As people look at various political events in places like the Middle East, some may consider them as opportunities to enter new markets with business propositions. This may ultimately proof to be true , but going to these new emerging markets requires a careful approach.
Twenty years ago Eastern Europe came out of the communist era and was viewed as the “new frontier” for business people. I led the effort to set up the Pepsi business in Romania at that time. It took a methodical work of a full year to establish that business and get ready to operate. I would like to share with you some of the key learnings from that experience, which I believe could be helpful in considering entering the emerging markets of today.
1. Who should consider investing in emerging markets?
Investing in an emerging market is not for everyone. It requires a number of elements that are not part of an investment in a developed market. This includes a great deal of patience – to deal with authorities, potential partners, etc., that are not well versed with the business culture of the developed world. It also includes determination to overcome various obstacles that are bound to come up along the process. As an example, after a lengthy negotiations process we thought we arrived at a “joint venture” agreement with a state-owned company, only to find out on our next visit that the entire management was replaced by the owner (i.e a state authority) to make that agreement void…One additional requirement is a long term view. There is no point in going to such markets unless one is prepared to stay there for the long term and build a business for sustainable success.
2. What to look for in considering an emerging market?
There are a number of important elements that need consideration in evaluating this proposition. The most important one is the existence of a legal framework that allows one to know the “rules of the game”. In Romania of the early 1990′s, although coming out of over 45 years of communism, there was some legal foundation that dealt with the rules of establishing a foreign owned business. This proved essential and even withstood the test of challenging it in court – as we were forced to take the state to “battle our differences” on a few occasions. In the absence of a minimum business-legal foundation, one is risking entering a chaotic situation. Other important elements are the structure of the particular industry considered, the strength of the competition – both existing and potential new entrants; The size of the market – in consumer goods this is driven by the population size as a key criterion; The existence of support industries for the business in question – suppliers of raw materials, service providers etc. In our Pepsi business in Romania there was a significant lack of domestic raw materials, which meant we had to import a number of important elements – and this proved to be a major challenge in the early years where hard currency was hard to find.
3. What to cover when visiting a new emerging market?
Learning a new market is a process. First impressions are not always a true reflection of reality, especially if one is being taken around by officials who want to make the best impression on a potential investor. In this process it is important to go outside the main city/cities. To understand what the majority of the market (which usually at this stage is in the rural areas) looks like. The infrastructure is also important – roads, utilities. When we started in Romania there were close to no highways in the entire country. As moving products around the country was a key activity for a Pepsi business, we asked officials and were told that they had a 5 year plan to lace the entire country with highways. This is yet to happen, after more than 20 years…One needs to understand the trade structure, the strength of distributors and other links between a producer and the market. This also involves the assessment whether one could operate a fairly “clean” business, free of coercion from government corruption and/or organized crime. Even if the environment is not identical to what one is used to at home, it has to be such that he/she is comfortable enough to operate in.
There is a great benefit to being an early entrant to an emerging market. One enjoys a greater pool of potential partners, is able to get a “head start” on the competition and is probably able to negotiate a favorable deal with local authorities eager to attract foreign investors. However, there are a number of pitfalls awaiting early investors that one must try and avoid as the business climate is in a formation stage.
In taking the time to learn and analyze the market being considered, one can minimize the risks and improve the chances of success. Achieving success in such challenging conditions is definitely very rewarding. And this I share from true experience.
To find out more about this venture read my book: “An Unimaginable Journey”
For more tips and insights on entrepreneurship and business management, or to share your journey, visit me at www.AviadMeitar.com
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