EMERGING MARKETSEMERGING MARKETS

SEMINAR IN MANAGEMENTSEMINAR IN MANAGEMENT

Emerging EconomiesEmerging Economies

Relatively new concept, and most Western managers look at Relatively new concept, and most Western managers look at these economies only as large, untapped marketsthese economies only as large, untapped markets

The reality is that countries with emerging economies are also The reality is that countries with emerging economies are also becoming competitors and sourcing locations for Western becoming competitors and sourcing locations for Western nationsnations

So called emerging economies are:So called emerging economies are: Started an economic reform process aimed at alleviating problems, for Started an economic reform process aimed at alleviating problems, for

example, of poverty, poor infrastructure, and overpopulation;example, of poverty, poor infrastructure, and overpopulation; Achieved a steady growth in gross national product (GNP) per capita Achieved a steady growth in gross national product (GNP) per capita

Emerging EconomiesEmerging Economies

The US Department of Commerce (2000) has identified the The US Department of Commerce (2000) has identified the “10 Biggest Emerging Markets”:“10 Biggest Emerging Markets”: China Economic Area (PRC, Taiwan, and Hong Kong)China Economic Area (PRC, Taiwan, and Hong Kong) IndiaIndia IndonesiaIndonesia South KoreaSouth Korea TurkeyTurkey PolandPoland MexicoMexico BrazilBrazil ArgentinaArgentina South Africa South Africa

WHAT MAKES THEM WHAT MAKES THEM DIFFERENT?DIFFERENT?

Emerging markets stand out due to four major Emerging markets stand out due to four major characteristics:characteristics: They are regional economic powerhouses with They are regional economic powerhouses with

large populations, large resource bases, and large large populations, large resource bases, and large marketsmarkets

Economic success spurs development in neighboring Economic success spurs development in neighboring countries, but if they experience economic crisis, they countries, but if they experience economic crisis, they can bring their neighbors down with them.can bring their neighbors down with them.

WHAT MAKES THEM WHAT MAKES THEM DIFFERENT?DIFFERENT?

They are transitional societies that are undertaking They are transitional societies that are undertaking domestic economic and political reformsdomestic economic and political reforms

Adopt open door policies to replace traditional state Adopt open door policies to replace traditional state interventionist policies that failed to produce interventionist policies that failed to produce sustainable economic growthsustainable economic growth

They are the world’s fastest growing economies, They are the world’s fastest growing economies, contributing to a great deal of the world’s explosive contributing to a great deal of the world’s explosive growth of tradegrowth of trade

By 2020, the five biggest emerging markets’ share or By 2020, the five biggest emerging markets’ share or world output will double to 16.1% from 7.8% in world output will double to 16.1% from 7.8% in 1992.1992.

They will also become more significant buyers of They will also become more significant buyers of goods and services than industrialized countriesgoods and services than industrialized countries

WHAT MAKES THEM WHAT MAKES THEM DIFFERENT?DIFFERENT?

They are critical participants in the world’s They are critical participants in the world’s major political, economic, and social affairsmajor political, economic, and social affairs

Seeking larger voice in international politics and a Seeking larger voice in international politics and a bigger slice of the global economic pie.bigger slice of the global economic pie.

WHAT BRINGS THEM INTO WHAT BRINGS THEM INTO BEING?BEING?

Two potential causes for the creation of Two potential causes for the creation of emerging markets:emerging markets: The failure of state-led economic developmentThe failure of state-led economic development

Failed to produce sustainable growth Failed to produce sustainable growth This failure and its tremendous negative impacts pushed This failure and its tremendous negative impacts pushed

those countries to adopt open door policies, and to those countries to adopt open door policies, and to change from rge state’s being in charge of the economy change from rge state’s being in charge of the economy to facilitating economic growth along market-orientated to facilitating economic growth along market-orientated lines lines

WHAT BRINGS THEM INTO WHAT BRINGS THEM INTO BEING?BEING?

The need for capital investmentThe need for capital investment Desperately needed capital to finance their Desperately needed capital to finance their

development, but the traditional government borrowing development, but the traditional government borrowing failed to fuel the development processfailed to fuel the development process

As such, these countries began to rely on equity As such, these countries began to rely on equity investment as a means of financing economic growthinvestment as a means of financing economic growth

Seek to attract equity investment from private investors Seek to attract equity investment from private investors who will become their partners in developmentwho will become their partners in development

Create a conducive investment climateCreate a conducive investment climate

THE PARADIGM SHIFT OF THE PARADIGM SHIFT OF INTERNATIONAL BUSINESSINTERNATIONAL BUSINESS

During the early 19902, a number of perceptional changes occurred within During the early 19902, a number of perceptional changes occurred within the realm of international businessthe realm of international business

Developing Countries Developing Countries Emerging MarketsEmerging Markets

(prior to 2000)(prior to 2000) (2000 and beyond)(2000 and beyond)

• High risk for foreign businessHigh risk for foreign business * Risks are increasingly manageable * Risks are increasingly manageable• Economically and technologically * Technologically competitiveEconomically and technologically * Technologically competitive

backwardbackward• Consumer had poor purchasing Consumer had poor purchasing * Increasing purchasing power * Increasing purchasing power

purchasing powerpurchasing power among consumers among consumers • Few opportunities for businessFew opportunities for business * Higher income growth than * Higher income growth than

developed nationsdeveloped nations

* Offer many opportunities as large * Offer many opportunities as large untapped markets and low-costs, untapped markets and low-costs, high quality sources high quality sources

