Emerging Markets Connect

More on Mumbai: Breaking Views from A Leading Indian Company

We hosted a members-only teleconference this morning with a presentation from a General Manager at one of India's largest companies, organized quite a while back, on the topic of evaluating locations for operations within India. Naturally, questions were raised regarding how this process may have changed in light of last week's events in Mumbai, and his comments (he is actually based in Mumbai) are worth sharing as an addition to our thoughts on this from a couple of days ago. Two points he made:

1. Variation Within India (or any country) is Less Important than Variation across Countries: The point made here is that any company entering India should already have made certain assumptions about locating there instead of in another country, and so once that's factored in, security becomes less a concern in terms of deciding where to operate within India. The only addition we'd make here is that indeed, companies should be factoring in security considerations when deciding whether India is the right market for them. Whether they've done that in the past is an open question; most likely they won't make the mistake of excluding this in the future.
2. Within India, Pay Attention to General Political and Economic Stability: The above having been noted, our member did emphasize that there are some leading indicators that companies can watch out for to understand any important variations within India, particularly at a state-by-state level. Two in particular that he mentioned. First, there are some pockets of India that are known to have higher levels of general political/social instability (e.g., Kashmir), and companies should of course be aware of those and factor that into decision-making. Second, he suggested that companies should be looking more closely at indicators of political and economic stability, including such items as political competition, attitudes toward business, and corruption. For the latter, a good source identified for information on a state-by-state level is joint research by Transparency International and India's Center for Media Studies in Delhi, which can be found here (see page 17 for the state-level coverage).

Corporate Executive Board members will be able to access a replay of this teleconference, which addressed a wide range of additional topics besides factoring last week's events into location decision-making in India, early next week. Send me an email and I'll be happy to pass on a link when it's ready.

We've continued our look across the Corporate Executive Board's executive membership programs for resources and advice that might be helpful as you think about what last week's events mean for your business. So in addition to our member's great advice above, and the items we noted earlier this week, three more:

1. Anticipate, and Establish Controls for, the Next Risk: Our Procurement Strategy Council has highlighted the efforts of one of our members to identify a holistic view of offshoring risks, and to take that a step further by clearly articulating risk mitigation strategies (Link for Procurement Strategy Council members). This company divides risks into three categories – Reputation, Project Failure, and Process Efficiency. They then develop a matrix that catalogues risk control activities, responsibilities, testing, and gaps needing to be addressed. To ensure resources aren’t overspent in developing and testing mitigation plans, they “tier” the level of depth required for the different risk categories: Detailed mitigation plans for Reputation Risks, identification of mitigation actions for Project Failure Risks, and “Watch for and React” for Process Efficiency Risks. Many companies begin activities like this centrally, and then drill down to function-specific evaluations, for example understanding and planning work-arounds for logistics/distribution disruptions (Link for Supply Chain Executive Board members).
2. Revisit Your Investment Decision-Making Frameworks: Events like this provide a good opportunity to tighten discipline around investment decision-making company-wide. Research from our Corporate Strategy Board highlights two important practices companies often use in making international investment decisions (Link for Corporate Strategy Board members). First, companies typically establish monetary thresholds for determining who is involved in decision-making and how in-depth investment evaluations are. We’d recommend adding a risk threshold to that filter, and re-visiting where your thresholds currently sit, and whether that’s correct, given both the volatility that exists around the world and the limited amount of investment capital most companies currently have. Second, companies seek to maintain a healthy balance in their international exposure. If your risk assessments of India are changing, that may in turn alter that balance.
3. Maintain A Constant Watch: Information availability in emerging markets can be difficult, and many  executives find new emerging markets contexts unapproachable in terms of understanding what’s happening on the ground on a day-to-day basis. As indicated by our member this morning, although the scale of the Mumbai events was unusual, violence in India is to some extent not news. Companies with good processes in place for monitoring the local situation would likely have had steps already in place to mitigate risks from such violence and ensure continuity of operations. We’ve heard a number of different practices that companies use to maintain understanding of local conditions, ranging from establishing local teams dedicated to monitoring news on the ground in high risk and/or strategically important countries, to appointment of a centrally-located expert (Link for Corporate Strategy Board members) who combines secondary resources with regular local visits and conversations with country experts, to centralized databases where all staff can enter information they’ve come across on potential risks in different countries (Link for Procurement Strategy Council members).

