“Emerging markets present huge opportunities but come with unique characteristics and challenges due to the constant thrust for business growth, volatile demand and low maturity of supply chain processes,” said Mike Burkett, research vice president at Gartner.
I came across this quote in an FT article, and it made me think that “Emerging markets” has been a widely used term associated with a promise of opportunities and prosperity resulting from operating in the economies under this collective term. With ever increasing globalisation and social mobility, most business will have had dealings with some of the countries in the “Emerging markets”, mainly through their procurement and supply chain activities or as consultants. These cross-border interactions are becoming more commonplace, and so these Emerging markets are becoming relevant to all. In the context of supply chain resilience, understanding the implications of these cross border interactions are critical. But do we understand what these Emerging markets are and how to work with them?
What are Emerging markets?
In an attempt to differentiate the nature of the markets and their characteristics, a lot of management literature often distinguishes opportunities by adding “emerging” in front of a term: “Supply chain priorities” and “Supply chain priorities in Emerging markets”, “Doing business in Emerging markets”. Does this subdivision actually represent the scale of complexities and help guide how to successfully operate in these markets, or does it give a false sense of comfort based on a number of consultants’ devised frameworks for “Emerging markets” operations?
Julien Vercueil recently proposed a pragmatic definition of “emerging economies” (2012), distinguished from “emerging markets”, coined as an approach heavily influenced by financial criteria. According to his definition, an emerging economy displays the following characteristics:
- Intermediate income: its PPP per capita income is comprised between 10% and 75% of the average EU per capita income.
- Catching-up growth: during at least the last decade, it has experienced a brisk economic growth that has narrowed the income gap with advanced economies.
- Institutional transformations and economic opening: during the same period, it has undertaken profound institutional transformations which contributed to integrate it more deeply into the world economy.
At the beginning of the 2010s, more than 50 countries, representing 60% of the world’s population and 45% of its GDP, matched these criteria. Is it right that the larger proportion of the world is collectively known as an entity, which may be interpreted as it having homogenous characteristics and challenges?
In recent years, new terms have emerged to describe the largest developing countries such as:
- BRIC (Brazil, Russia, India and China)
- BRICET (BRIC + Eastern Europe and Turkey)
- BRICS (BRIC + South Africa)
- BRICM (BRIC + Mexico)
- MINT (Mexico, Indonesia, Nigeria and Turkey)
- Next Eleven (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam)
- CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa).
These countries do not share any common agenda, but some experts believe that they are enjoying an increasing role in the world economy and on political platforms. These countries also share little commonalities in terms of their history, cultural characteristics and development drivers.
Sree Ramaswamy, senior fellow at McKinsey Global Institute, says that key determinants of a country’s economic dynamism and resilience often come down to “economic structure, industry dynamics, corporate landscape and role of government or social and political make-up. When it comes to these indicators, the differences between emerging markets outweigh their similarities”
When working across borders, would it be sufficient to approach the behaviours in Nigeria, English speaking West African country, with close ties to the UK and some of the densest and entrepreneurial population in the world in the same way as those in Russia, with its hierarchical society model, strong government influence and diverse, spread out population?
It appears that Emerging markets lie at the intersection of the rise of new user groups, non-traditional (in the West) user behaviours, and innovation of products and services. These are the markets and communities that abide by their own set of rules and follow their own paths of development, sometimes resembling those of countries which had already achieved the status of “Developed markets”. The parallels are however just that — resembling.
So what do you need to be aware of if you are looking to operate in Emerging markets? Or if your supply chain already extends there, and you want it to be effective and resilient?
To build in supply chain resilience and sustainability means to enable your supply chain to manage and respond to the changes, not only recover from major emergencies. This can be achieved through pulling on a number of levers — processes, technology, contracts, risk management, supply chain mapping etc. It is important to know how the supply chain operates, and the one thing that is often omitted is that all these levers are managed by people. How they apply them is what drives success or failure. Hence, understanding the context and the behaviours of people is critical to enabling resilience in these processes.
I have now worked across Western, Eastern European and Central Asian countries, English speaking and Francophone Africa, and Malaysia and most recently Peru. Hailing from Russia and having spent most of my life in the UK, married to a Latin American, I should know something about working in Emerging markets.
The following are the key considerations for me so far:
- “Africa is not a country”. And neither is “Emerging markets”. Accept the need to understand countries and regions, their own history and cultural drivers. These will have a big impact on the economic drivers and the ways of working in the particular place. Understanding the context of operation that your business counterparties have to deal with, and interpretation of cultural preferences can be the make or break of your business relationships.
- Leave the buzzwords at home — “supply chain collaboration” and “innovation” are big trends in the UK and Europe discussed as an answer to most of challenges. However, without the rule of law & contractual compliance accountability — which may be a challenge in rapidly growing economies — these may become a recipe for disaster. Also, in markets with constrained resources innovation happens all the time — it just isn’t always called “innovation”, sometimes it is just a way of solving problems!
- How we communicate and resolve conflicts may some of the largest contributing factors to your supply chain resilience and sustainability. Americans prefer to get issues out in the open, stating the problem and how they’d like to see it resolved. In Russia, hierarchy must be respected no matter what. Logic and end result often trump interpersonal impact, and this is considered “professional.” That same approach is a recipe for disaster in East Asia, where the concept of “saving face” and preserving relationships is the foundation of social fabric and business interactions. Respect for the elders, no matter what the corporate ladder position is integral in interactions between the Nigerians. Finding the right balance to achieve the needed outputs without creating conflict or tension is crucial in cross-border relationships. Business Insider has an interesting insight.
- Be aware that just by bringing “good practices” from the West, you are not necessarily bringing the organisation ahead of its time. Development is not linear, and other markets are not necessarily en-route to catching up to the current operational practices in the UK or elsewhere in the developed economies. Often, more effective ways are worked out locally — one example being the mobile payments system in East Africa — a solution that evolved based on the local needs and opportunities and skipped a few steps of mobile technology services in Europe.
- Value delivery time horizons tend to be shorter and value is most often defined in purely financial terms, often in the lowest cost terms, making it the centre piece of contractual relationships. Other value driving factors such as quality, relationships, sustainability etc take a back seat in the decision making. Financial outlay in the immediate term is the governing decision making factor, as access to finance is not as easily available. If you are trying to drive sustainability & resilience throughout your supply chain, benefits need to have money signs attached to them — then you are on to a winner. Although, this is as relevant in many markets that are considered to be Developed too!
When thinking about supply chain resilience and your critical dependencies in a so called “emerging market”, consider the country, culture and the people that these dependencies rely on at both ends — in your business (e.g. UK based supplier interface) and in the counter party country (e.g. a manufacturer in China). Is the individual dealing with the supplier well equipped to operate with the “Emerging markets”?
True story: I once had lunch with someone from the UK who came for a business meeting to Kuala Lumpur in the hope of winning a contract. When sharing the experience from their previous days, he exclaimed: “We went for lunch to a local café and it was a very exciting experience — we were surrounded by the indigenous people!” Whilst in terms of professional expertise, this individual may be exactly what the client might benefit from, this kind of attitude is probably not the right fit to ensure the resilience and sustainability of this business relationship…
If you would like to share your thoughts and experiences of cross-cultural interactions please get in touch - firstname.lastname@example.org
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