U.S. banks with international aspirations are exploring expansion opportunities in developing countries. They are doing so because of the slow growth and thin spreads found in most of the developed world.
While researching these opportunities, they are encountering challenges not often found when investigating more developed markets. Overcoming these hurdles requires the use of teams with both U.S. and local members. Such joint teams pose their own hazards, which must be recognized and actively dealt with if developing country opportunities are to be assessed successfully.
As anyone who has assessed foreign markets knows, the work required is often made difficult by lack of easy access to the necessary information. This is particularly true in developing countries, where statistical data are often limited.
Complicating the problem is that cultural characteristics, mores, and the daily operating environment of a business are very difficult to discern from statistical data alone. These qualitative elements can have a material impact upon the attractiveness of a developing market. Typically, these factors can only be discerned by those who have direct local market experience.
Experience suggests that much of the basic research needed to assess an opportunity in a developing country should be done by locals. Language problems are minimized, and the qualitative aspects of the market can best be addressed this way.
In addition, a reasonable chance exists that the paucity of published data can be overcome through creative use of contacts in the business and regulatory communities. Finally, this approach usually proves more cost- effective than putting a U.S. team on foreign ground to do basic research.
There is, however, an active role for a select set of U.S. participants at this stage. That role should include setting a standard point of departure for the work of the local market research teams. These standards should include data collection formats.
Having selected the developing country to be investigated, it is often useful to divide the research effort into two phases. Phase one focuses on creating a screening profile. When complete, typically in six to eight weeks, the contents of this profile are used to complete the country attractiveness assessment.
Developing a working idea of a country's relative attractiveness about halfway through the research process is highly desirable. This forces the team to collate its facts and aids in the identification of key gaps that need to be addressed before completing phase one. Both the timeliness and quality of the results are materially improved through this step.
If the country proves attractive to the U.S. bank, the second phase is activated-in which a joint team of U.S. and local analysts develops an entry strategy. This will frequently involve screening for joint venture partners or acquisitions. In this context, the U.S. team contributes a clear understanding of its bank's capabilities and potential contribution to any joint undertaking.
The local team provides early and significant insight into the strategic and operational fit between the U.S. bank and potential partners. In addition, the local team's knowledge of, and access to, key regulators and government officials will prove invaluable in many developing countries.
U.S. analysts should recognize that team members from a local developing market may have rather different standards when doing market entry research. Extremes run from an excessively academic approach, characterized by an overreliance upon government data, to the view that anecdotal observations alone are sufficient to support decision-making.
This problem can be addressed through predefined questions and frequent discussions.
To the degree that primary research with developing-country customers is a focus, be aware that this is often difficult to accomplish in a timely way. In corporate markets especially, interviews that appear firmly scheduled may in fact not be. This can lead to significant delays in data gathering as well as to cost. Plan to take about half again as long to do this type of research in a developing market as you might in the United States.
Finally, do not assume that the use of local analysts removes the need for country visits by U.S. decision-makers. Direct experience with developing countries, even if only in the form of a comparatively short set of visits, is invaluable. Such direct experience gives the decision-maker a personal context within which to evaluate the research team results. Plan such visits for the end of phase one and during development of the entry strategy.
