EMERGING MARKETS SEMINAR IN MANAGEMENT Emerging Economies n

EMERGING MARKETS SEMINAR IN MANAGEMENT

Emerging Economies n n n Relatively new concept, and most Western managers look at these economies only as large, untapped markets The reality is that countries with emerging economies are also becoming competitors and sourcing locations for Western nations So called emerging economies are: n n Started an economic reform process aimed at alleviating problems, for example, of poverty, poor infrastructure, and overpopulation; Achieved a steady growth in gross national product (GNP) per capita

Emerging Economies n The US Department of Commerce (2000) has identified the “ 10 Biggest Emerging Markets”: n n n n n China Economic Area (PRC, Taiwan, and Hong Kong) India Indonesia South Korea Turkey Poland Mexico Brazil Argentina South Africa

WHAT MAKES THEM DIFFERENT? n Emerging markets stand out due to four major characteristics: n They are regional economic powerhouses with large populations, large resource bases, and large markets n Economic success spurs development in neighboring countries, but if they experience economic crisis, they can bring their neighbors down with them.

WHAT MAKES THEM DIFFERENT? n They are transitional societies that are undertaking domestic economic and political reforms n n Adopt open door policies to replace traditional state interventionist policies that failed to produce sustainable economic growth They are the world’s fastest growing economies, contributing to a great deal of the world’s explosive growth of trade n n By 2020, the five biggest emerging markets’ share or world output will double to 16. 1% from 7. 8% in 1992. They will also become more significant buyers of goods and services than industrialized countries

WHAT MAKES THEM DIFFERENT? n They are critical participants in the world’s major political, economic, and social affairs n Seeking larger voice in international politics and a bigger slice of the global economic pie.

WHAT BRINGS THEM INTO BEING? n Two potential causes for the creation of emerging markets: n The failure of state-led economic development Failed to produce sustainable growth n This failure and its tremendous negative impacts pushed those countries to adopt open door policies, and to change from rge state’s being in charge of the economy to facilitating economic growth along market-orientated lines n

WHAT BRINGS THEM INTO BEING? n The need for capital investment Desperately needed capital to finance their development, but the traditional government borrowing failed to fuel the development process n As such, these countries began to rely on equity investment as a means of financing economic growth n Seek to attract equity investment from private investors who will become their partners in development n n Create a conducive investment climate

THE PARADIGM SHIFT OF INTERNATIONAL BUSINESS During the early 19902, a number of perceptional changes occurred within the realm of international business Developing Countries Emerging Markets (prior to 2000) (2000 and beyond) • • High risk foreign business Economically and technologically backward Consumer had poor purchasing power Few opportunities for business * Risks are increasingly manageable * Technologically competitive * Increasing purchasing power among consumers * Higher income growth than developed nations * Offer many opportunities as large untapped markets and low-costs, high quality sources

Emerging Economies as Growing Markets n Approximately 75% of the world’s population lives in emerging economies n n The population growth rates of emerging economies are the highest of all countries India and China (1. 2 billion and 1 billion respectively), outnumber those of many developed nations Africa’s population is also growing rapidly The Open Door policies of PRC and India have enhanced the importance of these markets even further n The effects – many MNCs successfully established presence in China: Coco-Cola, Caterpillar, Carrefour, And Ericsson

Emerging Economies as Growing Markets n Industrialized countries are relying on expanding their markets in developing and emerging economies to increase their exports n Although industrialized countries have most of the production of manufactured goods, developing and emerging countries represent a substantial and market for

Emerging Economies as Global Sources n Western and American firms must look at emerging countries as potential sources (with sourcing niches) that may provide competitive advantages to buying firms n Six countries best suited for building new plants, making acquisitions, or forming joint ventures: the United Kingdom, France, Canada, China, Mexico, and Malaysia

Major Concerns in Emerging Economies n Lack of Infrastructure n ‘infrastructure’ covers services from public utilities (power, telecommunications, piped water supply, sanitation and sewerage, solid waste collection and disposal, and piped gas), public works (road, dams, and canals), and other transport sectors (urban and interurban, ports and waterways, and airports). n n Some markets have already well-established local distribution systems (e. g. India, Brazil, and Malaysia) China and Russia perhaps are the only two countries that lack fully developed distribution systems

Major Concerns in Emerging Economies n Environmental Issues n Environmental and social responsibility n n n Although environmental laws in emerging economies are not as stringent as they are in developed economies, the situation is changing fast Sustainable development : a concept that strives to balance economic growth with environmental management. Economic and industrial development as essential if people in developing economies are to rise out of poverty and that this development can be accomplished without destroying the environment Ethical Issues n n The desire to gain entry into an emerging market may temp Western managers to offer bribes or otherwise “grease palms” of government bureaucrats, politicians, or corporate buyers making purchasing decisions. Though unethical, bribery and corruption are a reality in many emerging markets

Major Concerns in Emerging Economies n Fundamental problems associated with traditional economic and political systems n n Redefine the role of government in the development process and to reduce the government’s undue intervention Corruption problem that distorts the business environment and impedes the development process

Major Concerns in Emerging Economies n Structural reforms – financial system, legal system and political system n To guarantee a disciplined and stable economy that is relatively free of political disturbances and interference

WHAT ARE THEIR PROSPECTS? n n n The “key swing factor” in the future growth of world trade and global financial stability, and they will become critical players in global politics They have huge untapped potential and they are determine to undertake domestic reforms to support sustainable economic growth If they can maintain political stability and succeed with their structural reforms, their future is promising