EntrepreneurshipEntrepreneurshipin Emerging Economiesin Emerging Economies

Entrepalooza 2001September 14, 2001

Brent ChriteAndy Lawlor

Today’s Agenda

Opening RemarksBrent ChriteAndy Lawlor

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

Discussion & Questions

Brent Chrite,Managing DirectorThe William Davidson Institute

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

Economic Integration of Technology, Capital and Markets

Initial entrance into global markets

Trade develops & capital is accumulated

Export competitively produced (low cost)

goods & commodities

Import Capital Goods Entry to hi-tech, bio sciences, ad infinitum

Sell consumer goods to developing nations

Secondary tier Importation of food stuff, goods, etc.

Accumulated capital used to satisfy local

demand & consumption

Domestic production of previously imported

goods begins

Now producers of formerly importedconsumer goods

Local consumer market becomes outlet

Status Action Externalities

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 familyCivil is distinguishable from political societyCivil Society is a theoretical rather empirical constructThe state and civil society though distinct are best considered togetherCivil society is the source of legitimation of state power

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

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

Emerging Market ChallengesChallenges

• Underperforming business processes

• Poor customer satisfaction

– End-customer– Dealers

• Lack of effective partnering with suppliers and source OEMs

• Functionality siloed organization

• Bureaucratic structure

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?

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 democracyThey do not ipso facto institutionalize broad participation in political lifeDemocracy and parallel transitions from state-dominated to market-driven economies do not necessarily peacefully coexist

Questions?

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

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 failUnderstanding 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

Outside-In Challenges

Absence of ‘Expected Basic Marketing Infrastructure’

Little or no market data availableNonexistent or poorly developed distribution systemsRelatively few communication vehiclesUnpredictable regulatory environments; corporate strategy by government decree (caution: they who give, can also take away!)

Outside-In ChallengesPlaying by a different set of product-market rules

High levels of product diversionWidespread 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)

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 orderThe role of the internet in education and setting consumer expectations cannot be underestimated

Emerging Market Strategies

‘Non-traditional’ sources of first-mover advantage are often key

favorable government regulationstapping pent-up demandhigher marketing activity to achieve brand recognition and early volume burstsearly and continuous consumer polling and touch points that lead to cultural and consumer needs learning

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 applyBuilding brand loyalty and share (and keeping it, staying ahead of the consumer needs cycle)Data, data, data: both trade and consumer

Emerging Market Strategies

Adapting distribution policy is keyChoosing partners requires greater emphasis on industry and regional/local knowledge, direct selling, local autonomy, and exclusivityPreferred models and channels of product delivery will change over time; will you be a leader or a follower? Decision speed is critical to success!

Emerging Market StrategiesProduct 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)

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

Questions?

Two Emerging Market Case Studies

Croatia’s Push Toward An Entrepreneurial Culture through Business Innovation CentersPalestine As A Start-up: Financing Needs and Business Cluster Creation

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

William Davidson InstituteContact Information:

Brent Chrite734.936.2772 /

bchrite@umich.edu

Andy Lawlor734.763.5809 /

alawlor@umich.edu

EntrepreneurshipEntrepreneurshipin Emerging Economiesin Emerging Economies

Questions?