What do India, China, Brazil, Russia, Turkey, and Indonesia have in common? And what are emerging markets? These two questions actually answer each other. The above countries are just a few of the emerging or developing markets of the world.
As economy involves constant activity, the emerging countries have unique characteristics which bring them closer to the international spotlight. In order to understand and recognize an emerging markets, let’s take a closer look at what they bring to the table.
What Are Emerging Markets?
It is obvious that the emerging markets have not just made it among the “big players” of the world yet. They are currently working they way “to the top” by going through rapid changes. They are actually evolving so fast that The World Bank does not have an official list of them. However, Morgan Stanley Capital International (MSCI) has managed to mark 23 countries as “emerging markets” back in 1968. The index was based on the local companies’ index from the stock market. In the index there also are countries such as Chile, Colombia, Egypt, Greece, Malaysia, Poland, Taiwan, and Thailand.
The emerging markets are best visible in comparison with the G10 (Group of Ten) economies. These are Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, The United Kingdom and the United States. These are the traditional choices of other international investors who want to “play on the safe side”.
Emerging countries have an income per citizen which is lower than the international average ($4,035), according to The World Bank. Meanwhile, they are also rapidly growing, as they have left behind the closed economy and embraced the open market. These countries are still fragile, due to external price changes and internal instability. Still, when looking at them we can also notice that they have a higher-than-average investor return. Think of India with its surprising outsourcing industry, and China, best known as an exporting goods center?
3 Insights on Businesses in Emerging Markets
So, what are emerging markets when it comes to the business environment? They have a fast-growing economy which lead to increasing workplaces and attention on providing the best services possible. This can be huge or disappointing, as each culture understands the term “quality” based on its own background.
You can avoid risks by researching on each country’s strong points and challenges. Indonesia is now placing its bets on optimizing the oil and gas sector. On the other hand, Argentina is strongly influenced by political changes. Mexico had a deep reform, but it’s economy is still mostly based on the US. But which are the general trends of emerging markets?
1. Development vs. Impact
The emerging countries are aware of their offerings and seeking the attention of international economy. They are constantly working on developing a welcoming environment for investors and they exploit their resources to provide it.
Each country’s GDP is constantly growing, while other countries find their workforce tempting and decide to invest. This circle has led to even historical actions. China’s Lenovo purchased IBM in 2004, while India’s Tata Motors bought Jaguar and Land Rover in 2008. While some countries are known worldwide, others have just begun the development process. Among them there are the Philippines, Malaysia and Kenya.
But once you have settled down, you will be facing a different culture with all of its highs and lows. Starting from the communication differences and going forward to the high management communication, you will need to research the culture. You can decide upon recruiting locals to run your company or bringing your staff members. However, the cultural differences need to find their spot in your company.
2. Short vs. Long-Term
Emerging countries don’t have mature capital markets yet. The business environment is active and each company which builds a headquarter in such a country influences its local economy. This is why some may see a potential investment in such a market as smart, while others as risky. It is known that large companies benefit from the cheap work force and the local enthusiasm.
The investment a company makes when switching to an emerging market will turn into profit after a while. In the beginning of the 2000s, Vodafone invested over $25 billion in India and Turkey. This returned in 2013 in a 1% capital increase, as per The Economist. This is one of the signs that you company first has to become trustworthy on the local market.
3. When Your Business Meets the Local Ones
The first prize that companies win when learning what are emerging markets is exposure. Your products are now visible to one or more developing countries and they might just consider them attractive. This will set up your product for a new open market. You need to research on the potential of the local public and establish the amounts you can invest in local advertising.
Since your company has stepped on the ground of emerging markets, you can also take a look at the risk factors. The local economy will directly influence your company’s activity. You may face as inflation growth, political changes, internal crisis or overnight economic switches.
Wrapping It Up
There are numerous companies which decided to perform their activities in developing countries. Coca-Cola, HSBC, Citigroup, Electrolux, and Peugeot are just a few of them. Now they know what are emerging markets and how to exploit their resources in everyone’s best interest.
If this offer sounds tempting, you only need to make the right choice for your business and settle down in a developing country. There are economic analysts who can provide you with complete background of each economy. Once you are fully informed, it is all a matter of choice – traditional vs. promising.
Images taken from depositphotos.com.