Emerging markets

A foreign economy that is developing in response to the spread of capitalism and has created its own stock market. Analagous to small growth companies, emerging markets have high potential as well as high risk. Pacific Rim Markets, which grew rapidly and then collapsed in 1997 and 1998, are a good example.

Emerging markets are those countries or geographic regions in which a previously untapped potential for U.S. exports or investment might be anticipated. Nations typically characterized under this banner are often developing countries, but they may also be economically formidable countries with markets that are increasingly open to exports. "The BEMs [big emerging markets] share certain characteristics," wrote Mark Tran in Working Woman. "They have large territories and populations, and they are undertaking extraordinary development projects that call for new infrastructure, such as power-generating plants and telecommunications systems. And, of course, with development comes increased demand for consumer goods, like computers and washing machines. These countries have pursued economic policies leading to faster growth and expanding trade and investment with the rest of the world. They aspire to be technological leaders. Their economic growth would have enormous spillover into their respective regions, and they all have political clout." In the mid-1990s, the International Trade Administration cited ten emerging markets as particularly important to U.S. companies with overseas ambitions: Argentina, Mexico, Brazil, Turkey, Poland, South Africa, India, South Korea, the Association of South East Asian Nations (ASEAN), and the Chinese Economic Area (China, Hong Kong, and Taiwan).

International trade analysts note, however, that the above-mentioned areas are by no means the only developing markets on the planet. Other nations commonly mentioned as key emerging markets for various U.S. exporting sectors include Chile, Vietnam, Malaysia, Thailand, the Czech Republic, Hungary, Uruguay, and Paraguay. In addition, Russia—though riddled with political instability, worrisome trends toward totalitarian government control, economic confusion, a weak technological infrastructure, and a lack of business expertise—is regarded as a potentially lucrative market.

In previous eras, international business activity in the ITA's BEMs and other promising areas was primarily the province of large companies with millions of dollars in investment resources and, often, a multinational presence in Europe and other economically powerful areas. In the 1990s, however, small-and mid-sized businesses staked out a sizable piece of the emerging market action for themselves. "Fortune 500 companies are no longer the only ones doing business beyond our borders," said the U.S. Secretary of Commerce in 1997. "Small-and medium-sized firms—manufacturing, telecom, high-tech, and information systems, among others—are positioning themselves to become global economic players. We will help them do that by assisting them in reaching promising new markets."

Factors in Bem Designation

Countries and regions that come to be known as promising, largely untapped markets often reach that status only after making changes in their internal political and economic structure. Indeed, liberalization of trade regulations between an emerging nation and America, which is an important factor in any analysis of emerging markets, typically only occur in reaction to fundamental political changes within that market. For example, U.S. interest in Vietnam as a market jumped significantly after that nation and the United States formally opened relations in 1995.

Political factors from abroad have also helped some nations emerge as U.S. export and investment destinations. Turkey's active role as an alternative Moslem economic system to such fundamentalist Islamic models of Iran has been vital in helping it establish itself as a major regional player in the Islamic states of the former Soviet Union, such as Kazakhstan and Turkmenistan. The mutual lifting of restrictions in trade simultaneously from both the United States and from another nation could also earmark that nation as an emerging market for U.S. goods. Certainly, the passage of the North American Free Trade Agreement (NAFTA) marked a significant change in Mexico's status as a trading partner of the United States. Some countries or regions, meanwhile, come to be regarded as promising markets by dint of internal economic reforms.

The list of top emerging markets is an everchanging one, subject to economic, political, military, and environmental influences. Some nations lose their footing, scaring away investors and exporters because of political instability, unfair trade practices, economic uncertainty, or other factors. Some emerging markets do so well, however, that they eventually graduate to "established market" status.

Business Challenges in Emerging Markets

The potential rewards of making a successful entry into an emerging market are considerable, and analysts contend that many U.S. companies—large and small—have the capacity to dramatically strengthen businesses that devise effective strategies. But business consultants and trade observers acknowledge that establishing a presence in an emerging market is a process that typically has its share of trials and tribulations. Small business owners considering an entrance into one of these markets—whether that entrance takes the form of opening an office or trying to sell a product—should weigh several factors before making the move.

