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By Val Samonis
Emerging Markets: Their Origins, Nature,
Geography |
Trends
in Emerging Markets |
Distinguishing
Features of Emerging Markets |
Corporate
Strategies for Emerging Markets
Emerging
Markets:
Their Origins, Nature, Geography
The
fundamental shift in business/economic
development paradigm :
-from government regulation and protection to
freer markets based on private property and
competition worldwide
-fall of communism is the most important
international development since the World War II.
Over 40% of the world's population face a long
and truly historical process of the postcommunist
transformation including the crucial task of
managing transitions from plan to market
-successes of East Asian tigers, failures of
nationalizations and other market-distorting
policies in many other developing countries, as
well a relative failure of Western "welfare
states", have led most countries of the
world to undertake policy reforms aimed at
addressing the challenges confronting them
Riding on
this shift in paradigm are worldwide trends:
- towards increased privatization and openness of
many formerly bureaucratized and closed economies
- regional and global integration based on
commonly accepted principles of private property
and competitive markets
As a
consequence, many formerly isolated economies
emerge as players in the "global
village":
- increasing opportunities for profitable trade
and investment worldwide
-geographically, these emerging markets cover a
vast and expanding area; most of them can be
found in Central and Eastern Europe, Russia,
Caucasus, Central and East Asia, esp. China,
Vietnam, India, Indonesia, and Latin America,
esp. Mexico, Chile, Brazil, Argentina etc.
-these are usually large and growing markets,
accounting for over a half of the world's
population which is hungry for modern goods and
services
-US Department of Commerce classifies some of
them as Big Emerging Markets (BEM): The Chinese
Economic Area (China, Hong Kong, Taiwan), South
Korea, India, ASEAN (Brunei, Malaysia, The
Philippines, Singapore, Thailand, Indonesia,
Vietnam), Brazil, Argentina, Mexico, South
Africa, Turkey and Poland
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Trends in Emerging Markets
Most
emerging markets opted for systemic reforms
reflecting the shift in the paradigm:
- removal of legacies or discontinuation of
bureaucratization and state interventionism
- internal and external liberalization and
macroeconomic stabilization
- systemic changes: privatization,
demonopolization, enterprise restructuring (new
governance, finance), restructuring of banking
and finance
- opening to the world and economic integration
- building new institutions serving market
economy and democracy (such as banks, contract
law, commercial dispute settlement mechanisms,
etc) aimed at underpinning reforms anchored in
the paradigm shift
As a
consequence of the paradigm shift and higher
development levels achieved in emerging markets,
(national and international) public trade
and investments are being replaced by private
ones:
-according to the Institute for International
Finance, private international investment flows
to emerging markets amounted to $255 billion in
1996 which is a more than fourfold increase over
1990
-about half of these flows took the form of
equities. Asian economies, especially China, were
the leading recipients with some $131 billion in
net inflows
-US exports to BEM already are now virtually
identical to exports to the European Union and
Japan combined - $161 billion; by 2000, US
exports to BEM should substantially exceed
exports to the EU and Japan combined
-BEM GDP is currently 25 percent of that of the
industrialized world. By 2010, BEM GDP is
expected to be 50 percent of that of the
industrialized world. Comprising half the world's
population, BEM are expected to double their
share of the world's imports to nearly 27 percent
by 2010. No other category of markets shows such
dramatic growth potential.
-Business opportunities are incredible.
Infrastructure projects in just the Asian BEM
will require an investment of over $1 trillion in
the decade ahead. China is just now establishing
a system of highways and will need our help. Only
some 60,000 Chinese own private cars, but the
numbers will explode over the next few years.
China will be building two power plants a month
for the foreseeable future. Poland is Europe's
fastest growing major economy and needs an
infrastructure up to EU standards. Other BEMs,
such as Russia and Ukraine, are expected to grow
rapidly in the near future
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Distinguishing Features of
Emerging Markets
(in comparison to developed
markets)
Lower
overall political stability, faster change,
increased risk:
-lower political stability at the national level,
authoritarian regimes in some markets
-underdeveloped or nonexistent regional or local
governance
-increasing political and cultural sensitivity at
national and subnational levels - higher though
generally decreasing levels of government
intervention in economic life, especially in the
primary sector industries like oil, etc.
Lower
economic stability, faster change, increased
risk:
- inconsistent and incoherent economic policies
- economic and social tensions produced by higher
economic growth levels
- underdevelopment of the middle class and more
pronounced societal stratification
- lesser competition on factor markets and
products/services markets
Underdeveloped
infrastructure:
-underdeveloped physical infrastructure (roads,
communications, etc)
-underdeveloped or nonexistent institutional
infrastructure
-educational levels of labor force which are
growing rapidly but are uneven or difficult to
assess
Underdeveloped
rule of law:
- higher incidence of corruption
- larger informal sectors
- contract enforcement which is more difficult
than in developed countries
- profit repatriation which is more difficult
than in developed countries
Higher
economic growth rates:
-increased opportunities for profitable trade
-increased opportunities for profitable
investment
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Corporate Strategies for Emerging
Markets
Categories
of possible corporate strategies for emerging
markets:
- "quick buck" strategies
These "hit, bill, and run" approaches
to doing business are sometimes characteristic of
newcomers to emerging markets. They allow to tap
shallow business opportunities but in almost
every case fall short of deeper cooperation which
is more profitable in the longer term.
- "enclave" strategies
These strategies involve a longer-term building
of diversified presence in an emerging market.
Usually, the goal is to build an operation
independent of local supply networks or other
local business environment which is judged to be
less than reliable in terms of quality,
just-in-time deliveries or other important
aspects of business operation. Some of these
approaches result in the "cathedrals in the
desert" phenomenon
- "learning for earning" strategies
"Learning for earning" usually involves
sacrificing short-term profits for the sake of
developing better understanding of emerging
markets through
the process of learning-by-doing. Ultimately, the
reward for the adoption of such strategies takes
forms such as the increased business confidence,
more stable relationships with partners in
emerging markets, etc, producing higher profits
in the longer term
- "integrative national treatment"
strategies
These strategies are predicated upon the
achievement of quite high levels of market
development in emerging markets. They basically
amount to treatment of trade and investment into
emerging markets as if they already were as
sophisticated as markets of developed countries
and, therefore, doing business with them to a
great extent resembles doing business
domestically. These strategies may not yet be
workable in many emerging markets.
General
advice on workable strategies for emerging
markets:
- be flexible and adaptable in your approach to
emerging markets
- be prepared in advance and still willing to
learn by doing as you go into emerging markets
- consider all possibe modes of entry (from
simple trade to a wholly owned subsidiary) but
select those which will maximize your profit in
the longer term
- cultivate governament relations at local,
regional, and national levels in emerging
markets;
- show cultural sensitivity at both national and
subnational levels; language of your client
should be the language of your business if
possible
- cultivate labor relations, especially merit-
and performance-based employee assessment and
promotions
-be willing to adopt best practices of good
corporate citizenship in emerging markets
- adopt a longer-term perspective in profit
expectations
- do your research and seek advice (including
from your own government) before making a move
into emerging markets.
Top
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2003 SEMI
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