The Risks and Opportunities of Doing Business in Emerging Markets
If you’re a startup or small business based in the U.S., chances are that you’re engaging with other emerging markets in some way or another. Perhaps you’re serving customers in those markets – or you have partners, suppliers, or consultants located there – or perhaps some of your team members are based there, or traveling frequently to those parts of the world.
If you haven’t yet tapped into the opportunity and potential of emerging markets, now might be a good time to start. In today’s hyper-connected, mobile, and social world, the Internet and more sophisticated supply chain and fulfillment processes have opened up doors to reach new customer and partner communities. It makes significant business sense to create and scale your local startup to think and act globally.
Why Set Your Sights on Emerging Markets?
Apart from cost-saving factors, emerging markets have become important growth hubs, fueled by a rising middle class, increasing purchasing power, steady economic growth, and improved infrastructure.
Today, we have a veritable alphabet soup of emerging economies, be it BRICS (Brazil, Russia, India, China, and South Africa), CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa), or MINTs (Mexico, Indonesia, Nigeria, and Turkey). By 2016, IMF expects these emerging markets to grow 4.7 percent, compared to advanced economies, which are projected to grow at a rate of 3.8 percent.
For startups and small businesses, the incentive to enter emerging markets is huge. Instead of struggling to be seen and heard in what might be a saturated and highly competitive local market, you might have the opportunity to become a pioneer and leader in an economy that is just getting off the ground. For instance, take South Africa or Nigeria, where nine in ten people have a cell phone, according to Pew Research. Of them, roughly 34 percent of South Africans and 27 percent of Nigerians own a smartphone – this creates a fertile environment for tech startups to bring new mobile products and services to those consumers, much like Vodafone did with its hugely successful M-Pesa in Kenya.
If you aren’t sure about selling your products or services in emerging markets, you might consider partnering with local firms and contracting talent from these regions. While the U.S. population rapidly ages, the workforce in emerging countries like the Philippines, India, Mexico, Malaysia, and Indonesia is quite young, with a median age of less than 30. Tapping into this reservoir of bright, young talent can yield high returns for your business, and there is infinite value in bringing in diverse cultures, backgrounds, and perspectives to your business.
A Word of Caution
While the opportunities in emerging markets are plentiful, there are risks to consider – which is why many small businesses shy away from investing in, or exploring new emerging markets. However, it is possible to keep these risks in check, and to be successful. All it takes is awareness, understanding, and creativity. With that in mind, here are three tips to manage the uncertainties or risks that emerging markets might pose.
1. Know Your Risks
Corruption, political instability, economic crises, logistics issues, or bureaucracy are some of the risks in emerging countries that can disrupt your business plans. When dealing with these risk areas, many businesses tend to assume that the risk management practices applied in one emerging market, or even in their home country, will work in another market. Nothing could be further from the truth. Even though emerging markets are often grouped together as a homogenous entity, the risks and operating conditions in each country are very different.
So, take the time and effort to study every country, and even city-specific issues and potential risks. Understand the local laws, regulations, ethics, and cultural norms. One of the best ways to do this is to … Next Page »