Preface

The research journey for this book began fifteen years ago when we were teaching in a Harvard Business School Executive Program, Managing Global Opportunities in China and India. The program targeted Western multinationals and investors interested in business opportunities in the then rapidly growing Chinese market and the newly liberalizing Indian market. In Mumbai, as part of that executive program, we invited Ratan Tata, chairman of Tata Sons Limited, to share with the group Tata’s strategy for the new Indian market. We were surprised to see Western executives’ reaction to Tata’s ambitious plans for exploiting the new ambient opportunities. Their experience in Western markets had convinced these executives that emerging market business groups like the Tata’s, consisting of several dozen companies in disparate, seemingly unrelated businesses, were anachronisms, doomed to go the way of the dinosaurs unless they radically restructured and focused on one or two core businesses. The disconnect between how emerging market senior leaders like Ratan Tata and leaders of Western multinationals in our executive program thought about the strategic implication of emerging market opportunities was truly fascinating to us.

Diverging perceptions about the right way to do business in emerging markets varied not only in our program. As we examined the subject more widely, we observed that many multinational executives, academics, and consultants had developed their ideas about strategy and execution based primarily on data from mature Western markets, and assumed that what worked in the West would work in emerging markets as well. Why, they reasoned, should emerging markets not take a page out of the painful evolutionary lessons from the mature markets and embrace their best practices in toto? But business leaders and entrepreneurs in emerging markets, drawing from their ground-level experience, intuitively felt that emerging markets were different. Who was right? Why were the perceptions of doing business in emerging markets so different between the two sides? What was the most reliable advice one could give to top executives of Western multinationals and investors—and emerging market business leaders and entrepreneurs—on how to win in emerging markets? These are the questions that led us on our fifteen-year research and teaching journey.

During this journey, we studied many companies and wrote dozens of cases on doing business in emerging markets—emerging market entrepreneurs trying to build world-class companies, multinational companies trying to seize new opportunities in large emerging markets, and investors financing both sides. The multinational companies we studied include: General Motors in China, L’Oréal in India, Monsanto in Brazil, McDonald’s in Russia, Home Depot in Chile, Tetrapak in Argentina, Microsoft and GE Healthcare in China and India, and Metro Cash & Carry in Russia, China, and India. Emerging market companies we studied include: Haier from China, the Tata Group from India, Dou Group from Turkey, Cemex from Mexico, Agora from Poland, Jollibee Foods from the Philippines, South African Breweries from South Africa, Li & Fung from Hong Kong, and Blue River Capital from India. We published more than a dozen articles in academic journals in strategy, economics, and finance journals using data from a dozen emerging markets and hundreds of companies doing business there. And we wrote several Harvard Business Review articles outlining our findings and recommendations: “Why Focused Strategies Might Be Wrong for Emerging Markets,” “The Right Way to Restructure Conglomerates in Emerging Markets,” “Strategies That Fit Emerging Markets,” and “Emerging Giants: Building World-Class Companies.” We also taught these ideas to hundreds of executives and MBA students both at Harvard Business School and at many companies around the world.

The crux of this book is to advance a structural framework for thinking about the nature and extent of differences between emerging markets and mature markets on the one hand, and among emerging markets on the other. That is, the so-called BRIC economies—Brazil, Russia, India, and China—differ from the United States, the United Kingdom, and Japan on the one hand, but they also differ from each other quite extensively. We specify how. In particular, we articulate a framework to calibrate the differences in soft and hard institutional infrastructure—we refer to the absence in emerging markets of things we take for granted in our backyard in Boston as institutional voids—that permeate emerging markets, and then offer solutions for dealing with these.

This book is thus an important marker in our exciting ongoing intellectual odyssey. In a way, we are fortunate that we started our journey when emerging markets were not as fashionable as they are today. That way, we could take our time, dig deeper, and learn what we consider to be robust lessons. Fortunately, emerging markets are of great continued interest to many executives, scholars, and business students. The recent financial crisis, originating in the West but sweeping the whole globe, has made emerging markets even more relevant than ever for two reasons. First, many in business and government are convinced that a significant part of growth in the next several decades is likely to come from emerging markets. Second, lessons and innovations from emerging markets may be relevant for Western mature markets, as consumers become more cost and value conscious, as their economies work their way through the debris of the financial crisis. We feel fortunate that we are able to offer ideas, based on unhurried research, on a timely topic.

We are the beneficiaries of immense help from many different sources. First and foremost, we are grateful to Harvard Business School for providing the intellectual environment to focus on our research, providing the financial and institutional resources to pursue it over a period of fifteen years, and creating the educational opportunities to test the ideas with hundreds of MBA students and participants in our senior executive programs. We owe these students, and many of our faculty colleagues, deep gratitude for helping us hone these ideas. Second, we are grateful to the many business leaders who agreed to share their insights with us as we developed many of the cases discussed in this book. Without their willingness to help us learn, we would not be in a position to create the ideas in this book. Third, we are grateful to Richard Bullock, our research associate for three years, for helping us synthesize our work and for helping create this manuscript. He has been an invaluable partner. Finally, we are grateful to Harvard Business Publishing for publishing all our cases and articles in Harvard Business Review, and thus helping us disseminate many of the ideas in this book as they were being developed. Thanks are particularly due to two Harvard Business Review editors, David Champion and Anand Raman, who worked tirelessly to help sharpen our ideas. The book benefited immensely from the encouragement and support of our editors: Kirsten Sandberg, who guided us through the initiation of this project, and Jaqueline Murphy, who helped us through its completion. We also wish to thank the other members of the Harvard Business team who worked with us on this project—David Goehring, Ania Wieckowski, Stephanie Finks, and Allison Peter. It was indeed a pleasure to work with these world-class publishing professionals.

Since we are Boston based, working in the field in emerging markets meant logging many, many airline miles. This would not have been possible without the unbelievable support of our families. We owe an immense and heartfelt debt of gratitude to our understanding young children and to our incredibly supportive spouses.

Tarun Khanna and Krishna G. Palepu

Boston, MA

November 2009