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Emerging Companies in Emerging Economies
For the last 15 years, Guillén’s work has scrutinized successful businesses in countries one might not think of as breeding grounds for world-class companies, work that began with a focus on Spain when it was still regarded as an emerging economy. He has since expanded his focus to Latin America and plans to further expand it to China and India.
“When I started this research, there were very few Spanish companies that were world-class, but now Spain is one of the top 10 economies in the world and is the fourth largest acquirer of companies in the U.S.,” he says. “I analyzed how those companies managed to establish themselves in a global economy and not just in their home country.”
Guillén explains that, for many years, industry observers
looked for some unique aspect that explained the success of companies
from developing countries. What he has found, however,
is that these companies share many of the same traits as their
successful American or European counterparts.
“The twist is that manyof these firms have expanded in the world
not with consumer products, but with infrastructure industries like
construction firms, port operators, or telecommunications, which
are very political and regulated by governments,” he says.
Successful companies learn how to anticipate governmental
changes and view such changes in a positive way. For example, says
Guillén, if a company wants to build a profitable turnpike in Chile,
it needs to make a long-term commitment, entering into a license
with the government for 20 or even as many as 99 years. While the
company may hope to have a long relationship with the government
that granted that license, it also needs to be realistic and recognize
that governments come and go, even in democracies.
“You have to not sell your soul to the current government
only to see whatever terms you have negotiated with that government
become negated after the next election or coup d’état,”
he says. “This is a unique capability that companies from
emerging economies have in infrastructure industries where
the government plays an important role. Successful companies have been able to use this as a skill to help them compete in
foreign markets. Once they learn how to deal with the government
and anticipate changes, it gives them a set of procedures
that will help them in any market around the world. It’s something
that’s difficult to learn and only a few firms learn it well
and can use it across multiple markets.”
Another of Guillén’s findings is that emerging companies in
infrastructure industries tend to make a very specific mistake.
“Companies know that they will be more profitable if they
strike a deal with the government that will prevent many other
firms from entering the market or gives them a sweet deal
like the ability to charge higher prices,” he says. “They assume
these deals will be in place for 20 years and do not realize that
if there is a change in the government a few years down the
road, the new president will have every incentive to try to renegotiate
the deal.”
Guillén describes this as a “systematic error.” It’s a mistake for
companies to prioritize relationships with countries in which the
governments are more willing and able to provide a good deal
for entering companies, he argues. “The appropriate country to
enter is one in which the government has less autonomy and has
to go through more channels to change a deal, such as having
Congress approve a special deal for foreign firms.”
While it seems like a catch 22, he says, it is important for
firms to learn that if a government can make a good deal, then it
can also take that good deal away when administrations change.
“This has tremendous implications because companies lose a
lot of money this way … which leads to high tensions for both
the company and consumers.”
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