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Emerging-Market Risk: Learning From Brazil and Egypt

The headline said it all: “In Brazil, a Reminder of Emerging-Market Risks.”

As if we really needed another reminder, after the tragic factory collapse in Bangladesh earlier this year and with chaos erupting in Egypt and mass street demonstrations rocking Brazil. Yes, the world is full of risks.

It’s tempting, of course, to think of emerging markets as a single bloc and lump all the countries together. But they’re all really very different. China isn’t India, India isn’t Bangladesh, Bangladesh isn’t much like Brazil, and having just returned from Brazil, I can assure you Brazil is nothing like Egypt.

With more than twice the population of Egypt and nearly five times Egypt’s GDP, Brazil is well along the road from its history under military rule to a real multiparty democracy. The demonstrations there have been over tax rates, public transit fares, rising prices, and government corruption, not political power. In Egypt, on the other hand, which had just taken its tentative first steps toward democracy in what the United Nations Development Program (UNDP) has termed the Arab region’s “profound transformation,” it’s all about control.

As much as business executives can anticipate and plan for the unexpected, the truth is, they can’t anticipate everything. But they can, with absolute confidence, be sure that something somewhere will go terribly wrong and disrupt their plans—a superstorm, a terrorist attack, a tsunami, an accident, a coup, a recession, a runaway train.

How do you plan for such scenarios? The answer: You can’t know what’s going to happen tomorrow everywhere your company does business. But you’ve got to have contingency plans to deal with the unexpected, starting with plans to protect your employees.

Fortunately, violence usually isn’t the issue. It’s usually something much more mundane, such as unexpected supply chain disruptions. Supply chain disruptions can happen anywhere for a multitude of reasons. Expect them.

But don’t be victimized by them. Manufacturers, for example, can mitigate supply chain trouble by stockpiling strategic raw materials and components and manufacturing in multiple locations. If they have unexpected problems in one location, they increase production elsewhere. Although such redundancy might seem extravagant, there are added advantages to such arrangements beyond the obvious, because multiple manufacturing sites also make it easier for companies to customize products for local and regional markets.

Companies can take other steps, too, such as maintaining inventories of their most popular and profitable products close to their best customers. This holds just as true for companies that provide raw materials to manufacturers as it does for those who supply Wal-Mart and Target. And of course, companies can develop alternative distribution plans.

The turmoil in Egypt and Brazil provides a timely reminder that doing business in emerging markets carries with it a high degree of risk. But for many companies, that’s where future growth lies.

Customers don’t want excuses. They just want what they’ve ordered. It’s your company’s responsibility to get it to them.

Harold L. Sirkin is a Chicago-based senior partner of The Boston Consulting Group (BCG), a professor at Northwestern University’s Kellogg School of Management, and co-author, most recently, of The U.S. Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback (Knowledge@Wharton, November 2012).

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