Where To Next? Opportunity on the Edge

The Philippines isn’t new to foreign investment. Long considered one of the striving tiger cub economies, its bustling ports and big cities have represented attractive investment opportunities for companies like General Electric, KKR, and Cargill.1 However, despite its prime location, young English-speaking workforce, and considerable natural-resource wealth, its performance lags behind that of its Association of Southeast Asian Nations peers.2 For foreign businesses looking for the next great opportunity, the Philippines would likely be ignored as “been there, done that.”

But what if we told you that almost one-third of the country’s land, and much of its trillion dollars of untapped mineral resources, are located on Mindanao, an isolated, war-torn island in the country’s south?3 Sitting in GE’s shiny Manila offices, we asked a group of executives, mostly Filipinos, about how to capture this opportunity. They looked aghast. One asked, “Why would one ever go there?”

In the race to tap emerging markets, most of the more developed parts of these economies have become saturated with foreign investment. The gleaming skyscrapers along Nairobi’s skyline offer evidence of the wide reach of globalization. Over the past 20 years, trillions of dollars have been poured into emerging markets, far beyond the obvious targets like India, China, and Brazil. Even countries like Rwanda that, as recently as 25 years ago, would have been considered impossible entry targets are now experiencing 8% growth.4 San Pedro Sula, a Honduran city that has appeared on numerous lists of the world’s most dangerous cities, now receives nine direct flights each day from the United States.

Confronted with the inexorable demands for growth and concerned with the potential for diminishing marginal returns, business leaders are scouring the map but finding fewer and fewer greenfield opportunities. They have begun to ask, “Where to next?” Welcome to the front lines.

The front lines are not areas that immediately come to mind when thinking about business investment. They hide in disputed corners of countries whose beaches and jungles may already appear on tourism brochures. However, the front lines are far from luxury vacation spots. Their distance from major cities leaves them disconnected from much of their home country’s infrastructure. National governments do not extend basic services like electricity or sanitation to these locales. Even the rule of law and rudimentary security is frequently left to local militias or criminal cartels. These areas often teeter on the razor’s edge between stability and violence, where every decision, event, or investment could mean the difference between encouraging society toward opportunity or sending it back into conflict.

It is thus unsurprising that foreign investment has largely overlooked these far-off places. However, these areas are full of possibilities. Their vast untapped potential takes the form of abundant natural resources and young and growing populations eager to work for a better future. For companies looking to expand their geographic footprints, these underserved areas are what is left on Earth. However, these opportunities are not simply a last resort. There is real money to be made in the front lines. But it requires organizations to be willing to expand beyond urban enclaves and acquire a different set of skills and strategies for success. This is not business as usual.

What Opportunities Can Be Found in the Front Lines?

We estimate that 1.4 billion people living in the front lines generate over $20 trillion in annual economic activity — which exceeds the size of India’s economy. This estimate transcends the usual national metrics of economic opportunity because it includes inaccessible rural areas in upper-middle-income countries and excludes large urban centers in lower-income countries that are already saturated with foreign investment. This figure is just under a sixth of the world’s total estimated annual economic activity of $130 trillion (at purchasing power parity).

Our estimation model also reflects core differences between developed urban and underdeveloped rural environments. First, we adjust for the cost of basic food and services. The lower price of these goods in low-income countries often leads to underestimates of the potential to generate economic value. Second, we also include work in the informal sector, which, based on data such as electricity usage, household surveys, and other inventive metrics, is underrepresented by as much as a third in official government statistics.

Importantly, there are significant resources that are underutilized in the front lines, which are home to immense stores of untapped mineral deposits. To illustrate, the realized extractive value of each square kilometer of land in developed countries averages about $125,000, whereas the same area in African countries is estimated at only $25,000. Geological factors cannot account for this discrepancy. Rather, it reflects the sheer level of underdevelopment of such resources. Even developed agricultural land can become significantly more productive through small capital investments. It’s equally important that improvements in education and reductions in underemployment could result in far more productive workers. The current high rates of unemployment and underemployment in front-line economies indicate that the labor market can absorb many more workers without drastic changes to existing wages. Similarly, weak front-line infrastructure can be bolstered by modest improvements in technology. Small amounts of targeted capital can translate into disproportionate returns.

