Video: How to do business in frontier markets

You can make money and do good, says John Riady as he weighs up the risks and rewards of doing business in a frontier market. In this World Economic Forum video, Riady, who is Executive Director of the Lippo Group, says while it’s not easy doing business in a frontier market – there can be rich returns.

Watch the full interview above, or read extracts below.

On Frontier Markets

I think frontier markets are some of the most challenging but also rewarding markets to do business in. First of all you have a unique market where normally there’s a huge gap between supply and demand. You have a middle class that is just emerging, you have also a society where people are just becoming more educated.

On the other hand it is also a market that has no supply. Normally the supply of goods, the supply of housing, the supply of mortgages, the supply of anything for that matter is very low. So you have the supply and demand gap, that any company that is able to bridge that stands to create value.

On the risks of frontier markets

Often what breaks companies is the social and political issues. Sometimes companies have great productions, they have great execution strategies, but then they forget that one social issue here, or one political explosion there, can eliminate what you’re doing.

The other risk is just a lack of hard and soft infrastructure. Hard infrastructure, roads and ports and electricity.  The Soft infrastructure is human capital. You will face challenges in finding the people from the local area in trying to operate those businesses. All these challenges also serve as a barrier to entry.  Some of these other markets are difficult to enter, but once you’re there, you’re protected by higher barriers to entry.

On the benefits of frontier markets

The windfall is not only in terms of your financial bottom line. You can achieve that, but also achieve a significant social contribution. It’s not Corporate Social Responsibility (CSR), more thinking about it as stewardship, so the business itself must be a good thing and must contribute to social progress. And that’s the beauty of what you are able to do doing business in Asia and frontier markets.

Author: John Riady is Executive Director, Lippo Group, Indonesia

Image: A man waits for M-Pesa customers at his shop in Kibera in Kenya’s capital Nairobi December 31, 2014. REUTERS/Noor Khamis