After Mumbai: Make Sure You're Looking at the Bigger Picture

Last week's terrorist attacks in Mumbai raised new questions among many about the relative risk of doing business in India. This is particularly true for foreign businesses operating there, since the targets of the attacks were largely foreigners.

Reaction so far, however, appears to have been relatively muted. Many are limiting travel to India in the short term, but there is, correctly, little talk about India somehow becoming a location that will be taken "off the map" by multinationals. Indeed, our members have noted that while there has been some disruption to their India operations, by Friday of last week even in Mumbai offices were full and work continuing. In the words of one member: "Life goes on."

Although it's still relatively early and information continues to emerge, a few thoughts as conditions evolve:
1. Don't Over-React: There is at times a temptation to take high profile events such as last week's attacks and apply them wholesale to a country or situation. India is too important a market over the long term for companies to think this way. Indeed, it appears that most are taking a measured tone -- comparing this situation to the 2001 attacks in the United States or the 2005 attacks in London, where the overall impact was short-lived -- and pressing forward with their strategic plans for India, although naturally perhaps with a few new security considerations.
2. Don't Under-React Either: Violence in India is a growing concern, enough so that we had been researching the subject in preparation for our quarterly India Briefing. Before last week, India had already been rocked by 64 bomb blasts in less than six months this year, leaving more than 215 dead and over 900 injured, including events in major business centers like Bangalore and Delhi. Although in cases like the Mumbai blasts the motivations appear to have been linked to larger tensions between India and Pakistan, or Hindus and Muslims more generally within India, violence has targeted business interests in many cases to raise the profile of events and attempt to destabilize India's positive economic development. Companies need to be taking precautions in India, particularly in major urban centers, to protect their staff and their investments. Many do this already of course, but a review of procedures and benchmarking against practices in other high security urban areas (including places like New York and London) is worthwhile.
3. Assess the Entire Theater: Looking back at best practices we've featured across the Corporate Executive Board around how companies deal with risk, useful advice comes from our Information Risk Executive Council (IREC members can access a full case profile here). One profiled company found that its location risk assessments were too technical for enterprise-wide conversations, limited in scope, and ultimately inactionable. This company completely revamped the way it evaluates risks in different countries around the world, categorizing them into Business Assets, Cyber Threats, Political and Economic Threats, and Natural Hazards. By assigning risk levels to each of these categories, they're able to make a holistic risk evaluation, and identify areas needing additional investment when decisions are made to build or expand operations in a given location. They're also able to better track changes over time and ensure their investments and practices are keeping pace.

One potentially positive outcome of these events is that they will intensify pressure on Indian authorities to take more aggressive steps to prevent militant attacks like this. Criticism of India's overall preparedness for crisis response is mounting from both the business community and local and international political circles, and some accountability has already begun with resignation of India's Home Minister.

The high-level point here is to stay alert, in India and frankly wherever you operate. Use this as an opportunity to add depth to your overall risk evaluation of India and other international locations where you do business. This is probably a particularly good time to do this, as economic volatility can at times lead to political and social instability as well.

More on Ethics: This Time It's Your Team

Tracking back to a post a little while ago on how companies are managing high-level ethical challenges  in emerging markets (think government interactions, "compromises" when securing new business), one of our retail members recently took a different angle on the ethics question, this time focused more on the line. The executive expressed concerns about preventing "fraudulent behavior" among staff in a sourcing operation in China.

