Emerging market countries’ regulations, taxes and business environments vary widely, requiring multinationals to study up on each country’s business accessibility and potential before entering. As recent events have shown, companies must also be prepared to handle the massive upheavals and abrupt changes likely to follow.
Disruptions occur in even the most stable economies, as Japan’s tsunami clearly illustrated. But emerging market countries’ less developed infrastructures and unpredictable politics tend to result in more frequent ones.
The late January uprising in Egypt, the Arab world’s most populous country, brought that risk into focus for Juniper Networks, the $4.1 billion Sunnyvale, Calif., company that sells its networking software and services around the world. Catherine Portman, Juniper’s global head of treasury, says the risk of disruptions is an unavoidable part of doing business in emerging markets.
“If it’s not Egypt, then next week we’ll wake up and it’ll be Colombia or another emerging market,” Portman says.
Preparing for the worst typically involves establishing a well-grounded and dynamic business presence in-country. In Egypt, Juniper sells its products through local distributors, as it does in other North African countries including Morocco and Algeria, and it has set up a sales office in Cairo.
“Normally, we’ll work with some global providers that will have expertise on the ground in specific countries,” says Robyn Denholm, CFO at Juniper. “But we’ll also put a cross-functional team in place to make sure we understand what the strategy is for the country, and then we’ll work through all the tax, regulatory and financial considerations in that market.”
That usually means developing relationships with local legal counsel, accountants and other service providers. “You do have to be on the ground to understand what’s going on in those areas and how business is conducted,” says Denholm, who's pictured below.
Juniper’s global banking relationships proved invaluable in the wake of the uprising, when the Egyptian banking system shut down for a few days and no payments or receipts out of local accounts were possible.
Juniper’s centralized cash management system was unable to shift cash in or out of the country. But its banks kept the company apprised of developments, and “once the banking system opened again, any payments or receipts that were in queue were effected with no issues,” Portman says.
However, the rules had changed. Portman said that while many non-Egyptian companies were pulling investments out of the country, Juniper requested that Citi, whose Global Transaction Services (GTS) unit supports the technology company’s treasury activities, buy Egyptian pounds. Juniper had always funded its payroll in Egypt by buying the Egyptian currency in the U.S. and remitting it to its local bank in Cairo.
“The [Egyptian] central bank scrutinized the investment inflow and required significant documentation to ensure our actions were proper and warranted,” Portman says, adding that funding procedures also changed. “All requests had to be taped, U.S. dollars had to be sent to Cairo and then converted with the central bank, and signatures of authorized recipients were required.”
Denholm says Juniper similarly worked with Citi and other partners to understand new rules that were instituted on moving currency out of Egypt, for example, to facilitate payments from distributors.
Ebru Pakcan, the Europe, Middle East and Africa head of payments for treasury and trade solutions at Citi GTS, says the bank gets “very embedded” in the payment systems of the markets in which it operates. It becomes a direct member of the relevant clearing houses whenever possible, as is the case in Egypt. So Citi is privy to notifications by the central bank in as close to real time as possible, when, for example, it declares a clearing holiday or imposes new restrictions on transactions, such as the amounts, values and or permissible dates.
“We have that information to share with customers,” Pakcan says.
That information greatly aided Juniper as it made critical decisions in a situation where there were few other sources of reliable information. Portman says Citi gave Juniper “a heads up” when it had to buy the local currency and helped the company work through the regulatory changes to get its local accounts funded, so it could make critical payments such as payroll.
“That worked out well, for something that could have been far more serious,” Portman says.
See more stories here about countries where multinationals have spotted opportunities.