Cross-Border Investment in Emerging Markets: A Strategic Framework

Cross-border investment in emerging and transitional markets represents both significant opportunity and meaningful complexity for European companies. Whether driven by growth ambitions, supply chain diversification, or access to resources and capabilities, these investments require a more structured approach than domestic or intra-EU transactions.

This article provides a strategic framework for EU/EEA companies considering investments in emerging markets—from initial opportunity assessment through execution and ongoing management. We focus on practical considerations that determine success or failure, drawing on experience supporting European companies in these complex environments.

The framework applies across sectors, though specific considerations vary by industry and geography. Energy, infrastructure, manufacturing, and technology investments each have distinct characteristics, but the fundamental strategic questions remain consistent.

The Opportunity Landscape

Several factors are driving increased European investment interest in emerging and transitional markets:

• Growth dynamics: Many emerging markets offer growth rates significantly above European averages, driven by demographic trends, urbanization, and economic development
• Supply chain reconfiguration: Geopolitical shifts are prompting companies to diversify supply chains, creating investment opportunities in strategic locations
• Resource access: Critical raw materials, energy resources, and agricultural production increasingly require investment in emerging market locations
• EU policy alignment: European development policy and investment frameworks are creating institutional support for investments in priority regions and sectors
• Reconstruction and development: Major reconstruction programs, particularly in Ukraine, are creating substantial investment opportunities for EU companies

These drivers are creating a pipeline of investment opportunities across sectors. However, the same factors that create opportunity—rapid change, institutional development, market opening—also create complexity and risk.

Strategic Framework for Investment Decisions

Successful emerging market investment requires systematic evaluation across multiple dimensions. We recommend a structured framework that addresses:

Each dimension requires dedicated analysis. The temptation to shortcut this process—particularly when competitive pressure creates urgency—is a common source of investment failure.

Risk Assessment & Mitigation

Risk in emerging markets extends beyond commercial factors to include dimensions that may be unfamiliar to companies focused on European operations:

• Political risk: Government stability, policy continuity, and the risk of adverse regulatory or political changes affecting investment returns
• Regulatory risk: Complexity, unpredictability, and enforcement patterns in regulatory frameworks
• Currency risk: Exchange rate volatility and potential restrictions on currency conversion or repatriation
• Operational risk: Infrastructure limitations, talent availability, and supply chain reliability
• Partner risk: Reliability and alignment of local partners, joint venture counterparties, or acquisition targets
• Exit risk: Constraints on exit options including market liquidity, regulatory approval requirements, and strategic buyer availability

Effective risk mitigation combines thorough upfront analysis with structural protections embedded in investment agreements, partner arrangements, and corporate structure. Political risk insurance and development finance institution involvement can provide additional layers of protection.

Institutional Support Mechanisms

European companies have access to substantial institutional support for investments in priority markets and sectors:

• Development finance institutions: EIB, EBRD, and national DFIs offer financing, guarantees, and technical assistance for qualifying investments
• EU investment frameworks: Programs like the Global Gateway and regional facilities provide structured support for investments aligned with EU priorities
• Export credit agencies: National ECAs can provide financing and insurance for investments that support domestic economic interests
• Political risk insurance: Coverage for expropriation, political violence, and currency inconvertibility from public and private providers
• Technical assistance: Grant-funded support for feasibility studies, environmental assessments, and capacity building

Engaging with these mechanisms requires understanding their requirements, priorities, and processes. Early engagement—ideally during investment planning rather than after commitment—maximizes the potential for support.

Execution Considerations

Even well-planned investments can fail in execution. Critical success factors include:

1. Local expertise: Whether through hiring, partnerships, or advisory support, local knowledge is essential for navigating regulatory, commercial, and operational challenges.
2. Stakeholder management: Government relationships, community engagement, and local partner management require dedicated attention and cultural sensitivity.
3. Realistic timelines: Emerging market investments typically take longer than anticipated. Building buffer into timelines and budgets is prudent.
4. Governance structures: Clear governance, reporting, and escalation mechanisms are essential, particularly in joint venture structures.
5. Compliance frameworks: Robust compliance systems addressing anti-corruption, sanctions, and ESG requirements protect both the investment and the company's broader reputation.

Companies that approach emerging market investment with appropriate rigor—investing adequately in preparation, risk mitigation, and local capability—significantly improve their probability of success.