Innovation & Design

Lessons from Emerging-Market Leaders


Investment manager Antoine van Agtmael advises learning fresh branding and marketing strategies from non-Western nations

Nearly three decades after Antoine van Agtmael, a senior executive at the World Bank Group, coined the term "emerging markets," China, India, and others are flexing their financial muscle on the global stage.

Van Agtmael went on to found the International Finance Corporation Emerging Markets Index and Data Base (now owned by BusinessWeek sister company Standard & Poor's), and later Emerging Markets Management, the investment firm where he now serves as chief investment officer.

Van Agtmael has now written The Emerging Markets Century: How a New Breed of World-Class Companies is Overtaking the World (Free Press), a book of 25 case studies from emerging markets. He traces corporations in Asia, Latin America, and Russia as they have become regional and global leaders in their sectors, from consumer electronics and software, to wine and cement. And he indicates how international companies can learn from their growth strategies.

Van Agtmael's list of 25 companies to watch range from obvious, well-known brands such as Korea's Hyundai Motor Company, to relatively unknown companies such as Taiwan's Hon Hai Precision Industry, which quietly produces electronics for Dell (DELL), Nokia (NOK), and Sony (SNE).

Businessweek.com's Reena Jana spoke with van Agtmael about the best practices that have proved so successful for these companies, and what corporations in the rest of the world can learn from them. Edited excerpts from their conversation follow:

What are the key growth strategies of the 25 companies you profile in The Emerging Markets Century?

These companies followed unique strategies, what I call "emerging markets twists." Hon Hai focused on vertical integration. TSMC [Taiwan Semiconductor Manufacturing Co.] concentrated on industry dis-aggregation by building a dedicated integrated-circuit foundry and leaving the design and branding of chips to partners. Brazil's Embraer [the world's fourth-largest airplane maker] turned outsourcing upside down, using developed-world suppliers. What these companies share … is that they thought carefully how to outsmart competitors. One common strategy that I think is overwhelming in its importance is what I call the "south-south strategy," or doing business between emerging markets.

Years ago, I was in Jordan. I like to jog, and everything was sleepy during the hours I would run. The only one place lit up was Hyundai. This emerging-market company was already big in Jordan, in the construction sector. The key is to tap into products or sectors that companies in "the West" might turn up their noses at. This is a good way to build a global name. After all, emerging markets are more than half of the global economy.

Do you suggest that managers in companies outside of emerging markets follow the strategies used by corporations in emerging-market nations to compete with them?

I'll be honest; I'm not just writing for an American audience. I am also writing for business school students in India or managers in Latin America. Right now they're reading U.S.-centric business books like Good to Great. I realize we needed a Good to Great for emerging markets that highlights the superstars in their own countries.

But the book is also for the young entrepreneur in the United States in his or her 30s or 40s. These businesspeople will have to increasingly deal with companies in emerging markets and understand a global business environment. In emerging markets—such as India, China, and Latin America—we're talking about billions of potential consumers. It's more than what we have in the United States, Europe, and Japan combined. I think it's crucial for young executives to know how these companies and these countries work.

You mention design as a strategy used by many emerging-market companies—how essential is it to invest in design to transform a flailing brand into a thriving one?

It's important to realize that [research and development], design, and branding are all later-stage phenomena. These factors are not so important for second-rate companies looking to remake themselves to become world-class corporations.

First, it's important to offer good quality products or services, then build the brand and differentiate, as Samsung did. Then they worked to stand out in terms of design. Design by itself with a lousy product won't do anything.

But it's not as if Samsung can just rely on the success of its winning design. Now it has competition from LG with its Chocolate phone. And of course with Motorola (MOT), which beat Samsung at the design game with the RAZR. Now Samsung is trying to fight back with its Blackjack smart phone. Design is a constant struggle.

Would you say that an advantage that many emerging-market powerhouses have is that their nations' educational systems produce students who excel in the sciences and math, two key factors in training future innovators?

India has been able to produce world-class schools and turn out huge numbers of graduates in disciplines such as engineering. The numbers count. That's why there are so many high-tech companies that are successful in India—Infosys, for example—versus in, say, other emerging markets such as Latin America. It's obvious that education has made a huge difference.

I hate to overstress the threat of emerging-market corporations and countries. We have a lot going for us in the United States. As Americans we often are too skeptical about our own educational system. I'd argue that there are two things that are good about the American educational system, even better than those of nations such as India and China: we teach problem-solving and value creative thinkers. I believe this is especially [true] at the university level in the United States, and even more so at the grad school level.

How would you advise an American company to compete with these companies on their local turf? Would you suggest forming a partnership instead, sort of, an if-you-can't-beat-them, join-them strategy?

These emerging-market companies not only [pose] a serious challenge, but also offer a gigantic opportunity for American corporations.

My hope is that the book is a wake-up call, not for the Googles (GOOG) and Microsofts (MSFT), but for other companies who do not quite take this threat seriously yet. American corporations could adapt north—south strategies. They could sell to these companies or work as a supplier. GE, for example, provides engines to Embraer.

The point of the book, and the strategies of learning from and working with emerging-market companies, is not theoretical, but practical.


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