People often ask me what books I recommend they read to learn about conducting business in developing regions. In 2011 Harvard Business School professors Tarun Khanna and Krishna G. Palepu published Winning in Emerging Markets, and this is a title worth exploring. The authors argue that the primary characteristic of developing markets is the lack of institutions that facilitate efficient business operations. They call this lack “institutional voids”, and whilst they present challenges to conducting business in developing markets, they also provide opportunities. The authors provide a toolkit for multinationals to identify and suggestions to fill these institutional voids. The toolkit is underpinned by a number of case studies.
The book is an excellent read, and makes a valuable contribution to the field of doing business in developing regions. The authors do not claim to provide a complete analysis of what is required to succeed in developing regions. A useful aspect are the wide selection of case studies that the authors use to illustrate their argument. This in itself is very useful. There are, consequently, some additional considerations that need to be taken into account when analysing developing regions or markets. Aspects such as literacy levels, religion, language, culture, history need to be considered. the book also is also focused on large multinationals. Regional players should not underestimate the challenges in expanding in their own space. The toolkit developed by the authors is interesting, and useful. I feel it is insufficient, and is a bit one size fits all. It is, however, a great starting point and I will come back to the approach in later posts as my work also proposes a filter for companies looking to expand into developing markets.
Winning in Emerging Markets is a useful addition for managers seeking to define and execute business strategy in developing regions and provides interesting case studies to support their suggested approach to dealing with the absence of certain structures and functions in emerging regions. A very worthwhile read.
This post is the first in a short series of posts in which it will be highlighted why it is important for companies seeking growth to look toward the developing regions of the world. The company of which I am CEO, Drake & Scull, decided some time ago that our future lay in expanding into developing regions – Africa in our case. When we decided to expand into the rest of Africa, we considered many of the factors that I will talk about in the next few posts. Interrogation and evaluation of numerous factors allowed us to build a filter through which we identified which specific countries in a region, and which cities in a country, were the best entry points for our expansion strategy. I would suggest that companies and business leaders who are looking to expand into developing regions should construct a filter for themselves to evaluate ideal geographical entry points.
One of the most compelling reasons for companies to consider expanding into developing regions is the high growth rate these regions are expected to attain in the next two decades. Gross domestic product (GDP) is the value of all officially recognized final goods and services produced within a country in a given period of time. At this stage I am not considering other important factors, just GDP. Subsequent posts will consider additional variables that businesses need to incorporate into their filter. GDP per capita is often considered an indicator of a country’s standard of living. High per capital GDP growth rates may thus indicate a latent demand for goods and services and thus a market opportunity. A further consideration should be the current per capita GDP for a region or country. If a region or country has a relatively low current per capita GDP and a high projected GDP growth rate, it may indicate that economic expansion is likely to be sustained over a period of time with significant growth potential into the future.
In summary, consistently high GDP growth rates imply that there will be a demand for goods and services. Companies should look at regional and country historical and expected growth rates. Expected per capita GDP growth rates of regions and countries are one of the key variables when building a filter to determine where to target expansion in developing regions. There is an even greater advantage if such expected growth is off a relatively low base as this may indicate sustained growth prospects for companies.
One of the first statements I made in introducing this blog was to highlight that there are differences between the developing world and the developed world. I have seen these differences first hand on my travels through various countries. So what are the characteristics of the developing world?
There is no universally accepted definition of “developing country”. The World Trade Organisation (WTO) notes there are no definitions of “developed” and “developing” countries. Members announce for themselves whether they are “developed” or “developing” countries. The United Nations (UN) has developed the Human Development Index (HDI), which takes factors such as per capita Gross Domestic Product (GDP), life expectancy and literacy to gauge the level of human development for countries where data is available. Developing countries are, in general, countries that have lower HDI and have not achieved a significant degree of industrialization relative to their populations. Their populations also enjoy lower standards of living compared to developed countries. The most recent UN report was issued in 2011 (Human Development Report 2011). It is interesting to note that in respect of GDP growth, many of these countries are expected to enjoy high GDP growth for the next few years because they are coming off a low base. They are thus increasingly attractive for companies seeking to offset low economic growth in traditional markets.
