Emerging Markets — Discussion Paper No. 2
The Execution Gap
Can Imperfect Markets Create Greater Opportunities for Enterprise Value Creation?
Can Imperfect Markets Create Greater Opportunities for Enterprise Value Creation?
Emerging markets are often characterised by what they lack.
Infrastructure.
Institutional depth.
Efficient distribution.
Skilled management.
Reliable supply chains.
These gaps are typically viewed as constraints on investment.
But they may also represent something else: unresolved opportunities for value creation.
What if the markets with the largest execution gaps also offer the greatest opportunity to create enterprise value?
THESIS —
Market inefficiency creates opportunity.
Execution captures it.
1. Developed markets have institutionalised many sources of efficiency.
Distribution networks.
Supply chains.
Technology infrastructure.
Management capability.
Access to capital.
As markets mature, many fundamental operating inefficiencies are progressively removed.
2. Emerging markets contain larger execution gaps.
Fragmented industries.
Inefficient distribution.
Underdeveloped supply chains.
Limited operating capability.
Weak institutional infrastructure.
These conditions create friction—but friction also creates opportunity for businesses capable of solving it.
3. Closing execution gaps can create disproportionate value.
Businesses that build better distribution, stronger operating systems, superior customer experiences or more efficient industry structures can capture value unavailable to competitors that simply accept existing market conditions
The execution gap is not simply a constraint. It is the space in which enterprise value can be created.
A POSSIBILITY —
What if market inefficiency was viewed as value-creation potential?
MARKET INEFFICIENCY
↓
EXECUTION GAP
↓
OPERATIONAL IMPROVEMENT
↓
COMPETITIVE ADVANTAGE
↓
HIGHER ROIC + GROWTH
↓
ENTERPRISE VALUE
THE G7VA EMERGING MARKET FRAMEWORK
Five recurring execution gaps:
Industry Fragmentation
Fragmented industries can create opportunities for consolidation, scale and professionalisation.
Distribution Inefficiency
Weak routes to market can create opportunities to build superior distribution infrastructure and customer access.
Operational Inefficiency
Underdeveloped systems and processes can create significant opportunities for productivity and margin improvement.
Capability Gaps
Scarce management, technical and operating expertise can create disproportionate advantage for businesses capable of institutionalising those capabilities.
Capital Inefficiency
Poor capital allocation and limited access to appropriate financing can create opportunities for more disciplined owners and operators.
↓
Execution Advantage
↓
Competitive Advantage
↓
Higher ROIC + Faster Growth
↓
Enterprise Value
The larger the execution gap, the greater the potential advantage for those capable of closing it.
Emerging markets are frequently evaluated by comparing their institutional weaknesses with developed markets.
That comparison is important for understanding risk.
It may be incomplete for understanding opportunity.
The same inefficiencies that make emerging markets more difficult can create greater opportunities for businesses capable of solving them.
Execution therefore does more than manage emerging-market complexity.
It can convert complexity into competitive advantage.
Why This Matters
CLOSING —