Entrepreneurship in Emerging Economies

1. Entrepreneurshipin Emerging Economies Entrepalooza 2001 September 14, 2001 Brent Chrite Andy Lawlor

2. Today’s Agenda • Opening Remarks • Brent Chrite • Andy Lawlor • Two Emerging Market Case Studies: • Croatia’s Push Toward An Entrepreneurial Culture through Business Innovation Centers • Palestine As A Start-up: Financing Needs and Business Cluster Creation • Discussion & Questions

3. Brent Chrite,Managing DirectorThe William Davidson Institute

4. Emerging Markets: Questions to Consider • With scarcity of private venture capital & banking sector constraints, what are alternative financing mechanisms (e.g. DFIs)? • How can we consider optimal political policies, leverage national comparative advantages and induce private savings to make entrepreneurship a national phenomena? • How might micro finance mechanisms become scalable? • What are the skill sets, attributes and experiences in emerging markets that are necessary precursors to sustained entrepreneurial behavior? • What role can western institutions assume in contributing to entrepreneurship in emerging markets and therefore contribute to long-term development and the creation of competitive industries

5. Status Action Externalities Sell consumer goods to developing nations Import Capital Goods Entry to hi-tech, bio sciences, ad infinitum Now producers of formerly imported consumer goods Domestic production of previously imported goods begins Local consumer market becomes outlet Accumulated capital used to satisfy local demand & consumption Importation of food stuff, goods, etc. Secondary tier Export competitively produced (low cost) goods & commodities Trade develops & capital is accumulated Initial entrance into global markets Economic Integration of Technology, Capital and Markets

6. Civil Society and Political Transitions • Civil Society is a useful formula for analyzing state-society relations in emerging markets because it embodies a core of universal beliefs and practices about the legitimation of, and limits to, state power…. • Notions on civil societies • Civil society is a public realm between the state and the family • Civil is distinguishable from political society • Civil Society is a theoretical rather empirical construct • The state and civil society though distinct are best considered together • Civil society is the source of legitimation of state power

7. Key Success Factors in Emerging MarketAn Example: the Automotive Industry • Focused manufacturing processes • Rationalized product lines • Established export markets • Diversified product offerings (i.e., vehicles, components) • Domestic operations integrated with parents’/licensors’ global network • Products tailored to local/surrounding markets demand • Strong industrial relations skills • Effective supply chain management

8. Competencies Required In Emerging Automotive Markets • Geographic domestic coverage/presence • Efficiency in production, delivering high quality, low price products • Focused product models to generate economies of scale • Vertical integration or partnership with key suppliers • Access to key foreign markets to effectively utilize excess plant/production capacity • Portfolio diversification to grow revenue/contribution • Strong industrial relations skills • Partnership with strong assembler and distributors

9. Underperforming business processes Poor customer satisfaction End-customer Dealers Lack of effective partnering with suppliers and source OEMs Functionality siloed organization Bureaucratic structure Emerging Market Challenges Challenges Questions • Have product models been rationalized to match demand? • Is there adequate supplier interfaces? • Is production focused and balanced for maximum efficiency? • Are there adequate resources/ processes, to forecast demand, production? • How quickly are problems resolved? • Are world-class service standards in place? • How integrated are dealers into the business process? • Are local suppliers leveraged? • Is the client involved in the parent/licensor’s global network? • Is product quality meeting end-customer and source OEM requirements? • Is there duplication of effort/function across departments? • Are staffing levels above/below industry levels? • Who makes decisions?

10. Civil Society and Political Renaissance in Emerging Markets • The ultimate depth, breadth and direction of recent political reforms remains unclear (Zambia, Kenya, Uganda, South Africa) • Multiparty elections do not by themselves produce or sustain democracy • They do not ipso facto institutionalize broad participation in political life • Democracy and parallel transitions from state-dominated to market-driven economies do not necessarily peacefully coexist

11. Questions?

12. Andy LawlorDirector, Global MBA ProjectsThe William Davidson Institute,& The U of MI Business School

13. Outside-In Challenges • Market entrants, particularly multi-national companies, must recognize the unique character of EMs and differences across EMs • “Business As Usual” approaches often fail • Understanding culture and history of EM is mandatory and a key success factor; the religions, social structures, and regional differences could yield excellent insights, marketing edges, and are sources of competitive advantage

14. Outside-In Challenges • Absence of ‘Expected Basic Marketing Infrastructure’ • Little or no market data available • Nonexistent or poorly developed distribution systems • Relatively few communication vehicles • Unpredictable regulatory environments; corporate strategy by government decree (caution: they who give, can also take away!)

15. Outside-In Challenges • Playing by a different set of product-market rules • High levels of product diversion • Widespread product counterfeiting (lost unit sales and damage to reputation & quality image) • Opaque power & loyalty structures (street-smarts needed to understand business & political ‘networks’, and alternate channels of product delivery)

16. Outside-In Challenges • Questioning the parochial mindset • ‘less developed countries’ will evolve smoothly into ‘developed countries’ (which are assumed to be the higher stage of development) • It’s best to assume that ‘typical’ market evolution steps will be skipped or taken in a non-traditional order • The role of the internet in education and setting consumer expectations cannot be underestimated

17. Emerging Market Strategies • ‘Non-traditional’ sources of first-mover advantage are often key • favorable government regulations • tapping pent-up demand • higher marketing activity to achieve brand recognition and early volume bursts • early and continuous consumer polling and touch points that lead to cultural and consumer needs learning

18. Emerging Market Strategies • Market assessment must focus on the long-term potential • Lack of data and stability often makes standard methods of estimating market potential and share difficult to apply • Building brand loyalty and share (and keeping it, staying ahead of the consumer needs cycle) • Data, data, data: both trade and consumer

19. Emerging Market Strategies • Adapting distribution policy is key • Choosing partners requires greater emphasis on industry and regional/local knowledge, direct selling, local autonomy, and exclusivity • Preferred models and channels of product delivery will change over time; will you be a leader or a follower? Decision speed is critical to success!

20. Emerging Market Strategies • Product policy adaptation may be a pre-requisite for success • EM customers may be just as sophisticated and value-oriented (if not more so!) as their counterparts in other ‘no-advanced’ markets, willing/demanding to adopt new technology and product versions very quickly in the product’s life cycle (they see these advanced products on trips abroad and on the internet)

21. Emerging Market Strategies • Product policy adaptation may be a pre-requisite for success • A narrow line of ‘proven’ (i.e., older!) or ‘value-engineered’ (i.e., less full-featured!) may be insufficient

22. Questions?

23. Two Emerging Market Case Studies • Croatia’s Push Toward An Entrepreneurial Culture through Business Innovation Centers • Palestine As A Start-up: Financing Needs and Business Cluster Creation

24. The William Davidson Institute’s Global Project Programs Global Projects I - IMAP • A 7-week UMBS core course Global Projects II • A 14-week UMBS elective course Global Projects III • The William Davidson Institute summer internships. These projects fulfill a dual mission: 1) help organizations solve an international business issue 2) provide valuable professional development for MBA team members

25. William Davidson InstituteContact Information: Brent Chrite 734.936.2772 / bchrite@umich.edu Andy Lawlor 734.763.5809 / alawlor@umich.edu

26. Entrepreneurshipin Emerging Economies Questions?