FT-EY Global CFO Forum: Emerging Markets
Food for thought
- From emerging market champion to world-class multinational
Emerging market multinationals are playing an increasingly prominent role in shaping global business. “Increasingly, we are seeing some very large multinationals with an emerging market heritage,” said Mark Otty, Area Managing Partner — EMEIA, EY, acting as moderator in the panel discussion on multinational success. “Many more have a multinational aspiration, which they have yet to fulfill.” As they expand their presence across borders, these emerging market organizations are often seeking a larger global market share in existing fields of expertise through expansion in new territories. Sometimes, though, they are exploiting their technological, managerial or other capabilities to diversify their business into new sectors where they spot favorable growth opportunities in other markets.
“Increasingly, we are seeing some very large multinationals with an emerging market heritage.” — Mark Otty
Armed with the experience of navigating complex policy environments in their home countries, they are often well equipped to overcome similar hurdles in other developing countries. And as these organizations seek assets overseas, they are fast becoming powerful forces and agents of change in the global industrial and financial landscape. Many are impressively innovative, entrepreneurial and agile, and adept at dealing with rapid changes in the business environment, as well as different cultures.
Balancing organic with acquisitive growth, they must focus on satisfying stakeholders in the markets they wish to enter, understanding differences and building the relationships that will be critical to success.
To thrive, cross-border companies have to recognize key cultural differences in the markets where they operate and adapt their offerings and behavior. Finding good partners can accelerate market entry and bring local market understanding and expertise, but those seeking international expansion need to pay careful attention to risks.
Moderator Mark Otty, Area Managing Partner, EMEIA, EY and panelists Michael Goemans, CFO, Old Mutual South Africa, Ramesh Swaminathan, CFO, Lupin and Zubin Dubash, Executive President, Alliance Tire Group
Understanding local perspectives is very important.
To thrive, companies also needed to replenish the portfolio, to be thinking ahead.
The CFO must not only find the resources for expansion and avoid the pitfalls, but play a vital part in building a resilient corporate culture across borders. The finance chief has to be a key member of a strong and engaged leadership team.
To build a world-class multinational
- Seek out where your company’s long-term growth is coming from — it may not be where you think.
- Recognize cultural differences. How will they affect the customer acquisition process in the new market? And running the office(s)?
- Partner with a local player to facilitate expansion on the ground, especially to support you with regulatory requirements.
- Ensure you have the right leadership in place for the markets into which you are expanding. There is no one-size-fits-all when it comes to the right leadership.
- The quest for capital: persuasion and partners
Across emerging markets, there is an increasing demand for capital, as companies expand to serve rising populations, increased disposable income and fill infrastructure deficits. Panelists took the view that funding is generally available for companies that have a good story to tell, do their homework and take the time to understand the needs of funders.
Panelists Khudusela Pitje, CEO, New GX Capital, Maged Shawky, Vice Chairman, Beltone Financial Holding, Sanjay Jain, CFO, Future Group, Rajiv Bansal, CFO, Ola with moderator John Gapper, Chief Business Commentator and Associate Editor, Financial Times
When you’re looking for finance, the panelists agreed, you need a clear equity story that you yourself believe in. Sound corporate governance, transparency and a willingness to share the rewards in a balanced way between company and investors are essential to a harmonious and fruitful relationship.
“The key thing for attracting an investor is the homework you do to persuade him to be your partner.” — Maged Shawky
Finally, emerging market businesses must ensure investments can be unlocked in the right way at an appropriate price when the partnership needs to evolve.
- Believe in the business model, its story and its potential. If you do, you will convince others
- Bring a clear equity story to the market
- In a family business, the CFO is the link between investors and family: be very patient, listen carefully
- Shape your funding calls and commitment to the business development and funding cycles
- Nurturing start-ups in a corporate setup
Companies today need to embrace disruption and create and develop an entrepreneurial culture of their own. This helps inspire innovation and promotes retention of some of the most talented employees.
