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Above the Noise

Distilling insights and key lessons from new concepts and current events. In this post, one of our founding partners, Ying Li, highlights lessons learned in the rewarding challenge of business in emerging markets

Two years after the trade war and one year after Covid-19, Globalization’s glory days appear over, and with it, the once hopeful prospect of emerging markets. However, China’s V-shaped recovery, and the contained economic slowdown in other developing economies have strengthened our belief in the structural advantages of investing in emerging markets. At QLC, we have always been advocates for global companies to increase investments in emerging markets - for the much-needed access to talents, consumers, and the latest technological innovations.

GDP Chart

Over the last ten years, my partners and I have dedicated our time to helping clients solve complex issues in entering and expanding in emerging markets. We wish to share the following lessons from our collective experience to inspire those committed to superior performance in these markets.

Creating a virtuous cycle

Lack of affordability and accessibility are the two largest impediments to consumption in emerging markets. The most successful players skillfully serve lower socioeconomic classes to grow the base, generate cash flow, and re-invest in greater accessibility (distribution), followed by greater affordability… thus creating a virtuous cycle.

Win or die with RTM 

Building the route-to-market is the real test of a player’s commitment, resolve, and capability to succeed, as often it is a complex and painful exercise. Most emerging markets rely on traditional and informal channels to move goods – which may be unorthodox for global players, but they wield surprising power in building presence and boosting sales unreachable by formal trade.

Africa RTM Trucks
Pictured: In Africa, products can be taken across the borders by traders within the ECOWAS trading block, which creates new export markets (often unplanned) and dramatically boosts product presence.

Location, Location, Location

In most emerging markets, rich diversity in socioeconomic development, cultures, and political aspirations exist across states, nations, races, tribes and ethnic lines. Choosing and sequencing entry across markets is of paramount importance.

Our recommendation is to design entry plans not only according to market size and growth potential - but also the socioeconomic, infrastructural, and institutional context that give companies a competitive edge.

We successfully helped a client build their African and Global expansion path with this formula. By identifying markets that shared the socioeconomic features of the client’s home market (however geographically disparate), the client was able to leverage their knowledge in working with rural customers, setting up distribution under poor infrastructure, and quickly turning around nationalized / neglected businesses, to grow footprints in 20 new markets in just over 5 years.

Partners for life

Companies need the right partners, by channel and by geography, to succeed in a new market. When selecting partners, synergies in values and priorities are often more important than immediate financial rewards.

The most successful partnership we have seen is one where the company helped local partners set up small businesses to support and distribute their products. These local partners remember the investments made in them, creating a deep sense of loyalty to the client’s products. They see themselves as an extension of the client and part of a “family” business. Such relationships have proven to be effective in extending reach at a low cost and critical to sustainable growth.

Appetite and aptitude for risks

Working in emerging markets is not for the faint-hearted, as they come with the challenge of volatile business environment and weak institutions. To name a few from our own experiences – deep labor troubles, 30% hyperinflation, political disorder and violence… Surviving these events requires the company leadership to accept these risks as realities – and to develop rigorous contingency plans and leadership capability to overcome obstacles.

In summary, companies that can play off valuable advantages in affordability / accessibility, locations and partnership network as well as risk-appetite will have a higher chance of success in the emerging markets. Our firm’s mission is to leverage our practical and analytical knowledge to ensure our clients realize their visions.