Entrepreneurial Success: “Rough Diamonds” project by SKOLKOVO business school and Ernst & Young
LONDON, 26 January 2012 – Ernst & Young and Moscow School of Management SKOLKOVO have developed a joint project “Rough Diamonds (RDs)”. This project explores high performing enterprises in emerging markets. These firms are described as "Rough Diamonds (RDs)" because they are mostly undiscovered. “RDs” are able to outperform other enterprises in their own country over a sustained period of time.
Seung Ho “Sam” PARK, Chair Professor of Strategy, President of SKOLKOVO Institute for Emerging Market Studies (SIEMS) says: "The Rough Diamonds illustrate the fast growing competitiveness of private entrepreneurs in emerging markets. They represent the vibrancy of the private sector and the engine for sustained growth in emerging economies. This joint project between E&Y and SKOLKOVO business school illuminates important insights on the success of these leading entrepreneurial firms in BRICs. The findings provide a valuable benchmark for local and multinational companies operating in emerging markets."
Andrei Volkov, Dean of the Moscow School of Management SKOLKOVO, says: “Today, when ex-pillars of the world economy are rapidly losing ratings and investors’ trust, such studies help us take a fresh look at the companies in the developing countries and to see the silver lining even in this cloud”.
Karl Johansson, Ernst & Young CIS Managing Partner, notes: “We believe these findings will provide insight on the understanding of winning strategies in emerging markets”.
The research focuses on three broad areas to understand the success of RDs: initial success, core competence, and growth management. Below we briefly discuss the key findings in these three areas.
The early success of RDs can be explained by three factors: entrepreneurial insights, the discovery of niche market, and access to key resources. The economic liberalization of emerging markets provides a large number of such niche markets with huge growth potential. For China and Russia, the shift from planned economy to market economy opens domestic markets for private firms. For India and Brazil, government support for import-substitute products also encourages the development of firms in certain industries.
The core competence of RDs in emerging markets centers on the following areas: quality, innovation, customer-orientation, supply chain management, operational efficiency, and management system.
In terms of country differences, relational capital overwhelms in Chinese RDs' success. Relational capital entails assets that are created through relationships. It can be derived from the relationship with various parties, such as customers, suppliers, shareholders, and other stakeholders. Relational capital is important in China because relationships become fundamental parts of economic and social exchanges and serve as complements to the weak formal institutions.
A key common factor in Russian RDs' early success is the well-educated, experienced, and connected entrepreneurs. The founders’ entrepreneurial insights helped them overcome the legacy of state-owned operations and adopt technological skills for new market opportunities. They were able to develop a strong managerial system that led to sustained high performance during the last decade. Their strategic vision has been carried out through highly-focused and domestically oriented growth.
The key advantage of many Brazilian RDs is their brand. Brand is an important firm resource that creates competitive advantages over competitors. Brand building takes time and a series of dedicated efforts. The history of Brazil economy provides such opportunities of brand building for Brazilian RDs.
Indian RDs stand out in terms of their strategic thinking and innovation capabilities. Most of them achieved their early success by targeting the bottom of the pyramid, innovative ideas to target untapped, broad low-income markets in India. It is not necessarily technologically advanced innovations creating new markets, but innovations through product differentiations and discovering latent markets.
RDs grow fast in the past decade. RDs manage growth differently. Chinese firms are the most actively diversified, both in product and geographical dimensions. Most of the RDs diversify into unrelated and related businesses within a short period of time, and they also participate in international expansion early in their development. One possible reason for the vast diversification is that the utilization of relational capital is not constrained by industries and borders. Brazil RDs rank second in the extent of diversification. Since their primary strength lies in brand, they could pursue growth broadly into different sectors and countries exploiting the primary brand. Without relational capital or strong brand that could be applied in other areas, Indian and Russian RDs followed constrained and carefully managed diversification. Instead of pursuing broad diversification, they choose to remain focused and seek growth by enhancing and solidifying market positions in their own primary markets and business areas.
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About Moscow School of Management SKOLKOVO
Moscow School of Management SKOLKOVO is a joint project of Russian and international business representatives, who joined their efforts to create a business new-generation school from scratch. Focusing on practical knowledge, the Moscow School of Management dedicates itself to training leaders, who intend to implement their professional knowledge in the conditions of rapidly developing markets. SKOLKOVO is defined by: leadership and business undertakings, rapidly developing markets focus, innovative approach towards educational methods.
The SKOLKOVO institute for Emerging Market studies (SIEMS) is a knowledge centre at the Moscow School of Management SKOLKOVO that specializes in the research of the economies and businesses of the emerging markets. It provides a research platform that attracts and links leading thinkers and experts from around the world, who can collaborate on studying timely and critical issues in emerging markets. Its research is rigorous, field-driven, and comparative across emerging markets and offers practical, broadly applicable, and valuable guidelines and frameworks for business leaders, entrepreneurs, policy-makers, and academics with interests in emerging markets.
For more information visit www.skolkovo.ru.