Such large, lucrative for-profit opportunities in the front lines is unlikely to remain overlooked for long. Yet pursuing this type of opportunity requires a vastly different business approach to address the wide range of risks that companies are not used to managing.

Front-Line Challenges Through the Lens of the Mining Sector

The fact that much of the easily accessible mineral wealth in safe, well-governed regions has already been extracted has pushed the entire mining sector to devise new ways to prospect, build, and operate mines in more isolated, frequently unstable, and underdeveloped areas. Besides geological risk, miners face political, social, and security risks working in these regions. Indeed, large-scale mineral extraction is frequently the first industrialized activity that local residents in poor, remote areas ever experience.

The history of Newmont Mining illustrates the challenges. Founded in 1916 in the state of Montana, Newmont grew into one of the largest multinational mining corporations working in some of the toughest parts of the world. Yet its growth was challenged by the threat of mass nationalization and expropriation of assets by newly independent national governments across Africa in the 1970s and forced its exit from the continent. Those challenges were not solely relegated to Africa. Batu Hijau, its massive gold and copper mine on the remote Indonesian island of Sumbawa, faced corrupt government officials and threats to both its property and personnel. Newmont’s local senior managers were even arrested on criminal charges that pollution from the mine had caused a local baby’s death. After a lengthy trial, an Indonesian court exonerated them of all criminal charges, but at the cost of millions of dollars in legal fees and millions more in lost revenue while the mine was shuttered.

In Uzbekistan, Newmont’s lucrative joint venture with the government was expropriated and nationalized. And its enormous gold mine in Yanacocha, Peru, frequently faced protests and labor disruptions, particularly from illegal wildcat miners encroaching on its operations.

Newmont’s CEO, Wayne Murdy, will be the first to tell you that managing through these incredibly difficult situations in the far corners of the world changed the company’s approach to expansion in front-line environments. It drew on these experiences when the opportunity presented itself to return to Africa to commercialize a Ghanaian prospecting license. Murdy summarized what he and his team learned the hard way: “The only way to protect the mine is if the community perceives that this is their mine and they protect it. You cannot hire enough security in isolated places. If an angry mob wants to overrun the mine, they will overrun and take over the mine. There is nothing you can do.”

In order to safeguard its investment in the Ahafo gold mine in Ghana, Newmont embedded its operations deeply within the local community. To begin with, the company established an internationally accredited training academy to support the local workforce in developing the skills required for mining operations, such as process engineering, surveying, and truck driving. At the peak of its operations, the mine employed 1,800 people, only three of whom were expatriates. The rest were locals. However, Newmont’s impact was not limited to direct employment. The large scale of the mining activity generated a spillover effect that sustained the livelihoods of thousands more Ghanaians. This was accomplished by fostering a vibrant small-business ecosystem around the mine. All supplies and services for the operation, such as food, lodging, uniforms, and laundry, were purchased from local residents. Because mining requires enormous power to crush tons of ore into ounces of gold, Newmont also brought electricity and roads to a part of Ghana that had had none, facilitating an even more effective market in the formerly isolated region.

Moreover, Newmont turned the enormous challenge of moving two villages, with nearly 2,000 people, into an opportunity to work closely with local village elders and queen mothers, as traditional female leaders are known in the area. Together, they established a development foundation that used a portion of the mine’s profits to invest in local priorities such as student scholarships, a medical clinic, and loans to local business owners who needed expansion funds. Monthly meetings to address local priorities grew into an ongoing process of local consultation to address grievances and make joint decisions on many issues, including ways to handle environmental concerns such as reforestation.

Where to Start

The expansion strategies that work in relatively safe and well-governed areas, frequently within 100 miles of a major international airport, will not work on the front lines. It’s not just that the rules of the game are different but that successfully operating in environments characterized by poverty and violence is a fundamentally different game. For example, turning a profit in the Amazon jungles of the Colombian department of Guaviare is different from doing so in the capital city of Bogota, with its banks, world-class universities, designer stores, and Starbucks seemingly on every corner. The twice-weekly flights into the capital, San José del Guaviare, do not land in the rain because the runway is so short that the pilots fear sliding off the pavement and into the jungle foliage. The people in Guaviare live on less than $2 per day, transport their produce to local markets by kayak or motorbike, and often have their children skip school to gather firewood to cook the family meals. The strategies and skills required to succeed are different.