First, companies thinking about doing business in emerging markets should recognize that such efforts are almost certainly doomed to fail if the firm's affairs are a mess back home. "There is a myth passed from entrepreneur to entrepreneur," stated Jane Applegate in Strategies for Small Business Success. "If your business isn't doing so well at home, think globally. That's where all the money is, and millions of consumers are hungry for American goods. The problem is, it's a myth. If your business is faltering domestically, you won't have the time, money, or resources to crack the global market."

Even if the firm's domestic business is a sound one that provides a good foundation for international expansion, emerging markets present certain problems. "Relationships take longer to develop, and businesses in these countries rarely commit to your terms unless they're certain they can meet them," wrote Charlotte Mulhern in Entrepreneur. "They also may be unable to respond to sudden increases in product demand, due to frequent lapses in electrical power or unreliable transportation. And of course, fax and phone lines are often nonfunctional." Some countries are also bedeviled with high crime rates, political instability, and other unattractive features.

But Applegate noted several steps that small business owners can take to increase their odds of success in emerging market ventures:

• Conduct comprehensive research to learn everything possible about the country that you are considering.
• Find smart, ethical business partners in the country.
• Commit adequate time and resources to establishing a presence in the country.
• Take advantage of the many information resources that exist for small businesses seeking to expand into emerging markets, from the U.S. Chamber of Commerce to various private and nonprofit export information services.
• Utilize state economic development agencies in forging international business relationships.

Small business owners that follow the above guidelines will be well-equipped to make their mark in emerging markets, provided, of course, that their products or services are desired by the targeted populace. But as one small business owner who successfully expanded into a number of new markets told Working Woman, "There is so much demand for virtually everything, everywhere's an opportunity. The world is moving much closer together, and if you want to do business today, you had better become an international person even if you're fixing skateboards on the street corner."

Further Reading:

Applegate, Jane. Strategies for Small Business Success. Plume, 1995.

Baird, Inga S., Marjorie A. Lyles, and J.B. Orris. "The Choice of International Strategies by Small Businesses." Journal of Small Business Management. January 1994.

Guse, Brian, and Patricia Jehle. "Ag Link: Small Businesses' Connection to Emerging Markets." Ag Exporter. February 2001.

Mulhern, Charlotte. "The Road Less Traveled: Don't Disregard the Potential of Developing Nations." Entrepreneur. February 1998.

Tran, Mark. "The World is Your Market." Working Woman. December-January 1998.

"The World Will Beat a Path to Your Door." Inc. May 15,1996.

The term emerging markets is used to describe a nation's social or business activity in the process of rapid growth and industrialization. Currently, there are approximately 28 emerging markets in the world, with the economies of China and India considered to be by far the two largest.^[1] According to The Economist many people find the term dated, but a new term has yet to gain much traction.^[2]

Contents 1 Terminology 2 FTSE emerging markets list 3 MSCI list 4 See also 5 References 6 Sources 7 External links

Terminology

      Developing countries that are neither part of the least developed countries, nor of the newly industrialized countries

Originally brought into fashion in the 1980s by then World Bank economist Antoine van Agtmael,^[3] the term is sometimes loosely used as a replacement for emerging economies, but really signifies a business phenomenon that is not fully described by or constrained to geography or economic strength; such countries are considered to be in a transitional phase between developing and developed status. Examples of emerging markets include China^[4], India, some countries of Latin America (particularly Argentina, Brazil^[5], Chile, and Mexico), some countries in Southeast Asia, most countries in Eastern Europe, Russia, some countries in the Middle East (particularly in the Persian Gulf Arab States), and parts of Africa (particularly South Africa). Emphasizing the fluid nature of the category, political scientist Ian Bremmer defines an emerging market as "a country where politics matters at least as much as economics to the markets."^[6]

The research on emerging markets is diffused within management literature. While researchers including C. K. Prahalad, George Haley, Hernando de Soto, Usha Haley, and several professors from Harvard Business School and Yale School of Management have described activity in countries such as India and China, how a market emerges is little understood.

