Challenges of partnering with startups in emerging markets

BY GODWIN ANYEBE

For large global companies, forging effective partnerships with high-potential startups has been proved not to be easy.

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

Far less is known about how multinational corporations should engage with startups in emerging markets such as China and India – even though those markets already boast the presence of prominent multinational companies such as Amazon, Google, IBM, Microsoft, and SAP.

To understand how multinational companies have partnered successfully with startups in emerging markets, a recent research work undertook a study in three major emerging market economies: India, China, and South Africa.

The research uncovered four key factors that multinational companies confront in such partnerships in emerging markets.

Strategies

The latest research has shown that there are unearthed four strategies -one corresponding to each of the factors -to help global companies engage with startups in emerging markets more effectively.

While some factors may be more potent than others for a given multinational corporation, all four of these strategies are worth paying attention to.

They are mutually reinforcing, interrelated strategies and should be viewed holistically rather than in a piecemeal fashion.

In general, multinational companies that want to partner with startups in emerging markets must bear a greater burden to compensate for deficiencies in the entrepreneurial ecosystem.

Notwithstanding some remarkable success stories in some emerging markets have indicated that startups generally need some hand-holding from global multinational partners, given their lower levels of technical know-how.

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Several global companies provided this support by supplementing their global startup programs with localized content that was tailored to the particular emerging market.

A case in point is IBM’s Global Entrepreneur Program in China. An important facet of the Global Entrepreneur Program around the world is free access to various IBM software technologies.

In China, for instance, IBM localized this feature by also providing access to training — helping developers boost their skills to global standards.

Another worldwide feature of IBM’s Global Entrepreneur program is its SmartCamp initiative, a contest that provides startup entrepreneurs with the opportunity to make a pitch to prospective investors.

Indeed, mentoring is an important component of several multinational corporations’ startup engagement programs.

High-quality mentors are scarce in emerging markets, so some multinationals make a strong effort to cultivate mentor networks — and contribute to the mentoring process themselves.

Microsoft’s enhanced BizSpark program in South Africa is one example. Globally, BizSpark provides young startups with free access to Microsoft technology; in South Africa, which has a comparatively weak entrepreneurial ecosystem, Microsoft augments this offering by providing mentoring support, tailored to startups according to their stage of development.

Findings revealed that one of the key factors in an engaging start-up in emerging markets is committing resources to tap the entrepreneurial energy in emerging markets.

A second key factor is an appetite for entrepreneurship in emerging markets. Notwithstanding their constraints, emerging markets have opportunities aplenty.

In some cases, innovative, successful growth companies have spawned startup ecosystems in emerging markets; consider the agglomeration of software and gaming startups in Hangzhou, China, in the vicinity of the well-known e-commerce company Alibaba Group Services Ltd.

The increasingly mainstream appetite for entrepreneurship in emerging markets was apparent when NDTV, one of India’s leading television news channels announced that six startups with $1 billion valuations (so-called “unicorns”) were its collective “Indian of the Year” for 2015.

Another factor contributing to increased interest in entrepreneurship in emerging markets is the role of returnees from mature markets.

One study found that a sizable proportion of returnees coming from the United States back to China and India intended to start new businesses.

Perhaps also relevant is the inevitable slowing of growth in emerging markets, including China, which makes the potential for self-employment through entrepreneurship important.

Notable in this regard is China’s entrepreneurship policy initiative, announced in 2014 by Premier Li Keqiang. The title of the policy roughly translates to “entrepreneurship by the populace, innovation by the masses.”

Some multinational companies are responding to this opportunity by prioritizing emerging markets. For example, in 2012, when Microsoft launched its Microsoft Accelerator initiative, a program providing support and training for high-potential startups, the program included a focus on emerging markets: Two of Microsoft’s first four accelerators were located in Bangalore and Beijing.

Microsoft’s focus served as signals of commitment and interest to local startups in emerging markets. Importantly, the actions led to meaningful measures in these locations to bolster entrepreneurship.

In Bangalore, for example, Microsoft Ventures has leveraged the “10,000 Startups” initiative of the National Association of Software & Services Companies (NASSCOM), a trade association for the software industry in India.

Specifically, Microsoft Ventures has become a sponsor of the “10,000 Startups” program, along with prominent peers such as IBM, Google, and Amazon Web Services. Furthermore, in addition to its accelerator in Bangalore, Microsoft Ventures has an extended portfolio of activities in India through its coInnovate program.