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Success in Emerging Markets Requires a Values-First Approach

3p Contributor | Wednesday December 4th, 2013 | 0 Comments

By Efrat Peled, Chairman and CEO of Arison InvestmentsArison

At Fortune’s Most Powerful Women Summit this fall, I exchanged observations on emerging markets with some impressive political experts and financial analysts. The question on many minds was how to be successful in these markets now that the “hype” is over. With growth rates in the BRIC countries slowing down, the ripple effect is being felt around the globe. In India, for example, growth rate dropped from 11 percent in 2010 to 4 percent in 2012.

Such fluctuations can give investors pause about whether they can succeed when conditions change drastically. A significant portion of Arison Investments’ portfolio companies operate in emerging markets, and we’ve found that succeeding in these economies requires one thing – being focused on creating mutually beneficial long-term business partnerships.

The experiences gleaned from our global companies, some of which are established leaders of over 90 years in the areas of water efficiency, finance and infrastructure, provide a number of lessons. We have found that a values-first business approach – one that considers more than one bottom line and ensures that all participants can profit – creates success even when uncertainty is on the rise. There are three key ingredients:

Aligning the approach

Very early on, we evaluate the business opportunity while also assessing the host government’s approach to its broader national development agenda. Do our values and strategies align with decision-makers’ institutional goals? Does our presence help to achieve other outcomes that are important to the country – like training people with new technical expertise or creating a new industry? Can we find shared outcomes that ensure we will be working together for the long run? Some governments are especially open to partnerships with businesses that recognize that innovations can help the country leap-frog ahead in critical areas, such as technology and skills building. If a business doesn’t engage a government in this dialogue before entering a market, the potential value of the partnership quickly diminishes.

In the Philippines, for example, government spending increased 17 percent in a year, with major investments in innovation and efficiency, the two pillars of our water efficiency business, Miya. Partnering with Maynilad, the local private water utility in Manila, we designed and implemented a comprehensive solution using new technology to solve an old infrastructure problem. We combined special software with human ingenuity to identify, monitor, and repair leaks in old pipes. As a result, about 600 million liters of water per day have been saved, and today an additional 2.6 million people now receive a consistent flow of fresh water from the municipal system. Instead of producing water, we operated to realize the value of abundance and maximize the world’s existing fresh water resources, together with the local authorities.

Think in partnership terms

When we make the decision to enter a market, we embrace the notion that the relationship should be mutually beneficial, and take responsibility by shifting our mindset from total resource ownership to filling institutional and knowledge voids. Shikun & Binui, a global infrastructure enterprise, sells the waste by-product of an infrastructure project to local concrete plants for energy production. About 70 percent of our material purchasing in four markets – Guatemala, Kenya, Tanzania, and Uganda – is handled locally, putting more than $2 million total annually into those local economies. We also have sustainability managers who monitor it, so that our core business promotes local business. It’s a two-way street for us, and I hope for many of my corporate peers: while an emerging market entry signifies what the country offers us, we are committed to playing our role in supporting the local economy and advancing it.

Ensure skills transfer through real people

We have found one of the best ways to make partnerships last is through knowledge transfer and skills building of the local teams, and I know that many large global employers of talent have learned the same. In our projects, we emphasize a true mixing of foreign talent and local talent. In the Philippines, 450 local engineers have been trained with Miya throughout this process, ensuring advances are sustainable for the long-term. Shikun & Binui is also dedicated to investing in and training talent, employing 11,000 locals in a range of projects worldwide. Once projects are completed, Shikun & Binui integrates staff into the company’s local activities and operates sustainability workshops for senior and mid-tier management. Ultimately, real and lasting impact occurs through the interactions between people on a sustained basis: it helps to cement advanced standards, supply chain practices and sustainable management.

We are upbeat about the prospects for emerging markets. The middle class in these economies is enormous and 65 to 70 percent of the population is under the age of 35. In emerging markets as a whole, by 2025, there will be $30 trillion of consumption. Our observations of what works are just some of the pieces to the puzzle of how to create a thriving business environment in emerging markets. We are convinced, though, that a commitment to long-term, values-based strategies is universal: they have helped us not only do good business, but also do good for the global economy, environment and society.

Efrat Peled is Chairman and CEO of Arison Investments, which spearheads values-based business activity worldwide. It creates long-term business investments that combine substantial financial results with sustainable moral responsibility. Arison Investments’ diversified portfolio is estimated at over US$2.5 billion in finance, real estate, infrastructure, renewable energy, and water, in more than 40 countries across five continents, with some 27,000 employees.

[Image credit: Shikun & Binui]


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