What Newmont learned the hard way, by experiencing threats, asset seizures, and arrests, is that effective operations in front-line environments critically depend on deep embeddedness in the local community. This rests on a broad range of relationships with nontraditional partners; it’s not as easy as negotiating with the minister of finance or the minister for mines in the capital city. Success depends on navigating the often gray moral and operational challenges of working in places where power is often held by those outside of government. Companies must leverage the strengths of some local actors and negotiate a basic understanding of boundaries with others in ways that let them coexist. This cannot be achieved through a single interaction but rather relies on a web of ongoing relationships based on mutual benefit. Although the company will incur additional operating expenses associated with managing the complexity of these nontraditional relationships, the benefits accrue from the increase in stability and security.

Expansion into the front lines requires companies to develop new skills to address the unfamiliar challenges they are likely to face. This is not something you learn in an MBA program. The most immediate challenge is often the dearth of data to underpin informed decision-making. Organizations must devise ways to collect their own intel. One way to start is to follow the flow of money across the entire economic activity within a territory. Fully understanding the environment is essential to identifying the inherent opportunities and the barriers to accessing them. To gather these insights, business leaders must overcome traditional internal silos, listen to the perspectives of myriad local actors, and then integrate that information into its business processes. This frequently depends on deep immersion into the daily life of local communities whose members will become the company’s employees, suppliers, and customers. However, superficial embeddedness is not sufficient. It is not enough to just gather information — that information has to come with real empathy for people’s experiences.

Additionally, it is impossible for any single company to conduct all of the activities across a value chain in these remote areas, and it is unlikely that they will find a variety of the types of organizations with which they would usually partner to complement their activities. They will need to build skills in managing multiple nontraditional relationships to support their operations. Given that their data collection efforts will be so deeply enmeshed with their local relationships, companies must rapidly test their potential solutions, gain feedback, and then redesign their approach as a fuller picture of the environment emerges. Operating effectively in the front lines requires imagination, immersion, and rapid iteration, along with listening and creating common ground.

Ultimately, this iterative and immersive approach works because the community begins to perceive its own success as interwoven with the success of the business. One striking story about how this can play out on the ground came from a senior Newmont executive. He recounted a story of how some of the required excavation equipment got “stuck” in the import terminal of the port of Accra. Even before Newmont could send its local legal representatives there, a delegation of Ahafo elders had traveled south to the port and somehow straightened out matters. He mused that it would have taken months for the excavation equipment to be delivered north to Ahafo without their intervention.

These types of activities may seem more like core competencies of humanitarian NGOs rather than large international mining companies. However, in reality, large extractive, infrastructure, and agricultural businesses are often among the first to arrive in the front lines. They are instrumental in fueling a cycle of development that kick-starts a rural economy. These operations inject resources into the local economy through payments to employees and suppliers, by driving demand for services such as banking and telecommunications and, eventually, goods and services as disposable incomes rise. Thus, the entry of a mine into a front-line environment represents the bottom rung of the economic development ladder.

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The time is now to bring business to the front lines. Not only is there a tremendous amount of money to be made, but there are also numerous other benefits that come with expanding business’s reach across the globe. Business leaders are increasingly being called upon to contribute innovative solutions to the urgent challenges facing humanity. However, many of them perceive that these calls butt up against the hard logic of economics, which prioritizes shareholder wealth maximization. Our experience shows that to be a false dichotomy. Business can achieve both goals — it can turn a profit by operating in front-line environments, and in doing so, it can nudge societies toward a more prosperous and stable future. Corporations as diverse as Newmont Mining, Green Mountain Coffee, Jollibee, and GE have already adopted this strategy to expand into front-line environments, earning first-mover advantages. Organizations that are willing to embrace the complexity of the front line will be rewarded with lucrative opportunities.