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McIntire School’s Spring Symposium Explores Investing and Doing Business in Emerging Markets

May 3, 2012

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Panelist Michelle Kelner (McIntire ’93) talks about the promise and pitfalls of investing in emerging markets.

The world’s developed economies—such as those of the United States, Western Europe, and Japan—often grab the headlines. But how will the world’s developing economies—such as China, India, Indonesia, Turkey, Colombia, and Vietnam—shape the global economic landscape in the coming decades? And what challenges and opportunities for business and investment do such economies present today?

Two panels of global business leaders turned their attention to these complex and multifaceted questions during t​he McIntire School of Commerce’s Annual Spring Symposium, titled “Perspectives on Emerging Markets.” The Symposium, which was free and open to the public, was held April 27, 2012, in the University of Virginia’s Old Cabell Hall and presented by The McIntire Center for Financial Innovation. Both panels were moderated by John Griffin (McIntire ’85), President and Founder of Blue Ridge Capital.

Big Changes, Big Challenges

The first panel, which focused on issues associated with corporate expansion in emerging markets, featured distinguished corporate leaders Allen Burchett, Senior Vice President for Strategic Initiatives, ABB in North America; Jimmy Masrin, President Director/CEO, PT Caturkarsa Megatunggal (CM); and Chris Nassetta (McIntire ’84), President and CEO, Hilton Worldwide.

The panelists discussed a wide array of subjects, ranging from key challenges raised by expansion into emerging markets, to dealing with legal and cultural differences involving corruption (and increasingly strict enforcement of the United States’ Foreign Corrupt Practices Act), to the slower pace of India’s emergence relative to China and some of its South Asian brethren.

A primary stumbling block in doing business in emerging markets, the panelists agreed, is finding the right local partners. Nassetta explained that Hilton operates 640,000 hotel rooms in 90 countries and grows through backing from local partners. Many of these partnerships might last 40 or 50 years, and he stressed the critical nature of finding the right match. Similarly, Masrin—whose Jakarta-based diversified holding company has operations in China, Thailand, and Vietnam, and is currently expanding—said that personnel issues present the greatest challenge. “If I could go back to school again, I’d get a degree in psychology,” Masrin joked. “I spend all my time dealing with people.”

Picking the right partners in an unfamiliar cultural and economic context, the three agreed, requires doing rigorous due diligence on potential candidates; designing a compensation system that rewards employees for making deals that last; and, ultimately, meeting your potential partner in person and “going with your gut.”

Just Say No

The panelists discussed the complexities of doing business in countries where bribery and kickbacks are the norm, especially given the increasingly stringent enforcement of the Foreign Corrupt Practices Act. Asked how he dealt with situations in which breaches of ethics might occur, ABB’s Burchett said that the company simply walks away. “We walk away from millions of dollars in business every year,” he told the audience. Nassetta pointed out that a zero-tolerance attitude toward corruption must be deeply engrained in a company’s culture. “If integrity is in the DNA of a company, that kind of thing won’t happen,” he said. “It starts and ends with the culture and values of a company.”

Looking Ahead

Asked for their thoughts on how students might make the most of the time they spend in emerging markets, the three panelists encouraged students to talk to as many people in as many walks of life as possible. “Do your best to really understand the people and their culture,” Burchett said. 

Nassetta urged the students to take advantage of every opportunity to learn about the culture, business practices, and politics of today’s so-called emerging economies. “China and India are on their way to again becoming dominant,” Nassetta said. “They’re going to have a massive impact on everything you think and do.”

Indeed, Nassetta said, while the Chinese economy might have its occasional setbacks and the Indian economy might take longer to gain real momentum, both, inevitably, will be the economic powerhouses of the future. “The U.S. and Europe won’t wither and die,” Nassetta concluded, “but what’s going to drive the future will come out of these areas.”

Investment Opportunities

The second panel, which examined investment opportunities in emerging markets, featured seasoned investors Rick Gerson (McIntire ’97), Founder, Chairman, and CIO, Falcon Edge Capital; Scott Kelley (McIntire ’83), Managing Director, Aetos Capital, and CEO, Asia Capital Asia and Aetos Japan; Michelle Kelner (McIntire ’93), Partner and Portfolio Strategist, Prince Street Capital; and Mark Pinho (McIntire ’99), Managing Director, Soros Fund Management.

Risks and Rewards

The panelists discussed not only the opportunities to be found in emerging markets, but also the various obstacles that stand in the way of those opportunities, including the possible intervention of authoritarian governments, non-standard accounting and ownership practices, and the absence of well-developed legal and justice systems.

Kelner commented that such risks are part and parcel of doing business in today’s potential high-return “frontier” markets, in which she specializes. Kelner was investing in the former Soviet Union as early as 1995, and regards Bangladesh as a current up-and-comer. “You want to go to a place that’s uncrowded—that’s really bereft of capital,” she said. “That’s where there’s the opportunity for really big returns.” More, she offered, “You want to have a footprint in places before the others get there; that’s when it’s time to get out.”

The panelists also argued that the risks associated with investing in emerging economies can be mitigated. Pinho, for instance, pointed out that you can always control the price at which you enter an investment, as well as the types of assets in which you choose to invest. Kelley also noted that understanding the government’s aims, especially in a place like China, helps to mitigate risk, and Gerson commented that companies that seemed fishy or vulnerable could also be shorted.

Pinho also noted that the flipside of the risk factors in today’s emerging economies are a number of big-potential investment opportunities, particularly in the areas of energy and infrastructure development in places like Brazil, China, and India, as well as emerging consumerism in such markets.

Advice from the Pros

The panelists also had some words of advice for students seeking to succeed in today’s highly globalized economic system. Kelley recommended as much travel as possible, in the pursuit of fresh, non-American perspectives. Pinho suggested learning another language and seeking to work in a challenging environment. Gerson said that students should not feel compelled to follow a well-worn path, and they should seek to make their own way. Kelner told students to focus on doing something they really loved. When it came to doing business in emerging markets, she had two pieces of advice. First, she told the audience, when you travel to a new place, make sure to read the local papers, rather than the often biased American press. Second, she said, “Remember that you make the most money when things go from really horrible to just bad.”

Watch the Symposium.​