Three themes coming out of advice from other experienced executives in our member network:

1. Apply all of your standard tools first. The most common advice from members sounded awfully familiar: establish a firm code of conduct, conduct annual surveys on conflicts of interest and compliance, maintain a robust ethics committee and reporting hotline, and establish a strong tone at the top. You should be doing this anyway in your HQ; if you aren't, get moving. One interesting wrinkle to this from a computer software industry member: "I’ve seen and heard of cases [where] anonymous whistleblower accusations are used more to defame or retaliate against another person for whatever reason, so keep in mind not all escalations may be valid, but all should be treated seriously."
2. Watch out for ghosts. Here's where the emerging markets differences emerge a bit mor starkly. Members highlighted the appearance of "ghost" vendors in their master files receiving payments from staff. To counter this, advice highlighted making it "as difficult as possible to include a vendor in the vendor master file." This includes both a demanding vendor approval process, as well as tight controls over who maintains vendor information in those master files.
3. Don't accept "different business cultures," but be prepared for an extended transition. It's easy to explain away ethics compromises as simply being part of a local culture. While it may be true, it's not an excuse. You don't need to try and change an entire culture, but you do need to be clear about what's accepted on behalf of your company, and at the same time manage your own expectations around how quickly you can transform behaviors.
4. Be your own private investigator. A healthcare products company member shared how they check up on information passed on by local staff tasked with identifying new suppliers. The executive sends quote requests under a shell domain name directly to the same companies that their staff are quoting, and matches those to make sure there's no inflation. Fortunately they've found no pricing anomalies from their own staff to date.

This topic actually carries quite a bit of relevance in light of the current global economic slowdown. Our parent company, the Corporate Executive Board, has been working hard providing guidance to members on how to respond to the current economic crisis (see, for example, here, here, and here), and one of the items we've been emphasizing is, as our guidance has phrased it, "Difficult times often beget many more instances of less-than-perfect human behavior; counter this risk by closely managing ethical and leadership postures." In emerging markets in particular, many employees have been riding a wave of growth for several years, and this downturn introduces an era in their professional lives that many haven't before experienced. Be mindful.

Thinking About Eastern Europe? Adjust Your Lens

Although China and India often get all of the attention, companies seeking opportunities in emerging markets are often quick to mention Eastern Europe as their next opportunity, or at least their next region to explore. And for good reason. Eastern Europe’s close proximity to Western Europe, its growing economies and incomes, and its skilled populations, among other factors, make the region a natural target for expansion by Western European and US-based companies. Our members have found the region fruitful as a production base, and as a new market for sales.

We’ve been taking a close look at this region for our members over the past few months, and have learned a few things as we've spoken with them. Maybe nothing earth-shattering here, but important items to keep in mind, particularly for companies lacking experience in the region.

1. Stop Thinking About "Eastern Europe." Eastern Europe is not in itself a business environment (more on this below). It's too large (20 different countries) and heterogeneous (wildly varying development stages) to view it that way, and important differences exist between countries that must be understood. As we looked at key developmental characteristics across countries, including costs and the business environment, different levels of development and progress became pretty clear. We broadly group these into three “Tiers”: Maturing Markets (Croatia, Czech Republic, Hungary, Poland, and Slovenia), Rising Markets (Bulgaria, Estonia, Latvia, Lithuania, Romania, and Slovakia), and Developing Markets (Albania, Belarus, Bosnia and Herzegovina, Kosovo, Macedonia, Moldova, Montenegro, Serbia, and Ukraine).
2. Different Countries Are Going to Bring You Different Advantages. There is a trade-off between cost and level of development within each of the three country tiers. Maturing Markets are converging on Western Europe in terms of both cost of operations and market opportunity. Rising Markets are really stepping in to fill the shoes of those Maturing Markets, becoming new lower-cost operational centers with substantial potential but undeveloped markets. Developing Markets still have some work to do. They're holding the greatest cost advantage, but present heavy operating challenges and limited market potential.
3. The Best Opportunities Might Not Be Where You'd Expect. The traditional “best” countries may no longer be the best opportunities for business expansion. Eastern Europe is a rapidly evolving region. As Maturing Markets such as Poland, Czech Republic, or Hungary approach Western European levels for wages and other costs, companies are beginning to look beyond those markets to the next tier of opportunities in the region such as Bulgaria, Romania, or the Baltics.