“This is not just about the next big idea. It is about agility.” — Tri Pham
Moving away from traditional research and development laboratories towards this inclusive, company-wide culture of innovation brings multiple benefits. Mentoring, aiding ideas to germinate and providing time and resources to founders to develop their products and services are all pivotal to achieving success for start-ups in a corporate set-up.
Panelists Dev Bhattacharya, Group Executive President, Corporate Strategy and Business Development, Aditya Birla Group, Raman Garg, Head of Portfolio Finance, Sequoia Capital, Johanna Mukoki, CEO, Travel With Flair, Tri Pham, Chief Strategy Officer, Tata Communications with moderator John Gapper Chief Business Commentator and Associate Editor, Financial Times
The goal for executives should be to create a framework across the organization that identifies innovators, nurtures ideas that are complementary to the business or its strategy and rewards successful risk takers while providing a safety net for failure.
Once these start-ups have perfected their offer and are ready to scale up, the CFOs must — where appropriate — help their seamless integration into the business. This is a process where the CFO’s financial talent and business acumen are critical to innovation success.
Strategies for nurturing start-ups
- Develop a culture of innovation
- Sponsor employees to develop their ideas
- Give them a minority equity stake in their start-up
- Provide facilities, services and funding
- Partner with external idea factories
- Monitor potentially disruptive technologies closely
- Invest in external start-ups that could disrupt your business
- If you find something interesting, buy the company
- Look for radical game-changers
- Look for long-term customer engagement potential
- Look for the opportunity to scale across geographies
- Role over: from financial custodian to strategic business leader
Traditionally, the Chief Financial Officer was expected to be an accountant, who provided a historical view of what the company had achieved, who managed its treasury and financial flows, and ensured resources were available when needed. But today, the CFO needs to be a partner in managing the business, a real team player.
Panelists Alok Agarwal, Group CFO, Reliance Industries, Rahul Khosla, President, Max Group, Imran Saleem, Financial Services Practice Leader, Egon Zehnder with moderator Ram Sarvepalli, Leader — Advisory Services, EY India and Leader — EY Emerging Markets Center
As the role has broadened, an accountancy background has become less important.
The CEO and CFO ought not always to be a cozy fit, said Rahul Khosla, President of the Max Group
Panelists questioned whether CFOs should be aspiring to the CEO role at all. Today, each has a valuable part to play at the top table.
“It requires a very special cohesion of people … to create the magic that is corporate performance.” — Rahul Khosla
Today, said Alok Agarwal, Group CFO, Reliance Industries, the CFO’s job has become so complex that it can take five years in the role to master, and a decade or more to prepare. Today’s CFO has to be a rounded individual, to master “the right-brain stuff which is all about metrics and capital allocation, as well as left brain decision making based upon intuition,” said Mr. Khosla.
When hiring CFOs, four elements are critical, said Imran Saleem, Financial Services Practice Leader at executive search firm Egon Zehnder, “curiosity, insight, engagement and determination. ” Curiosity is intrinsic to individuals, and if you don’t have that it is unlikely you can change, he said.
Strategic skills for CFOs
- Continuously scan the horizon for big picture changes in currencies and capital flows
- Pay close attention to the characteristics of the markets you wish to enter, and identify differences as well as similarities
- Work hard to develop a common corporate culture, with brand, business model and culture characteristics that are readily identified in every market where you are present
- Be attuned to digital disruption in the world of your customers, suppliers and competitors
- Think about how you can leverage digital technologies for building the business model, enhancing operations and streamlining functions
- Nurture innovation both within the business and alongside it, ensuring resources to build the business of tomorrow as well as to support operations today
- Manage risks and uncertainties, containing cyber risks (together with the CIO), ensuring the flow of capital, and adapting to a changing tax landscape
- As the CFO role increasingly becomes that of an analyst of real-time data, work closely with the CEO to decide the organization’s future direction