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JULY | AUGUST 2015 BizEd 17 Emerging Market Firms Are Watching WHEN EMERGING MARKET FIRMS enter into more developed markets, they face a host of technological, financial, and stra- tegic disadvantages. But why do some overcome these limitations and suc- ceed while others fail? A study by three U.K. researchers holds that these firms succeed because of "indirect learning," a term they define as "the observation, incorporation, and sharing of others' experience of developed markets." In fact, they argue that indirect learning is more valuable to emerging market firms than learning directly from their own organizational experience. The researchers include Sourindra Banerjee, assistant professor of market- ing at Warwick Business School; Jaideep C. Prabhu, the Jawaharlal Nehru Profes- sor of Indian Business and Enterprise at the University of Cambridge's Judge Business School; and Rajesh K. Chandy, professor of marketing and academic director of the Deloitte Institute for Innovation and Entrepreneurship at London Business School. According to these researchers, emerging market companies can ac- quire indirect experience in three ways: by hiring leaders with experi- ence in developed markets, by observing the practices of devel- oped market competi- tors, and by joining for- mal business networks in their industries. As one example, they point to Chi- nese telecom company Huawei, which succeeded by observing the Chinese operations of its competitor Nokia- Siemens Networks. The researchers studied data on 384 companies listed on the Bombay Stock Exchange 500 in India and 314 companies listed on the London Stock Exchange's FTSE 350 from 1999 to 2008. They found that when an emerg- ing market firm has a one standard deviation increase in indirect learning from any of the three sources—hiring leaders, observing competitors, or join- ing networks—it experiences revenue growth of 2.24 percent, 2.8 percent, and 5.6 percent, respectively. These findings are signifi- cant because some groups in emerging economies are lobbying their governments to make it more diŸcult for competitors from developed countries to enter their markets. On the contrary, the authors write, "emerging mar- ket firms have much to gain from … opening up to developed market competition." Policymakers could spur more local growth by forming interna- tional trade associations, trade shows, and think tanks. The authors also warn developed market firms not to assume that emerging market companies cannot compete with them on the global stage. Those that learn indirectly, they write, "are likely to pose serious threats to their developed market counterparts." "Indirect Learning: How Emerging Market Firms Grow in Developed Markets" appeared in the January issue of the Journal of Marketing. It is also available at faculty.london.edu/rchandy/ indirectlearning.pdf. SUSTAINABLE RETURNS Last November, the Morgan Stanley Institute for Sustainable Investing surveyed 800 individual investors about their attitudes toward investing in companies that embrace sus- tainable business practices. It found that 71 percent of those surveyed are interested in sustainable investing. Millennials and women expressed the highest interest: Eighty-four per- cent of millennials (compared to 66 percent of baby boom- ers) and 76 percent of women (compared to 62 percent of men) are interested in investing in companies that embrace sustainable practices. On average, respondents believe that 46 percent of their portfolios should be invested in sustain- able companies. But even though survey respondents are interested in sus- tainable investing, a majority—55 percent—still see a "trade- o between profitable and sustainable investments," says Audrey Choi, managing director and CEO of the institute. That perception, she adds, "is still a major barrier to the growth of the field—we and others trying to advance sustainable invest- ing at scale have a job to do, demonstrating that it is possible to achieve positive impact and market-rate returns." The report "Sustainable Signals: The Individual Investor Perspective" is available at www.morganstanley.com/ sustainableinvesting/pdf/Sustainable_Signals.pdf. Indirect learning Indirect learning Indirect learning Indirect learning Indirect learning Indirect learning Indirect learning is more valuable is more valuable is more valuable is more valuable is more valuable is more valuable is more valuable is more valuable is more valuable is more valuable is more valuable to emerging to emerging to emerging to emerging to emerging to emerging to emerging to emerging to emerging to emerging to emerging to emerging market firms market firms market firms market firms market firms market firms market firms market firms market firms than learning than learning than learning than learning than learning than learning than learning than learning than learning from their own from their own from their own from their own experience.