29 May 2013
While the West continues to struggle with post-financial crisis debt, the BRICS are seeing fast paced growth. But according to a survey by London Business School, major investment opportunities for the West are being missed because of a lack of understanding of local business practices.
The live poll, which was conducted at London Business School’s Global Leadership Summit last week, revealed that more than half of senior business executives (56%) believe that a lack of understanding of local business practices is the biggest barrier to expanding into these growth economies.
Martin Gilbert, Chief Executive of Aberdeen Asset Management, which has 75% of its equities in emerging markets, said at the Summit: “When we started Aberdeen in ’83, I was fortunate enough to have as a colleague, Hugh Young, and he was the market leader in Asia and equities. In ’92, he came to me and said: ‘We have to open in Asia.’ And that was the single best decision we ever made as a business, because we became the largest asset manager in Asia.”
Some investors might be put off though by what Gilbert acknowledged as “the absence of a formulaic approach” to identifying safe investment options in the BRICS. With 120 Aberdeen Asset Management fund managers on the ground in emerging markets, he emphasised the importance of face-time with companies.
“It’s really about having people on the ground doing research. It’s fundamental bottom-up investment.”
But doing the research can be a complicated task as Andrew Scott, Professor of Economics, London Business School, explained: “The other problem is cultural relativism. When I visit China and I talk to someone, for me it’s terribly confusing whether I am talking to a business person, a Communist Party member, a civil servant or a Red Army official – they could all be one and the same thing.”
Perhaps the answer lies in something Scott and Gilbert both agree on, that you invest in companies, not in economies. What’s important they say is to know your property rights and the profit you can lay claim to and to trust that the company will look after your interests as a minority shareholder.
Gilbert pointed to Thailand and India as countries with political difficulties where good investments can be made, while Scott looked back at the economies of the last century.
“If you look at many of the economies of 120 years ago, which were at this stage of growth and momentum, you’d also be concerned about investing in them. America’s a great example. Look at the 20th century US. The US had to do all sorts of institutional reforms to stamp out corrupt politicians, mafia and corporates who weren’t always acting in the broad based interest.”
With 82% of business leaders at the Summit also saying that a sustained economic recovery may take between two and 10 years to achieve and 50% conceding that better long term decisions will rely on more people challenging the established viewpoint of leadership, the BRICS challenge may be well timed.
Professor Scott and Mr Gilbert’s comments came during the Summit on the future of global leadership, which was organised in collaboration with Deloitte and included a debate about the impact of economic slowdown on the BRICS.