Corporate Executive Board members who would like to take a look at the full study that provides more details on these country tiers, send us an email.

In Case You Stopped Worrying: Quality Issues in China Are Back

Concerns around quality and risk exposure in China sourcing raised during the summer of 2007 have re-emerged, or if they haven't they should have, in light of revelations of tainted milk from a number of Chinese companies.  Although its impact has so far been largely limited to inside China, this is as good a time as any to revisit China sourcing and partner relationship management strategies. We'd encourage companies to avoid the trap of saying "we don't have anything to do with milk," and "this is limited to inside China," wiping their foreheads, and continuing as usual. Chances are most companies continue to be fine, but a few lenses on this to mull over, and questions to ask yourself:

1. Do I fully understand the pressures my Chinese partners are facing? Rising commodity costs and slower sales are not just squeezing you; your suppliers are likely feeling this too. This is the classic root cause of quality fade in China: partners seeking to maintain or increase margins in the face of new cost pressures. Don't discount this.
2. Does this matter to me if my presence is limited to joint ventures? You bet it does. The closest the current milk crisis has come so far to directly impacting an international company has been the joint venture relationship between Fonterra (a New Zealand company) and Sanlu, the Chinese dairy firm that was first to be identified with tainted milk. Control is just as much an issue in a JV as it is in a traditional sourcing relationship.
3. How well do I know what's going on with my suppliers' suppliers? Another Western company impacted by this is Starbucks and its China operations. One of its dairy suppliers, Mengniu is blaming its suppliers for its problems. Surveys of our members have found risk management to be virtually absent beyond the first tier of suppliers. This is something worth addressing.
4. When's the last time I reviewed my supplier monitoring practices? If it's been a year, that might be a little bit too long. At the very least, you might want to conduct a quick refresher and tightening of procedures and awareness internally.

Partnership management and quality assurance have been constant topics of concern and discussion among our members, and we've learned a few things from them over the past year that are worth remembering in light of these recent events:

1. Do the things you know to be effective. Surveys of our members (Link for Quality Executive Board members only) have found that many fail to use the supplier quality management methods they know to be effective. Instead they focus on what's familiar. For example, almost 94% report using periodic supplier audits, but only 52% find it to be highly effective. On the other end, almost all of our members emphasize putting staff on site at a supplier as a highly effective strategy, but only 17% actually do it.
2. Use real-time evaluation when entering partnerships. Our conversations with experienced executives working in China have taught us that the more successful companies enter into partnerships slowly. But they don't do this the way you'd expect, by extending due diligence. Instead, they shorten their up-front due diligence process, and instead extend their integration ramps with partners, using this period to identify and resolve quality issues before they become customer-identified problems. This may mean some wasted production, but it reduces the risk of wasted partnerships from production failures down the line.
3. Provide tools and support to first tier suppliers to manage risks among their partners. Our members describe emerging practices (Link for Procurement Strategy Council members only) to engage their first-tier suppliers in the risk assessment process by making cooperation a prerequisite for partnership, and sharing risk mitigation practices with key first-tier suppliers to extend assessment rigor to lower tiers.
4. Ensure your own staff understand product safety protocols. One of our members described a frightening situation when they realized, shortly after news broke last year about lead in children's toys, that many of their own staff could not describe their quality assurance protocols for a number of key products. They developed simple check sheets to make sure this information was widely available, and focused heavily on ensuring their staff could pass the "pop quiz" test at any time for any key products where they had responsibility.


Some useful additional resources:
- [Sept. 25 Update]: Wall Street Journal's China Journal has a good run-down of indications that this is spreading outside China, here.
- China Law Blog has covered issues around quality extensively, and is always a good resource. Their most recent post, along with links to past advice, is here.
- Silk Road International has also been all over this topic for some time. Their latest, and links to great earlier advice, is here. While it targets smaller enterprises in China, the advice holds for all companies and is well worth a read.
- For perspective on the public relations aspect of quality issues, Imagethief has a useful offering here.

