Innovations In Emerging Markets

The Two Cs of Success in South-South Investing

Culture and capital -- that's how emerging market companies are beating rich country rivals in developing countries. The founder and chairman of India’s Satyam Computer Services, B. Ramalinga Raju, noted at the World Economic Forum in February,that culture can be as important to multinational success as capital. Satyam is developing a more international workforce by recruiting entry-level professionals from 20 different countries to live and work in India alongside the company’s domestic managers.

On the same panel, Mazen S. Darwazeh, Chairman of Jordan-based Hikma Pharmaceuticals, also stressed the importance of building nationally and culturally diverse management teams in the earliest stages of a company’s expansion.

While emerging market firms can learn from employees from other countries, they also have important advantages developed from operating in their home markets. According to the UN Conference on Trade and Development, a key advantage of developing country investors over their developed country rivals is their greater familiarity with the economic conditions of host developing countries.

Operating in emerging markets, firms based in developing countries are more familiar with challenging investment climates and may be better able to tailor products and services to consumers in developing nations. Cross-border investments by these firms typically reach poorer and more remote developing countries than FDI from firms based in developed countries.

Business Innovations Leveraged to Tackle Malnutrition

The World Bank Institute and the Global Alliance for Improved Nutrition are promoting investment in addressing malnutrition. They believe technological advances in recent years have helped to make food fortification one of the easiest and fastest ways to improve people's lives on a large scale and to accelerate development. And companies from industrialised and emerging market countries such as Unilever, Tetra Pak, Suneor, and Procter & Gamble agree.

At a jointly held global forum in New Delhi recently, Chinese, Indian, African, European, and North American businesses highlighted examples of innovative ways to produce and market better fortified products for poor consumers. The goal: tackle malnutrition and protect consumers from micro-nutrient deficiencies.

"I am interested in importing this technology to Bangladesh," said Rauf Chowdhury, Chairman of the MARC Group in Dhaka, while examining fortified wheat flakes and cereals from Nirmal, a Maharashtra-based manufacturer that produces food supplements for U.N. agencies and government school feeding programs.

Business Models for Food Fortification

"This is a unique opportunity to learn what other businesses are doing in the area of food fortification based on sustainable business models,"said an African businessman while tasting fortified Chinese cereals and soy sauce.

He then discussed with Tetra Pak representatives their integrated value chain model: food production, food processing, food distribution, and feeding programs. Tetra Pak supports government school feeding programs using fortified milk in China, Iran, West Bank Gaza, and Nigeria using fortified milk.

In another corner, Chinese representatives inquired about the process that made fortification of three key staple foods in Nigeria mandatory and what role the Development Bank of Southern Africa was playing in food fortification for development.

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The New Africa-China Trade Relationship

Manufacturing capacity has declined in some parts of Africa as trade barriers dip and global competition rises, especially from China, reports the Washington Post. That’s left African business leaders turning more and more to extractive industries, while at the same time trying to profit from the sea of finished Chinese goods that is washing across the continent.

That kind of relationship may conjure up memories of colonialism, but Africans say the Chinese, who are investing in key infrastructure projects, treat them as equals. In fact, both sides are so eager to do business that recently representatives from 48 African countries met with Chinese officials at a trade summit in Beijing. The outcome? The Chinese promised to double Africa’s aid and offered $5 billion in new loans. One Chinese company will build an $8.3 billion railroad project in Nigeria, to be paid for with the country’s oil revenue.

China’s trade with Africa, which reached $40 billion in 2005, is expected to hit $100 billion by 2010.

Indian Firms Show Government Way to Global Markets

Indian corporates are far ahead of the government with regard to cross-border mergers and  acquisitions, and foreign direct investments. India is just now getting in step with its domestic companies, considering comprehensive regulation in support of outward foreign direct investment: specific measures to support cross-border direct investment by Indian firms are being considered, including possible government guarantees to mitigate political risks.

In a similar vein, South Africa has made a key change to its foreign exchange regulations, which is expected to lead to more cross-border investment, especially in the rest of Africa.

Better late than never, though: leverage provided Indian companies through economic liberalization strengthens their chances to compete globally against looming competition from Chinese companies. The latter's outward investments are set to rise sharply, partly in response to the government's "Go Global" policy.

Indian Corporates Ahead of Chinese in Cross-Border Investments

Driven by growing self-confidence, the corporate sector in India has left behind it the days of the "license Raj." One need only look at the range and frequency of cross-border merger and acquisitions investments recently announced by Indian companies, for evidence. Projections by industry observers confirm the trend.

