Entrepreneur in an Emerging Market - Harvard Think Tanks

Strategy and Execution for Emerging Markets

Q&A with:	Tarun Khanna and Krishna G. Palepu
Published:	June 21, 2010
Author:	Martha Lagace

Executive Summary:

How can multinationals, entrepreneurs, and investors identify and respond to new challenges and opportunities around the world? In this Q&A, HBS professors and strategy experts Tarun Khanna and Krishna G. Palepu offer a practical framework for succeeding in emerging markets. Plus: Book excerpt with action items. Key concepts include:

• The ambition level of large, fast-growing emerging markets around the world rivals that of companies in the United States in the late 19th and early 20th centuries.
• Khanna and Palepu outline how to identify and respond to institutional voids in product, labor, and capital markets.
• Investors and entrepreneurs can respond to niches in institutional infrastructure in the private sector, such as the need for information analyzers and advisors, aggregators and distributors, transaction facilitators, and more.
• A useful starting point for managers is to construct an institutional map to identify institutional voids—which may themselves present business opportunities.
• Western multinational companies as well as local entrepreneurs are innovating products to attract the emerging middle class. Such innovations could potentially benefit consumers living in mature markets.

Russia, India, and China—entice and intimidate. When managers are asked what is special about emerging markets, they typically point to rapid economic growth, potential competitors, and vexing problems including but not limited to corruption, financial crises, and weak intellectual property rights.

HBS professors Tarun Khanna and Krishna G. Palepu, authors of the new book Winning in Emerging Markets: A Road Map for Strategy and Execution (Harvard Business Press), offer an actionable framework to help potential entrants answer the following key questions:

• In this particular market, which market institutions are working, and which institutions are missing?
• Which parts of our business model can be adversely affected by these institutional voids?
• How can we build competitive advantage based on our ability to navigate institutional voids?
• How can we profit from the structural reality of emerging markets by identifying opportunities to fill voids, serving as market intermediaries?

For Khanna and Palepu, an emerging market is anyplace where buyers and sellers cannot easily and efficiently do business with each other. The scholars therefore focus their research worldwide, not just on the BRICs.

"Often the main prize today is the emerging middle class, which aspires to consume world class products at lower price points." -Krishna G. Palepu

"We have been studying emerging markets for about 15 years," explains Palepu in our interview. "We've wanted to learn about the challenges of the process and the challenges of companies in those markets trying to compete on a global platform. We are also curious how international companies have been able to intimate themselves into the conditions of those markets."
Palepu, whose current research and teaching activities focus on strategy and governance, is the Ross Graham Walker Professor of Business Administration and Senior Associate Dean for International Development. Khanna, the Jorge Paulo Lemann Professor at Harvard Business School, has studied and worked with multinational and indigenous companies and investors in emerging markets worldwide.