Emerging markets are high risk, high reward. In my work as a lawyer representing Western companies in emerging markets, I have come to the conclusion that there are four essential elements for success in emerging markets: a good companion, an open mind, active participation and extreme patience.

I have seen enough essential similarities between countries as diverse as Russia, Korea (ten years ago, when it was still an emerging market country), Vietnam, and even The Gambia and Papua New Guinea, to believe that certain central generalizations hold for everyone or almost everyone. . all emerging market nations. Just as a good concept, a strong market and good execution are necessary in all countries, these four simple principles are also the keys to success in emerging market nations.

PRINCIPLE ONE: A Good Partner is the sine qua non of success.

The quality of the local partner is the indispensable element for the success of the emerging market. So where do you start?

Begin with due diligence. Before doing business with someone, you must first determine what you need from your partner in the particular country in which you will be doing business. In my experience, foreign companies need a local partner who is efficient, cooperative and (most important of all) trustworthy.

Emerging market countries almost always have incomplete legal systems. Its laws often lean toward the government and away from the free market. Its courts are slow and often corrupt. Form takes precedence over substance in ways completely unknown to Westerners. A small technical error on your part could eliminate your right to sue your partner for stealing all your money. It could even lead to you and your company being expelled from the country, while your assets remain.

Of course, you should do everything possible to avoid technical errors, but the best strategy is to choose your partner well.

So what should you look for in a local partner? Political connections? Yes and no:

• Yes, because you’ll probably need someone skilled enough to navigate often stifling business laws and a bureaucracy that can try to intervene in your business at any time.
• Not if you think that’s all you’ll ever need. As in the West, politically connected people are often more of a “government guy” than a business person. Partnering with someone in an emerging country who you would never consider partnering with back home is a mistake.

Political influence in emerging market countries is often more effective in avoiding legal liability for something like debt than it is in generating business income. I have seen countless cases where a foreign company partners with someone because they “have a close relationship with the governor”, only to see the business crushed by the new governor as part of cleaning his house. The best partner is politically connected only to the extent necessary for commercial success.

Your partner’s character and reputation are your protection in countries where the judicial system is not. do not associate no meaning of that term without having conducted extensive due diligence.

Get to know your potential partner. If he’s legit and wants to work with you long-term, he’ll expect you to want to get to know him better and not want multiple meetings before signing any deal.

Use all the sources you have to find out about your potential partner. Check your references, particularly those of other foreign firms you have worked with. Hire a local attorney or investigator to confirm that he and his various businesses are up to date with all creditors and tax authorities. If his potential partner is in Vladivostok, Russia or Qingdao, China, hiring a lawyer in Moscow or Shanghai probably won’t cut it. Find someone you can trust with contacts where your potential partner does business.

PRINCIPLE TWO: Keep an Open Mind. Assume nothing.

Doing business in an emerging market means taking nothing for granted. I have a mantra for my own legal work in these countries that translates well in the business world: “Don’t assume anything, but assume that you are assuming things without even realizing that you are.”

Things will be different. Very different. Things you take for granted in your home country might not exist in the emerging market country. Things you take for granted in your home country may be the exact opposite in the emerging market country. The things you think will be totally different in the emerging market country may be exactly the same. The things you thought you knew about emerging market countries based on what you know about another emerging market country may be completely different in a neighboring country, or even in another region within the same country.

The principle, once again: Keep an open mind and don’t assume anything.

PRINCIPLE THREE: Participate in Everything.

In many emerging market countries, local businesses take advantage of corruption to avoid complying with the law. This may work for the locals, but it won’t work for you. The easiest way to get kicked out by a local rival is to do something illegal. Neither you nor your government will have good reason to complain if your rival goes out of business due to their illegal activity. It could even be your own partner who reports you so that you can assume full ownership and control of your business.

You need to have your own people on the ground, leading, training, and instructing in business methods, business ethics, efficiency, and quality control, among other things.

We have a saying in our law office that a day of face-to-face meetings with a local attorney is equal to a month of phone calls and emails in terms of getting things done. This is equally true on the business front.

PRINCIPLE FOUR: Exercise Extreme Patience.

This principle stems from the maxim that everything takes twice as long as you think. If it’s been twice as long in the West, triple in emerging market countries. You’ll go in as both an entrepreneur and a teacher, and in both roles, your partner’s learning curve will almost certainly take a lot longer than you think.

For example, many emerging market countries have a history where “bad business” meant “thinking long term.” A year or two after the fall of Soviet communism, I was involved in an affair in which an investor invested $250,000 in a Russian joint venture. The business was rapidly making a lot of money, and all indicators pointed to steadily increasing profitability. But, pretty quickly, the Russian company stole the $250,000. Was it so irrational for him to think so short-term in a country where the government and tax systems had such an unpredictable history?

Remember: patience is needed to encourage mindset change. Extreme patience.

SUCCESS IN EMERGING MARKETS

You can’t approach emerging markets with a quick-death mentality. Above all, success in emerging markets requires a good partner, an open mind, a high degree of involvement, and extreme patience.

It is certainly risky. It can also be very profitable.