What is an emerging or developing market? Currently, there is no universal definition of this term. According to the MSCI equity index, there are 26 emerging markets and 32 frontier countries. On the other hand, the IMF's index comprises 155 countries that are “emerging and developing” based on measures of social and economic development.

Regardless of the number, there is a thread that runs through common understandings of such countries: they possess markets with endemic graft, underdeveloped infrastructure and economic dependence on the developed world. Even the most sophisticated analyst relies on the assumptions that are associated with a country’s emerging status and the dichotomous breakdown between developed and developing countries. 


The global narrative focuses on a bifurcated world economy comprised of developed, core countries that manufacture products with raw materials that are provided by the developing, peripheral countries. This two-dimensional background is obsolete: one need not look far to find data that not only challenges these assumptions but derails them. 

Each country has a unique profile of social, political, economic, financial and regulatory factors that influence investment decisions. The global order now requires interested parties to examine investment climates in specific host countries where they plan to do business. The availability of country-specific data and analytics should compel decision-makers to look at the host country individually, rather than rely on assumptions about it based on its association with other countries that often share few similarities. Foreign investors need a rubric for examining the investment climate in potential host countries. The following demonstrates how a fictitious company in the education industry, Company X, makes important decisions about a potential expansion into emerging market countries. 

Step 1: What is my business model in the home country?

Company X specialises in online programme management (OPM); it helps universities provide online programmes and does business in the US. OPMs such as Company X provide comprehensive services to universities that want to offer online programmes but do not have the expertise to implement the process. In the US, the company partners with reputable universities, collaborates with the school’s staff to develop programmes that are popular among students, and hires marketing staff to promote the online programmes. The CEO of Company X is deciding whether to expand into Africa, and is considering Nigeria and Kenya.

There are three principal components of the business model: 

Cost structure and clientele: Professionals who work full-time and enrol for a graduate degree to advance their career to the next level. Most students can afford to pay tuition because they work full-time, and many companies participate in reimbursement programmes. As a result of its strong foothold in the US and its significant margins, Company X adopts a short-term outlook on its business cycle. The average amount of time between initial contact with the student and the time at which Company X receives payment is two years. 

Partners: Private universities that want to go online but do not have the expertise.

Risk profile: The industry-specific regulatory framework is volatile and potential legislative changes threaten to derail investment.

Step 2: Are my objectives in the home country (where the parent company is located) the same as my investment’s objectives in the host country (where the foreign investment takes place)?

Yes. FDI projects usually have one of three objectives: access new markets, use foreign labour or extract natural resources. The primary motivation for Company X’s expansion is to access new markets and generate revenue. 

Step 3: How does doing business in Africa impact the core components of my business model? 

According to industry expert Steve Fireng, CEO of Keypath Education, an OPM that does business across four continents: “A macro-factor analysis of the education market in multiple continents reveals that Africa is an exciting opportunity for OPMs that can take a long view of their foreign investments. With a shortage of buildings and just over 740 universities in a continent with 1.2 billion people, attending college is an elusive dream for many Africans.”

For these reasons, the CEO of Company X concluded that online programming is a perfect solution to the problem, because students can access the internet remotely and do not need classrooms. Having completed the macro-assessment, the next step was to determine how the new investment climate would impact the core components of his business model. 

Cost structure and clientele: Student profiles in Africa are undergraduates who cannot go to school because there is a shortage of buildings and universities. The tuition is significantly less than in the US and the exchange rate is not favourable. For this reason, Company X needs to change its cost structure in Africa. 

Partners: Many of the partners in Africa will be public universities. Doing business directly with government officials provides a significantly different dynamic for foreign companies. 

Risk profile: The risk profile is much more complicated in Africa than the US. First, Company X learns that several multinational companies have sued the host governments for discrimination against foreign investors. Whereas regulatory risk in the US focuses on industry-specific changes, the risk in Africa focuses on regulatory discrimination. More specifically, host governments often discriminate by passing regulations with which the company must comply. These types of regulation often force companies to stop operating in certain foreign countries. The prevalence of corruption in dealing with some host governments in Africa presents a significant Foreign Corrupt Practices Act risk for the company.  

Step 4: What are the key measurable indicators we can use for cross-country comparison?  

This step translates relevant qualitative data to indicators that can be measured without great expense. Using big data, this exercise helps the CEO select the correct country for his expansion. Let’s say based on a breakdown of the key indicators, Company X selects Nigeria for its expansion into Africa instead of Kenya. While the two countries are comparable, Nigeria has more upside and a more significant country risk exposure. With a higher GDP per capita, comparable tuition rates and higher internet access, the potential rewards of doing business in Nigeria outweigh those of Kenya. That said, country risk is higher in Nigeria than Kenya. Based on Company X’s confidence in its risk management strategies, the CEO decides to go for the country in which there is greater upside.  

Step 5: Adjusting the business model: Long-term view and risk mitigation

Three differences between the investment climate in the US and Nigeria will determine the ways in which Company X changes it business model: lower tuition rates, unfavourable exchange rate, and riskier investment climate. Lower tuition rates and unfavourable exchange rates will translate into narrow margins and will prevent Company X from generating a significant profit until it establishes relationships with several institutions in Nigeria.

This programme is a pilot project for Company X’s investment in 'developing countries'. Eventually, as Company X perfects its model in different foreign countries, it will generate significant return. This requires Company X to take a long-term view on its investment in Nigeria.

The significant decrease in tuition per student requires Company X to adjust its cost structure by hiring local staff and using local construction companies to build its office building. If Company X can offset a reduction in tuition/revenue (from what it receives in the US) with decreased costs (wages for professors and construction costs) for launching its product in Nigeria, it can stay afloat as it waits for its portfolio of clients to increase. 

The riskier investment climate will force the company to add a significant amount of effort to due-diligence processes prior to signing a contract with a university partner. To minimise risk exposures, Company X will hire full-time counsel and compliance managers to bolster internal controls and minimise risk. Ultimately, this will mean that Company X will hire fewer salespeople (than in the US). Consequently, the company will alter its model for generating and closing leads for new business. 

While this concept is logical, it is not always implemented, even by some of the most sophisticated companies. 

Robert Ginsburg is president of RBG Global, which advises foreign investors and host governments on crossborder investment and trade.