Starting a Startup in a Developing Country
If you feel like the U.S. and Europe make up a business dead-zone, well you might be right. Many people are looking overseas to developing countries for the newest business opportunities.
While doing business in the developing world can be 10 times more profitable, it can also give you 10 times more headaches. These points will get you thinking about what doing business in the developing world really means.
If you’re set on launching a startup in a developing country, first you’ll need to decide which one. There are many factors that you will need to consider, such as infrastructure, political stability, property rights, bureaucracy, banking systems, and many more. However, one factor that is often misunderstood is language.
Choosing an English-speaking (or at least nominally English-speaking) country might seem like a sure bet for ensuring smooth communication. Well, maybe. Much more goes into communication than simply spoken words. Former British colonies are known for their English fluency, but that doesn’t mean that you and your local employees will really understand each other.
The scope of employer-employee relations varies significantly across countries. Understanding a new working environment can take a lot longer than you think. Don’t assume that just the language itself will be one of your greatest barriers or advantages.
Two more very preliminary and important factors to consider are first, what will be the relationship between this new startup and any other ventures you might already have; and second, are you manufacturing and producing for the local market, mainly manufacturing and seeking to export, setting up a knowledge-based support outfit, or some other kind of operation?
Your approach to these questions should make you rethink your location and whether it matches your needs. For example, cheaper unskilled labor in Southeast Asian countries, such as Cambodia or Vietnam, make a better fit for a manufacturing-exporting venture, while India is a better location to acquire cheaper skilled labor for more knowledge-driven fields.
If you are targeting the local market, consider whether what you’re offering is actually suited to a developing country’s needs and purchasing behavior. Remember, just because consumers in developing countries might be poorer, that doesn’t mean that they’re cheaper.
A classic example comes from India, where Tata Motors is having a lot of trouble selling the Nano, the world’s cheapest car at about $2,200. Why won’t it sell? People (middle-class Indians who can afford it) don’t want to be seen driving a cheap car.
Developing countries from Thailand to Ghana can be just as status conscious, with the car and cellphone being the premier symbols. Neither is status limited to products alone. James Tooley, a noted researcher in Indian education, thinks that a near majority (if not a clear one) of urban school children actually attend private, fee-charging schools. While a better education is the main reason, attending a (free) government school represents a clear loss of a status.
And last but not least, be ready to suspend rational thought when it comes to government regulations and bureaucratic paperwork. While one of the main draws for starting a business in a developing country might be the lack of regulation, sometimes it can the opposite.
At a recent IMF meeting in Washington, developing countries were pushing back against attempts to limit their capital controls. While some countries, like Brazil and South Africa, take more cautionary paths, others, such as India and Turkey, are much more open to capital flows.
In terms of funding, Francis Tan relates the story of Eric Su, a Filipino tech entrepreneur. Su describes the scene in the Philippines like Silicon Valley but without any of the good stuff, like venture capital or angel investors. Tech startups in the Philippines also struggle to find hires with technical experience or a good group of early adopters.
While there are many things to keep in mind when starting a business in the developing world, remember that each country is different and that experience is often the best guide.
For example: Before spending a year in India supporting a microfinance organization, I tried asking people for some tips. No piece of advice compared to the lessons I learned while on the ground and in the field.
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