EMERGING MARKETS SEMINAR IN MANAGEMENT

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

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

WHAT MAKES THEM DIFFERENT? Emerging markets stand out due to four major characteristics: Emerging markets stand out due to four major characteristics: They are regional economic powerhouses with large populations, large resource bases, and large markets 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. 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? They are transitional societies that are undertaking domestic economic and political reforms 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 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 They are the world’s fastest growing economies, contributing to a great deal of the world’s explosive growth of trade By 2020, the five biggest emerging markets’ share or world output will double to 16.1% from 7.8% in By 2020, the five biggest emerging markets’ share or world output will double to 16.1% from 7.8% in They will also become more significant buyers of goods and services than industrialized countries They will also become more significant buyers of goods and services than industrialized countries

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

WHAT BRINGS THEM INTO BEING? Two potential causes for the creation of emerging markets: Two potential causes for the creation of emerging markets: The failure of state-led economic development The failure of state-led economic development Failed to produce sustainable growth 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 state’s being in charge of the economy to facilitating economic growth along market-orientated lines 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

WHAT BRINGS THEM INTO BEING? The need for capital investment The need for capital investment Desperately needed capital to finance their development, but the traditional government borrowing failed to fuel the development process 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 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 Seek to attract equity investment from private investors who will become their partners in development Create a conducive investment climate 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 for foreign business * Risks are increasingly manageable High risk for foreign business * Risks are increasingly manageable Economically and technologically * Technologically competitive Economically and technologically * Technologically competitivebackward Consumer had poor purchasing * Increasing purchasing power Consumer had poor purchasing * Increasing purchasing power purchasing power among consumers Few opportunities for business * Higher income growth than Few opportunities for business * Higher income growth than developed nations developed nations * Offer many opportunities as large untapped markets and low-costs, high quality sources * Offer many opportunities as large untapped markets and low-costs, high quality sources

Emerging Economies as Growing Markets Approximately 75% of the world’s population lives in emerging economies Approximately 75% of the world’s population lives in emerging economies The population growth rates of emerging economies are the highest of all countries 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 India and China (1.2 billion and 1 billion respectively), outnumber those of many developed nations Africa’s population is also growing rapidly Africa’s population is also growing rapidly The Open Door policies of PRC and India have enhanced the importance of these markets even further 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 The effects – many MNCs successfully established presence in China: Coco-Cola, Caterpillar, Carrefour, And Ericsson

Emerging Economies as Growing Markets Industrialized countries are relying on expanding their markets in developing and emerging economies to increase their exports 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 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 Western and American firms must look at emerging countries as potential sources (with sourcing niches) that may provide competitive advantages to buying firms 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 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 Lack of Infrastructure 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). ‘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) 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 China and Russia perhaps are the only two countries that lack fully developed distribution systems

Major Concerns in Emerging Economies Environmental Issues Environmental Issues Environmental and social responsibility 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 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 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 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. 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 Though unethical, bribery and corruption are a reality in many emerging markets

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

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

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