Taking a highly targeted, strategic approach to market entry and operation is the key to success in emerging markets says Simon Vye
For service providers considering entering an emerging market, there are far more challenges than may be first realised; cultural differences and idiosyncrasies are important and need to be taken into account, but it's the political hurdles that may present the biggest challenge.
Before considering the point further, we must establish exactly what we mean by the term "emerging markets". Officially, an emerging market is one with a relatively low per capita income, which, more importantly, has a high potential for economic growth. However, there are different stages of emergence to consider. Economies will start as "developing", offering little in the way of infrastructural, regulatory or political support for foreign investors. As these economies evolve, communications infrastructure is one of the first critical foundations laid which allow business to thrive and the economy to grow.
Hot spots such as China, Vietnam and India are popular emerging markets in Asia, while areas of the Middle East such as United Arab Emirates, and Eastern Europe, such as Hungary or Poland, are also rising in popularity. Analyst house IDC, highlighted Pakistan as the biggest spender on telecommunications services in early 2008 but also predicted that Vietnam would have overtaken that market by the end of the year. However, as a whole, the Asia-Pacific telecommunications market was set to grow 11 per cent in 2008, providing a wealth of opportunity for telecommunications providers around the world.
The global economic landscape is constantly changing. In spite of recent economic turmoil, the opportunities offered by emerging economies provide new avenues for savvy telecoms strategists. The old cliché of the ‘global village' is now firmly established as the status quo and we are living in a truly connected world. Multinational organisations must constantly seek new ways to mitigate the risks, whilst drawing maximum benefits, from entering new markets. Businesses serious about competing on the global stage expect to be able to communicate instantaneously, efficiently and cost-effectively no matter where in the world they, or their customers, may be.
These expectations in turn create opportunities for the telecommunications industry to provide consistent quality and depth of service across geographically dispersed sites. Core services such as Ethernet private lines (EPL), IP-VPN and MPLS networks offer international companies peace of mind that their communications infrastructure is robust, allowing them to concentrate on their core objective of growing the bottom line. New communications capabilities are also allowing organisations to cut business travel costs through video or web conferencing and unified communications strategies, providing new avenues for cost reduction as well as revenue growth.
In order to attract increased foreign investment, governments in many emerging markets have reviewed their protectionist policies, setting up special economic zones (SEZs) and other incentives to attract the multinational leaders to their shores. In May 2008, the Chinese government announced a plan to restructure its telecommunications industry in order to make it more competitive. This move, which aims particularly to create more competition for China Mobile, the world's largest carrier by subscriber base, has received a mixed reaction from both Chinese and global industry players. In general, it should be considered a positive move for a traditionally sheltered market.
In addition, emerging markets often turn to the developed western economies for best practice in industries such as professional and financial services. However, unlike their western counterparts who have to take account of legacy hardware, infrastructure or technique, emerging markets often adopt a big bang approach to their telecommunications and IT infrastructure, leapfrogging the benchmark to set a new global standard.
A perfect example of this is the deployment of fibre to the home (FTTH) in South Korea, providing South Korean consumers with ultra-fast broadband internet access for a fraction of the price of the slower copper-based UK network.
While the benefits of entering new markets are clear; access to workforce, expanded customer base, new business opportunities; companies must be aware of the potential pitfalls which stand in the way of success.
The first issue which organisations are increasingly looking to address, by investing serious capital, is the often gaping cultural divide between the new host market and that of the organisation's home. This challenge is nothing new but it can cause serious problems when ignored or handled clumsily. With Japanese etiquette for example, the observation of hierarchy and relationship-centric business communication is the stuff of international management legend, a host of embarrassing anecdotes and libraries full of guides to ‘doing business in Asia'. However, should organisations apply the same rules and approaches to all Asian markets, such as Vietnam for instance? And what about other emerging markets in Europe or even Africa?
In spite of emerging markets' increasingly proactive approaches to attract foreign investment, from a telecommunications point of view, many markets remain highly restricted. Deregulated markets such as Japan, Hong Kong and Australia are open to new market entrants who are able to compete effectively to the benefit of customers. However, markets such as China and Cambodia are much more restricted, preventing telecoms service providers from acquiring or controlling national operators.
Red tape is often the cause of unexpected frustration for companies new to a market, and can act as a disincentive for doing business. The World Bank estimates that Indian senior managers, for example, spend 15 per cent of their time dealing with regulatory issues, far more than the Chinese. Without extensive research, companies moving into these markets can find their progress blocked by confusing regulations and compliance demands. Compliance is also an issue that can complicate matters significantly. For customers in the banking and financial services industry for example, service providers must be aware of the compliance requirements of the host market, as well as those of the home market. Often, global organisations are governed and regulated according to the standards of more developed markets. In the case of companies operating from the US for example, failure of an overseas branch of an international bank to comply with US legislation can cause legal ramifications and damage to its brand value and reputation.
So, how can a service provider in an emerging market drive top-line growth and improve profitability quickly? The key to success lies in taking a highly targeted, strategic approach to market entry and operation. The growth potential for emerging economies is such that they are often highly competitive environments with companies trying to secure first mover advantage without truly understanding the individual challenges of the market. They may also not fully understand the needs of the potential customer base either within that market, or wishing to enter that market.
As these markets consolidate through competition, the organisations that have developed strong and lasting relationships, as well as a deep understanding of the local market forces, will be the ones to thrive. There are a number of ways to ensure success in emerging markets.
The first is to take the time to really understand your target audience. Many international companies based in Europe are now turning to emerging markets in the Middle East as well as Asia to expand their market presence and develop new revenue streams. These organisations need the same quality network security and performance that they expect in their home markets. They may also wish to take advantage of similar products such as managed hosting and IT services, which may not necessarily be as advanced in certain markets.
Secondly, service providers should implement a simple, flexible network architecture that allows customers to accelerate the roll-out of new services. Partnership is a crucial element of this approach as laying your own cable may simply not be an option in heavily regulated markets. Telstra International lays approximately one kilometre of new cable each week but also partners extensively with tier 1 carriers in emerging markets to ensure maximum coverage.
When choosing a partner for emerging markets, service providers should look to the local providers that have a strong network footprint in the key growth regions. Their networks should also be based on an advanced MPLS-IP backbone and they should have the capability to offer managed IP services. Often, as the markets slowly open up to deregulation, new carriers created within the country have greater opportunity to take on the previous national incumbents, well before foreign carriers are allowed to enter the market. These providers tend to be more agile than the larger market leaders, allowing them to bring new services to market much faster on behalf of its customers.
In essence, moving into emerging markets is a long term process which requires both careful planning and rapid deployment of services in order to capitalise on the growing economies. In the current economic climate, it is more important than ever to choose partners carefully in order to offer multinational customers a tier 1 carrier service across the board, no matter where in the world they may operate.
Simon Vye is CEO Telstra International EMEA.