What most people know about emerging or frontier markets is that entrepreneurs face a multitude of obstacles. What is less visible is that the challenges are true for the local entrepreneur, and the international investor alike.
My own experience of working in emerging markets, such as Ukraine, Kazakhstan, and Vietnam, has taught me three invaluable lessons about the nature of engaging entrepreneurs and enterprise in these markets, and all three are lessons that I learned from my first business venture.
Shortly after the collapse of the Soviet Union, like most heavy industry regions, business was floundering in north-western Kazakhstan. In the mining region of Zhitigara, local industry suffered from years of mismanagement and neglect – leaving facilities underfunded, inefficient and unattractive. Because I worked and lived there as a post-crisis manager, I experienced these problems first-hand, but I also knew that gaining access to previously closed global markets presented an irresistible opportunity. I took a risk, and helped structure the first management buy-out at the time, taking over when the plant was on the brink of collapse. Together with a team of like-minded young entrepreneurs, we spent our money upgrading the technology and adopting a series of radical (at the time) managements changes. Our program – which required an on-ground commitment – ended up rejuvenating Zhitigara’s mining potential and reintroduced the industry to the global stage. Based on this success, our team launched the Kusto Group and over the next decade we were able to repeatedly capitalize on our learning, in other emerging markets.
So what precisely did I learn that provided a template for later success? One – take the plunge. Everyone knows that risk is inevitable in business, but it is even more so in emerging economies. Regardless, it is a necessary ingredient of eventual success so be bold, trust your instincts and try. Two – listen to the locals and be actively present on the ground. It’s easy enough to set up a skype conference call from London to Abuja, but that conversation is likely to yield far more benefits if it is had in a Nigerian café. Local knowledge and strategic local partnering is irreplaceable. Three – mind the gap. There will always be a gap in any emerging market, more often than not the secret to succeeding lies in leveraging technologies and best practices that are well-established elsewhere but not yet visible in your target market.
When Kusto entered the Vietnamese market in 2006, eager to capitalize on the country’s 7% annual growth rate, it was only by listening to and partnering with established local experts that we discovered our ideal market entry-point. Local intelligence told us that the booming construction industry had created a huge demand for high-quality building materials, so, together with our partners, we jumped at this. Guided by their expertise, Kusto solidified its position in the country began to diversify its portfolio. This holistic approach saw Kusto invest in the banking and real estate sectors, benefiting from various corners of this dynamic market by carefully heeding the advice of our local partners.
In Vietnam, Kusto’s success came from coupling local partners’ knowledge with internationally competitive practices and experience. This pattern is fundamental to entrepreneurship in emerging economies, where demand outstrips domestic supply.
Closer to home, in Kazakhstan we developed Compass. Compass is a chain of petrol stations launched in 2014 that offers the first high-end pump-side consumer experience in the country. The demand for a combination of high-quality fuel supply and retail convenience shopping was a gap in the market that our local expertise allowed us to identify. The unique service that we provide is a customized adaptation of a tried and tested model that our international experience made well known to us.
This process of learning and discovery is typical of Kusto Group. Our name itself comes from a nickname about the spirit of exploration that has defined us from the start – in the days before the Group formed, we were jokingly dubbed the ‘Cousteau team’ after the legendary explorer. We still live and work by this ethic, only now our drive to explore those emerging horizons is broader than ever.