Exploration of Frontier Markets

Extracted 30SEP2011 from http://dealbook.nytimes.com/category/special-topics/special-section-fall-2011/

Wal-Mart... is the latest company from the economically stagnant developed world to seek growth in perhaps the last untapped area of international commerce. Corporations and investors alike are raising their bets on so-called frontier markets by buying mines in Zimbabwe, leasing airport stores in Uruguay and acquiring lenders in Sri Lanka...

The traditional risks, like capricious or corrupt local governments and sudden eruptions of violence, are still present in many places. Billions of dollars’ worth of investments in the Middle East suffered this year as the Arab Spring revolutions swept through Libya, Tunisia and Egypt.

“The concept of airtight doesn’t exist in these markets,” said Anthony Armstrong, co-head of Americas mergers and acquisitions at Credit Suisse. “You can never control it completely, and you don’t know what you don’t know.”...

Bankers, lawyers and consultants that advise companies like Wal-Mart are racing to expand their presence in these regions, with the expectation that they are entering the next Brazil or China.

Deal makers say that some countries remain highly risky, including Zimbabwe and Venezuela. But huge pools of resources like oil and minerals are like the sirens’ song to companies and investors...

Local knowledge, experts say, is irreplaceable. Companies and investors often work with governments or other local business specialists before making an entry...

“One can’t just send in a bunch of guys with briefcases to try and do deals,” said Mark Bowman, managing director of SABMiller’s Africa business. “You can’t just buy your way in from the outside. You have to be an insider or know what’s going on to try to create a transaction.”

One thing has changed this calculus. Earlier investors often sought to withdraw their investments at the first sign of trouble, but this latest wave of development appears more durable, deal makers say...

The education of investors has followed recognition of a pattern in frontier markets. The first deals struck are those related to commodities like oil or metals. As countries grow more advanced, consumer goods companies and media and telecommunications concerns are the next to be scooped up...

One class of investors that is also growing is private equity firms... Increasingly, those leading the efforts at these firms are local.