Or, what do the current economic conditions mean for your global expansion plans?
I was recently on a British trade delegation to India. Peter Mandelson, the British Secretary of State for the Department of Business, Enterprise and Regulatory Reform, was leading. The title of this post is a sound-bite from his speech at a televised debate with Minister Kamal Nath, his Indian counterpart, and entrepreneurs Sunil Mittal and Shiv Nadar.
‘Markets where possible, regulation where necessary‘. These are powerful words, articulating succinctly an ideological position, especially worthy of attention at a time when leaders of countries are scrambling to find a way out of a global financial and economic abyss. World leaders at the recently concluded Davos summit have also made noises registering caution against a wave of protectionism, as it rises. It is worth remembering that all this is applicable only to liberal democracies.
The bad times can, of course, be good times for those companies that offer relevant products and services for industrial customers and consumers. Despite downgraded growth projections, some geographical markets are still buoyant and offer opportunities for such companies.
For these companies to realise their plans, it may be necessary to parse the innocuous adjectives ‘possible‘ and ‘necessary‘.
In theory, regulation is deemed necessary where there is a real or anticipated market failure, i.e. where free market forces fail to deliver benefits efficiently or equitably to society, or where free market forces do not see a reason or a profitable way to deliver a service or goods. Laws that outlaw discrimination in the workplace or hiring practices, regulation that aims to control pollution or environmental destruction, or state-controlled utilities in natural monopolies are illustrative examples of where regulation may be deemed ‘necessary’. Additionally, regulation may be the preferred tool for a government to enable its developmental priorities or in economics-speak, endogenous preferences.
For companies, a deep understanding of the markets they seek to enter is therefore essential. If they are sensitive to the policy agenda in a country, they could choose appropriate strategies to enter, deliver services in and derive profits in a market.
In India, for instance, infrastructure and social infrastructure (health, education, employment opportunities and poverty alleviation) are developmental priorities. Companies that can offer competitive goods and services in these areas can be certain of a welcome in the market. In the UK, we may be seeking investment, skills and partnership in crucial areas, where the government’s flawed policy decisions from 15-20 years ago have now rendered us uncompetitive, but where the changed circumstances are forcing us to review our approach.
However one must also seek to understand how the actual mechanics of regulation may work. Let’s say the policy agenda requires that a new bank must provide rural banking. But if the central bank will only ever issue 2 branch-opening licences in a year, the cost and profit projections may need substantial adjustment.
In a liberal democracy, especially an evolving one, it is worth understanding the trajectory of regulatory change so as to know which sectors may have nascent or true free markets. For instance, India’s legal sector liberalisation has been of interest to British law firms for a while. It was a major theme for the recent trade delegation too as they met ministers and law firms to press their point. Possible is often a negotiated agreement, arrived at after protracted lobbying and negotiations. It may not necessarily always be a universal consensus amongst conflicting publics which means that companies must remain aware of the market dynamics. However, in liberal democracies, political expediency generally prevents governments from taking back the goodies they give away.
What does all this mean for a company seeking to tide over the tough times by not cutting back but by seeking greener pastures? Well, they would do well to remember that in international expansion, strategy and investment decisions are rarely divorced from the regulation and the regulatory trajectories in their target markets. To understand them would be the first step towards being better prepared to benefit from those opportunities.
Related reading:
Paul Krugman’s interesting take on Lemon Socialism (NYTimes may require registration)
My post on Language: A challenge in becoming a global business