Emerging Economies as Growing MarketsEmerging Economies as Growing Markets

Approximately 75% of the world’s population lives in Approximately 75% of the world’s population lives in emerging economiesemerging economies The population growth rates of emerging economies are the highest of The population growth rates of emerging economies are the highest of

all countriesall countries India and China (1.2 billion and 1 billion respectively), outnumber India and China (1.2 billion and 1 billion respectively), outnumber

those of many developed nationsthose of many developed nations Africa’s population is also growing rapidlyAfrica’s population is also growing rapidly

The Open Door policies of PRC and India have enhanced the The Open Door policies of PRC and India have enhanced the importance of these markets even furtherimportance of these markets even further The effects – many MNCs successfully established presence in China: The effects – many MNCs successfully established presence in China:

Coco-Cola, Caterpillar, Carrefour, And EricssonCoco-Cola, Caterpillar, Carrefour, And Ericsson

Emerging Economies as Growing MarketsEmerging Economies as Growing Markets

Industrialized countries are relying on expanding their markets Industrialized countries are relying on expanding their markets in developing and emerging economies to increase their in developing and emerging economies to increase their exportsexports Although industrialized countries have most of the production of Although industrialized countries have most of the production of

manufactured goods, developing and emerging countries represent a manufactured goods, developing and emerging countries represent a substantial and market for substantial and market for

Emerging Economies as Global SourcesEmerging Economies as Global Sources

Western and American firms must look at emerging Western and American firms must look at emerging countries as potential sources (with sourcing niches) countries as potential sources (with sourcing niches) that may provide competitive advantages to buying that may provide competitive advantages to buying firmsfirms Six countries best suited for building new plants, making Six countries best suited for building new plants, making

acquisitions, or forming joint ventures: the United acquisitions, or forming joint ventures: the United Kingdom, France, Canada, Kingdom, France, Canada, China, Mexico, and MalaysiaChina, Mexico, and Malaysia

Major Concerns in Emerging EconomiesMajor Concerns in Emerging Economies

Lack of InfrastructureLack of Infrastructure ‘‘infrastructure’ covers services from public utilities (power, infrastructure’ covers services from public utilities (power,

telecommunications, piped water supply, sanitation and sewerage, telecommunications, piped water supply, sanitation and sewerage, solid waste collection and disposal, and piped gas), public works (road, solid waste collection and disposal, and piped gas), public works (road, dams, and canals), and other transport sectors (urban and interurban, dams, and canals), and other transport sectors (urban and interurban, ports and waterways, and airports). ports and waterways, and airports).

Some markets have already well-established local distribution systems Some markets have already well-established local distribution systems (e.g. India, Brazil, and Malaysia)(e.g. India, Brazil, and Malaysia)

China and Russia perhaps are the only two countries that lack fully China and Russia perhaps are the only two countries that lack fully developed distribution systems developed distribution systems

Major Concerns in Emerging EconomiesMajor Concerns in Emerging Economies

Environmental IssuesEnvironmental Issues Environmental and social responsibilityEnvironmental and social responsibility

Although environmental laws in emerging economies are not as stringent as they are Although environmental laws in emerging economies are not as stringent as they are in developed economies, the situation is changing fastin developed economies, the situation is changing fast

Sustainable development Sustainable development : a concept that strives to balance economic growth with : a concept that strives to balance economic growth with environmental management. Economic and industrial development as essential if environmental management. Economic and industrial development as essential if people in developing economies are to rise out of poverty and that this development people in developing economies are to rise out of poverty and that this development can be accomplished without destroying the environmentcan be accomplished without destroying the environment

Ethical IssuesEthical Issues The desire to gain entry into an emerging market may temp Western managers The desire to gain entry into an emerging market may temp Western managers

to offer bribes or otherwise “grease palms” of government bureaucrats, to offer bribes or otherwise “grease palms” of government bureaucrats, politicians, or corporate buyers making purchasing decisions.politicians, or corporate buyers making purchasing decisions.

Though unethical, bribery and corruption are a reality in many emerging Though unethical, bribery and corruption are a reality in many emerging marketsmarkets

Fundamental problems associated with Fundamental problems associated with traditional economic and political systemstraditional economic and political systems Redefine the role of government in the Redefine the role of government in the

development process and to reduce the development process and to reduce the government’s undue interventiongovernment’s undue intervention

Corruption problem that distorts the business Corruption problem that distorts the business environment and impedes the development environment and impedes the development processprocess

Major Concerns in Emerging Major Concerns in Emerging EconomiesEconomies

Structural reforms – financial system, legal Structural reforms – financial system, legal system and political systemsystem and political system To guarantee a disciplined and stable economy that To guarantee a disciplined and stable economy that

is relatively free of political disturbances and is relatively free of political disturbances and interferenceinterference

Major Concerns in Emerging Major Concerns in Emerging EconomiesEconomies

WHAT ARE THEIR WHAT ARE THEIR PROSPECTS?PROSPECTS?

The “key swing factor” in the future growth of world The “key swing factor” in the future growth of world trade and global financial stability, and they will trade and global financial stability, and they will become critical players in global politicsbecome critical players in global politics

They have huge untapped potential and they are They have huge untapped potential and they are determine to undertake domestic reforms to support determine to undertake domestic reforms to support sustainable economic growthsustainable economic growth

If they can maintain political stability and succeed If they can maintain political stability and succeed with their structural reforms, their future is promisingwith their structural reforms, their future is promising