Factors Responsible For Successof Emerging Markets

Published Date: 02 Nov 2017

Benefits:

There are large number of factors which are responsible for success of emerging markets in comparison to more mature and developed markets.One of the most peculiar and important advantage is the opportunity for rapid market expansion than the developed economies which have got saturated and cannot grow further.Other factors which provide extra edge in emerging markets are:

1. There is increasingly greater demand in emerging markets for industrial exports to fulfill their infrastructure requirements which being relatively poor and under developed as emerging markets and their developing economies are shifting towards private sector viz.multi-plex buildings,shopping malls,fly-overs,I.T buildings etc.


2. At present individual incomes of emerging population is growing at comparably faster rate which will inturn create greater demand for sophisticated and portable consumer products and advanced services.


3. Emerging markets being mostly confined in China,Russia,India and Indonesia have large and effective consuming power due to higher population density e.g china having population of 1.34 billion,India 1.17 billion,Indonesia 242 million which attracts most of the foreign managers to invest(geohive.com).


4. Emerging markets provide less effective competitive environment as compared to developed markets particularly in case of sophisticated products and advanced technologies which have not been introduced yet in such markets,as there are no such local competitors for these newly introduced products and technologies.
   
   Besides this there is also little risk of having strive in opposition with other foreign competitors especially those that are in early stages of economic development.


5. It is relatively easier to reach potential customers in emerging markets than in developed markets in which companies are heavily dependent upon television and internet which are too expensive,but in emerging markets there are also other sources to deliver their product's message like hoardings,kiosks,leaflets,billboards etc. which are cheaper and effective means of advertising.


6. The cost of operating business in fastly growing market is low because of easy availability of cheap labour and other resources which results in higher margin of profit as compared to developed economies where there is large competition and higher operation costs.


7. Emerging markets provide sustainable and increasing profit levels for a quite considerable long time as customers become financially sound to purchase imported products even though being costly than domestic products.


8. Majority of population in emerging countries are not in debt and credit card circulation is not so high as they have more savings as compared to people of developed nations thus providing an opportunity for foreign investors to carry on their project in emerging markets under stable conditions as the people there are less susceptible to the damage of global recession and inflation rates e.g, in india the usage of debt cards has increased by 48% in terms of transactions which was only 12.7% in year 2009 because the customers prefer to have more savings and are more conscious about credit takings from banks.According to a survey carried out by Reserve Bank Of India in april 2008 the number of credit card holders were 28.3 million which got decreased to 24.6 million in the financial year 2009.
   
   (http://www.thepaypers.com/news/article.aspx?cid=738476)

"In addition to this emerging market exposure to mortgage debt and sub-prime debt of banks is more confined than the developed markets thus mitigating the effects of global recession" ( Saqib, 2003).

EXAMPLES:

1. Even though china being itself world's largest producer and consumer of coal,china's increasing economic growth has increased demand for coal supply to run power and steel plants.To meet this demand leading coal suppliers, BHP Billiton, Anglo American and Xstrata are exporting coal from Colombian's Cerrejon mine 10.000 miles away from china through ships as china is providing 45% more prices than usual markets of Europe.This will result in overall increase in profit levels of these companies even though shipping distance is twice than usual European developed markets.


2. Lafarge and Holcim are world's two biggest cement producer have decided to start their manufacturing units in China and other developing economies in which demand for improved housing and advanced infrastructure is ever increasing as compared to saturated markets of developed nations.It is evident from the following figure:

Total:$7,542bn(2008)                           Forecast Total:$12,705bn(2020)

Total value of production(%)              Total value of production(%)

China______________13.7                  china____________19.1

U.s________________17.4                  U.S_____________16.9

Japan______________7.9                  

Germany____________4.0

Spain______________3.9

U.K_______________3.2

France_____________3.2

Other_____________46.3

Source (all data from)http://www.ft.com/cms/s/0/a0b30096-f49f-11de-9cba-00144feab49a.html