Rather than broadly talking about the developing world, I suggest that focus should be on studying developing regions. I argue that it is highly unlikely that in a relatively free business environment two countries would share a common border would have vastly different HDI. North Korea and South Korea highlight my caveat regarding free business environment. Based on HDI these developing regions are then Africa, Asia (excluding Japan), South and Central America and the Middle East. In each region you could make an argument for at least one country that does not have low HDI, so my proposal should not be taken as absolute but as indicative. In these developing regions executing strategy needs to take into account the lower HDI and the implications thereof. One cannot, however, treat these regions as homogeneous as there are significant differences within regions that practitioners need to consider. For example and according to David Barrett, a mission’s researcher, there are some 3,315 ethnic groups in Africa. At a country level there are also significant differences – Nigeria has 419 ethnic groups. The focus on ethnicity is illustrative, and can be applied equally to language, religion, business practices etc. etc. For business leaders to effective execute strategy in these regions requires, I postulate, one cannot simply take, for example, Eurocentric models and apply them. The characteristics of these developing regions requires significant changes to widely held business approaches.
On the 14th February the President of South Africa, Jacob Zuma, delivered his State of the Nation speech. This speech is delivered annually at the opening of the country’s Parliament. It is similar to the more familiar State of the Union speech delivered by the President of the United States. President Barack Obama co-incidentally delivered his speech two days before. I was invited by a local radio station, Classic FM 102.7, to give my assessment both before and after the speech as part of a panel of experts.
The thrust of the speech was the National Development Plan (NDP). This is an ambitious development plan by the South African Government, and I include it at the end of this post. The plan is lofty in its scope and lays out a future strategic direction for the country to 2030. This is bold. It has the potential to move the country forward. It’s intent is similar to the plans launched by Malaysia starting in 1971. The course of Malaysia’s development was encapsulated in the three national policy frameworks that were the New Economic Policy (NEP), 1971-1990, the National Development Policy (NDP), 1991-2000 and the National Vision Policy (NVP), 2001-2010. Each of these policy frameworks was based on a profound understanding of the needs and challenges of the time, as well as the responses required for the nation. These aspirations culminated in the launch of Vision 2020 in 1991, outlining the aim of attaining developed nation status by the year 2020.
Malaysia provides a wonderful example of how to execute a country strategic vision. A clear vision was laid out, the political will was found to stay the path and the intentions of the various plans were broken down into clear actions that were to be executed by the various arms of government. These are the elements of any strategic execution, whether in business or government. My view after the speech, much like many expert commentators, was that the proof of the plan would be in the execution thereof. Anyone can lay out a grand vision – the difference between achieving that vision for a country is much like achieving a vision for a business. It lies in effective execution at an operational level.
Executive Summary-NDP 2030 – Our future – make it work.
For me this blog serves several purposes. Firstly I have found that managers I mentor, students I teach and researchers I collaborate with have asked me over the years for my thoughts on operations, operations turnaround and how to execute strategy through operations. I have never having found the time or place to write these thoughts down and this blog enables me to do some of that. Secondly, as I have grown older, my memory cannot keep up with the experience I have accumulated and I need a place that I can refer to when people ask me about previous experiences or my views on a narrow part of the field what I may not currently be working in. Thirdly people have often asked me where can they read more about operations execution, and I have been frustrated with the lack of easy to understand advice or experience that was readily available. Many of the strategy execution blogs I have seen are used as entry points to sell software or consulting services. I do neither. The final reason for this blog is a realization that much of literature that relates to strategy execution is focused on the developed world, with an assumption that models and approaches are easily transferable to the developing world. My experience has taught me that linguistic, cultural, developmental and socio-economic circumstances in the developing world means that these models and approaches rarely transfer to the developing world without modification.
Hi. I’m Dr. John Wentzel. I hold a Ph.D. in Industrial Systems. I’m currently Chief Executive Officer of Drake & Scull, the premier facilities management company in South Africa and across Africa. In addition to my business career I am also an academic. I am currently a research associate at the Indian Institute of Management, Bangalore (IIMB) and serve on one of the faculty boards at the University of Pretoria in South Africa. As a business leader, and academic, I’m keen that people debate and know more about how to execute strategy through operations. I’m also keen to expand my learning in a field that I’m passionate about.