Engaging With Startups in Emerging Markets

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. Far less is known about how multinational corporations should engage with startups in emerging markets such as China and India. To understand how multinational companies have partnered successfully with startups in emerging markets, the authors undertook a study in three major emerging market economies: India, China, and South Africa. Their research uncovered four key factors, and they suggest a strategy for addressing each factor.



The first key factor, the authors say, is the immaturity of the entrepreneurial ecosystem. Specifically, most emerging markets are afflicted by constraints and voids in their institutions. The authors recommend that multinational companies address this factor through programs that compensate for the immaturity of the entrepreneurial ecosystem, and they provide examples such as an IBM Corp. program that provides training, mentoring, and events for startups in China.



The second key factor is the increasing appetite for entrepreneurship in some emerging markets. Multinational companies can respond to that by committing resources to initiatives such as training to accelerate the growth of startups -- something Microsoft Corp. has done in India. The third factor is that Western multinational companies are constrained by their status as outsiders in emerging markets -- a factor the authors suggest global companies address by working with local groups. Fourth, the authors note, startups in emerging markets offer global companies access to innovative technologies.