3. Vodafone group being the world business leader international mobile tele- communications account for $166.67billion as on march 27,2008 in terms of market capital.Vodafone group has also entered some of the big emerging markets like india in which it has partenered with Essar company and is the third largest wireless phone company after Airtel Ltd. And Reliance india mobile in terms of number of customers.Today India with 25.3million subscribers accounts for being Vodafone's third largest market after Germany(30.6million) and U.S(26.4million).At present the average penetration of wireless service in is as low as 30% but it provides an opportunity for future growth as customers are looking for advanced tele-communication services like 3G services which provide different facilities of viewing and downloading music videos,live news,and other video and audio contents.
   
   (http://timesofindia.indiatimes.com/biz/india-business/India-to-be-Vodafones-largest-market/articleshow/1806863.cms)

Drawbacks:

1. There are many emerging economies which don't have still extended basic facilities such as roads,electricity,telephone lines to the whole nation such as China and Russia for which many western managers assume that these nations have poor infrastructure and therefore it is not feasible to spend time and money in establishing business in these countries.
   
   A western manager should consider the poor infrastructure of emerging nations as a good opportunity to do business by building up such infrastructure which suits their production process,location and product distribution needs.Western firms can also think about introducing their business in emerging markets by becoming share-holders in international equity markets for infrastructure related bonds and stock issues of emerging economies and thereby influencing the mode of infrastructure in the concerned market in accordance to their own needs.
   
   Example:According to the International Capital Markets Report 2000(IMF,2000) in 1999,private financing to emerging markets in terms of bond and security issues accounted for $110.2billion.


2. A foreign company launching a business in emerging market may face different problems like different market conditions,different public policy and strange competitive resource.These different political policies in different regions of same country can also become a big hinderance to trade.Variating inflation rates of concerned emerging economies,higher governmental interference in most of the economic issues are some of the political and social issues thet create difficulty in doing business in these markets.
   
   It is necessary to do proper research about the social,political and economical conditions of the emerging economy concerned.proper knowledge about traditions,culture,rituals etc. of concerned emerging economy is necessary because at times being unfamiliar with such dimensions can have negative effect on business.
   
   Example:During 1994 Football world cup,one of the well known North American brewer company engaged in a promotional campaign had flags of all countries qualifying for the world cup finals imprinted under the bottle cap of their leading brand of beer.Among the various flags imprinted was that of Saudi Arabia ,which depict the holy verse from the Qu'ran,the holy book of the Islamic religion.as the result of this ,muslims from all over the world respond angrily for collogating holy verse with alcoholic beverage.so the brewer company had to stop the promotion and dispose-off all the beverage bottles which had such images imprinted.


3. Apart from having transactions in various currencies of emerging markets the fluctuating exchange rate of concerned currency also cause various problems as the value of one currency expressed in terms of other foreign currency doesn't remain constant and fluctuate from time to time due recession,economic growth e.t.c.
   
   However a western manager can avoid or minimize such effects by use of financial instruments like forex hedges, futures etc.
   
   Dealing with the foreign partner at a pre-determined exchange rate in case of not having manufacturing or processing unit in such emerging market and doing only export-import business.


4. Besides infrastructure,political and cultural issues there is also another important issue which also plays an important role in determining the entry into an emerging market and that is the ethical issue.most of the emerging markets in developing nations have high corruption index as shown in the below table 1.2.Bribery and corruption being unethical is taken as an advantage by some western managers and therefore offer bribes to the government beurocrates,politicians or corporate partners for making decisions in their own favour to compete with American companies which are restricted to do so under Foreign Corrupt Practise Act(FCPA).
   
   Western managers should try to handle the situation by keeping in their perception that gifts and payments in many cultures play an important role in building relationship.So it is very effective tool to blurr the concept of bribery and corruption and also to remove the menace of bribery and corruption.