BRIC

Taking your company overseas? Look before you leap.

August 17, 2011: 11:40 AM ET

Sure, emerging markets provide opportunities for tremendous growth in business. But companies need to do their homework before going abroad.

By Shelley DuBois, writer-reporter

FORTUNE -- Ask just about any CEO about the best growth strategy, and you'll hear about faraway places. Business leaders, frustrated with sluggish developed markets, are looking abroad for future growth.

This can be a great approach for many companies, as Fortune pointed out last week. But while executives may feel the need to enter emerging markets to grow as fast as investors want, many mistakenly assume that a U.S.-born business plan will succeed abroad.

In fact, an overwhelming majority of companies enter emerging markets without doing their homework before setting up shop in other countries, says Randy Allen, associate dean for international and corporate relations at Cornell's Johnson School of Management.

Emerging markets may be attractive, but companies looking for an easy growth spurt are getting in over their heads. There are a couple of key points to consider before rushing abroad.

A BRIC imagination

"There is no such thing as BRIC," says David Martin, an emerging markets specialist with Deloitte Consulting. BRIC, a term coined by Goldman Sachs (GS), refers to the pack of countries -- Brazil, Russia, India and China -- considered ripe for new business.

But BRIC is a false grouping. For one, Russia has been much less exciting to big business since the downturn in 2008. And, in general, countries shouldn't be clumped together because each requires a distinct strategy. Even within countries, differences between regions make for different markets. The differences between, say, urban and rural areas in China require distinct business plans that take into account everything from consumer preferences to transportation.

While many companies think that making their products cheaper by removing features is the equivalent of tailoring them to emerging markets, Martin says, but they're wrong. While some markets may demand less expensive products, "you don't have unsophisticated consumers," he says, "they know what they're getting."

Word is bond?

Like consumer preferences, local legal systems in emerging markets can vary. In the United States, the contract is a strong binding force for businesses. But contract agreements in emerging markets can bend. In many markets, the strength of a deal depends more on a long-lasting relationship than a signed piece of paper, says Benjamin Jones, an associate professor at Northwestern's Kellogg school of management. Even those relationships can be jeopardized by fluctuations in the political climate. More

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