Where To Next? Opportunity on the Edge

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Where To Next? Opportunity on the Edge

By Emily S. Block and Viva Ona Bartkus | MIT Sloan Management Review | July 22, 2024

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In the race to tap emerging markets, most of the more developed parts of these economies have become saturated with foreign investment.   Confronted with the inexorable demands for growth and concerned with the potential for diminishing marginal returns, business leaders are scouring the map but finding fewer and fewer greenfield opportunities. They have begun to ask, “Where to next?” Welcome to the front lines.

The front lines are not areas that immediately come to mind when thinking about business investment. They hide in disputed corners of countries whose beaches and jungles may already appear on tourism brochures. However, the front lines are far from luxury vacation spots. Their distance from major cities leaves them disconnected from much of their home country’s infrastructure. National governments do not extend basic services like electricity or sanitation to these locales. Even the rule of law and rudimentary security is frequently left to local militias or criminal cartels. These areas often teeter on the razor’s edge between stability and violence, where every decision, event, or investment could mean the difference between encouraging society toward opportunity or sending it back into conflict.

It is thus unsurprising that foreign investment has largely overlooked these far-off places. However, these areas are full of possibilities. Their vast untapped potential takes the form of abundant natural resources and young and growing populations eager to work for a better future. For companies looking to expand their geographic footprints, these underserved areas are what is left on Earth. However, these opportunities are not simply a last resort. There is real money to be made in the front lines. But it requires organizations to be willing to expand beyond urban enclaves and acquire a different set of skills and strategies for success. This is not business as usual.

The authors estimate that 1.4 billion people living in the front lines generate over $20 trillion in annual economic activity — which exceeds the size of India’s economy. This estimate transcends the usual national metrics of economic opportunity because it includes inaccessible rural areas in upper-middle-income countries and excludes large urban centers in lower-income countries that are already saturated with foreign investment. This figure is just under a sixth of the world’s total estimated annual economic activity of $130 trillion (at purchasing power parity).

Importantly, there are significant resources that are underutilized in the front lines, which are home to immense stores of untapped mineral deposits.  Even developed agricultural land can become significantly more productive through small capital investments. It’s equally important that improvements in education and reductions in underemployment could result in far more productive workers. The current high rates of unemployment and underemployment in front-line economies indicate that the labor market can absorb many more workers without drastic changes to existing wages. Similarly, weak front-line infrastructure can be bolstered by modest improvements in technology. Small amounts of targeted capital can translate into disproportionate returns.

Pursuing this type of opportunity requires a vastly different business approach to address the wide range of risks that companies are not used to managing.  Effective operations in front-line environments critically depend on deep embeddedness in the local community. This rests on a broad range of relationships with nontraditional partners; it’s not as easy as negotiating with the minister of finance or the minister for mines in the capital city. Success depends on navigating the often gray moral and operational challenges of working in places where power is often held by those outside of government. Companies must leverage the strengths of some local actors and negotiate a basic understanding of boundaries with others in ways that let them coexist. This cannot be achieved through a single interaction but rather relies on a web of ongoing relationships based on mutual benefit. Although the company will incur additional operating expenses associated with managing the complexity of these nontraditional relationships, the benefits accrue from the increase in stability and security.

3 key takeaways from the article

1. In the race to tap emerging markets, most of the more developed parts of these economies have become saturated with foreign investment.   Confronted with the inexorable demands for growth and concerned with the potential for diminishing marginal returns, business leaders are scouring the map but finding fewer and fewer greenfield opportunities. They have begun to ask, “Where to next?” Welcome to the front lines.   
2. Front lines are far from luxury vacation spots. Their distance from major cities leaves them disconnected from much of their home country’s infrastructure. National governments do not extend basic services like electricity or sanitation to these locales. Even the rule of law and rudimentary security is frequently left to local militias or criminal cartels.
3. Operating effectively in the front lines requires imagination, immersion, and rapid iteration, along with listening and creating common ground.  Business can achieve both goals — it can turn a profit by operating in front-line environments, and in doing so, it can nudge societies toward a more prosperous and stable future. 

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Topics:  International Business, Frontier Economies, Foreign Direct Investment