Gathering, recording and analysing data on customers, competitors and the market is imperative for any business seeking to sell a product, idea or service, existing or innovative.
David Basra, an associate director within KPMG’s Transaction Services team who advises on emerging market deals, looks at whyWhether a business is looking to set up a joint venture or a wholly foreign-owned enterprise within an emerging market, researching the local marketplace will be fundamental to achieving the desired outcome.
Having the ability and know how to tap into the heart of the local market — over and above statistical/financial data — and to understand the key risks and ways of mitigating these, are key success factors, something which is especially important in relation to emerging markets.
The emerging economies are subject to risks that many investors will not necessarily be used to in more stable western economies.
For example, political uncertainty where seemingly stable governments can collapse overnight and attitudes to foreign investment can suddenly change – a risk that is unlikely to be forecast or manageable.
Local laws, culture, competition, pricing, tax are just some of the risks. So how do you best prepare for these?
From the outset a comprehensive risk assessment should form part of any decision making process when contemplating engaging with the emerging markets.
Companies have to fully research and understand the market they are about to enter as well as existing and potential risks.
The use of local expertise, whether local contacts or advisers, will be crucial as they will already possess a wealth of knowledge that would otherwise be almost impossible to obtain.
While we tend to be able to seek out ways of gathering facts and figures, how well are we tapped into local business – rumours, conversations on the grapevine and, more importantly, what is the strength, if any, of relationships with local business leaders, key decision-makers in the market or community we are targeting?
As a result, local input should be supplemented by members of any business actually visiting the area to explore the territory and talk to the locals.
Communication is fundamental in establishing sound and credible business relations. This is especially important in relation to partnerships, alliances or joint ventures, whereby a company can benefit from direct and instant access into the market-place.
This helps a foreign company to take advantage of the cultural knowledge of the country as cultures can differ region to region and having an appreciation and understanding of local customs and culture go a long way to building a platform for strong business relationships.
Sometimes, the simple things, such as meeting and greeting in the local language or way, make a significant difference.
Local laws and regulations can be less than transparent and to get a better understanding of these companies enlist the help of local legal experts.
Once researched, it is important to establish a robust risk reporting mechanism and continuously track.
Assessment against originating plans of any venture and any partner is an essential step towards securing goals, recognising that these embryonic plans will have to flex and evolve on an ongoing basis in response to the local market.
In the absence of adequate local market research and knowledge of experienced partners, businesses run the risk of lost time, sunk cost, and overall dissatisfaction with the entire process.
Emerging economies have enjoyed considerable success over recent years – particularly the Bric regions – and local businesses can reap the rewards of an overseas venture if they ensure the right foundations are laid.