO, International New Business Development