With Great Risks Come Great Rewards

“Fabulous” opportunities in emerging markets says US Council


With great risks come great rewards. The IESE US Council explores global business models in Africa and Latin America / Photo: Jordi Estruch

Doing business in emerging markets like Africa or Latin America can be hugely challenging. But with great risks come great rewards. Furthermore, learning to manage in riskier environments, more prone to instability, is creating a new generation of agile business leaders with an edge in the global marketplace. These were amongst the key ideas shared this week by global business leaders, members of IESE’s U.S. Advisory Council.

Access to the Inside Track on Africa and LatAm

On March 13, MBA students had a chance to hear the personal insights, opinions and advice of four leaders whose collective experience spans both continents and several decades.

The panel consisted of Jay Ireland, president and CEO of GE Africa, Tom Castro, member of the board at Time Warner Cable, Carlos Padula, managing director at Stelac Advisory Services LLC and Juan Pujadas, vice chairman and global leader of advisory services for PwC. The focus of the debate was global business models in Africa and Latin America.

Headwinds Blowing South

African growth represents an exciting opportunity, according to Jay Ireland. Seven of the world’s 10 fastest growing economies are located in sub-Saharan Africa, he said.

But opportunity must be balanced against challenge. Doing successful business in Africa hinges on corporate governance and solid financing, which can be a "confidence issue," he said. You should also be aware of hidden costs stemming from infrastructure problems.

"It costs three and a half times more to get a shipping container from Nairobi to Mombasa than to get the same cargo from China to Mombasa. It takes three times as long, too."

This kind of insight comes from solid hands-on experience in the country. "You need your boots on the ground," said Ireland. "Trying to run an African operation from London or New York is just not practical. To do business here successfully you need to live the issues that people are living."

Growing Despite Domestic Volatility

Across the globe in Latin America there are also opportunities for big rewards in a continent that came out of the global crisis better than any other region in the world economy, said Tom Castro. Increasing political and social stability are yielding results across the continent.

He cited the example of the Mexican economy, which is currently growing at between three and four percent. This, in spite of ongoing problems relating to lawlessness, drugs and violence.

And despite uncertainties over Argentina's political system, that nation has managed to develop world-class wine, tourist and textile industries in the last 20 years or so. "Imagine what could be achieved if these problems were resolved," he remarked.

Survival Skills for a Global Marketplace

Latin America also produces more than its fair share of CEOs – a point made by Carlos Padula, himself a Venezuelan. Coming from a risky business environment where as a manager you are constantly in "survival mode" helps make you a more agile business leaders, better at negotiating uncertainty and change. These leadership competencies can be seen in examples like Carlos Slim, he said – a homegrown LatAm success story that is in the process of going global.

Padula highlighted an emerging pattern of growth that is reproducing across the continent: "Business start off by dominating a local market, go national and then look for opportunity in other parts of the continent. After succeeding across Latin America, the organization will look to overseas for new goals."

The Challenge From China

Whoever is planning on doing business in African or Latin American markets needs to factor in competition coming from state-owned corporations coming out of China. As demand slows at home, entities like the China Railway Corporation are proactively looking for foreign investment opportunities in new markets – many of these in Africa and LatAm.

The aggressive approach of Chinese businesses, said Juan Pujadas, which can provide everything from financing to workers and security for a project means that they are increasingly the competition to beat in these developing markets.

It’s Time for Africa and Latin America

Tremendous issues still face African and Latin countries. Corruption, volatility, violence, political upheaval are challenges that continue to dog both continents. Pujadas called for business and NGOs to do their part to "address the recent dark past that remains very real in countries like the Dominican Republic, and help bring that bottom 10 percent of populations into their economies."

The panelists were unanimous in the need for global business play a role in investing in local talent and infrastructure and in creating sustainable business models. To do so, you need to think local, said Carlos Padula. The diverse countries of Latin America and Africa are "very different beasts," he said, although the vast majority of these countries face similar challenges such as nation-building and bringing people out of the poverty trap.

For all that, the opportunities are "fabulous."

"Work in your countries," Castro said to Latin American students in the audience. "You will find companies there who are targeting the world. You’ve already made a smart move by taking a global MBA at IESE. Now make another smart decision – go out there and get a global career."