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Business Management

Srini Addepalli (South Africa) - To South Africa and Beyond - Barriers and Opportunities for Investment in Emerging Markets

A recent study entitled Connected World highlights the growing influence of developing markets in the global economy. The extensive independent research commissioned by Tata Communications and Neotel surveyed 1,600 business leaders from ten emerging and developed markets, challenging some preconceived ideas and attitudes around emerging economies, and discovering where the emerging markets themselves are looking for growth.

According to the Connected World report, 74% of business leaders in South Africa look to other emerging markets rather than developed markets for growth lessons and best practice. Furthermore, South African companies expect to increase their investment in emerging markets, including South Africa, by one-third in the next year.

South Africa is also on other emerging markets’ radar for growth opportunities. Around one-fifth of emerging market respondents from China, India, the Middle East and South Africa selected South Africa as the market that offers the most opportunity for rapid growth, ahead of higher-profile hubs for investment such as Russia and the United Arab Emirates. Additionally, almost half (46%) of respondents from South Africa identified their home market as offering the most growth opportunity to them, while nearly one-quarter selected China and 22% chose India.

40% of South African businesses have already set up operations in emerging markets, but the survey suggests that South African businesses also appear to be more interested in exploring domestic opportunities than venturing abroad at present. Only 34% of companies in South Africa are currently looking at operating in emerging markets, compared with 61% of businesses in China and India, for example.

The Connected World study also unveiled insights into drivers for investment into emerging markets. Of all respondents, South African companies are most likely to look to new markets in order to benefit from cost savings – almost half of South African business leaders surveyed associate emerging markets with cost effectiveness.

Despite the huge growth opportunities, there are significant challenges ahead of those looking to operate in emerging markets too. Government regulation, established competition, finding skilled staff and the lack of a reliable or secure communications infrastructure were selected as the single most critical challenge by most respondents. Many business leaders also cited the lack of talent as a major barrier for moving into emerging markets. However, the kind of talent valued varies significantly from market to market, with 60% of South African respondents citing software development skills and communications technology experience as key factors for investment, while 52% of Middle East based respondents focus on business management and 63% of Chinese business leaders value general education levels.

The study highlighted the importance of a reliable communications infrastructure for businesses to take the leap and move into a new emerging market. Four in ten business leaders globally stated that a lack of a secure communications backbone would prevent them from entering a new market. This shows that a robust telecommunications infrastructure is a must-have for any country that wants to compete internationally and attract foreign direct investment.

With emerging markets learning from other emerging markets the question has to be – what can developed markets learn from the more dynamic and faster developing economies worldwide?  Developed markets may have the advantage of infrastructure today, but with the focus on communications shown by this study, they should not assume that this is an advantage that they will hold for long.

By Srini Addepalli, SVP Corporate Strategy, Tata Communications

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