Winning in Emerging Markets: A Roadmap for Strategy and Execution, by Tarun Khanna and Krishna G. Palepu
The financial crisis has made emerging markets even more relevant for two reasons, say Tarun Khanna and Krishna G. Palepu, authors of Winning in Emerging Markets. First, many in business and government are convinced that a significant part of growth in the next several decades is likely to come from these markets. In the first six months of 2009, they note, the FTSE International Emerging Markets Index was up 41.1 percent, whereas the FTSE All World Developed Markets Index was up 7.2 percent (more recent data from the Financial Times corroborates this: the MSCI Emerging Markets index returned 13.2 percent annualized for the ten years ended December 2010, versus just 0.6 percent for the MSCI World Index of Developed Markets) Second, lessons and innovations from these markets may be relevant for mature Western markets, as consumers become more cost and value conscious. How should firms determine which emerging market(s) to enter? The conventional wisdom is to focus on size or growth potential. But Khanna and Palepu take a refreshingly different approach. The primary exploitable characteristic of an emerging market, they argue, is its lack of institutional infrastructure. Emerging markets are thus defined as those where specialized intermediaries in capital, product, and labor markets are absent or poorly functioning. However, although these institutional voids throw up obstacles to expanding business operations, they also create major opportunities, and the authors provide an actionable framework for identifying and capitalizing on them. Armed with a more granular understanding of the underlying market structure of emerging economies, they argue, multinationals and local firms alike will be better equipped to gauge their potential, avoid mistakes, and define and execute winning business strategies. The book is based on the experiences of nine multinational companies and the same number of emerging market companies.