Whatever Your Temptations, Don't Leave Your Ethics at the Border

While big news of companies running afoul of general business ethics in emerging markets sprout up every year or so (see Alstom, Siemens, many others), experienced executives know that lurking dangers aren't exclusive to mega-contracts. Executives in emerging markets face pressures and decisions every day that can cross the line into unethical practices. What's harder, where that line exists is not always clear. Ernst & Young in its 10th global fraud survey found that 2/3 of respondents knew nothing about the Foreign Corrupt Practices Act--the emerging standard for ethical behavior globally.

One of our telecom industry members, considering entering an African nation, posed a question to our network around how others address variability in ethical practices across emerging markets. Strongest point coming out of responses from other experienced executives: Don't fall into the trap, even if it means reducing your competitiveness locally.

Some very useful tactical points also came through:
1. Clearly establish your own benchmarks: Members recommend developing detailed policy manuals for operating standards in international markets, including a section on dealing with bribes. This not only serves as an internal "check-point" for staff, but also as a leverage point in negotiating unethical terrain: "We've got clear policies here. See for yourself. Here are my limits."
2. Do it yourself: Third party relationships (brokers, distributors or agents, particularly when they're local) open you up to some very bad potential situations. These partners often won't consider themselves bound to the same restrictions as you are, and won't always feel a need to tell you how they're getting things done. Although some might view this as a plus--"Wasn't me. I didn't tell them to do that"--if things go wrong, you'll be in as much deep water as those partners, if not more. As one of our members put it, "Direct employees or proven 3rd parties are your only likely shot at conforming to business practices while maintaining ethical approaches."
3. Tease within your boundaries, but never go all the way: A health care industry member shared successes with hinting in negotiations at great things to come to get a foot in the door. "'Don’t worry we know how to look after our friends,' or 'we of course will show our deep gratitude after we get the contract.'” Of course this is often code for a bribe, but it doesn't have to be. The trick then is that once a deal is closed, small gifts like a watch with your company logo or a fancy dinner are sufficient. When the expectation of a payoff is then brought up, as the member notes, "you can say something like 'Oh, I would never insult a respectable person like yourself by offering a bribe.'" Caveat here is that it will probably only work once with any local party, and only a couple of times within any country. But once you're viewed as a lucrative partner regardless of your standard ethics, interactions and expectations can often change.

[CEB members who would like to view detailed member responses to this question, email us.]

Does Sustainability Mean Something Different in Emerging Markets?

We had an interesting conversation last week with a member in the telecommunications industry on the topic of sustainability. Two things in particular worth noting:
1. Although it's a global company with facilities around the world, sustainability initiatives are being led not in the West but in their two China locations. In fact after two years they're just now thinking about how they can expand these efforts to other global locations. The logic is certainly sound: the two China locations host about 80% of global employees, and all of their sourcing and production is there.
2. More importantly, the heightened attention to sustainability is a direct reaction to Chinese government policy and its heightened scrutiny of environmental impact. This member did not share the view that enforcement is or will be weak. What's more, and harder, they see the government holding large (mostly Western) companies more and more accountable for enforcing sustainable practices throughout their own supply chains. In other words, if your supplier is dumping chemicals into the local lake in the process of working for you, you're in just as much trouble, actually probably more, as they are.

The news here is this: Sustainability in China is not a joke. It should be a central aspect of your company's "green" strategy, and if you don't have a "green strategy" it should still be a central aspect of your China strategy.

Here's what our members are telling us they're doing:
1. Play to Stay: Companies in general anticipate a very long-term presence in China. What they're doing less often is matching that ambition with actions that support a long-term presence over short-term margin gains. Looking the other way on unsustainable operations might keep costs down, but it also displaces efforts to get ready for emerging demand for a clean and socially responsible presence globally. It wins you no fans in China, and it wins you no fans in your home market.
2. Apply a Three-Pronged Approach to Sustainability: Companies operating in China are organizing their approach to sustainable business more comprehensively than the "traditional" lens suggests, focusing on environmental, social, and economic aspects. This comprehensive view is particularly important in emerging markets, where companies can be exposed on a variety of fronts.

