Entrepreneurship
in Emerging Economies
Entrepalooza 2001
September 14, 2001
Brent Chrite
Andy Lawlor
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
Brent Chrite,
Managing Director
The 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
Status
Action
Externalities
Import Capital Goods
Sell consumer goods to
developing nations
Entry to hi-tech, bio
sciences, ad infinitum
Domestic production of
previously imported
goods begins
Local consumer market
becomes outlet
Now producers of
formerly imported
consumer goods
Secondary tier
Accumulated capital
used to satisfy local
demand & consumption
Importation of food
stuff, goods, etc.
Initial entrance into
global markets
Export competitively
produced (low cost)
goods & commodities
Trade develops &
capital is accumulated
Civil Society and Political Transitions
Civil Society is a useful formula for analyzing statesociety 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
Key Success Factors in Emerging Market
An 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 Challenges
Challenges
• 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?
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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 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
Questions?
Andy Lawlor
Director, Global MBA Projects
The 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 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
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!)
Outside-In Challenges
Playing by a different set of productmarket 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)
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
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
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
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!
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)
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 fullfeatured!) may be insufficient
Questions?
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
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 Institute
Contact Information:
Brent Chrite
734.936.2772 / bchrite@umich.edu
Andy Lawlor
734.763.5809 / alawlor@umich.edu
Entrepreneurship
in Emerging Economies
Questions?