OPIC, featured in Entrepreneur
May 11, 2017
by Larry Spinelli, OPIC Outreach Director
Looking for your next customer? It may pay to look far from home.
Today, the vast majority of the world’s consumers live outside the United States, and a growing share of those people live in emerging markets. Places like Rwanda, the Philippines and the Brazilian rainforest might seem unreachable to an American small business with limited resources, but in my work in the global marketplace, I’ve seen small American businesses successfully expand into all these places with ventures that have introduced valuable services and transformed industries, while at the same time growing their U.S. operation.
While developing countries present a significant opportunity, they often bring a steep learning curve as well. Here are some things your small business should consider before expanding into an emerging market.
Anticipate currency fluctuations.
Since you will ultimately judge your business success on the revenue you generate, it is critical that you factor in currency fluctuations from the outset. American businesses typically obtain financing for overseas projects in U.S. dollars and will most likely have to repay their loans in dollars. In between, they will conduct business in local currencies, which fluctuate against the dollar. Failing to anticipate the impact of these currency fluctuations can significantly increase the cost of borrowing.
Brace yourself for bureaucracy.
Businesses often discover that less developed countries have highly developed bureaucracies, which can slow down all sorts of routine processes from obtaining a business license to
registering property and paying taxes. A good way to manage all this red tape is to start small, with modest growth expectations, at least until you’ve navigated some of these tasks. But don’t be discouraged. Developing countries around the world are adopting reforms to make it easier to do business. In its latest Doing Business report, the World Bank said that the number of countries in sub-Saharan Africa engaged in one or more regulatory reform has doubled over the past decade.
Bring your most innovative products.
The paradox of doing businesses in emerging markets is that while these places are less developed than the U.S., the appetite for certain advanced products and technologies may be greater. Leapfrog technology is a phenomenon in which advanced products, like cell phones, are widely adopted in less developed places that never took to the predecessor technology, like the land line. So if your business has developed a new and improved way to move cargo, process produce or improve communications, you might discover there is particularly strong demand from a less developed market.
Create value for your customer.
One of the main reasons U.S. businesses avoid emerging markets is because they doubt there is a real market for the goods or services they are selling. And while it is of course true that demand for certain luxury items will be slim in the world’s poorest countries, the flip side is that even poor people, and certainly poor governments, will pay for the things they need, such as electricity, healthcare, housing, education and even financial services. In fact, demand for things like basic homes or internet connections can be quite strong in poor countries, where supply is limited. If the product is priced for the market, consumers will pay. The trick for the business is to spend time understanding the market, the real needs of consumers and what they can afford to pay.
Remember the "last mile."
In developing markets, businesses will often find strongest demand in rural areas, where poor roads and limited electricity can make it difficult to connect with customers. Your business may have a great idea for introducing internet access in rural areas or connecting rural farmers with larger markets, but be mindful of the challenges this entails and know that a viable solution goes beyond just delivering a product or service. You also need a consistent way of reaching your consumers.
Don’t be a stranger.
Technology goes a long way in bridging long physical distances, but to really succeed in business in an emerging market, be prepared to spend a lot of time there. Your on-the-ground presence will not only help you become familiar with the local culture, it will also bring you credibility with potential customers. Other key ways to establish a credible and respected local presence include hiring and training local workers, and partnering with diaspora investors in the U.S., who should be able to provide valuable insight into the culture and business climate.
Spinelli runs OPIC's Expanding Horizons workshop series for American small businesses interested in emerging markets, and will host a workshop in New York City on June 16. Learn more about the event and register here.