Multinationals Turn to Entrepreneurs for a Foothold in Emerging Markets
It's a script-flip for offshore investment: After years of ho-hum growth in the U.S., some of the world's biggest companies are hoping to expand their businesses by helping new entrepreneurs in far-flung markets with theirs. The approach may sound at first like an inflated corporate social responsibility initiative, but for such companies as Ernst & Young, SAP, Dell, Coca-Cola and others, connecting with the scrappiest of startups actually improves their own bottom line.
"There are so many reasons why moving toward emerging markets goes beyond [corporate social responsibility] to good business thinking," says David Wachtel, senior vice president of marketing at Endeavor Global, a nonprofit that mentors high-growth entrepreneurs in 15 countries across Latin America and the Middle East. "Our corporate partners are interested not only in becoming smart global citizens. They're looking at where the growth of their products and services will be in the next 20 to 30 years."
This year, Ernst & Young teams up with Endeavor to send 50 employees around the world to countries as diverse as Colombia and Indonesia where they will each work with a local small business for a six-week stint.
"If we looked at Endeavor as a charitable investment, we could only spend so much money," says Randy Tavierne, global markets leader for strategic growth markets at Ernst & Young. "Instead, we take the approach that it will help our people, our business and our brand." The program, which began in 2006 with just eight participants, is a win-win, he says. Ernst & Young employees learn crucial entrepreneurial skills including innovation, strategic direction and leadership, while it also helps bring new clients into the firm.
SAP's Emerging Entrepreneur Initiative, a three-year, 2-million-euro commitment that engages Endeavor and similar nonprofits, has a direct link to its core business. This year SAP will foster as many as 50 young companies in Brazil, India and parts of Africa with a goal of strengthening their sales pipeline of small and midsize businesses. It's a sign of the times, says Nicolette VanExel, SAP's director of corporate social responsibility, who calls the investment a strategic approach to grant-making. "We're this big dinosaur, powering most of the Fortune 500 companies, but we look at these fast-growth markets as an opportunity to build the longer-term value for SAP, which is about establishing a healthy ecosystem for entrepreneurship."
The world's largest emerging market, however, knows no borders. As many as a billion women could potentially enter the global economy in the next decade, according to a Booz & Co. analysis of International Labor Organization data released in 2013. Dell aims to empower the most promising female founders and bolster them with its technology. This Sunday in Istanbul, the Dell Women's Entrepreneur Network will convene its fourth annual invitation-only conference.
"Dell operates in more than 100 emerging countries and has seen double-digit growth in many of those markets ourselves," says Karen Quintos, senior vice president and chief marketing officer for Dell. "Why not open up our large network of partners, suppliers and customers to women entrepreneurs to help them achieve similar results?" Previous gatherings of the Dell Women's Entrepreneur Network were in Shanghai, Rio de Janerio and Delhi.
Fostering female entrepreneurship has been a big focus at Coca-Cola since 2010, when at the Clinton Global Initiative annual meeting CEO Muhtar Kent announced the company's pledge help to 5 million female entrepreneurs -- each of whom head small businesses somehow linked to the company -- by the year 2020.
"We all know that women disproportionately reinvest what they earn back into the development of their family and in the economy, as they buy things for their children," says Charlotte Oades, global director for women's economic empowerment at Coca-Cola. The program, dubbed Five by 20, now in 12 developing countries, including Costa Rica, Haiti, Nigeria and the Philippines, hits every link on the value chain, from the farmers and distributors to retailers and the artisans who repurpose empty packaging into art.
Of course the quintessential example of multinational corporations supporting small business in emerging markets remains their investment in a service that helps them get their own job done, for example, paying security contractors in Iraq or a transportation outfit in rural China. But what can be lacking is role models, says Tarun Khanna, the Jorge Paulo Lemann Professor at Harvard Business School. While countries like Turkey and India have thousands-of-years-old mercantile systems, he says, local startups hoping to take a Western approach to business often need guidance.
"The thing that's very scarce is mentoring capacity, so having another game in town, like a Dell, will allow them to come into the market," he says. "Now, what would be very useful is if local companies who are very well-established in Turkey would pick up on this and do it themselves, as a proof of concept."