From the perspective of twenty-five years in foreign direct investment in developing countries, the rush to “develop” business operations in Cuba resembles a stampede of cattle. But, as every cattle baron knows, the profitable way to drive cattle to market is slowly-so they don’t lose weight. The stampede is really about first mover advantage. Consider the pros and cons of first mover advantage when thinking about doing business in an emerging market.
First mover advantage is tricky. Research shows it does not always result in financial or operational advantages. First mover advantage may allow firms to develop meaningful relationships with government officials, develop franchise opportunities, and work with better employees.
However, first mover advantage is affected by timing, strategic choices, company resources, and investments. These complex decisions are made by the business executives charged with managing market entry. Market entry decisions made by individuals and groups of individuals in a company are ordinarily complex. Managers select the best market entry processes based on something less than full knowledge. When decisions are made in a rushed environment, without full knowledge of the political, economic, financial, human capital, and regulatory environment, first mover advantage disappears. Effective managerial decision-making in market entry involves the way in which managers minimize transaction costs and maximize real option value creation.
New market entry is facilitated by developing meaningful relationships with government and financial officials, leveraging human capital capabilities, mutual education in cross cultural objectives, knowledge of legal rights and processes, and risk management. Research suggests innovation by late movers can overcome first mover advantages. There is a road map. In emerging market planned economies, the political and economic environments are evolving. As such advantages gained from a first-mover strategy may not be retained over time as the country evolves.
Successful first mover organizations entering these types of markets have developed a robust network of professionals to provide experiential advice and counsel. Successful first movers develop good relationships with government and community officials. Above all, successful first movers are well organized. They have a well thought out strategy delivered across a strong communication and technology platform that links business activities to the customer. Human resources, finance, and operations are cross-functionally connected across mechanisms such as lean or total quality management. Training and continuous learning for home and host operations is embedded in the company’s DNA.
With developing markets in planned economies consider how China and Vietnam have developed into robust trading partners. Both large and small firms have successfully created business operations of mutual value in these markets. However, note until the Helms-Burton Act is overturned by the United States Congress, the Cuban market is highly restricted to United States foreign direct investment. Now is the time to make haste slowly. Get to market with your investment intact when it is legal to do so.