By Sara Haq W’06, Founder and Principal of SH International
Being a survival-focused entrepreneur does not give you the luxury of believing in myths about the way the world works for too long, at least not myths related to core business issues. For the pathologically curious, this learning through forced confrontation with market realities is one of the most exciting parts of being an entrepreneur.
There are many myths about doing business in emerging markets that I once believed. I now know better, through my experience over the last few years as an emerging markets entrepreneur, and a consultant and coach to other entrepreneurs expanding their businesses through emerging markets deals, ventures and initiatives.
I am going to bust two of those myths for you today.
Myth #1 – Most American companies don’t do business in emerging markets
This is my favorite myth. I bought into this myth for a long time, because it is so pervasive. For many companies, disregarding the emerging markets is avoiding a challenge by pulling a cloak of normalcy around themselves: If most U.S. companies are limiting themselves to the U.S. and not expanding into emerging markets, who are they to buck the conventional wisdom of the country with the highest GDP in the world?
The reality is that all savvy companies are conducting some form of business in emerging markets as part of their overall growth strategy. While I am still knee-deep in research, it appears that all Fortune 500 companies have some type of involvement in emerging markets. The same is true of companies at the forefront of the sharing economy such as Uber and AirBnB. These companies source materials, outsource labor, or find new revenues for their own product or services in emerging markets.
If your company is small, and you believe that there is no reason to be involved in the emerging markets, realize that with rare exception, your company is already involved in the emerging markets. However, other entities are serving as intermediaries, driving up costs and pushing down revenues of your business. Think about it: Do your suppliers fully manufacture their own product, or import product or components from China? Do your consultants subcontract data analytics work to India? When you call a service provider, does someone in a call center in the Phillipines answer?
Your savvier competition will love that you are in the dark because your cluelessness will render it nearly impossible for you to keep up. Your lack of intentional strategy in engaging with the emerging markets will enable your competitors to derive significant cost competitive advantages and to have larger share of the global marketplace.
If your company is not yet on its way to becoming one of the Fortune 500, maybe it is because you believe in the myth that most American companies do not do emerging markets business.
Myth #2 – Emerging markets expansion requires massive capital and a well-developed infrastructure
Emerging markets expansion for the entrepreneur, according to this myth, looks like this: You establish your own manufacturing facility or sales offices abroad. You hire a full staff on-the-ground, and pay them full salaries and benefits. You bang your head against the wall with the infinite on-the-ground frustrations that you face, wondering why you aren’t at home focusing on improving your core product or service. You lose sleep at night wondering how you managed to spend your entire annual operating budget in one day!
I have learned through first-hand experience the reality: entrepreneurs can profitably enter the emerging markets in a lean and cost-efficient way. I have helped clients with revenues of less than a million USD to enter the emerging markets for the first time. One effective strategy is working with a local partner.
While the relationship must be structured and managed carefully to account for potential loss of control issues, the local partner has a lot to offer. This includes on-the-ground intelligence on the constantly shifting market, regulatory, and macroeconomic landscape of an emerging market. They can also leverage their local resources and relationships on your behalf, allowing you to maintain a more cost effective and efficient operation at home.
You do not have to spend a ton of money upfront on having consultants draw up fancy reports. While some level of preliminary market analysis is helpful, a lot of times what works in theory in the emerging markets does not work in practice. You get a lot more bang for your buck by simply hopping on a plane, flying to the country in question, and meeting with as many relevant people as possible. You will learn about market realities and opportunities, AND find others interested in pursuing them with you.
Need a place to start? Wharton alumni, and other University of Pennsylvania alumni, are incredibly helpful, and hold top leadership positions in countries all around the globe. They may know someone who is the right partner for your business. Just remember to give back when another alum comes knocking at your door!
Bio: Sara Haq W’06 is Principal of SH International LLC, which expands businesses through emerging markets deals, ventures and initiatives. She has extensive on-the-ground emerging markets business and finance experience across Latin America, the Middle East, Africa, Eastern Europe, Central Asia and South Asia. She is a sharp negotiator and takes pride in being both business savvy and street smart. She speaks six major world languages: French, Spanish, Arabic, Turkish, Hindi/Urdu, and her native English. She was born and raised in Wilmington, Delaware and currently lives in Washington, DC. Learn more about her company SH International on Twitter, Facebook, and LinkedIn.