Issue link: http://www.e-digitaleditions.com/i/210252
HROA Pulse Despite the lure for many to tap into this growth, it's far from easy to establish a new operation in any of these regions. The foundations aren't yet in place in terms of locale technology, infrastructure, and skills. Each region will have its own unique starting point. It is clear that many organisations are looking at these economies to fuel their future growth. But whilst the opportunities are significant, so are the challenges. When it boils down, it's really a case of risk versus reward. Sizing Up the Opportunity "The particular regions we're discussing still aren't growing as fast as the BRIC economies," argues one board member. "The investment portfolio for entering these markets 10 or 15 years ago was easy. You knew you were going to get your return. Growth was more certain. But a lot of the countries that we are talking about here—Africa, Eastern Europe, the Middle East—are more static in terms of their growth. They still want to achieve all of the benefits of outsourcing and transformation and so on, but they really don't have the growth expectations that some of the BRIC countries did." Why is this the case? "Down to the maturity of these economies when it comes to thinking and thought leadership," another member suggests. "When you look back at the outsourcing waves in China and India and you consider their mindset, the methodologies and approach already existed. There were also acknowledged thought leaders in those markets in terms of how to do it localy. From here, their maturity has increased exponentially. But in the Middle East, Africa, and Eastern Europe, the thinking is not there yet. There is no doubt that the investment is there, but without locale thought leadership, then growth is likely to be slower." Policy improvements have been made by many emerging economy governments, which enable them to mount cash reserves and to invest in building infrastructure. In most cases these are significant, large-scale programmes. It's [34] HRO TODAY GLOBAL | AUTUMN 2013 not an exaggeration to note that some of these countries are experiencing an industrial revolution. This has led to unprecedented demand for commodities and energy, creating a virtuous circle as they trade with other emerging economies for their natural resources. But the need for western expertise to support these programmes is also substantial and compelling enough for companies to seriously consider these markets. Nevertheless, many are finding the evaluation process to be problematic as hard market data and locale insight is hard to come by. So sizing up the opportunity before investing is likely to be more subjective than quantitative. Considering the Challenges Despite the lure for many to tap into this growth, it's far from easy to establish a new operation in any of these regions. The foundations aren't yet in place in terms of locale technology, infrastructure, and skills. But it's not just about setting up shop. It's also critical to understand the cultural and regulatory nuances along with the risks that exist localely. Often the issues are the same but at different development stages. For instance, Africa is arguably the least advanced in terms of infrastructure and employment regulations, whereas in Eastern Europe, some of this already exists. Each region will have its own unique starting point. Successful companies have been able to adapt and customise their entry strategies to the characteristics of a specific market. Even with a viable strategy, some entrants have faced real headaches concerning immigration, visas, employment legislation, and start-up guidelines set by the various locale governments. A good example is in Saudi Arabia where any western company looking to operate would normally have to work through an established Saudi-based business partner. Partnering and locale competition is one of the key challenges. The challenge of working with locale partners. "There are locale partners in the Middle East and parts of Eastern Europe, but they are very small in scale," claims one director. "In Africa, however, they don't exist which means the established western HRO players will need a beachhead from which they can scale and expand. Payroll is perhaps the one process where locale partners do have a significant enough presence that can be leveraged for more traditional HRO. But that's not enough."