Whether your business sells products and services or invests in infrastructure, resources and people, opportunities abound throughout the world. As situations in the United States, in the West and with traditional trading partners stagnate, companies must be more aggressive in spotting trends. Identifying and taking advantage of the changing economic conditions in emerging markets is the way to position for growth. These economies carry risks, such as political and social instability, but businesses cannot afford to overlook the potentially outsized opportunities.
What Are Emerging Markets?
Emerging markets are countries with smaller economies that have grown quickly in a short time. They typically demonstrate a high gross domestic product (GDP) relative to their size. In other words, citizens are dramatically improving their productivity and economic contributions due to education, industrialization and the proliferation of productivity-enhancing technologies.
According to NationMaster, the combined GDP of the world’s emerging economies (as defined by the International Monetary Fund) is 21.64 trillion U.S. dollars, or 25% of the world’s GDP. Emerging markets are home to 4.1 billion people, or 57% of the world’s population, and the combined land area measures 53 million square kilometers, or 40% of the world’s land. In emerging markets, the average GDP per capita is $9,066, which is 41% lower than the global average of $12,820.
More than half of current global economic growth is now driven by emerging market economies. These nations will experience the highest economic growth as they approach the standard of living of developed nations, because at this stage they attract worldwide investments in their companies and infrastructures in the form of equities, venture capital and bonds. Investment flows are increasing to emerging economies with the proliferation of exchange-traded funds (ETFs), many of which are specific to emerging economies, enabling individual investors to benefit from development opportunities.
Which Are the Leading Emerging Markets?
The strongest emerging markets are known as the BRIC nations, and they are approaching the living standard of the world’s most developed countries. What they have in common are large populations, strong natural resource bases and positive demographic trends.
Brazil: The largest economy in South America and the eighth largest economy in the world currently struggles with inflation as it recovers from a 2015-16 recession and slowing growth. The country is rich in natural resources, including offshore oil and iron ore. It has a growing technology sector and is a cheap producer of industrial and consumer goods.
Russia: Free market reforms since the collapse of the Soviet Union helped double Russia’s GDP between 2000 and 2008. Russia is known for its energy industry and is one of the world’s leading exporters of oil and natural gas. Emerging industries include information technology, telecommunications and software. It also is a rogue nation in many ways, and a threat to American democracy.
India: One of the most populous countries in the world, India is known for its information technology and outsourcing industries, as well as manufacturing and farming. Demographics are in India’s favor with half its population below the age of 25 and more than 65% below 35. India’s young generations benefit from the third-largest higher education system in the world.
China: The world’s most populous nation is home to 1.3 billion people. Though its economy is slowing, many economists expect China to surpass the United States and become the world’s largest economy. It is widely known for its manufacturing sector with its low-cost labor. There is social instability, however, caused in part by a huge gap between the rich and poor, and political instability caused by lack of cooperation with western trading partners, including intellectual property rights violations.
How Do Emerging Markets Affect International Business?
When educational opportunities take hold, countries become leaders in technological innovation. When demographic trends align, such as a higher-than-usual percentage of young working people, labor pricing competition enables companies to become price leaders. This poses a challenge for countries with higher labor costs to compete by using technologies like AI and automation to drive down labor costs and drive up productivity, all of which benefits global GDP.
As smaller economies start to develop, they attract the capital they need for their infrastructures to grow, and in ways that are viable long term. India and China’s economic ascendance is letting the countries join global accords and address serious pollution issues that have plagued the countries for decades.
How Might Small Businesses Invest in Emerging Markets?
Businesses that want to grow in every industry must diversify their investments. Diversification of markets enables them to take advantage of rapid growth cycles in emerging economies, to reduce the cost of research and development by having a much larger potential payoff, and to mitigate the risks of overinvesting in fewer countries.
The effect of adding emerging markets to your business’s portfolio is one of high long-term growth and less volatility and dependence on the political, social and economic factors that can tank a nation. As the world becomes more chaotic, investing in emerging markets actually reduces the volatility in business revenues and values.
Learn more about Barry University’s MBA in International Business online program.
Sources:
Chron: Major Trends in International Business
The Balance: Emerging Market Economies – The BRIC
