Discuss opportunities for innovation and entrepreneurship in emerging global mar

Question

Discuss opportunities for innovation and entrepreneurship in emerging global markets, particularly those with a growing middle class, or those where harsh economic conditions dictate the need for innovation if basic human needs are to be met.

What steps must be taken to encourage innovation in these markets?

Will the same incentives and techniques be effective in all emerging markets?

What can be done in instances where government does not encourage or is even hostile to entrepreneurship?

Design and present a list of talking points you will use when you meet with industry and government leaders in one of these markets as you attempt to build a creative mind-set among local civic leaders, businesses, and citizens.

The final paragraph (three or four sentences) of your initial post should summarize the one or two key points that you are making in your initial response. Your posting should be about 1 page (400 to 500 words) in length.

Explanation / Answer

Emerging markets need a fundamental reversal in approach. The conventional wisdom advocates implementing large-scale economic and institutional reforms that shape the overall business and political environment.

But it would be more effective to selectively use reform initiatives tailored to each country’s unique mix of business dynamics and industries, to improve domestic firms’ resources and capabilities at each stage of a country’s economic development.

A growth oriented format is more relational in nature. This focuses on the entrepreneurial leadership of these growth firms. It seeks to understand their networks and how to foster the expansion of such networks at the local, national and international level.

Make the formation of entrepreneurial activity a government priority – The formulation of effective policy for entrepreneurial ecosystems requires the active involvement of Government Ministers working with senior public servants who act as ‘institutional entrepreneurs’ to shape and empower policies and programs.

Ensure that government policy is broadly focused – Policy should be developed that is holistic and encompasses all components of the ecosystem rather than seeking to ‘cherry pick’ areas of special interest.

Allow for natural growth not top-down solutions – Build from existing industries that have formed naturally within the region or country rather than seeking to generate new industries from green field sites.

Ensure all industry sectors are considered not just high-tech – Encourage growth across all industry sectors including low, mid and high-tech firms.

Provide leadership but delegate responsibility and ownership – Adopt a ‘top-down’ and ‘bottom-up’ approach devolving responsibility to local and regional authorities.

Fiscal incentives, which can be effective in raising R&D, especially when firms face financial constraints.

Tax relief for private R&D is often found to provide a stronger stimulus to business R&D than direct government support. This may be because much direct support for R&D is aimed at meeting government objectives, such as energy security or defense, and not at stimulating private R&D.

Openness to foreign R&D, which is associated with higher productivity growth, especially when domestic R&D investment and capabilities are also high.

Our own flexibility would help the system work properly. Such a policy agenda implies:

Here build a large and profitable presence in emerging markets can be summarized in following rules:

1. Reach the masses: Manage affordability

Consumers in big, emerging markets such as Brazil, India, Poland and China have suffered for many years under closed economies and a limited selection of shoddy goods produced by inefficient, domestic manufacturers. Now, with economic liberalization, freer trade and higher incomes, these consumers are hungry for high-quality products and are prepared to spend.

Consumer goods multinationals can build big businesses in emerging markets only if they manage affordability in a way that makes their products accessible to the masses.

Be ubiquitous: Invest in distribution

Distribution is one of the most challenging problems for consumer-products businesses in emerging markets. While supermarket and hypermarket retailers are increasingly present in major capital cities, consumers living on the peripheries of these cities and in the countryside continue to purchase the large majority of goods through local shops.

Finding cost-effective ways to build broad and deep sales and distribution coverage in the emerging markets is one of the most critical challenges facing consumer products companies. This can rarely be done on the cheap. Alliances with local producers that agree to provide distribution rarely work.

Multinationals should also be cautious about relying too heavily on broad-line wholesalers/distributors in many of these countries; these wholesalers tend to carry only the fastest moving products, do not provide merchandising support and frequently generate their profits from speculative buying or tax evasion.

Create desirability: Build strong brands

Interestingly, despite the limited financial means of the emerging market consumer, branding could well be more important in these markets than it is in markets such as the United States or Western Europe. In part, this is due to the inspirational attraction that strong brands have for lower-income consumers, particularly in "badge" categories. For instance, the number of lower-income consumers on the streets of Sao Paulo or Shanghai wearing $100 jeans, a price that represents a month's wages, is striking.

For most categories, however, the importance of branding is related to the quality guarantee that it provides. As a consequence, many producers have built brands that command price premiums in categories that to Western eyes would appear to be commodity categories.

Product Markets

Developing countries have opened up their markets and grown rapidly during the past decade, but companies still struggle to get reliable information about consumers, especially those with low incomes. Developing a consumer finance business is tough, for example, because the data sources and credit histories that firms draw on in the West don’t exist in emerging markets. Market research and advertising are in their infancy in developing countries

Be local: Foster emerging-market entrepreneurs

The extreme volatility and unconventional business methods in emerging markets require different management skills than are needed in mature, Western markets. For emerging market managers, raging inflation, currency swings, new taxes, continually changing business regulations and interest-rate instability are all part of the normal macroeconomic environment.

For example, in the past dozen years, Brazilian governments have announced seven major economic packages (as well as several minor packages), or more than one new package every two years. The impact of these swings tends to drive disproportionate reactions in consumer consumption because a large proportion of consumption is driven by marginal consumers.

Capital Markets

The capital and financial markets in developing countries are remarkable for their lack of sophistication. Apart from a few stock exchanges and government-appointed regulators, there aren’t many reliable intermediaries like credit-rating agencies, investment analysts, merchant bankers, or venture capital firms. Multinationals can’t count on raising debt or equity capital locally to finance their operations.

Unfortunately, many governments take a misguided approach to building entrepreneurship ecosystems. They pursue some unattainable ideal of an ecosystem and look to economies that are completely unlike theirs for best practices.

But increasingly, the most effective practices come from remote corners of the earth, where resources—as well as legal frameworks, transparent governance, and democratic values—may be scarce. In these places entrepreneurship has a completely new face.

The new practices are emerging murkily and by trial and error. This messiness should not deter leaders—there’s too much at stake. Governments need to exploit all available experience and commit to ongoing experimentation. They must follow an incomplete and ever-changing set of prescriptions and relentlessly review and refine them. The alternatives—taking decades to devise a model set of guidelines, acting randomly, or doing nothing—all are unacceptable.

The private and nonprofit sectors too must shoulder some responsibility. In numerous instances corporate executives, family-business owners, universities, professional organizations, foundations, labor organizations, financiers, and, of course, entrepreneurs themselves have initiated and even financed entrepreneurship education, conferences, research, and policy advocacy.

Regulatory Policy

Cut as much paperwork and bureaucracy out of the system. While this one is talked about regularly by the people in government that I know, the regulatory environment just seems to get more and more complicated.

Investment

Focus investment in university research. Then open source the results. The federal government has been a historically successful investor in innovation and the creation of new technologies, often through funding university research.

Customer The federal government is an enormous consumer of products and services. While it claims to want to do business with entrepreneurial companies and so far pays its bills in a predictable manner, it’s a miserable customer to deal with. The procurement process is painful, many entrepreneurial companies have to work through government contractor gatekeepers (who take up to a 30% tax for doing nothing other than being the contracting party), and often the execution and implementation process is a disaster.

Tax Policy

Incent people to invest in startups. While there are several well understood tax policies that could be implemented, the simplest is to provide long term tax breaks for individuals to invest in new startup companies. As with anything tax related, there are endless politics involved and many of the things that actual get rolled out are so obscure that they either never get implemented or are to difficult for investors to understand.

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