In the 2008 Emerging Economy Report^[7] the Center for Knowledge Societies defines Emerging Economies as those "regions of the world that are experiencing rapid informationalization under conditions of limited or partial industrialization." It appears that emerging markets lie at the intersection of non-traditional user behavior, the rise of new user groups and community adoption of products and services, and innovations in product technologies and platforms.

The term "rapidly developing economies" is being used to denote emerging markets such as The United Arab Emirates, Chile and Malaysia that are undergoing rapid growth.

In recent years, new terms have emerged to describe the largest developing countries such as BRIC that stands for Brazil, China, India and Russia, along with BRICS (BRIC + South Africa), BRICM (BRIC + Mexico) and BRICK (BRIC + South Korea). These countries do not share any common agenda, but some experts believe that they are enjoying an increasing role in the world economy and on political platforms.

A large number of research works are in progress at leading universities and business schools to study and understand various aspects of Emerging Markets.

It is difficult to make an exact list of emerging (or developed) markets; the best guides tend to be investment information sources like ISI Emerging Markets and The Economist or market index makers (such as Morgan Stanley Capital International). These sources are well-informed, but the nature of investment information sources leads to two potential problems. One is an element of historicity; markets may be maintained in an index for continuity, even if the countries have since developed past the emerging market phase. Possible examples of this are Israel,^[8] South Korea,^[8] and Taiwan. A second is the simplification inherent in making an index; small countries, or countries with limited market liquidity are often not considered, with their larger neighbours considered an appropriate stand-in.

The Big Emerging Market (BEM) economies are Brazil, China, Egypt, India, Indonesia, Mexico, Philippines, Poland, Russia, South Africa, South Korea,^[8] and Turkey.^[9]

Newly industrialized countries are emerging markets whose economies have not yet reached first world status but have, in a macroeconomic sense, outpaced their developing counterparts.

FTSE emerging markets list

The FTSE Group distinguishes between Advanced and Secondary Emerging markets on the basis of their national income and the development of their market infrastructure. The Advanced Emerging markets are classified as such because they are Upper Middle Income GNI countries with advanced market infrastructures or High Income GNI countries with lesser developed market infrastructures. ^[10][11]

The Advanced Emerging markets are:  Brazil,  Hungary,  Mexico,  Poland,  South Africa,  Taiwan.^[12]

The Secondary Emerging markets are some Upper Middle, Lower Middle and Low Income GNI countries with reasonable market infrastructures and significant size and some Upper Middle Income GNI countries with lesser developed market infrastructures.

The Secondary Emerging markets are:  Argentina,^[13]  Chile,  China,  Colombia,^[14]  Czech Republic,^[15]  Egypt,  India,  Indonesia,  Malaysia,^[15]  Morocco,  Pakistan,  Peru,  Philippines,  Russia,  Thailand,  Turkey.^[15]

•  United Arab Emirates will be classified by FTSE as a Secondary Emerging Markets in the September 2010 indices.^[16]

MSCI list

As of April 2009, MSCI Barra classified the following 22 countries as emerging markets:^[17]

•  Brazil
•  Chile
•  China
•  Colombia
•  Czech Republic
•  Egypt
•  Hungary
•  India
•  Indonesia
•  Israel^[18]
•  Malaysia
•  Mexico
•  Morocco
•  Peru
•  Philippines
•  Poland
•  Russia
•  South Africa
•  South Korea
•  Taiwan
•  Thailand
•  Turkey

The list tracked by The Economist is the same, except with Hong Kong, Singapore and Saudi Arabia included (MSCI classifies the first two as Developed Markets)

See also

• Emerging market debt
• Pre-emerging markets
• Developed market
• Frontier markets
• North-South divide
• Emerging Markets Index

