Engaging With Startups in Emerging Markets
Startups in developing economies are addressing local problems through creative technologies and solutions. For large global companies, the prospect of working with such startups is appealing — and complicated.
For large global companies, forging effective partnerships with high-potential startups is easier said than done. The very traits that make such startups potentially complementary as partners also make it difficult for large companies to engage with them in the first place. Multinational corporations often struggle even to identify promising potential startup partners; startups, for their part, find it difficult to identify and reach the relevant decision makers within the often-confusing hierarchies of gigantic multinational companies.
The challenge, for both sides, is all the more vexing in emerging markets. Furthermore, most academic studies of the challenges that large companies and entrepreneurial ventures face in partnering — and the solutions the studies suggest — focus on mature markets, such as the United States and Europe.1 Far less is known about how multinational corporations should engage with startups in emerging markets such as China and India — even though those markets already boast the presence of prominent multinational companies such as Amazon, Google, IBM, Microsoft, and SAP.
To understand how multinational companies have partnered successfully with startups in emerging markets, we undertook a study in three major emerging market economies: India, China, and South Africa.2 (See “About the Research.”) Our research uncovered four key factors that multinational companies confront in such partnerships in emerging markets. We also unearthed four strategies — one corresponding to each of the factors — to help global companies engage with startups in emerging markets more effectively. (See “Key Factors in Partnerships With Startups in Emerging Markets.”) While some factors may be more potent than others for a given multinational corporation, all four of these strategies are worth paying attention to. They are mutually reinforcing, interrelated strategies and should be viewed holistically rather than in a piecemeal fashion.
1. See, for example, S.A. Alvarez and J.B. Barney, “How Entrepreneurial Firms Can Benefit From Alliances With Large Partners,” The Academy of Management Executive 15, no. 1 (February 2001): 139-148; and R. Katila, J. D. Rosenberger, and K. M. Eisenhardt, “Swimming With Sharks: Technology Ventures, Defense Mechanisms and Corporate Relationships,” Administrative Science Quarterly 53, no. 2 (June 2008): 295-332.
2. Emerging markets are commonly defined as those with significantly lower average incomes than those of wealthy countries such as the U.S., Japan, and Germany. The term “emerging markets” is often considered to cover most of eastern Europe, most of Asia, most of Latin America, and all of Africa. The four most important emerging markets were identified as Brazil, Russia, India, and China, or BRIC, by the investment bank Goldman Sachs in 2001, and later expanded to include South Africa. (See B. Hounshell, “BRICs,” Foreign Policy 185 (March-April 2011): 30-31.) Today, Russia has become a more challenging market for Western multinational companies, and its economy shrunk in 2015. While Brazil’s environment is open to foreign multinationals, its economy also contracted in 2015.
3. T. Khanna and K.G. Palepu, “Winning in Emerging Markets: A Road Map for Strategy and Execution” (Boston, Massachusetts: Harvard Business Review Press, 2010).
4. R.Y.J. Chua, “Building Effective Business Relationships in China,” MIT Sloan Management Review 53, no. 4 (summer 2012): 27-33
5. P.J. Buckley and S. Prashantham, “Global Interfirm Networks: The Division of Entrepreneurial Labor Between MNEs and SMEs,” Academy of Management Perspectives 30, no. 1 (February 2016): 40-58.
6. P.J. Williamson and E. Yin, “Accelerated Innovation: The New Challenge From China,” MIT Sloan Management Review 55, no. 4 (summer 2014): 27-34.
7. See “Six ‘Unicorn’ Start-Ups Get NDTV’s Indian of the Year Award,” February 4, 2016, www.exchange4media.com.
8. V. Wadhwa, A. Saxenian, and F.D. Siciliano, “Then and Now: America’s New Immigrant Entrepreneurs, Part VII” (Kansas City, Missouri: Ewing Marion Kauffman Foundation, October 2012).
9. Y. Huang, “What’s Next for the Chinese Economy?” MIT Sloan Management Review 55, no. 4 (summer 2014): 35-39.
10. J.F.P. Santos and P.J. Williamson, “The New Mission for Multinationals,” MIT Sloan Management Review 56, no. 4 (summer 2015): 44-55.
11. C. Bouquet, J. Birkinshaw, and J.L. Barsoux, “Fighting the ‘Headquarters Knows Best’ Syndrome,” MIT Sloan Management Review 57, no. 2 (winter 2016): 59-66.
12. S.H. Park and W. Vanhonacker, “The Challenge for Multinational Corporations in China: Think Local and Act Global,” MIT Sloan Management Review 48, no. 4 (summer 2007): 9-15.
13. J. Johanson and J.-E. Vahlne, “The Uppsala Internationalization Process Model Revisited: From Liability of Foreignness to Liability of Outsidership,” Journal of International Business Studies 40, no. 9 (December 2009): 1411-1431.
14. G.S. Yip and B. McKern, “China’s Next Strategic Advantage: From Imitation to Innovation” (Cambridge, Massachusetts: MIT Press, 2016).
15. N. Radjou and J. Prabhu, “Mobilizing for Growth in Emerging Markets,” MIT Sloan Management Review 53, no. 3 (spring 2012): 81-89.
16. Yip and McKern, “China’s Next Strategic Advantage.”
17. E.S. Steinfeld and T. Beltoft, “Innovation Lessons From China,” MIT Sloan Management Review 55, no. 4 (summer 2014): 49-55.
18. More information about the Microsoft Equity Equivalent Programme can be found at www.microsoft.com/southafrica/eep/about.aspx.