Leveraged and Networked Relationship Capital: SME’s Navigating Emerging Markets

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Market trends, market research, forecasting, targeted assessments, big-data analytics, and financial capital usually top the list as some of the most important things that an SME needs to establish prior to making the decision to enter an emerging market. Markets in the Middle East, Southeast Asia, India, Indonesia, North Africa, and even parts of improving markets in the horn of Africa all require that small and medium sized enterprises do the obvious; however, they must also build relationship capital first! The stagnant nature of business and commercial opportunities within developed countries necessitates that even small businesses, especially those in the high-tech and clean-tech industry sectors, focus on creating expanding opportunities into emerging markets. Given the market turn down and major impact of the housing crisis in the U.S. and Europe, the tide of business opportunities for start-ups is shifting east. That makes developing the relationship capital you need up front even more important, so that you can leverage and network it when the time comes to secure contracts and build your track record.

So what is relationship capital? Simply put, it is the value gained by investing time and hard work related to scientific research, networking, and seeking out trusted sources in a given location. However, these sources must be the kind you can rely on to navigate business culture in a market. This involves making sure key partners, consultants and agents have a proven track record before you employ their services. Vast differences in the way people speak English and how they associate the contextual flavor and usage of standard business communications can be as foreign to a person in an emerging market as the native language. We continue to see a large number of U.S. and European multi-national companies flooding emerging markets to take advantage of low-wages and advantageous deals for manufacturing products. So what are SME’s to do when they do not have the financial capital, infrastructural support or human capital to follow and feed off of the multi-national corporations that are offloading jobs in foreign markets? Do we hope the U.S. market improves and dream about the good old days returning or do we look to shift the paradigm of small business models to survive and thrive in a digitally connected global business marketplace? We either shift or die as small businesses. That is the reality.

Within the past three weeks, I traveled to Ghana in West Africa and Kerala in South India. There is a recurring theme with respect to business dealings in foreign markets no matter where I travel – the importance of building strong and value added relationships! Be it Apple in China or Dell in India, each requires one thing before it can truly start-up in a given market and that is relationship capital. Even the largest companies in the world do not dare enter a market in today’s shaky financial and global regulatory environments without first determining who they are going to partner and/or joint venture with in order to successfully enter that territory or market. To enter some markets, there is an overt pay-to-play system. Multi-nationals call it deal-making or brokering and others simply call it paying the middle-man or pay-under-the-table schemes. Whatever the culture and nature of the business norm in a given market, one thing is certain- you need to develop the relationship capital using the currency of trust to make it work and build your brand. This topic seems almost elementary; however, when you look at the massive number of well-funded businesses that fail upon entering foreign markets, it may be a bit more complex than it appears at first glance!

In the late 1990’s as networking, mergers and other major shifts in business were starting to take hold as strategies to grow major brands, who would have thought that 15 years later, these strategies would be the standard required to grow and thrive in the global marketplace. It is not just the large corporations looking to expand brands in foreign markets. A new start-up should make that leap from day one especially in clean and high-tech industries. What is today cutting-edge may be obsolete tomorrow or what is not working in America today may be the next big thing in Malaysia, Indonesia, Morocco or Ghana. If history is a teacher for making future decisions, then we should look no further than Deming’s Total Quality Management (TQM) system – rejected by the U.S. automotive industry in the 60’s and 70’s – to see, in hindsight, the consequences of not shifting quickly enough to meet marketplace demands. The Japanese auto industry seized Deming’s ideas and thrived while 40 years later the U.S. auto industry is still reeling from the decision to ignore Mr. Deming’s wise council.

By all means do your due diligence, market research and big-data analytical assessments; however, develop the relationships you need to put that intelligence to work! This is true especially in emerging markets where the culture, tradition, language, and conceptual frameworks are different from your own. Without the right relationships it is impossible to navigate the business climate of these new frontiers. When it comes to business it’s all about relationships at both the start and end of the day.
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