Alexander Benard, the COO of Schulze Global Investments, a private equity firm focused on frontier markets, says his firm had developed a complex methodology for classifying a market as a frontier market verses an emerging market only to realize the resulting list corresponded almost one for one with what one might call the “Starbucks Corporation (NASDAQ: SBUX) Test:” Markets with a Starbucks did not make their frontier list BUT markets without a one did. Benard noted:
Starbucks needs to know that there are enough consumers in a market who are willing and able to pay relatively high prices for coffee. And not just enough to support one location, but multiple locations (one location is not enough to justify the headache and expense of putting together a whole new country strategy). It would need to know that there is a sufficiently capable labor force to provide the level of service that its customers would expect. A robust legal framework, including protection of intellectual property, would be important. And Starbucks would need to have comfort that the country’s infrastructure is robust enough to manage its supply chain.
The absence of some or all these factors is exactly what makes a market a frontier market rather than a developed or even an emerging market.
Benard ended his article by noting:
An interesting question to ask is which frontier market is likely to have a Starbucks location in the next 5-10 years. Those are the markets that have the potential to jump from frontier to emerging. Invest in them just before that transition occurs.
To read the whole article, If It Doesn’t Have A Starbucks, It’s A Frontier Market, go to the website of Forbes.
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