Globalization is creating huge opportunities for companies like MTN, which in the past two decades has grown out of its South African home market to become one of the most recognised telecoms brands in Africa and the Middle East. But robust risk management at a local level is key if companies are to make the most of the opportunities expanding into new markets can bring.
For Shauket Fakie, Christmas 2013 meant organising the emergency evacuation of his company’s employees from South Sudan, the world’s newest nation, which was then on the brink of civil war.
Such crises are all in a day’s work for Fakie and his team. As Chief Business Risk Officer at MTN Group Ltd, a leading telecoms provider in Africa and the Middle East, he is responsible for keeping a watchful eye on the myriad risks his company faces on a regular basis.
Established in 1994 in South Africa, MTN now has 204 million customers spread across 22 countries in Africa and the Middle East, including some challenging markets like Iran, Syria and Afghanistan.
MTN Group is just one of a growing number of companies expanding into foreign markets, in particular those in promising emerging or high-growth countries in Asia, Africa and Latin America.
Since the 1950s, an increasing number of companies have been benefiting from the rapid growth of international trade and the opening of markets. The numbers of multinational companies grew from around 7,000 at the end of the 1960s to almost 104,000 by 2010, according to UNCTAD.
That number is projected to reach around 140,000 by 2020.
The world at a company’s disposal
The world has seen a “big shift” from advanced to emerging economies, according to Pankaj Ghemawat of the Europe-based IESE Business School, and author of the annual Depth Index of Globalisation report. And despite a recent slowdown in growth for emerging market economies and a decline in foreign direct investment, the world’s output continues to shift from advanced to emerging economies, he says.
“If emerging economies tend toward advanced economies’ levels of globalization as they grow wealthier, the big shift beyond trade has only just begun,” he adds. The growing interest in emerging markets has also been reflected in the insurance multinational companies purchase, according to Vinko Markovina, who heads the International Insurance Solutions (IIS) unit at AGCS.
“Most large companies in Western markets have already invested in overseas markets, but what we now see is much more emphasis on emerging markets in Asia, Latin America and Africa. The world is now pretty much at a company’s disposal,” he says.
Many of AGCS’ large corporate clients are now present in around 20 to 30 countries, while some operate in as many as 70 countries, explains Markovina. As a result, the company has seen a noticeable rise in the numbers of local policies issued under its international insurance solutions.
Globalization is no longer a trend only for large manufacturing companies, says Markovina. AGCS has more recently seen an increasing number of clients in the service sector looking at opportunities overseas, while more and more medium-sized companies now require international insurance solutions. While still early days, a growing number of companies from emerging markets are also becoming more international and looking to buy international insurance solutions, he says.
Economies of scale and challenging risks
“In business, economies of scale are important and we have been able to achieve this by expanding our footprint in new markets. So globalization has been a big factor in our success,” explains MTN’s Fakie.
Expansion sometimes requires a degree of bravery, especially when entering markets where other companies fear to tread, he notes. Regulatory and political risks, natural catastrophes, unreliable infrastructure and competition are all challenging risks, but good risk gov ernance means that they are dealt with in the day-to-day running of the business. When the political situation in South Sudan deteriorated just before Christmas, Fakie knew that he could rely on local managers. Such crises happen but strong local risk management capabilities help the telecommunications company deal with emergencies quickly and efficiently.
Dealing with informal economies
Another key ingredient for success when expanding into new markets is to develop local capabilities and to assimilate, according to Fakie. “When expanding into new territories you have to master the local nuances if you are to make the business work,” he says.
A factor some companies often overlook is the relevance of the “informal sector”, an important part of many emerging economies. Indicators like GDP and unemployment in some emerging markets are enough to deter companies from investing.
“If you are prepared to be flexible then the ’informal sector’ can be turned into a business opportunity,” says Fakie. For MTN, adapting to the “informal sector” has meant selling “air time” through local street sellers, rather than a centralised telephone sales centre.
Protecting reputation and brand is another challenge not always associated with emerging markets. But when MTN acquires a company, maintaining quality and protecting reputation are paramount, explains Fakie. Past acquisitions have seen MTN invest heavily to bring equipment up to its high standards. “The quality of the network is key to our brand,” he concludes.