What does the "three-pronged" approach look like? On the environment, companies are doing the expected--reducing material and energy use, monitoring pollution--as well as the less expected--collaborating with local partners to encourage environmentally friendly practices. Social sustainability looks different in China, focused (in addition to labor, health, and safety practices) on building skills and helping Chinese businesses and employees become self-sufficient. Similarly, approaches to economic sustainability in China are slightly different, emphasizing improving the long-term economic environment there as well as long-term business viability by developing local skills, knowledge, and technology.

China might be different than other emerging markets in some ways here, particularly in the desire for companies to maintain a long-term presence there. But there are many places where the ambitions are, or will be, similar--Brazil, India, Russia, Indonesia, Philippines. companies will have to think hard about how the notion of a sustainable (read: self-sufficient, long-term, profitable) business presence fits into their environmental and social impact on emerging markets.

China Price Rising, So What?

Apart from events surrounding the torch relay, the China story in 2008 so far has been one around  rising costs. Raw material price increases, rapid inflation, steady currency revaluation, tax law changes, labor law changes, and more, all combining in what one of our members has called China's "Perfect Storm." Reporting on these trends suggests that China is finished as a long-term sourcing location: people are leaving, Vietnam and other Asian locations are the future, Chinese companies are themselves sourcing in the U.S. for cost advantage.

Not so fast. A conversation early last month among a number of our members sourcing in China demonstrated that, while cost in China is getting troubling, few have any plans to pack their bags. Two root causes here:
1. China's A Critical Market: If you're targeting China as a market, cost increases are still an issue, but largely off-set by reduced logistical burdens of producing elsewhere, market knowledge gained from an intensive local presence, and goodwill generated through job creation and value-added local production.
2. Few Better Options: Our members recognize that in many cases China remains a tough location to beat, and they wonder how likely other locations are to hold any advantages they currently demonstrate. One company has Vietnamese sourcing partners requesting 30% increases this year; others are closing facilities in Mexico to source products, for the U.S. market, in China because costs in Mexico were too high. Indeed, many of the raw materials and labor cost increases impacting companies in China are reflective of global trends (China's new labor law notwithstanding) rather than anything China-specific.

So what are companies doing? Our member conversations suggest three strategies that introduce some cushion to the impact of China's cost trends:
1. Adopt A China “Plus” Mentality: Companies are sticking around, but diversifying their sourcing strategies to scale back production in China while ramping up additional locations.
2. Build Production Agility with Added Locations: Members are using new partners in new locations to manage cost volatility by shifting production volumes geographically in response to cost trends.
3. Use New Partners for Leverage: Members emphasize the negotiation leverage that has emerged with additional partners both within and outside China.

This location leverage is of course not the only tactic: reconsidering product "recipes", general supplier improvements, stronger negotiation tactics, and looking to customers to off-set some increases were all mentioned, among others. Underlying all of this, though, is a long-term commitment to China. It's not going away; and leading companies are not leaving.

[CEB members who would like a copy of the full conversation summary from this event, email me.]

Keep Your Head Down, Let A Billion People Yell at You, Then Continue Selling to Them

The evolution of Beijing Olympics "enthusiasm" in recent months has brought few smiles to Western executives. First (seems like ages ago) threats of a backlash by Western customers for China's association with Sudan, then even more real fears of a backlash by those same customers for violence in Western China, and most recently a "backlash against the backlash" by Chinese customers for reactions to the first two. Few saw the last coming, but it dramatically complicates things. Strategies for now (and likely going forward) have been for Western companies to downplay their Olympics associations outside China, and drape the brand in Olympic pride within. As noted recently in the Wall Street Journal: "Initially people imagined they would have one global marketing campaign for the Olympics. Now the theory is that you need a separate campaign for China versus the rest of the world," says Greg Paull, the principal of R3.

