When you are doing due diligence in frontier markets you have to embed yourself in the local market and be ready to stray from set plans to do your own on-the-ground research – from chatting with consumers in an agricultural shop for hours to coffee with competitors.
You have to be flexible and employ several different tactics to get a clear picture of the market, according to impact investing expert Keith Allman.
Allman honed his foreign due diligence skills in Africa and South Asia while working as a Senior Investment Manager for Bamboo Finance, a commercial impact investment firm managing a unique portfolio of direct venture and private equity investments around the world. He is the author of Impact Investment: A Practical Guide to Investment Process and Social Impact Analysis.
Allman recently spoke to OnFrontiers and shared some of the tricks he learned while doing on the ground research from Vietnam to India. (Allman was previously a Director at Deutsche Bank when this post was originally published; his views are his own).
1. Be disruptive
“You have to be comfortable being disruptive,” was one of Allman’s biggest take-aways. He explained how when you are doing site visits, a representative of the company or product you are researching will have a pre-set plan of who you will speak with and what they want to show you – but that’s not how you are going to get a true sense of the market.
“When the person leading you around says, ‘Here is my itinerary….’ You need to modify it,” Allman said. “You can’t be stuck to their plan. The people they have you talk to will have been coached. So you need to find your own people to talk to.”
2. Do your own local market research
Allman gave an example of when he wanted to know why no small farmers used the product he was researching for an impact investment, so he sat in a local agricultural shop for a day and chatted up customers as they came and went.
Eventually he hit gold and found a salesman for the irrigation product he was researching and asked him, “Why don’t you sell to farmers with less than 1-acre?”
“Oh, I don’t waste my time there,” the salesman replied. “I can sell five times as much to a 60-acre farmer who actually has the money to pay me.”
3. Talk to local retailers
Allman gave another example of when he was able to speak to a local retailer about why the product he was researching – solar lanterns in this case – were placed on a bottom shelf.
“He’s was really honest and said, ‘I’m going to sell the one I make the most money off of. The one on the top has highest margins. The one on the bottom, has the lowest margins.’”
4. LinkedIn is a great resource, even in rural India
Allman had another good tip: mine LinkedIn to source competitors and set-up coffee meetings with two or three of them you’re on the ground to get a better sense of the local industry.
Allman explained that he could “get a lot of color about what people thought about the company” locally by speaking with competitors. After distilling out their obvious biases as competitors, and speaking to two or three of them, Allman said it often helped him get a clearer picture of what he was dealing with.
5. Interpreters: No leading questions
When working with interpreters, you have to be very careful about making sure they are not asking leading questions in an effort to get answers they think you want, Allman warned.
“It’s much better to ask factual question like: How many hours do you use this at night? Do you think its worth more than this other product?”
6. Embed yourself
Allman’s biggest piece of advice is to embed yourself in the company and region as much as you can. “You want to be in that village, walking around the neighborhood, talking to customers, being around the company, going to all of the vendors.”
On one project, Allman was looking into a fruit juice company in Vietnam whose factory was way outside Hanoi, so he stayed at a local hostel next to the factory for seven days.
By chatting with the local farmers, he learned that the company gave them micro-finance loans and training.
“Being embedded in the local culture we learned not just bad things, but amazing things the company hadn’t even included in their pitch.”
This post has been updated.