Why does stewardship matter in emerging markets?

Why does stewardship matter in emerging markets?

Emerging markets have long been understood as geographies of uncertainty. Are good company stewards the answer? 

Download PDF version

Political turmoil, currency fluctuations, and poor governance are common themes amongst headlines about emerging markets investing. It is in the context of these hazards that, in our decades of allocating clients’ capital in this universe of companies,  we have looked to find high-quality family owners who act as stewards of businesses over generations, protecting and growing sound franchises that thrive despite the uncertainties that surround them.

The attraction of these stewards, who have in some cases been able to preserve multi-generational legacies, is the time horizons that they bring with them. These multi-generational family owners build business cultures that place weight on institutional memories, patience, and the ability to take decisions that might bring short-term pain but bear fruit over decades. 

To us, these are some of the best run companies in the world.

In a world where cheap capital is able to fund such aggressive competition, we believe having a patient steward at the helm, with a century-long history and an eye on running the business for the next generation, is a tangible advantage.

Resisting short-term pressures for long-term gains

The marriage between long-term thinking and focus on constant operational excellence is exemplified in the culture at Raia Drogasil, the largest pharmacy chain in Brazil. The company was created through the merger of two family-owned pharmacy chains – Droga Raia and Drogasil – with the founding families continuing to control approximately 35% of the business today. Now, with the fourth generation involved in the business, the two families together have more than 200 years of institutional memory preserved and passed down from generation to generation. 

The long-termism that this ownership structure produces has helped Raia Drogasil outlast the aggressive tactics of shorter-term competitors, who may come with the advantages of deep pockets over the span of a few quarters but are unable to match Raia Drogasil’s execution over years. Many of these competitors were focused on speed and quantity of growth, trying to gain market share quickly. Raia’s long history of sound execution, as well as the deep scars they bear in their institutional memory around carrying a leveraged balance sheet, ensured that they approached these short-term pressures with conservatism. Rather than falling into the trap of competing on price, the managers at Raia remained focused on quality of growth – they remained true to the recipe that had served them well for a century, rather than sacrificing their conservatism to match the risk appetites of others. While this approach meant that the company faced some pain in the form of slower market share gains over the course of a few quarters, it ensured that when competition remained unprofitable or put their balance sheets in jeopardy over the ensuing years, Raia Drogasil remained at the ready to reap the fruits and take back their market share. 

Today, Raia Drogasil remains the clear market leader in Brazil, steadily gaining in strength at the expense of their competition. 

In a world where cheap capital is able to fund such aggressive competition, we believe having a patient steward at the helm, with a century-long history and an eye on running the business for the next generation, is a tangible advantage. In our experience, it allows the business to withstand these short-term competitive pressures over the span of a few quarters, only to emerge stronger at the other end.

Patience and perseverance reap rewards 

We see these traits of long-termism and focus manifesting themselves in additional positive ways at some other family-owned companies. Marico, an Indian consumer goods company founded and controlled by the Mariwala family, has its foundations in consistently investing behind adjacent legs of growth in new segments and new geographies. 

Growing out of his family’s oil trading business, Harsh Mariwala sought to build a higher-margin, direct-to-consumer company. Through the 1970s he spent time laying the groundwork of the business, investing in distribution, the brand and – perhaps most importantly – the culture of the company. Starting completely from scratch, these investments paid off in creating rapid growth for Marico’s hair oil products through the 1990s. Marico, however, was still a small fish operating in a big pond, with larger, competent competitors around them. It was at this point in their journey when their largest competitor, Hindustan Unilever, tried to acquire the business. However, Mariwala’s unwavering focus and commitment to building something for the long term led him to reject the offer and continue consistently investing behind Marico. It was this steady reinvestment that finally culminated in Marico becoming the dominant player in hair oils in the country by the mid-2000s and, as fate would have it, Hindustan Unilever choosing to sell their hair oils business to the once fledgling challenger.

Another reiteration of this same patience and perseverance is the manner in which Marico has expanded beyond their home market. Entering Bangladesh in 1999, the company was a complete newcomer in a market dominated by local brands. They  chose to make losses in their first five years, investing  in brand promotion and creating a resilient distribution network. Focusing on growing volumes and creating brand loyalty in those early years now leaves them in the position of being the market leader in Bangladesh with profitability even higher than in their Indian business. 

Finding the right stewards

Not every founding family is made equal of course, and for every one steward we like, there are many others we may think of less favourably. 

However, the actions of the family stewards behind Raia Drogasil and Marico are, to us, evidence that their ownership, and the long-term mindset and behaviour it engenders, are competitive advantages in building businesses across geographies. These companies have prospered despite regime changes or economic booms and busts, and have built a robust runway for growth ahead. We remain excited about these stewards and the advantages they can bring across emerging markets.


Sujaya Desai
August 2021


Certain statements, estimates, and projections in this document may be forward-looking statements. These forward-looking statements are based upon Stewart Investors’ current assumptions and beliefs, in light of currently available information, but involve known and unknown risks and uncertainties. Actual actions or results may differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements. There is no certainty that current conditions will last, and Stewart Investors undertakes no obligation to correct, revise or update information herein, whether as a result of new information, future events or otherwise.

For illustrative purposes only. Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. Companies mentioned herein may or may not form part of the holdings of Stewart Investors.

Investment terms

View our list of investment terms to help you understand the terminology within this document.

Subscribe to our updates

To get regular updates and content from Stewart Investors, please register here.

Important information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.

About First Sentier Investors

References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, Realindex Investments and Igneo Infrastructure Partners, all of which are part of the First Sentier Investors group.

We communicate and conduct business through different legal entities in different locations. This material is communicated in:

  • Australia and New Zealand by First Sentier Investors (Australia) IM Ltd, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)

  • European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)

  • Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors, FSSA Investment Managers, Stewart Investors, and Realindex Investments are the business names of First Sentier Investors (Hong Kong) Limited.

  • Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and this advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W) and Realindex Investments (registration number 53472532E) are the business divisions of First Sentier Investors (Singapore).

  • Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)

  • United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)

  • United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167)

  • other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (FCA ref no. 122512; Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB; Company no. SC079063).

To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested

© First Sentier Investors Group