By comparison, given the size and dynamism of China's economy, cross-border M&A by Chinese firms is modest, relative to Indian or even South African firms. More on this from a BCG report quoted in India Daily.

Top Emerging Market Execs Discuss Strategy at Global Gathering

Where are southern companies investing next? What are the drivers for their investment moves in southern markets? What do they think of the business risks associated with expansion into those markets? All riveting questions to those of us watching the ascension of southern multinationals to global competitive form.

On September 17, top executives of key southern multinationals will address those questions during the "Emerging Champions: South-South Investing" seminar held at the IMF/WB Annual Meetings in Singapore. The panelists include CEOs and top executives of Russia's INTERROS, Hong Kong's Hutchison Telecom, Spain's Santander Bank, India's Tata Sons, and Singapore's DBS Group.

Their remarks and discussion will be covered by the IFC blog more extensively next week. Future IFC blog moderator on south-south investments, Reyaz Ahmad, is the seminar organizer and is currently in Singapore. He will provide us with highlights of the discussion in real time.

UAE Firms Expanding into Africa and Asia

Angola's Sistec company -- eight branches and 400 staff-- is the local partner and distributor in a services deal just completed with the UAE's Thuraya Satellite Telecoms Company services. Gulf News says Thuraya executives consider the Angola deal a major step in their expansion into Africa's emerging markets.

"Our service launch in Angola is the latest among several recent launches in African markets that signify our focus and commitment towards Africa, as developing nations that constitute a substantial part of our coverage area," Thuraya CEO Yousuf Al-Saeed said.

South-south investments originating in the Arab Gulf countries are on the rise in Asia. Business Times Singapore (closed access) reports Gulf investors are becoming players along the old commercial Silk Road, once again linking the markets of Europe and the Levant to those of China. That expansion promises to be as steady as UAE inroads into African markets.

Nearly Half of All Investors in Africa from Emerging Markets

A recent survey of over 1200 companies operating in Africa's nonresources sectors shows a growing number of emerging markets firms are investing in Africa. In fact, investors in 15 countries in Africa are now almost equally from developed countries (54 percent) and emerging markets (46 percent), an article in South Africa's Business Day says.

South Africa and India top the list of emerging market investors in Africa, while France and the U.K. lead the developed countries list. And there are marked differences in investment styles:

"The survey supports the view that investors from developing countries are less risk-averse — or more willing to adapt to hostile conditions — than those from developed countries...The survey shows dramatically that investors from the south are much less likely to see negatives in the operating environment, such as problems with the local market or political stability."

Which nonresources sectors are attracting investments? The survey says South African investments are going mainly to services.

A Profile in Social Responsibility: India's Tata Group in Africa

From its beginnings in Zambia in 1977 to its current base of operations in South Africa, the narrative of India's Tata Africa Holdings "incorporates the textbook ingredients of how overseas businesses should be seeded," India's Frontline magazine says.

Aside from a successful business strategy (revenues estimated at $200 million in 2005-2006), the main ingredients of the Tata Group's success in Africa, the article says, are the company's attention to integrating into the local community and initiating programs that reinforce its image as a responsible corporate citizen. The article goes on to describe some of the company's initiatives in Africa:

"[It] has sponsored young South Africans to train in jewelry design at Tata Titan Industries, the watch and jewelry making company from the Tata stable. Then, there will be an extension of the adult literacy program that Tata Consultancy Services first pioneered in India to Africa and its local languages in collaboration with World Development Bank Trust which is involved in empowering women in South Africa. It has also come out with a scheme for recognising outstanding college students with the award of Tata scholarships. "

South-South Capital Flows Shaking Up Global Investment Picture

South-South flows are now growing more rapidly than those between developed and developing countries, particularly in foreign direct investment, the World Bank Group's Global Development Finance 2006 reports.

The foreign direct investment flows from developing countries to other developing countries are estimated to be on the order of $47 billion, the report's lead author says. He adds, “The total amount of [South-South] cross-border bank lending is about $6 billion –- which is relatively very small compared to the capital we see going from the rich countries to the developing countries.”

Other interesting elements of South-South FDI: it originates with middle-income country firms and is usually invested in the same region. For example, Russian and Hungarian firms invested in Eastern Europe and Central Asia. South African companies invested elsewhere in southern Africa. One interesting exception is China, where about half of its foreign direct investment went to natural resources projects in Latin America.

For more on South-South FDI flows, go to Global Finance Report 2006.