EMERGING MARKETS

1
EMERGING MARKETS

• SEMINAR IN MANAGEMENT

2
Emerging Economies

• 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
• 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

3
Emerging Economies

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

4
WHAT MAKES THEM DIFFERENT?

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

5
WHAT MAKES THEM DIFFERENT?

• They are transitional societies that are
  undertaking domestic economic and political
  reforms
• Adopt open door policies to replace traditional
  state interventionist policies that failed to
  produce sustainable economic growth
• They are the worlds fastest growing economies,
  contributing to a great deal of the worlds
  explosive growth of trade
• 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

6
WHAT MAKES THEM DIFFERENT?

• They are critical participants in the worlds
  major political, economic, and social affairs
• Seeking larger voice in international politics
  and a bigger slice of the global economic pie.

7
WHAT BRINGS THEM INTO BEING?

• Two potential causes for the creation of emerging
  markets
• The failure of state-led economic development
• Failed to produce sustainable growth
• This failure and its tremendous negative impacts
  pushed those countries to adopt open door
  policies, and to change from rge states being in
  charge of the economy to facilitating economic
  growth along market-orientated lines

8
WHAT BRINGS THEM INTO BEING?

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

9
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 for foreign business Risks
  are increasingly manageable
• Economically and technologically
  Technologically competitive
• backward
• Consumer had poor purchasing
  Increasing purchasing power
• purchasing power among consumers
• Few opportunities for business Higher
  income growth than
• developed nations
• Offer many opportunities as
  large untapped markets and
  low-costs, high quality sources

10
Emerging Economies as Growing Markets

• Approximately 75 of the worlds population lives
  in emerging economies
• 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
• Africas population is also growing rapidly
• The Open Door policies of PRC and India have
  enhanced the importance of these markets even
  further
• The effects many MNCs successfully established
  presence in China Coco-Cola, Caterpillar,
  Carrefour, And Ericsson

11
Emerging Economies as Growing Markets

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

12
Emerging Economies as Global Sources

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

13
Major Concerns in Emerging Economies

• Lack of Infrastructure
• 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).
• 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

14
Major Concerns in Emerging Economies

• Environmental Issues
• Environmental and social responsibility
• 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
• 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

15
Major Concerns in Emerging Economies

• Fundamental problems associated with traditional
  economic and political systems
• Redefine the role of government in the
  development process and to reduce the
  governments undue intervention
• Corruption problem that distorts the business
  environment and impedes the development process

16
Major Concerns in Emerging Economies

• Structural reforms financial system, legal
  system and political system
• To guarantee a disciplined and stable economy
  that is relatively free of political disturbances
  and interference

17
WHAT ARE THEIR PROSPECTS?

• 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