Lessons from Tunisia

The Financial Times (26.2.11) carried an interesting front page piece describing how car firms operating in Tunisia were "reconsidering" their relationship with former President Ben Ali. 

A tad late, I think. 

This suggests that  many global firms have not learned the numerous lessons from past experiences of investing in developing markets. 

The experiences of Suharto's regime in Indonesia, where western firms and banks made catastrophic bets on their relationship with corrupt and much despised family members, come to mind. 

All too often, firms seek a quick way to market access by fostering close relationship with an autocrat's family. These "relationships" are built on a mutual return of favors: A blind eye is turned to on-the-ground corruption in return for access to key decision-makers. Such relationships become quickly mutually reinforcing. Firms get lazy and complacent. 

As a result, otherwise clean global firms watch helplessly as their products are smashed up on global TV networks, and the autocrat and his or her extended family head for the airport. An all too familar picture. 

In these situations global firms are not just "doing business". They are reinforcing the very unstable and rigid regimes that enticed them into a trap. They are causing great harm to the societies in which they trade by enabling a regime to enrich itself at the expense of their people, causing long term political and economic instability. Think of the Pahlavi regime of Iran and how we  all continue to suffer the consequences of the corruption that took place in his regime on a grand scale, with complicity and full knowledge of respected global firms operating in Iran under his grace and favor.

A better and more effective way has to be found to enter and trade in developing markets. Firstly, I am a pragmatist and I know that relationships are the life blood of business in developing markets. Unless you know the right people, you're not really in business at all.

However, here are a few pointers as to what global firms can do to build sustainable and diverse relationships in developing markets:

1. Build a broad base of relationships, not just a dependency on one regime. Do not enter a market unless you are allowed to do this. 
2. Be very clear and transparent about the nature of these relationships
3. Express your ethical values in this relationship; and insist on transitioning to professional purchasing and contractual management within a brisk time period. 
4. Insist on audits of local partners.
5. Promote vocally economic and social (and even political) reform, to promote the general development of the community in which you trade.
6. Beware of hidden and implied reciprocal favors forged in Karoake bars by junior and middle managers.
7. Play a long game in these markets, and be prepared for short term obstacles put up by greedy autocrats negotiating for a larger slice of "their" pie. 
8. Do not build business plans or make commitments to investors assuming the continuation of autocratic rulers.

If investing firms follow these suggestions they might make a real positive difference in the communities in which they are investing. And, they will reap long term benefits to their global brand.