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Four_Principles_of_Emerging_Market_Success
| Four Principles of Emerging Market Success
Emerging markets are high risk and high reward. In my work as an
attorney representing Western companies in emerging markets, I
have concluded there are four essential elements to emerging
market success: a good partner, an open mind, active
participation, and extreme patience.
I have seen enough essential similarities between such diverse
countries as Russia, Korea (ten years ago when it was still an
emerging market country), Vietnam, and even the Gambia and Papua
New Guinea, to believe certain core generalizations hold true
for all or nearly all emerging market nations. Just as a good
concept, a strong market, and good execution are necessary in
all countries, so too are these four simple principles the keys
to success in emerging market nations.
PRINCIPLE ONE: A Good Partner is the sine qua non of Success.
The quality of the local partner is the indispensable element
for emerging market success. So where do you begin?
Start with due diligence. Before doing business with anyone, you
must first determine what you need from your partner in the
particular country in which you will be conducting business. In
my experience, foreign companies need a local partner who is
effective, cooperative, and (most important of all) trustworthy.
Emerging market countries almost always have
less-than-fully-formed legal systems. Their laws are oftentimes
slanted towards the government and away from free markets. Their
courts are slow and often corrupt. Form takes precedence over
substance in ways completely unfamiliar to Westerners. One small
technical miscue on your part might eliminate your right to sue
your partner for having stolen all of your money. It might even
lead to you and your company being kicked out of the country,
while your assets remain.
Of course you should do your best to avoid technical miscues,
but the better strategy is to pick your partner well.
So what should you look for in a local partner? Political
connections? Yes and no:
Yes, because you probably will need someone with sufficient
dexterity to maneuver around often-suffocating business laws and
a bureaucracy that may try to cut in on your business at every
turn. No, if you think that is all you will need. Just as in the
West, the politically connected are usually more a "government
type" than a business person. Partnering with someone in an
emerging country with whom you would never consider partnering
back home is a mistake. Political clout in emerging market
countries is often more effective for avoiding legal
responsibility for something like a debt than it is in
generating business revenues. I have seen countless instances
where a foreign company partners with someone because he "is
tight with the governor," only to see the business crushed by
the new governor as part of his house cleaning. The best partner
is politically connected only to the extent necessary for
business success.
Your partner's character and reputation are your protection in
countries where the court system is not. Do not partner in any
sense of that term without having conducted thorough due
diligence.
Get to know your potential partner. If he is legitimate and
wants to work with you for the long term, he will expect you to
want to get to know him better and think nothing of your wanting
multiple meetings before signing any deal.
Use every source you have to find out about your potential
partner. Check his references, particularly those of other
foreign firms with whom he has worked. Hire a local lawyer or
investigator to confirm he and his various businesses are in
good standing with all creditors and taxing authorities. If your
potential partner is in Vladivostok, Russia or Qingdao, China,
hiring a lawyer in Moscow or Shanghai will probably not be good
enough. Find someone you can trust with contacts where your
potential partner conducts business.
PRINCIPLE TWO: Keep an Open Mind. Assume Nothing.
Doing business in an emerging market means taking nothing for
granted. I have a mantra for my own legal work in these
countries that translates well to the business world: "Assume
nothing, but assume that you are assuming things without even
realizing you are doing so."
Things will be different. Very different. Things you take for
granted in your home country might not exist in the emerging
market country. Things you take for granted in your home country
might be the exact opposite in the emerging market country.
Things you think will be totally different in the emerging
market country may be exactly the same. Things you thought you
knew about emerging market countries based on what you know from
another emerging market country may be completely different in a
neighboring country, or even in another region within the same
country.
The principle, one more time: Keep an open mind, and assume
nothing.
PRINCIPLE THREE: Participate in Everything.
In many emerging market countries, local businesses take
advantage of corruption to avoid complying with laws. This may
work for the locals, but it won't work for you. The easiest way
for a local rival to drive you out is for you to do something
illegal. Neither you nor your government will have good grounds
to complain if your rival gets your business closed down due to
your illegal activity. It might even be your own partner who
reports you so he can assume full ownership and control of your
business.
You must have your own people on the ground, leading, training,
and instructing on business methods, business ethics,
efficiency, and quality control, among other things.
We have a saying in our law office that one day of face-to-face
meetings with local counsel is equivalent to one month of
telephone calls and e-mails in terms of getting things done.
This is equally true on the business front.
PRINCIPLE FOUR: Exercise Extreme Patience.
This principle stems from the maxim that everything takes twice
as long as you think it will. If it takes twice as long in the
West, triple that in emerging market countries. You'll go in
both as a businessperson and a teacherand in both roles, the
learning curve of your partner will almost certainly take way
more time to deal with than you think.
For example, many emerging market countries have a history where
"bad business" meant "thinking long-term." A year or two after
the fall of Soviet communism, I was involved in a matter where
an investor put $250,000 into a Russian joint venture. The
business very quickly was making good money and all indicators
pointed towards steadily increasing profitability. But, quite
quickly, the Russian company stole the $250,000. Was it so
irrational for him to think so short term in a country where the
government and tax systems had such a history of
unpredictability?
Remember: It takes patience to encourage change of mindset.
Extreme patience.
EMERGING MARKET SUCCESS
Emerging markets cannot be approached with a quick-kill
mentality. Above all else, emerging market success demands a
good partner, an open mind, a high degree of participation, and
extreme patience.
It is certainly risky. It can also be very profitable.
About the author:
Dan Harris is an attorney at the international law firm of
Harris & Moure, pllc, focusing on small and mid-sized business
that operate internationally.
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