What this "double-sided" strategy doesn't help with is Carrefour's recent troubles in China: largely innocent victim of Chinese nationalism reacting to events surrounding the torch relay in France in April, the company now faces a Chinese boycott and status (along with CNN) as the official victim of Olympic pride gone wild. The good news here is that if history teaches us anything, it's that these matters have a way of running their course. Dell, Heinz, Kraft, Procter & Gamble, Burberry, Starbucks, and others have all faced similar fervor [CEB subscription required] in China and all survived and now prosper. Most recently, McDonald's and Yum Brands around this time last year faced backlash from accusations of underpaying student workers in China. One year later, and all is better than well for both, with Yum experiencing 12% growth in China in 2007, and, incredibly, named by CCTV as one of China's 10 best employers.

The Carrefour, Yum Brands, and many other company experiences carry a few take-aways for companies worried about navigating the public relations minefield of China:
1. Be Ready Even When You Don't Think You Have To Be: In most cases these companies were playing by the rules in China, and were simply swept up by misunderstandings or became representative victims of larger movements. This makes active issue sensing [CEB subscription required] important, but also means setting yourself up to withstand any backlash is probably even more important.
2. Emphasize Your Commitment to China: In hard times and in good times, make your long-term commitment to, and respect for, China evident. This does not mean fawning, but rather investing in training employees, serving local communities, and otherwise demonstrating you're providing local value. Not much different, really, than what you'd do anywhere else.
3. The Government Is Your Friend: More important than diplomatically crafted public relations statements, which hold little sway against an Internet-fuelled tide of negative sentiment, is quiet and determined interactions with key government contacts to reinforce your commitment to China and gain their help in calling off the rigor. Cultivate these relationships preventatively, and use them actively in case of emergency.
4. Wait It Out: It will be rough; but it will go away. And when it does, as the WSJ notes, "For the sponsors that stay the course, there is more upside in the relationship they build with their consumers in China than downside globally."

On Intellectual Property, Emerging Markets No Different from Your Home Markets

We hear time and again the intellectual property "leakage" fears, and actual horror stories, from companies entering emerging markets, particularly China: there are no standards, employees don't understand intellectual property, the legal/judicial systems don't enforce the laws on the books. This has led many of our members to think twice about entering emerging markets at all, and when entering to think twice about sending their "leading edge" products and processes to those markets. While this may or may not have actually kept them safe, it has certainly kept them from fully capitalizing on growth opportunities.

Today we heard a different perspective and one that was quite instructive from a member (nearly $5 billion in sales last year, 60% of that outside the US) during one of our "EPNDesk" sessions. Among many valuable take-aways, two were particularly relevant to the emerging markets context:

1. Emerging Markets Aren't Standing Still: If you bring your "B Game" to China, you will be quickly surpassed by local competitors, who will copy it, improve it, and sell it for less. This member is committed to aggressively serving customers to China, and finding new ones there, and recognizes that the need for innovation in emerging markets is just as strong as in Western markets.
2. A Globally Consistent IP Strategy Is Critical for A Global Business: As this member's global footprint continued to grow, so did its need to be more cautious about how intellectual assets are managed. But a deliberate decision was made to globalize this effort, not singling out particular locations for added attention or vigor. The imperative here is two-fold: "calling out" particular geographies doesn't win you many points in the battle for employee commitment, and uncommitted employees anywhere are more dangerous and real than "rogue" employees from lawless countries. Further, global collaboration and the innovation and ideas that follow don't happen when the rules are different across locations.

So if you're entering a new geography or are already there, ask yourself, your colleagues down the hall, and your colleagues around the world whether you've got a global strategy for protecting your intellectual assets that is focused on, as our member put it today, (1) teaching all employees what intellectual assets are and why they're important ("so you have a place to work tomorrow"), (2) ensuring access to what people need to do their jobs well, (3) clear business-focused (not geograpy-focused) protocols for managing exceptions, and (4) minimizing barriers to aggressively pursuing new ideas and new growth opportunities.