Analysis: Engagement is vital for emerging markets to bear fruit

Published Nov 10, 2010


Sanjeev Gupta

These days it has become fashionable to wax lyrical about emerging markets. These markets represent a new mantra of hope, energy and youthful exuberance.

Pessimists, however, see them as temporary distractions, bound to leave in their wakes a boulevard of broken dreams.

Thankfully, the consensus seems to lean towards believing that these markets are the green shoots of a new world order.

Evidence abounds of the growing influence of the new world. India obtained a nuclear treaty with the US that would have been laughed off by the US Congress a few years back. China and its currency is keeping the US Federal Reserve awake all night and threatening a new kind of war. Even Blackberry has had to suspend its “research in motion” and work with emerging market regulators who have demanded access to its guarded encrypted data – its selling point.

Yes, emerging markets are no longer a hobby horse and have instead reared themselves as a fountainhead of potent themes that are coming through thick and fast. In these times of extreme change only the nimble will survive, thus the need to unlearn and learn will be paramount to avoid the dangers of continued naivety.

To achieve a balance between development and sustenance, big business will soon have to work with a greater sense of responsibility and engage at a diverse level. The consumer-centric post-World War II legacy cannot meet the demands of the 3 billion people joining the fray. If this is ignored, the abuse and wastage of consumer extravagance will permanently damage the delicate ecosystems, straining limited global resources.

Mahatma Gandhi once said: “There is enough in this world for everyone’s needs – but not for everyone’s greeds.”

Future strategies have to instead draw from indigenous solutions used by the developing world to survive and grow .

First, we need to focus on rural areas and see what traditional methods exist; whether to obtain energy or to irrigate the land or grow crops and leverage off such expertise. Energy efficiencies have to be made mandatory with greater focus on replenishment before business is allowed to operate.

A myth is that all reforms are good and all economic liberalisation healthy. In fledgling economies, state intervention and control over key deliverables is key if development is to be all-inclusive and sustainable.

With limited education, the rush to reformist policies has created a phony brand of capitalism where a handful of oligarchs exert uneven influence on policy and create nepotism and entitlement. So policy decisions become biased, either in direction or timing, and “tokenism” seeks to appease the masses languishing in the absence of real empowerment.

This makes corporate strategy opportunistic and investment decisions insider-based, adversely affecting longer-term issues of human development and social responsibility. Worse, it undermines the confidence in capital markets and the rule of law, perpetuating poverty.

In emerging countries with missing institutional frameworks, political power often comes through manipulation, rhetoric and lofty ideals.

Limited education and access to data across the developing world weakens democracy. Hereditary politics, where democratically elected leaders are mere extensions of political dynasties that rule through aura, entitlement or terror, shrinks the development process even more.

While data flow through the media and internet has meant that it is not possible to fool everyone all the time, the lack of sustainable support means that criticism rarely translates into change. Instead, the adage “absolute power does corrupt absolutely” remains a critical risk when we seek to harvest the fruits of emerging markets. Without free competition and transparency, unfolding of opportunities will be trapped in the murky confines of hidden agendas and cronyism.

The scope for global business and security to flounder amid such flawed environments is high and can dent the optimism and disappoint the world again.

As Socrates said: “When you deny the people the right to persuade, they win the right to resist.” Eerily, we are seeing growing evidence of mass discontent, which is infectious.

Acts of civil disobedience in Thailand and Kenya over the past year, the armed struggle in India or the hijackings in the oil-rich Niger Delta are cries of the have-nots. Left alone, these issues hinder the convergence of the developing world into the mainstream and deflate business models and associated geopolitical imperatives.

Finally there is the vexing problem of market understanding. Globalisation will have to appreciate the uniqueness of each market and incorporate it into workable solutions. Global companies must avoid coming in armed with proven strategies from elsewhere and believe they have the panacea for all ills.

Instead, their strategies need to acknowledge local conditions and they must learn from local people, whose practices and needs may be different but not wrong. CK Prahalad in his book Fortune at the Bottom of the Pyramid drives home a key message. Tried foreign methods will not work. The emerging world is not poor, but poorly structured. However, it does have assets or wealth that can be harnessed.

As Peruvian economist Hernando de Soto found in his country, it was land that could be leveraged. His theory was built on the idea that assets outside the law – dead capital – could be used to fuel growth if only they were brought into the legal mainstream. So De Soto worked on allowing ancestral land rights to become legally enforceable. What was achieved through Grameen Bank and its Nobel prize-winning founder Muhammad Yunus in Bangladesh couples ingenuity with understanding of local nuances to bring the masses into the mainstream.

That is why hybrid value chains are gaining acceptance in strategies across emerging market. The rise of a sustainable new dawn is dependent on the global powers accepting their duty to do things differently and working responsibly with local minds.

Albert Einstein said: “No problem can be solved by the same level of consciousness that created it.” Emerging markets are real, but solutions to make them belong will depend on insight and adaptation. Or else we may see yet another red herring in the offing.

Sanjeev Gupta is the head of Sanlam Investments Emerging Markets.

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