References

1. ^ "Emerging Economies and the Transformation of International Business" By Subhash Chandra Jain. Edward Elgar Publishing, 2006 p.384
2. ^ "Acronyms BRIC out all over". The Economist. September 18, 2008. http://www.economist.com/specialreports/displaystory.cfm?story_id=12080703.  Retrieved on September 21, 2008.
3. ^ FT.com / Columnists / John Authers - The Long View: How adventurous are emerging markets?
4. ^ Five Years of China’s WTO Membership. EU and US Perspectives on China’s Compliance with Transparency Commitments and the Transitional Review Mechanism, Legal Issues of Economic Integration, Kluwer Law International, Volume 33, Number 3, pp. 263-304, 2006. by Paolo Farah
5. ^ Alternative Stock Library / Looking for Escape? Go Brazil!
6. ^ [1]
7. ^ Emerging Economy Report
8. ^ ^{a b c} Classified by FTSE as a developed market.
9. ^ Yale University Library: Emerging Markets - The Big Ten Countries
10. ^ See FTSE Country Classification, September 2009
11. ^ http://www.ftse.com/Research_and_Publications/FTSE_Glossary.jsp
12. ^ Possible change to Developed.
13. ^ To be moved to Frontier September 2010. See: http://www.ftse.com/Indices/Country_Classification/Downloads/FTSE_Country_Classification_Sept_09_update.pdf
14. ^ Possible change to Frontier.
15. ^ ^{a b c} Possible change to Advanced Emerging.
16. ^ http://www.ftse.com/Indices/Country_Classification/Downloads/FTSE_Country_Classification_Sept_09_update.pdf
17. ^ MSCI International Equity Indices
18. ^ Will be classified also by MSCI as a developed market in the May 2010 Semi-Annual Index Review. See: MSCI Market Classification Decisions, June 15 2009, bottom of p. 1.

Sources

• Goldman Sachs Paper No.134 BRIMC (English)
• Michael Pettis, The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (2001) ISBN 0-19-514330-2

External links

• What Are Emerging Markets? University of Iowa Center for International Finance and Development
• Emerging Markets Review Emerging Markets: A Review of Business and Legal Issues
• Antoine Van Agtmael speaker biography and session description for the 2009 World Business Forum where Agtmael leads a panel discussion on Emerging Markets

v • d • e South-South Cooperation & Third Worldism The Third World Developing country · The Global South · Emerging markets · Emerging Markets Index · Newly industrialized country · Landlocked developing countries · ACP countries · Least Developed Countries · Heavily Indebted Poor Countries · Fourth World Organizations Non-aligned movement · G-77 · G-20 · G-24 · G-33 · D-8 · UNDP · Arab Monetary Fund · Asian Development Bank · African Union · ASEAN · Bank of the South · Shanghai Cooperation Organization · SAARC · United Nations Industrial Development Organization Geopolitics Decolonization · Neocolonialism · Third World debt · Cold War · BRIMC · IBSA · BRIC · Next Eleven · Global digital divide · Flying Geese Paradigm · World Conference against Racism · Durban Review Conference

v • d • e Power in international relations Types of power Philosophical power · Soft power · Hard power · Smart power · Comprehensive National Power · Political power (Machtpolitik • Realpolitik) · Food power Types of power status Middle power · Regional power · Great power  · Superpower (Potential superpowers) · Hyperpower Geopolitics British Century · American Century · Asian Century · Chinese Century Theory and history Balance of power · Historical powers · Polarity · Military power projection · Power transition theory · Second Superpower · Sphere of influence · Superpower collapse · Superpower disengagement Organizations and groups G7  · G8  · G8+5 · G10 · G15 · G20 (finance) · G20 (developing) · G33 (developing) · G77 (G24, chapter of G77) · BRIC · Next Eleven · SCO · ACD · NATO · CSTO  · ANZUS  · South American Defense Council · ASEAN  · APEC · Non-Aligned Movement · SAARC

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)